Same cure, different ills

PONGSAK VIDDAYAKORN

By CHAROEN KITTIKANYA

Pongsak Viddayakorn, chief of the country's largest hospital chain, is feeling only slightly dispirited over the group's prospects although many health-care analysts are worrying about the dire consequences of the world financial crisis, which are expected to be fully apparent in 2009.

One would think he doesn't need to. As director and executive adviser of Bangkok Dusit Medical Services (BGH), Dr Pongsak has been relieved of the routine managerial burden he once shouldered when he was president and steered the group to a safe landing from the economic crisis of 1997.

But in reality, the secret to his cool mind today is rather the group's financial strength, continuous growth spurred by new patients, notably from the Middle East, South Africa, and expatriates, and, most importantly, a low exposure to foreign-currency loans.

"Back in 1997, it was like being caught in the eye of a tornado. We were very little prepared then, as the then government had assured us time and again the baht devaluation was out of the question,'' said Dr Pongsak.

"But this time, our health and strength are much better given our strong financial status, and the better economic growth outlook for the year to come.''

According to Dr Pongsak, even in the worst case, the Thai economy would still manage to grow by at least 2% in 2009.

The National Economic And Social Development Board (NESDB), the government's think-tank, earlier projected the economy would grow by 3% to 4% in 2009 from an estimated 4.5% in 2008.

However, the NESDB in December was in the process of revising the growth projection following a week-long closure of Suvarnabhumi and Don Mueang airports by the anti-government People's Alliance for Democracy.

Even with all the anxiety today, conditions are much better than in 1997, when the devaluation of the baht brought Thailand's booming economy to a halt under the weight of massive layoffs in the finance, real estate, and construction sectors, resulting in a huge number of workers returning to their hometowns upcountry to work in the agricultural sector.

As a result, the economy contracted 1.4% in 1997 before shrinking further by 10.5% in the following year.

Like other businesses, health-care operators including BGH, which had operated mainly the Bangkok Hospital brand then, felt the pinch. Most private hospitals at the time had high risks in the form of foreign-currency debts and excessive expansion lured by cheap foreign loans.

For BGH, after the currency was floated, its foreign debts nearly tripled to about US$100 million from $35 million, as the baht weakened to a record 56 to the US dollar in January 1998.

"Everyone was caught off guard during that terrible period,'' Dr Pongsak recalls.

"I myself had to fly to Singapore to negotiate with our foreign creditors to help extend the loan terms, citing the long-term viability of our business.''

In addition, the company began a serious cost-cutting programme across the board, including more than 7% salary cuts applied to all staff, including the president and high-ranking executives. All new investments both in hospital expansion and new medical technologies were frozen.

"The strategies to cope with the new crisis are unlikely to be much different (from what was implemented in 1997),'' said Dr Pongsak. "But as a 36-year-old hospital group with over one million patients, we are committed to helping existing patients cope with the crisis and the higher cost of living.''

Since early in 2008, the group has cut its medical treatment charges by more than 15% to 20%, with up to 20% to 30% offered by some of its hospitals such as those in Pattaya.

As the crisis is projected to widen and deepen in 2009, the group plans to cut its service costs further to stay competitive and help its patients ride out the crisis.

In 2009, according to Dr Pongsak, the group also plans to offer special packages with discounts of up to a 50%, primarily to civil servants and state-enterprise employees.

Normally, this group of customers is covered by medical welfare provided by the government, but they are eligible to receive full reimbursements only when they are treated at state hospitals.

"We aren't too concerned about external factors. We stay rather focused on doing whatever is within our powers such as cutting costs and expenditures, targeting more savings, suspending new investments and optimising the utilisation of the medical technologies we have heavily invested in over the last few years.''

According to Dr Pongsak, Thailand's medical tourism market is expected to remain in good shape, as more customers from the Middle East, South Africa and expatriates would help offset the declining number of foreign patients from the United States and European Union.

On top of that, the group also foresees more than 80% growth for international patients from Oman, Qatar and Ethiopia.

"The impact is likely to be marginal. We expect patients, especially from the Middle East - who benefited previously from high oil prices - could still afford premium medical services.''

Patients from the Middle East currently represent about half of the 1.6 million to 1.7 million foreign patients treated in Thailand each year. For BGH, patients from the region make up only 4%.

The BGH group currently has 19 hospitals, with a total of 2,959 beds. For the first nine months of in 2008, BGH reported total revenue of 16.34 billion, an increase of 19% from the same period last year, with consolidated net profit of 1.39 billion, a rise of 72%.

"The crisis this time is of course completely different from the 1997 crisis originated in Thailand,'' said Dr Pongsak.

"[This time] It's a credit crisis, and the sectors most susceptible to the blows are tourism and exports, which can no longer count on the weak baht to give them a boost.''

However, Dr Pongsak said that among its peers in Asia, Thailand was likely to be least affected by the latest global crisis, given the fact that it has already suffered the blow from the coup in 2006.

"Our economy has experienced just moderate growth for some time over the past two years. There have been no new investments in megaprojects and the massive loans to finance them have yet to take shape,'' he said."Above all, financial institutions have been a bit cautious during the period in extending new loans. This seems to be a blessing in disguise for our economy.''