Navigating Hospital Acquisitions in Indonesia: Five Strategic Issues You Can’t Ignore

Indonesia’s medical sector continues to record strong growth, driven by a rising and increasingly prosperous middle-class population. This demographic shift is fuelling greater utilisation of medical services and a stronger focus on health and wellness. Improving the accessibility and affordability of high-quality medical care remains a critical priority shaping opportunities across the country’s healthcare industry.

However, recent trends show that medical costs are rising due to inflation, pushing up health insurance premiums and straining the budget of BPJS, Indonesia’s universal healthcare plan. As a result, optimising benefits has become a key objective for all stakeholders – government, employers, healthcare facilities, professionals, insurers and patients alike. For healthcare providers, one of the most effective ways to achieve this is through strong hospital governance, which ensures the efficient delivery of quality care while minimising waste and inefficiency.

Against this backdrop, foreign investors are showing renewed interest in hospital acquisitions in Indonesia. Yet, given the country’s regulatory landscape, such transactions are inherently complex and demand careful planning and comprehensive due diligence. Beyond the financial aspects, success depends on the right investment structure, compliance with regulations, seamless operational integration and strategic alignment.

Below are five key issues investors should carefully evaluate when negotiating hospital acquisitions.

1. Investment structure: equity, debt or hybrid Instruments

The first decision concerns the investment structure and choice of instruments. Should the investment be structured as equity, debt, or a hybrid model?

Equity (shares): Provides ownership and voting rights but dilutes existing shareholders.

Debt (bonds or loans): Preserves ownership but increases leverage and interest obligations.

Hybrid instruments: Such as convertible bonds, offer flexibility but introduce governance complexity.

Selecting the appropriate structure will determine the level of control, risk exposure and long-term financial sustainability of the investment.

2. Property structure and valuation

Hospitals often own substantial real estate, which can represent a significant portion of the transaction value. Key considerations include:

• Conducting accurate valuations of land and buildings, factoring in location, development potential and regulatory restrictions.
• Deciding whether property should be owned directly, leased, or held in a separate entity for tax and operational efficiency.
• Recognising that inadequate structuring may lead to hidden liabilities or missed opportunities for asset optimisation.

3. Human Resources

Human capital is the cornerstone of healthcare delivery. Acquisition plans should carefully address:

• Employment contracts for doctors and nurses, ensuring continuity of care and compliance with labour laws.
• Labour union negotiations, which may influence cost structures and operational flexibility.
• Strategies to maintain a consistent pipeline of qualified nurses, essential for patient safety and service quality.
• Management and employee incentive plans to align performance with organisational goals and retain key talent during and after integration.

Failure to manage workforce integration effectively can disrupt operations and damage reputation.

4. Related Party Transactions (RPT) and shareholdings

Transparency in ownership and transactions is vital to maintaining sound corporate governance and avoiding conflicts of interest.

Review existing RPTs — including supplier agreements, property leases and service contracts — to ensure compliance with governance standards.
Assess shareholding structures, particularly where cross-holdings or family-owned entities are involved.
Conduct thorough due diligence to mitigate regulatory risks and promote ethical business practices.

5. Revenue stability through institutional relationships

Hospitals depend heavily on partnerships with insurance providers and corporate clients for steady patient inflows.

• Evaluate existing arrangements with insurers, focusing on reimbursement rates and payment timelines.
• Assess corporate health programmes and occupational health contracts that provide predictable revenue streams.
• Recognise that robust institutional relationships underpin financial resilience and long-term growth.