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We highlight the key regulatory changes affecting Indonesian hospitals, following the introduction by the Omnibus Law of a risk-based licensing regime, and a new implementing regulation on the administration of the hospital sector, which includes requirements imposed on hospitals to implement good hospital governance and provisions on the rights and obligations of hospitals and the public.
Paradigm shift in the healthcare sector
The Covid-19 pandemic has triggered a paradigm shift in Indonesia’s healthcare sector. This represents an unprecedented opportunity for private-sector participants that can offer innovative solutions and new models of care, as they shift from illness to wellness, and from provider-centric to patient-centric care.
Due to the lack of trust in the local healthcare system and infrastructure, and the shortage of health facilities and medical talent onshore, affluent Indonesians have been used to travelling to neighbouring countries (especially Singapore and Malaysia) for their medical treatment. Total annual direct and indirect costs associated with outbound medical tourism are estimated to be around USD$4 billion.1
With travel and border restrictions still being imposed by governments across the world, outbound medical tourism is no longer an option for these affluent Indonesians, who are now having to turn to local hospitals instead.
In this e-bulletin, we highlight the key changes introduced by Law No. 11 of 2020 on Job Creation (the Omnibus Law) and its implementing regulations that relate to the hospitals business, namely Presidential Regulation No. 10 of 2021 regarding Investment Sectors (the New Investment List), Government Regulation No. 5 of 2021 on the Implementation of Risk-Based Business Licensing (GR 5), and Government Regulation No. 47 of 2021 on the Administration of the Hospitals Sector (the Hospitals GR).
Hospital regulatory framework
The Indonesian government has demonstrated its strong commitment to supporting foreign direct investment (FDI) in the healthcare sector by issuing the New Investment List, which liberalises various businesses in the healthcare sector and was foreshadowed by the Omnibus Law.
Under the New Investment List, foreign ownership in private hospitals (general and specialist hospitals) is no longer restricted and 100 percent foreign ownership is now permitted. See our recent articles on the overall background and framework of the New Investment List here, and on the new FDI rules in Indonesia’s healthcare and pharmaceutical sectors here.
While the FDI changes in the healthcare sector are significant, we have not yet seen any major changes to the sectoral rules introduced by the Omnibus Law and its implementing regulations. Sector-specific laws and regulations issued by the relevant technical ministries and regulators will continue to apply under the New Investment List regime, so long as those laws and regulations do not contradict the provisions under the New Investment List.
In the healthcare sector, the Omnibus Law has amended Law No. 36 of 2009 regarding Health, and Law No. 44 of 2009 regarding Hospitals. The Hospitals GR was issued on 2 February 2021 to implement some of these changes to encourage investment in this sector.
Notably, the government has shifted to a risk-based licensing regime by issuing GR 5, which replaces Government Regulation No. 24 of 2018 on Electronically Integrated Business Licensing Services. Under the new risk-based approach to licensing (Risk-Based Licensing), the risk level of each business activity will be assessed on its perceived “hazard level” and/or “potential hazard value” before the applicable licence is issued.
Hospitals classified as “high risk”
Under GR 5, the business activities’ potential impact on health, the environment and/or natural resources will be classified as one of the following risk levels, each with its own licensing requirements:
- Low-risk business, which will only require a Business Registration Number (Nomor Induk Berusaha or NIB) to commence business;
- Medium-Low-risk business, which will require an NIB and Standard Certificate (i.e., a statement or evidence of the fulfilment of certain business implementation standards in the form of a self-assessment) to commence business;
- Medium-High-risk business, which will require an NIB and a Standard Certificate verified by the relevant government agency in order to commence business; and
- High-risk business, which will require an NIB and a Licence (issued once the business has met certain conditions, as verified by the competent regulatory authority), and, for certain business activities, a Standard Certificate, in order to commence business.
For example, Class A, B, C and D hospitals, including foreign-owned (PMA) hospitals, are classified as high-risk businesses. Foreign investors are only permitted to invest in Class A (with a minimum of 250 beds or as agreed under an international treaty or cooperation) and Class B (with a minimum of 200 beds or as agreed in an international treaty or cooperation) general hospitals, and Class A specialist hospitals (with a minimum of 100 beds or as agreed in an international treaty or cooperation).
The licensing authority responsible for Class A hospitals and PMA hospitals is the Ministry of Health (MOH) while the licensing application must be made via the Online Single Submission (OSS) system. Going forward, such hospitals will require an NIB, a Licence, and a Standard Certificate. The old hospital establishment licence (izin mendirikan)2 and operational licence are no longer required.
We understand that the OSS system will be upgraded in July to accommodate both the FDI changes under the New Investment List and the new Risk-Based Licensing system. We expect further implementing regulations to be issued soon to provide further guidance.
Key provisions in the Hospitals GR
The Hospitals GR’s chief aim is to provide a comprehensive regulation on the administration of the hospitals sector, for the purpose of improving the quality and coverage of hospital services. It will do this by requiring hospitals to implement good hospital governance and by clarifying the public’s rights and obligations in obtaining health services.
The Hospitals GR primarily covers hospital classifications, the respective obligations of hospitals and patients, hospital accreditation, guidance on hospital supervision, and administrative sanctions. The Hospitals GR does not seek to amend or revoke any existing regulations. Rather, it supplements the existing regulations, including:
- MOH Regulation No. 3 of 2020 on Classification and Licensing of Hospitals;
- MOH Regulation No. 4 of 2018 on Obligations of Hospitals and Patients;
- MOH Regulation No. 12 of 2020 on Accreditation of Hospitals; and
- MOH Regulation No. 18 of 2018 on Supervision in the Healthcare Sector.
From a regulatory hierarchy perspective, since the Hospitals GR is ranked higher than a ministerial regulation, in the event of any inconsistency, the Hospitals GR should prevail over any MOH regulations.
The key provisions applying to hospitals in the Hospitals GR are summarised in the table below.
Further implementing regulations are expected to be issued on a range of related matters, including the referral system and the availability of in-patient standard rooms for JKN members.
Since coordinated government action will be the key to the long-term development of Indonesia’s healthcare sector, it is hoped that any further implementing regulations will support the Omnibus Law’s effort to simplify and liberalise Indonesia’s healthcare sector.
We will continue to monitor legal developments closely.
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1The Future of the Indonesian Healthcare Ecosystem, The Outlook to 2030, Oliver Wyman, 2018
2 Note that this is different from the building construction permit (Izin Mendirikan Bangunan or IMB) requirement, which remains applicable, but with specific technical requirements that apply to the construction of hospitals.
3 There is a transitional period in the Hospitals GR granting existing hospitals up until 1 January 2023 to comply with the minimum number of in-patient standard rooms.