It is no secret that Gulf Cooperation Council (GCC) governments are spending billions of dinars, riyals and dirhams on upgrading their healthcare infrastructure. Local and regional newspapers are filled with stories on newer, bigger and flashier hospital projects.
Saudi Arabia’s 2013-2014 budget includes funds for 19 new hospitals in addition to the 102 hospitals currently under construction in the Kingdom (only about 9 of these projects have strong involvement from the private sector). The Kuwaiti Ministry of Health is planning around $5 billion worth of hospitals and medical towers to upgrade an infrastructure that has been largely stagnant since the 1980s. Abu Dhabi and Qatar are both building multi-billion dollar hospitals and medical (research) centers with both the Cleveland Clinic Abu Dhabi and Sidra Medical Research Center slated to come online with the next 1 – 2 years.
Dr. Mussaad Al-Razouki.
In Dubai, the picture is a bit different, and despite the Dubai Health Authority’s $816m and $43.8m upgrades to the Dubai and Rashid hospitals respectively, most of the hospital and clinic capacity in the City of Life is being built by the private sector which will enjoy a rapid boost when mandatory private healthcare insurance is put in place in October 2014.
In fact, Dubai is truly unique in that most hospitals in the GCC receive the vast majority of their revenue from the traditional Fee-For-Service or FFS model, whereby patients pay out-of-pocket for medical services. This is not the case in Dubai where most of the revenue for private sector hospitals comes from private health insurance reimbursements.
The promise of private investment in GCC healthcare is highlighted by the recent success of Abu Dhabi based Al Noor Hospitals Group and NMC Health, which as of the writing of this article, are both trading favorably on the London Stock Exchange with attractive P/E ratios of 23.37 and 18.69 respectively.
Underlying the ramp up in healthcare services is the growing GCC population, which although youthful (50% of the local GCC population is below 25) is extremely unhealthy. As the quip goes, GCC countries are globally competitive in oil production, the airline industry and diabetes. Diabetes is directly linked to the prevalence of obesity which, depending on the GCC country, plagues between 30 to 66% of the population.
Trends
There are other global trends driving today’s healthcare industry and these can also be seen in the Middle East.
1) Accountability – this is perhaps one of the most interesting recent global trends in healthcare and it forms the crux of the Affordable Care Act (what is known loosely as Obamacare) in the United States. The main idea is that healthcare practitioners will no longer profit from the sickness of patients, but instead will be incentivized to keep patients healthy and encourage preventative and evidence-based medicine. This is, of course, nothing new. In the Fertile Crescent in 17th century BC the Code of Hammurabi called for physicians to be paid only if their patients were healthy.
Fast forward to the Middle East today, where the aforementioned FFS model is the norm. GCC states are trying to reconfigure their healthcare systems (in which at least 80% of spending is covered by the government) to a more sustainable and accountable system that includes strong involvement from the private sector.
One example is the Kuwaiti government which has been pursuing different mechanisms of financing its healthcare system since the 1980s. In 2010 the Kuwaiti Parliament decreed that if a government entity/asset/corporation (including healthcare and education) was to be privatized, it must be done according to the following framework:
50% will be offered to the public by means of a public joint stock holding company listed on the Kuwait Stock Exchange (KSE)
26% (golden operating share) will be offered to a private (technical/financial) partner/consortium. Strong preference is given to Kuwaiti companies, particularly those already publically listed. The consortium is also encouraged to involve international technical partners and investors with exemplary track records
24% is retained by the State of Kuwait through the state owned investment vehicle, the Kuwait Investment Authority (KIA)
Following the above framework and to encourage private sector investment in the Kuwaiti Healthcare sector, the Kuwait Health Assurance Company (KHAC) project was created, and by serendipitous default, the goal of accountability was set in place to ensure the long term sustainability of this project.
