A. Overview of Vietnam´s healthcare sector
There is no denying that Vietnam truly is an attractive investment
destination in South East Asia. It has great potential to develop a
qualitative, self-sustaining life science sector. An older
demographic, a quickly growing middle class, and a rising influx of
foreign workers are all elements that significantly and favorably
impact the demand for high-quality healthcare services in
Vietnam.
Improvements on the healthcare sector will lead to several
benefits. With increasing focus on healthcare, manufacturing,
service providers, clinical research organizations and others are
being stimulated. As a result, small and medium-sized enterprises
(SMEs) are boosted and exports could replace the need for foreign
aid by attracting sustainable FDIs and PPPs.
Of particular importance for a positive development is the close
cooperation between the major stakeholders from the private and
public sector. In this process, certain core goals should be set.
Significantly, it is important to ensure swift, sustainable access
to medical treatment and to urgently improve the quality of the
treatment process. High-quality domestic treatments not only
improve patient satisfaction but also improve one's own economy
by counteracting outgoing medical tourism.
Furthermore, it should be ensured that the existing investors
remain in Vietnam and new ones are pulled ashore. To do this,
investors must be shown that the Vietnamese market does not contain
undetected risks, but is stable and predictable. Further, integrate
opportunities for collaborations and partnerships to develop local
capability.
B. Outpatient: Home care and home-treatment
One major issue regarding Vietnam's Healthcare sector is the
limited capacity in hospitals. There is a gap between bed capacity
and demand of inpatient treatment. The Ministry of Health has its
hands full to counteract the overloading of hospitals. Even
institutions with larger bed capacity have eventually set up a home
care service to enhance the follow-up monitoring of chronic and
long-term illnesses for patients that have been released from the
hospital.
Patients in Vietnam are financially overburdened with the costs of
treatment therefore affordable treatment is needed. This however,
has to be reached without the loss of quality. Especially the
indirect costs of healthcare, such as travelling, meals during
hospitalization and loss of income during treatment put patients
and their families under enormous financial pressure. Due to the
overload situation at hospitals and the fact that home care service
is not fully developed yet, patients tend to take care for
themselves with the help of their family. This leads to potential
additional health complications due to the lack of professional
follow-up. Furthermore, patients will often have to come to the
hospital eventually and in some cases, with more severe
conditions.
As such, professional homecare programs should be further
investigated and developed, with access to the programs should be
simple for everyone. This is especially necessary for the
chronically ill. Home care and home-treatment can help to reduce
public spending on chronic diseases and thus spare the health
budget.
C. Implementation
There are two major requirements for putting the homecare structure
into practice. First, the creation of a straightforward,
transparent legal framework that contain incentives for investors.
This encourages multinational companies to invest and transfer
their know-how and technology to Vietnam, improving the revenues
and quality of the country health care sector. Second, to
streamline the administrative process to shorten the process of
delivering new, high-quality patient care solutions, and to respond
to the growing need for a growing Vietnamese population for rapid
and sustainable access.
D. Medical Devices Industry Code of Conduct
Background of the Code of Conduct for medical devices is the
various risks associated with the industry, in particular unfair
competition between industry players. The Code is intended to
facilitate ethical interactions among members of society who
develop, manufacture, sell, distribute or distribute medical
technology in Vietnam and individuals and organizations that apply,
recommend, buy or prescribe medical technologies in Vietnam. The
content of the Code of Conduct should focus on 1) strict compliance
with laws and regulations in the area; 2) prioritization of people
and health and safety of patients and 3) promoting scientific and
educational activities to best benefit the patient.
For multinational companies, the compliance area is usually very
pronounced and strict. It is therefore particularly important to
invest in an ethical business environment, especially when
investing in high-risk jurisdictions. The commitment to uphold high
ethical standards would certainly bring about long-term benefits
for the health sector in Vietnam and attract more investors.
E. Outlook on Major Trade Agreements CPTPP, European Union –
Vietnam Free Trade Agreement and European Union – Vietnam
Investment Protection Agreement
In January 2017, US President Donald Trump decided to withdraw from
the US' participation in the TPP. In November 2017, the
remaining TPP members met at the APEC meetings and concluded about
pushing forward the now called CPTPP (TPP 11) without the USA. On
12 November 2018, Vietnam officially became the seventh member of
the CPTPP.
The CPTPP targets to eliminate tariff lines and custom duties among
member states on certain goods and commodities to 100%. An increase
of trade will have great influence to the health- and medical
sector. The agreement is suitable to support Public-Private
Partnerships (PPPs), which could lead to a positive impact in
development of innovative technologies of medical devices and
facilitate the transfer of necessary know-how. Lower or no trade
tariffs can lead to lower import costs for the essential components
of medical devices. This, in turn, results in lower acquisition
costs for the medical practices and hospitals, thus eventually
lowering the treatment costs.
The annexes of the CPTPP (TBT chapter) deal with specific
challenges of trading regarding pharmaceuticals, medical devices
and technology products. The provisions require the Members to
define what medical products are and when they are subject to the
state laws, and this information have to be published. This
requirement helps to ensure timely mitigation measures if a product
application is not approved or is deemed deficient. Such increased
transparency brings great benefits for all traders of medical
devices, employees in the medical industry as well as for
patients.
A specific example is before the CPTPP comes into force in Vietnam,
Canada faced tariffs of 7% imposed by Vietnam regarding exports of
life sciences products such as medicines in doses for retail sale.
