Alliance expands in managed healthcare

AN ageing population and rising healthcare costs are long-term trends that Alliance Healthcare is zeroing in on as it expands its managed healthcare services business, executive chairman and CEO Barry Thng told The Business Times.

The Catalist-listed firm in January took a 55 per cent stake in home-based care startup Jaga-Me for S$3.5 million, and in May rolled out a digital health platform for corporate clients aimed at making healthcare more accessible.

Doubling down on the managed healthcare segment could allow the company to develop a higher-margin and more scalable business. Alliance, which listed in May last year at an offer price of 20 Singapore cents per share, has four main business segments: managed healthcare services, general practitioner (GP) services, specialist services and wholesale distribution of pharmaceutical products.

The group derives most of its revenue from its 16 self-owned GP clinics. For the year ended June 30, 2019, this segment accounted for S$16.6 million or 45.5 per cent of revenue. But it also yielded the lowest Ebitda (earnings before interest, taxes, depreciation and amortisation) margin of 4.3 per cent.

Managed healthcare services, on the other hand, was the smallest business segment. Its revenue contribution for the year was S$5.4 million or 14.8 per cent of total revenue. But it yielded the highest Ebitda margin of 24.7 per cent.

As a managed healthcare services provider, Alliance works with more than 3,000 corporate clients to provide a range of medical services from its network of over 1,000 panel clinics.

These corporate clients typically sign up for managed healthcare through the insurance partners that Alliance works with: AIA, Prudential, AXA, Great Eastern, NTUC Income, Tokio Marine, EQ Insurance, QBE Insurance and Cigna.

Alliance negotiates preferential rates with these clinics for its clients. When panel clinics file a payment claim after a patient's visit, Alliance processes the claim via its digital platform and earns an administrative fee.

The number of companies served by Alliance rose at an annual rate of 18 per cent from Jan 31, 2016, to Jan 31, 2020.

In January, Alliance also announced a two-year contract to provide managed healthcare to 38 major public healthcare institutions, including Singapore General Hospital and Changi General Hospital.

Alliance also has regional ambitions. It announced in the same month a three-year agreement with managed care solutions provider Inova Care to tap on each other's network for regional expansion. Inova Care has a network of 1,000 hospitals and 5,000 clinics, with a presence in 12 countries across North America, Europe and Asia.

Through its investment in Jaga-Me, Alliance now wants to expand its managed healthcare business further by bringing care directly to the doorsteps of patients, including the elderly. Jaga-Me's smartphone platform connects over 500 licensed healthcare professionals to people who have chronic diseases or require post-hospitalisation care.

Alliance and Jaga-Me are working on some pilot projects with insurers to test aspects such as cost-efficiency and customer experience.

Opportunities abound

"We need to convince the payer that this is a cost-effective solution, because when the private payers such as the insurers agree to pay for home-care, it opens up a lot of opportunities for us," said Dr Thng. "Currently, it's still very much a self-paying model, and that might limit the affordability of the services." He added that insurers have been looking into implementing patient support programmes for those with chronic illnesses.

One of the cases Jaga-Me handled involved a 68-year-old female who suffered a haemorrhagic stroke and was bed-bound. Her stay in a private hospital cost an average of S$1,500 a day, translating to S$45,000 a month.

The patient was eventually moved to home-based care. Jaga-Me created a personalised care plan that included home-nursing procedures, medical care, caregiver training and home physiotherapy. Together with a domestic helper hired for assistance, the monthly cost came up to S$9,500.

Alliance's purchase of loss-making Jaga-Me attracted queries from the Singapore Exchange (SGX). The startup had chalked up a net loss of S$682,250 in 2018.

Alliance was asked to explain how it arrived at a valuation of S$6.37 million for Jaga-Me even though the startup had net tangible assets of just S$387,800 as at end-December 2018.

Alliance had responded that it considered the potential earnings prospects of Jaga-Me, instead of adopting an asset-based valuation approach.

Alliance has an option to buy out Jaga-Me's shareholders - excluding its founders and employee shareholders - if the startup's net operating profit after tax is at least S$1.5 million by June 30, 2023.

Since the investment, Alliance has expanded Jaga-Me's reach to corporate clients and workplace-based care.

Alliance also tapped its own resources to roll out a digital platform called HeyAlly in May. The app allows for video consultations with doctors, as well as the purchase and delivery of medical services and products. It also has a rewards programme, and health and wellness information.

The idea is for the platform to cater to every stage of an individual's health journey, said Dr Thng. Alliance is bringing corporate clients onboard its HeyAlly platform via its insurance partners, but Dr Thng declined to reveal how many app users there are, citing confidentiality requirements.

Dr Thng acknowledged that HeyAlly faces many competitors in the telemedicine space. Among them are venture capital-backed startups such as WhiteCoat, MyDoc and Doctor Anywhere.

But he said that for Alliance, teleconsultation is simply a platform through which the company seeks to offer a full range of care.

Alliance posted a 128.4 per cent rise in net profit to S$1.7 million for the half-year ended Dec 31, 2019. Revenue was up 22.3 per cent, mainly driven by an 88.6 per cent increase in specialist care services. This, in turn, came mostly from the orthopaedics clinic that the group opened in December 2018.

The group had net cash of S$9.1 million as at Dec 31, 2019. It generated operating cashflow of S$1.1 million for the half-year ended December.

Trade receivables stood at S$11.3 million as at end-December, which was 55 per cent of revenue. Dr Thng said this was mainly due to the managed healthcare solutions business, where credit terms vary widely from 30 to 90 days because of client-requirement, which is a norm in the industry.

Prudent outlook

As a provider of essential services, Alliance has been relatively untouched by the effects of the pandemic. Nevertheless, Dr Thng said the company would prefer to be careful with its cash as it grows its existing businesses and new initiatives.

"We have to be prudent, so (it might not be) the season for us to be aggressively investing or burning our cash," he said.

The company does, however, have intentions to expand. In the next two years, Alliance intends to add one to two more specialists to its network of five specialist clinics that currently cover the areas of colorectal, orthopaedic, and ear, nose and throat (ENT) conditions. It could do this either through acquisitions or by getting specialists to sign service agreements with their clinics.

Dr Thng currently holds 67.8 per cent of Alliance.

The stock closed flat at 16.9 Singapore cents on July 30, 15.5 per cent below its IPO price and 24.2 times its earnings. It has a market capitalisation of S$35.1 million.

Alliance does not have a fixed dividend policy, but intends to recommend and distribute dividends of at least 30 per cent of its net profit, excluding exceptional items, for FY2020 and FY2021.