The KIA makes the distinction between health maintenance and health insurance, whereby KHAC will be incentivized to manage the health (and prevention) of its patient population rather than operate under the standard FFS model alone. KHAC will inherit the ‘health risk’ of the 1.2 to 1.5 million expatriates that live in Kuwait, the vast majority of which either work for the government or who have family that work in the government. A 130KD assurance premium was outlined in the KIA study, which is a 260% increase when compared to the current 50KD government assurance plan which must be covered for every expatriate living in Kuwait. It is unclear whether the aforementioned assurance premium will cover an individual’s health care expenses alone, or that of his/her entire family.
The Project was initially valued at 318 million KD (~ $1 billion) thereby making it the largest private public partnership in the history of Kuwait. The paid up capital was subsequently decreased to 218 million KD (~$750 million) after a retendering of the KIA tender during the beginning of 2013.
In mid September 2013, the 26% (golden) operating share that will guarantee the management of the three hospitals as well as provide Health Maintenance Organization (HMO) type plans for users, was awarded to a consortium led by Arabi Group, who outbid the KIPCO Group and the previous winner Agility, via a 62% premium on the base price.
The government of Kuwait will provide approximately 140,000 square meters of land (at a minimal lease price) divided in three equal parcels in the growing governates of Ahmadi, Jahra and Farwaniya. It will be the responsibility of the winning consortium to deliver at least three 250-bed hospitals and 10 primary care clinics (at least one clinic in each of the six governates of Kuwait) in 36 months and one single-day surgery center.
Many experts remain optimistic regarding the development of KHAC and its becoming a leading example of an accountable healthcare system. A great deal can be learned by GCC governments from this new accountable approach in Kuwait.
2) Consumerism – another interesting global trend in healthcare, which has affected other industries such as travel and tourism, is consumerism or a paradigm shift by which patients are taking increasing ownership of their own healthcare needs. Whether its ‘shopping’ via the phone or online for the best priced healthcare service, or even as far as self diagnosing themselves prior to a doctors visit by browsing the multitude of online healthcare resources, the traditional paternal model of medicine whereby the physician’s word is the unequivocal law is slowly eroding. In particular, price transparency is an increasingly important global sub-trend since consumers have greater access to pricing information prior to obtaining medical services. Also, insurers’ claims payments are lower, according to new research published in the Journal of the American Medical Association.
This healthcare consumerism is accentuated in the Middle East, as many Arabic medical portals do not have the proper oversight and peer-reviewed integrity as western websites. This is also enhanced by the high mobility of GCC patients who are not limited by the primary care gate-keeper model of medicine and instead prefer to be seen directly by a specialist or plunge themselves directly into an emergency room when a routine primary care visit would suffice.
Another issue is the lack of coordination of care when it comes to the medical consumer. The average person in the USA will see about 18 different doctors in their lifetime. A similar case can be made for patients in the GCC, where it is probably an even more acute issue in that many GCC patients do not have any rapport with a primary care physician and would be hard pressed to even name their family doctor.
Within the topic of consumerism in healthcare, the Middle East has traditionally been known for outbound medical tourism to Europe, the UK, the US and even South East Asia. But, this dynamic is shifting, especially in Dubai. The GCC spends approximately $12 billion ($10 billion in government funds) sending patients abroad for life-saving surgeries, chronic cancer and physiotherapy. Dubai is one of the few places in the Middle East region that has a solid medical tourism strategy and perhaps the strongest potential to become an international medical tourism hub.
Based on analysis by Kleos Healthcare, Dubai currently has a bed/population rate of 1.65 beds/000. The government of Dubai is planning to add over 400 hospital beds whereas the private sector will be adding around 2,486 beds which will increase the bed/000 ratio to 2.72 beds/000 in the next five years assuming a 3% growth in the population. This ratio is still far behind the 4 beds/000 ratio across the OECD but well above the GCC average of around 2 beds/000 meaning that Dubai facilities will need to attract patients (and demand) from outside of Dubai to meet this increasing supply.