From 14 January 2019, these tariffs are fully eliminated. As a
result, Canada and other countries are exporting more and more
products to Vietnam, gradually improving the quality of
Vietnam's medical facilities.
One another notable major trade agreement is the European Union
Vietnam Free Trade Agree-ment (EVFTA), which came into force on 1
August 2020. The EVFTA offers great opportunity to access new
markets for both the EU and Vietnam and to bring more capital into
Vietnam due easier access and reduction of almost all tariffs of
99%, as well as obligation to provide better conditions for
workers. In addition, the EVFTA boosts the development of (almost)
all econom-ic sectors in Vietnam. Both agreements promise great
benefits for the health and medicine sec-tor. Under the EVFTA,
Vietnam will abolish tariffs on 50% of EU pharmaceuticals as soon
as the agreement comes into effect, while the remaining tariffs
will be phased out over a period of 10 years. Before the EVFTA, the
average tariff rate on pharmaceuticals imported from the EU to
Vietnam, as per World Trade Organization regulations, was 2.26%,
with 63% of these prod-ucts already benefiting from a zero tariff.
Once the EVFTA is enacted, Vietnam's tariffs on pharmaceutical
goods from the EU will be largely eliminated within 11 years.
Consequently, the average tariff rate will decrease from 2.26% to
0% by the 11th year. Certain tariffs will still be in place for
specific pharmaceuticals imported into Vietnam after a period of 11
years, particu-larly for medicines categorized under HS Codes 3004,
3005, and select items in 3006, which include some drugs and
medical devices. Additionally, under the EVFTA, the approval
process for clinical trials has been made more efficient to
facilitate faster access to new and innovative medications.
Both the CPTPP and the EVFTA include a chapter on Government
Procurement, which deals with the requirement to treat foreign and
domestic bidders equally when a government buys goods or requests
for a service worth over the specified threshold. Vietnam
undertakes to timely publish information on tender, allow
sufficient time for bidders to prepare for and submit bids,
maintain confidentiality of tenders. The GPA in both agreements
also requires its Parties assess bids based on fair and objective
principles, evaluate and award bids only based on criteria set out
in notices and tender documentation, create an effective regime for
complaints and settling disputes, etc. At the moment, Vietnam has
implemented online bidding mechanism with easily accessible
information for foreign investors.
The EVFTA comes with the European Union – Vietnam Investment
Protection Agreement (EVIPA) that is being reviewed for
ratification by EU Member States. Foreign investors are given high
level of protection under the EVIPA. This agreement is a
combination of the New York Convention 1958 and the ICSID 1965. The
EVIPA, and CPTPP, make it possible for foreign investors to sue the
Vietnamese Government for its investment related decisions. The
final arbitral award is binding and enforceable without any
question from the local courts regarding its validity.
At the moment, Vietnam has reserved the right to fulfill the
commitment on Investor-State Dispute Resolution for 5 years from
the effective date of the EVIPA. Nevertheless, Duane Morris Vietnam
has the legal and technical tools to make such provisions work in
favor of investors from now.
F. Lastest developments
After the entry of Vietnam into the international agreements (i.e.
CPTPP, EVFTA), large M&A deals regarding the healthcare
industry were carried out by relevant parties. In January 2024,
Thomson Medical Group finalized its acquisition of FV Hospital,
located in Ho Chi Minh, marking the largest healthcare merger in
Southeast Asia since 2020. The total value of the transaction
amounted to $381.4 million, comprising $359.6 million paid upfront
and an additional $21.8 million to be disbursed upon FV Hospital
reaching specific performance targets. Thomson Medical Group plans
to fund this acquisition using its own resources along with
borrowed funds. "FV Hospital will give us a strategic position
in Vietnam" stated Mr. Kiat Lim, Vice President of Thomson
Medical. FV Hospital was founded in August 2008 by Dr. Jean-Marcel
Guillon and a team of French physicians with the aim of delivering
internationally recognized medical services in Vietnam. The
hospital features 220 beds and employs 950 medical staff, including
doctors and nurses, and runs an outpatient clinic located on Nguyen
Luong Bang Street in District 7, Ho Chi Minh City. In addition, the
hospital provides care for patients from neighboring nations like
Cambodia, Laos, and Myanmar.
Other deals were also made after Vietnam's entry into international agreements, namely (i) the comprehensive strategic partnership agreement between American International Hospital and Raffles Medical group, (ii) acquisition of 51% of shares in Trung Son Pharma by South Korean pharmaceutical group Dongwha Pharm, (iii) Japan's ASKA Pharmaceutical Group spending VND180 billion ($7.4 million) to increase its ownership in Ha Tay Pharmaceutical JSC, (iv) Adamed's acquisition of 100% of shares in Dat Vi Phu Pharmeceuticals JSC, (v) US private equity firm KKR's acquisition of majority stake in Medical Saigon Group, (vi) CVC Capital's purchase of Phuong Chau International Hospital for USD116 million.
Vietnam's healthcare industry continues to attract foreign investment, in line with the country's commitments under all relevant international agreements. Foreign investors have multiple avenues for engaging in Vietnam's healthcare sector, such as establishing entirely foreign-owned hospitals or clinics, creating joint ventures with local partners, or entering into business cooperation agreements with domestic entities. The minimum required investment capital varies based on the specific type of healthcare project; for instance, it is set at USD 20 million for hospitals, USD 2 million for general clinics (polyclinics), and USD 200,000 for specialized treatment facilities. These investment prospects underscore Vietnam's dedication to promoting collaboration and innovation in healthcare services while encouraging international partnerships to improve the sector's growth and accessibility.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.
