Raffles Medical H1 earnings slide to S$30.6 million; chairman says insurance must not become ‘arms war’ between firms

MAINBOARD-LISTED Raffles Medical Group on Monday (Jul 29) reported a net profit of S$30.6 million for the first half ended Jun 30, declining 48.8 per cent from S$59.9 million in the corresponding year-ago period.

Revenue slid 1.4 per cent year on year to S$365.7 million, from S$370.8 million.

Earnings per share for the period were S$0.0165, falling 48.8 per cent on the year from S$0.0322 in H1 FY2023. The healthcare group did not declare an interim dividend.

Raffles Medical attributed the decline to the cessation of Covid-19 activities and government grants. It said that its previous year’s first-half earnings included some Covid-19 related activities, which were gradually stepped down.

In a media briefing on the results, executive chair Loo Choon Yong said patients seeking non-Covid-related healthcare treatments have started returning as the fear of contracting the illness is tapering off.

“People are coming back to fix their knees, their cataracts, things that they have put off... So I think we will continue to grow,” he said.

Insurance

The group is also growing its insurance services under Raffles Health Insurance, said Dr Loo.

The segment’s top line increased 28.9 per cent yoy to S$86.2 million, but registered a higher loss ratio, consistent with industry trends. This resulted in an operating loss of S$6.4 million for H1 FY2024, widening from the S$1.1 million loss the year before.

Dr Loo noted that patients are sometimes overprescribed with treatments – sometimes at their request – because they can make claims from their insurance policies.

Examples include patients asking for scans that are not required, or staying overnight in the hospital when it is not needed. This has led to larger bills, which in turn lead eventually to higher premiums.

This point was raised by Health Minister Ong Ye Kung in a recent speech, when he warned of a “buffet syndrome” of overly generous health insurance terms.

Said Dr Loo: “All players, insurance companies included, must not waste. It is like an arms war – all offering (plans) to outdo each other; in the end, your whole risk pool is untenable.”

In his view, one of the best ways to ensure against the overuse of insurance is to have patients co-pay for their treatment. He pointed to the Integrated Shield Plan rider add-on, through which patients pay 5 per cent of the total claimable bill.

“What is insurance for? It is to make sure that when someone falls very sick, such as with leukaemia, they can be treated without becoming impoverished... Co-payment helps patients afford the treatment,” he said.

He added that the insurance system must remain sustainable, but premiums will likely rise with healthcare costs. Raffles Healthcare Insurance is studying the rates and will make “reasonable” increases if necessary.

The group also noted that the group has adopted a new accounting practice for insurance, SFRS(I) 17 Insurance Contracts, which requires insurance expenditure to be recognised upfront instead of over the life of each respective contract.

This had resulted in the group’s insurance service expenses for the period rising to S$78.6 million, up 29 per cent from S$60.9 million. Net expenses from reinsurance contracts also climbed to S$3.7 million, from S$1.1 million in H1 FY2023.

China healthcare

Despite the falls, the group’s hospital division remained strong, said Raffles Medical. The division grew its revenue by 4.5 per cent year on year to S$167.6 million, from S$160.4 million. Profit before tax for the segment jumped 65 per cent to S$14.3 million, from S$8.7 million.

The group added that it remains focused on growing and consolidating its three existing hospitals in China. Revenue from its Greater China operations expanded 5.9 per cent to S$30.5 million, from S$28.8 million the previous year.

“Although the Raffles Hospitals in China are getting better known and patient numbers have grown across board, our hospitals in Shanghai and Chongqing are still in the developmental phase and continued to incur gestational losses,” said the group.

In general, China’s economy has not yet fully recovered, but the 5 per cent yoy increase to its H1 gross domestic product is “respectable”, said Dr Loo. Footfall in Chinese malls have returned, but purchase receipts are not as strong as they were pre-Covid.

That said, if people need to go see a doctor or get surgery, they would still go to the doctor, he said.

Raffles Medical’s China market is considered high-end, said Dr Loo. He estimates that more than half of Raffles Medical’s patients there are Chinese locals aged around 40, who work in large corporations and who can afford treatment in international hospitals for themselves and their families.

More such patients have going to Raffles Medical – the result of the group starting to work with more China-based insurance companies. “We need to develop more of these relationships, so we can get a bigger customer base,” said Dr Loo.

Shares of Raffles Medical ended Monday at S$1, down 2 per cent or S$0.02.