3) Medical Inflation – inflation in the healthcare sector has outpaced the inflation in the CPI by almost 700% over the past 40 years. Within healthcare the largest cost bucket is typically the remuneration of healthcare workers. Whether it is the salaries of healthcare executives, clinicians or administrative staff, it is costing more and more to staff healthcare facilities and technology has still not been as disruptive in healthcare as in other industries, only around 50% of doctors in the USA use some form of electronic health record (EHR) and this number is substantially lower across the GCC. Another cost barrier is the high administrative costs associated with healthcare. This is estimated to be between 24 to 31% according to research by the New England Journal of Medicine on the United States, which many experts agree is the world’s most bloated healthcare system as healthcare spending is between 16 to 18% of the GDP (the average is closer to 3 to 4% in the GCC).
As the healthcare industry in the GCC (and particularly in its largest market – Saudi Arabia) continues to grow at double digits, there remains a wealth of opportunity for investors to earn strong financial and social returns on their investment in the healthcare sector.
Healthcare Does Not Equal Hospital – Niche Healthcare Plays
At Kleos, we are in constant pursuit of disruptive and innovative (niche) healthcare business models, of particular interest to us are ventures that either provide:
-More access to healthcare services
-Improve the quality of healthcare
-Reduce the costs of healthcare
Three platforms that are of that are currently under development by Kleos include:
A single day surgery center concept – whereby patients are afforded more access to quality surgeon at a more affordable cost
A medical Takaful company – that is specialized in Islamic health insurance and will help drive efficiencies in healthcare delivery while aiming to reduce the costs of healthcare services by encouraging digital health and telemedicine type services
A cloud based health IT platform – that will form the back-bone of small to medium size clinics in the region who cannot afford the large tickets charged by custom, server based, electronic health record (EHR) vendors who typical design, built and install entire enterprise systems.
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About the Author:
Dr. Razouki has over 10 years of experience in social entrepreneurship with a focus on healthcare, education and e-commerce, shifting from an excellence in clinical practice and research to the management and financing of healthcare and education systems. A graduate of Columbia Business School, Dr. Razouki is the first ever Arab national to receive an MBA with a focus on Healthcare Management and Finance. An Oral and Maxillofacial surgeon by training, Dr. Razouki has completed clinical rotations at New York Presbyterian Hospital of Columbia University Medical Center, Harlem Hospital, Cleveland University Hospital of Case Western Reserve University and Mass General Hospital of Harvard University.
In 2011, Dr. Razouki and his partners completed the purchase of a Kuwait based healthcare development company, which was rebranded as Kleos Healthcare. Today, Kleos is widely recognized as a regional thought leader on Middle East healthcare, with a variety of projects in its pipeline ranging from developing a Medical Takaful Insurance company to working on a 750 million USD government PPP. He is its Chief Executive.
In 2012, Dr. Razouki Co-Founded Dubai based Glambox.me, one of the region’s leading e-commerce platforms that has just completed a ~1.4mn USD Series A funding round with notable MENA VC firms including STC Ventures, MBC Ventures and R&R ventures. Dr. Razouki is also Co-Founder and Chairman of Gulf Technology Company, an ambitious Kuwait based and MENA focused internet holding company.
In 2013, Dr. Razouki Co-Founded Gulf Technologies Company in Kuwait which launched the MENA region’s first online direct appointment booking website and application; www.AbiDoc.com. Today, AbiDoc is Kuwait’s largest network of private doctors, clinics and hospitals and is leading the way for mHealth and Health IT adoption across the MENA region with its development of cloud based (and mobile) technologies. In Q2 of 2014, AbiDoc closed a Series A investment round of $1.7 million from a strategic Saudi Investor.
Dr. Razouki is also a former advisor to the central Kuwaiti government where he worked with senior government leaders on Healthcare, Education and Entrepreneurial reforms as part of Kuwait’s $100 billion Development Plan.
