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Catching The Pulse

May 2016

What are the operational and financial headwinds for the UAE-based healthcare organizations? What are the disruptive trends that will transform the healthcare industry? Is the UAE’s healthcare market over-crowded or it is undersupplied? Four healthcare experts discuss the changing healthcare landscape to figure out what lies ahead

The GCC healthcare market is projected to grow at a 12.1% CAGR from an estimated $40.3 billion in 2015 to $71.3 billion in 2020. Over the last year, there’s been a steady flow of PE into the sector and the region has witnessed several successful M&A transactions. What lies ahead? Accounting for less than 5% of UAE’s GDP, the healthcare industry certainly requires effective and financially prudent management to grow. As the number of players swell, a number of healthcare organizations in the UAE are adopting business principles in order to compete in the current marketplace.
But what are the investment opportunities for the private sector in the development of the region’s healthcare sector? Wealth Monitor asked industry leaders how the funding landscape is unfolding. The leaders also debate on the current state and the outlook of the UAE healthcare sector and try to find answers to queries such as the challenging issues currently facing the GCC region’s healthcare industry are funding issues confronting small and big healthcare players alike? What are the steps that should be taken by healthcare companies to maximize value? How do UAE or GCC based healthcare players consider value and does that understanding need to change? What are the challenges associated with implementing value-based healthcare? What approaches small healthcare organizations need to take to draw patients and to remain viable, especially as sentiment remains subdued in the Gulf region due to oil price plunge? How are hospitals/medical centres/clinics balancing their financial needs versus public health/patient safety?
And here’s what they had to say….

Taher Shams, Managing Director, Zulekha Hospital

Taher_ShamsUndersupply Persists
Despite several new players entering into the market, the healthcare industry still remains undersupplied, though there’re certain sub-sectors, such as clinics, that have seen saturation. The best thing to happen to Dubai healthcare sector is the mandatory health insurance that is scheduled to be rolled out by June 30 this year. Mandatory health insurance will be beneficial for both healthcare providers as well as insurers and it will ensure more transparency in the UAE healthcare industry, in terms of billing, Computerized Physician Order Entry (CPOE), diagnosis, etc. More investments will follow along with increasing transparency. A possible outcome of the mandatory health insurance is that it could give rise to moderate inflation, as for most employers paying insurance premium for their employees adds cost burden, which they would try to cover by pushing up the prices of their products or services. But over a period of time, this would become a norm.

More Funds Chasing Fewer Assets
An interesting aspect of the UAE and the Gulf region’s healthcare industry is that more and more funds are chasing fewer assets. A lot of equity funds are finding values in the country’s healthcare sector since it has shown relatively more resilience during economic slowdown, compared with other sectors. I remember, 7 to 8 years ago, banks used to consider healthcare as a real estate model. Now they see it as a standalone profit centre, as they believe there’s a guaranteed rate of return from this sector. However, banks still exercise a little caution and would still not lend to every player. They would do due diligence and assess the track record of the player, and if the player is new banks require more collateral. For existing players, however, the lending norms are not so tough and for players like us banks are ready to lend as much $300 million without any collaterals.

More Players Required
We’re very optimistic for the country’s health care industry. More players, especially international players are required. The more the players are, the better it is for the entire industry. To promote medical tourism in the UAE, we’ve tied up with Air Arabia, Emirates and other airline providers. We’re concentrating more on expanding existing facilities in Dubai and Sharjah and a have allocated a capex of $250 million for expanding Dubai facility.

Dr. Mukesh Batra, Founder Chairman, Dr. Batra’s Healthcare

Dr.-Mukesh-BatraStrong Growth Story For Healthcare
We believe the healthcare industry is recession-proof and this is exemplified by statistics. Last year, we grew 62% in Dubai alone in terms of revenue. Healthcare industry in the GCC is growing by 17-18% a year. In the UAE alone, the industry is growing by 14% on an annual basis and the $12 billion industry is going to be $19 billion in size by 2022. There’s a strong growth story for healthcare in the UAE, and there’re several reasons behind that. First, because of the investor-friendly regulatory policies by the government and, second, the demand for better healthcare is increasing day by day in this part of the world. The third factor is that the healthcare cost is getting affordable to a large section of expats. Additionally, the rising incidence of lifestyle diseases is also driving growth of healthcare sector in the region.

Favorable Regulatory Changes
Over the last 2 years, we’re seeing increasing awareness and popularity among the Indian and sub-continental expats who’re well aware of homeopathy back home. Interestingly, the ratio of local Arab population in the total number of our patients has also gone up from 12% to 31% in the last one year, and local Arabs are the fastest growing patient segment for us. We’re also seeing homeopathy medicines’ reach getting wider and its availability in many pharmacy stores across the UAE has also gone up. Another encouraging sign is that some of the largest insurance players in the UAE have started covering homeopathic treatment. Apart from the UAE, we’re seeing increasing interest and regulatory changes in neighboring GCC countries such as Qatar, where homeopathy is being recognized by the Supreme Health Council. Similar steps are being taken in other countries such as Bahrain and Oman. We look forward to expand across the GCC region partly through partnership, franchising or through our own investment.

