Tuesday, September 7, 2010

Quick Thoughts : Too Many Doctors in the Future? The case for shorting Doctor Bhd. by Snowball

Quick Thoughts : Too Many Doctors in the Future? The case for shorting Doctor Bhd. by Snowball

Tuesday, August 31, 2010

This post is sitting on my comp for few weeks now as I forgot to get it published. Here you go:

I read a two-page spread of IMU graduation advertisement. Out of the two page advertisement, one page is devoted to the list of graduating students with medical degrees. Although I believe some of those who are graduating from foreign universities would not be returning to Malaysia, the majority of them will practice here.

Being a doctor is the dream of most students during my time (me excluded), I feel it is the same during my parents' time and it is the same now. Although the percentage of students who aspire to be doctors remain the same across time, the difference may be that the medical education is more within reach currently than it has ever been. 
 
There are still a lot of outstanding students who get into medical school like those who struggle through STPM and being lucky enough in the "lucky draw" to get into a local medical school and those who are on government scholarship doing medicine overseas. These two groups of people are real talent.  
 
There are also another group of talented students with good grades who are unlucky to make it to a local medical school but have parents that are rich enough to fund their education. Then, there are a group of students that I worry the most, those with sub-par grade but still pursuing a medical degree because their parents can afford it. I have known people with 7As in SPM doing medical degrees. During my time, 7As is a norm rather than an exception. This 7As may be earned with an average marks of perhaps over 60 for an A. 

The problem with this is that, in order to fulfill the dreams of every single students to become medical doctors and have less students appearing in front of newspaper asking for a place in a medical school, which is a PR disaster for our ruling political party, our local medical school have expanded their intake. 
 
In addition, due to the growth in household income since independence, we have private medical schools like IMU and another one being set up in Iskandar, Johor. Then, there are those with sub-par grades but with rich parents getting their medical degree in some dodgy universities overseas.  

Unlike Singapore which offered its medical school place based on supply and demand (NUS medical school is still one of the toughest place to get into especially for Malaysians), I think we are going to have an oversupply of doctors in the medium term due to this huge expansion of medical school students. 
 
In a market environment, an increase in supply without a similar increase in demand (nope, the whole aging population argument do not apply to Malaysia, we have a very healthy number of young people), the average income for doctors would fall. 
 
Then, the cost of medical equipment, I believe is going up. With increasing cost and declining revenue, the ROI of a medical degree is getting lower and its paid-back period is going to be longer. 
 
If there is a stock in Bursa called DOCTOR BHD, I would have shorted it (assuming Bursa allowed shorting that is). Last time, we used to find one clinic per row shop houses, now, I can find three to four clinics within a row of shop houses. I don't think the population around my area increases by three to four times which only means the potential patient/clinic ratio has declined over the years. 

Some may argued that there are increasing demand for niche areas for specialists, that's generally true as more people are getting richer to afford high-end treatment. However, to be a specialist, you need to study more and with more people becoming specialists, the picture is not that rosy too. 
 
Then, some will throw out the argument that there are still a lack of doctors in Malaysia based on the doctor/no. of population ratio, well, that shortage is in rural areas. Just like majority of the people do not end up as social workers, I think the majority of recent medical graduates will still end up in urban areas.

There are a few what I called "clinic groups" (I don't know the proper term) that provide the clinics for doctors to carry out their practice. You know those "Poliklinik Kumpulan XXX" that you see on shop houses. I am not sure how the business model works (whether it is a franchise model like a McDonald's where the doctors actually contribute capital or it is operated like your normal Maybank, where all the doctors is merely employees), its emergence may show either : i) Doctors prefer to treat people and let the running of the business to the business people or ii) Doctors are finding it increasingly difficult, costly and competitive to start up a general practice and are banding up together to achieve the economies of scale. It is most likely to be both but I suspect that (ii) play a major part in its emergence.

With an impending oversupply of doctors and a slower growth in demand, the natural market reaction would be for the prices to fall. If this happened, in the extreme scenario, our doctors may share their fate with doctors in China in which their average income would be lower than other professionals like engineers etc. In China, the low pay is not due to oversupply but due to the fact that all doctors works for the government sector as healthcare is monopolized by the government. 
 
If the income for doctors really decline that much, I doubt many parents would sent their kids to medical school. However, I don't think that will happen, doctors would probably band together and set up standardize rate to artificially inflate prices and maintain a decent amount of margins. 
 
This is bad for the consumer but may be a healthy thing in the long run if you do not want another situation of doctor shortage because of the low profit margins. This is important because our relatively young population would have aged by then.

Recommendation? Short Doctors and Medical Degrees. 

Disclosure : The author is not a medical student and do not own a medical school :-)

P/S: This is supposed to be a quick thoughts as the title suggest but one thing lead to the other and I end up with quite a long post. Sorry for those who are being misled by the title.

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snowball

I am a beginner investor. A Malaysian but currently studying in Singapore. I hope to share with you some of my investments ideas and views through this blog. I am a value investor that practise a mixture of Graham and Fisher investment style. Feel free to comment and challenge my views. I am currently actively seeking jobs in fund management or equities research. If you like the way I invest and have a job offer for me, please email me at goodstockbadstock@gmail.com.
 

1 comment:

Vijay said...

Besides the unbelievable amount of grammatical errors, the concepts expounded is not holding ground.

From a strategic organisational purpose, there is nothing wrong in a group of doctors forming an alliance to provide the best value for their patients. And I am not talking money, I am talking value added services for patients. Qualitas is doing a fantastic job at providing preventive health care services for an affordable rate to the middle income population. And no, I am not working for Qualitas.

The problem of too many medical schools is political in nature. IMU still retains its position as one of the best private medical schools in Malaysia. Go to a gov hospital, ask the first doctor you see who cannot speak proper English where he graduated from. Don't be surprised.