Ghulam Mohammed Teli, Chief Health Officer, AXA Gulf

Ghulam-Mohammed-TeliRising Cost Remains A Challenge
Health insurers are faced with many challenges, with the prominent ones being the rising cost of healthcare in the region with double digit medical inflation, Shift in disease pattern towards lifestyle chronic illnesses (such as diabetes, hypertension etc), Overuse/abuse of healthcare by medical practitioners, Pricing wars between competitors, and low switching cost of healthcare insurance.
The External environment also presents challenges in terms of Weaker Oil prices, Political risk & subdued business sentiments which are continuingly forcing corporate customers to review their healthcare spend. Additionally, with the rising demand for unprecedented health services in the GCC region, the health insurance industry has seen tremendous growth driven by positive change in the regulation. Customers’ needs and expectations have also changed with time. With the increase in prices, customers have started looking for offers with the best value for money.

The Innovation Push
The current challenges are forcing health insurers to innovate, and target operational efficiencies in the healthcare system by enforcing greater integration of processes, better claims management, clever counter-fraud initiatives, prudent risk management & rationalization of networks. Insurers are also experimenting with multi-access distribution models to effectively reach their target customer segments with an overall objective of keeping service ahead of sales & fostering sustainable growth. Innovation and efficiencies are key drivers, to recognize the demands of the customer, who today looks for greater engagement and support from their insurers to help them navigate through their healthcare & wellbeing journey – right from anticipation of risk (health risk assessments) all the way to post-treatment care.

Benefit From Digitalization
As the UAE government has prioritized the healthcare sector, extraordinary growth and significant progress has been achieved over the last few years. In such a scenario, insurers play an important role by following sustainable business practices especially in context of underwriting & risk management. UAE’s healthcare sector will benefit from digitalization, which will enable stronger interface with the customer & will help develop online platforms. A lot is expected from the insurers to bring innovative products (such as wellness products, flexi benefits etc) to meet customer requirements. Finally we will also see insurers focusing a lot on Big Data Analytics (with greater emphasis on behavioral science) – to allow better segmentation, pricing & value-added services to clients.

Mohamed Azmy, Strategic Accounts Manager, Middle East, Steelcase Health

Mohamed-AzmyHealthcare Providers Need to Adapt & Learn
The healthcare industry in GCC region is experiencing a change in dynamics that add complexity to a sector undergoing rapid development. Based on our research and work with clients, we see four primary areas of tensions that are disrupting existing healthcare norms: Complexity: There’s the tension arising from the complexity of chronic disease management in the face of health facility constraints, i.e. limited specialized centers. Expectations: The current absence of quality standards, i.e. lack of homogenous regulations and adherence to international standards, in public hospitals results in the delivery of healthcare services falling short of customers’ expectations. Strain: Rapid population growth and the continuous inflow of expatriates into the GCC countries have created a strain on existing healthcare facilities. Safety: What was once sufficient is no longer acceptable as the concepts of harm and preventability evolve and expand.

Construction Costs Have Gone Up
The healthcare system in the GCC countries is classified into two sectors, government and private. Though conditions have improved and continue to do so, private players still face entry barriers, primarily high costs of setting up and long payback periods. Hospital construction costs – which include land, equipment, material and labor – have soared over the years. In the UAE, for example, constructing a hospital requires an investment of AED 1 million per bed. In the government sector, both small and big hospitals are receiving sufficient funds for operation.

Need To Maximize Value
We believe that healthcare organizations can maximize value by addressing the following key issues. Total cost management: Effectively managing the total cost of the experience is a key component of the value equation. Revenue generation: With the model of care shifting from volume-based to value-based, creating revenue through new efficiencies, performance levels and offerings is even more paramount to healthcare organizations, especially private hospitals. Patient and staff satisfaction: Healthcare organizations should be able to understand the needs and wants, and ultimately measure the value of the healthcare experience – and its delivery – from the patients’ and staff’s perspective.

Wrapping Up
The healthcare industry in the UAE has made rapid progress in recent years but there is still room for it to be managed in a more competitive and market based environment, and for that to happen the current issues affecting the healthcare industry need a revisit and solution. Demand for healthcare in the UAE and the region is driven by the changing demographic trends, including the rise in aging population across the region, significant rise in lifestyle risk factors and prevalence of chronic diseases. This means meeting addressing issues such as ensuring more convenience, clinical specialism, more affordable care, setting clinical standards and recruiting quality physicians, is key to adapt to changing market conditions.

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