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Health care sector in the MENA region has been seeing substantial growth over the past few years. As per World Bank estimates, healthcare spending in MENA is expected to grow to $144 billion in 2020 with approximately $69 billion of this health spending coming from the GCC countries. Though the percentage of health spending when compared to GDP is low in MENA, given that the population size is relatively small and the health sector is underdeveloped compared to the developed nations, sustained growth in health expenditure in the GCC is expected to drive overall MENA healthcare spending, says a EY report ‘Investment big bets: Health care and life sciences in the GCC.’
Alpen Capital in its report on GCC healthcare industry released in February this year projects the GCC healthcare market to grow at a 12.1% CAGR from an estimated $40.3 billion in 2015 to $71.3 billion in 2020. An increase in the population and rising cost of treatment are the primary factors aiding growth.
Talking about the UAE specifically, the healthcare in the UAE however has so far enjoyed gross margins well above more mature markets. Alpen Capital projects the healthcare market in the UAE at $19.5 billion in 2020, indicating an annual average growth of 12.7% from 2015.
Competition, And Profitability
McKinsey & Company estimates that the coming decade will bring significant new challenges to health care in the GCC countries. These challenges will require new strategies on the part of government and private healthcare players.
“With growing pricing pressure from the payers and rapidly increasing competition, cost optimization and finding more efficient mechanisms to deliver some aspects of care through technological disruption will be critical to protect or reduce the decline in margins over the next few years. The search for efficiency and better clinical outcomes will drive hospital groups to find synergies between the facilities within their groups e.g., sharing clinicians, common systems, referrals between facilities,” says Ahmed Faiyaz, EY’s MENA TAS Healthcare Leader.
Nevertheless, given the conditions of the global economy and market needs, healthcare in the UAE has risen as a key investment sector in recent years, specifically for private equity.
“This has created a wave of consolidation in the market, where larger healthcare market players, including new market entrants such as investment firms, continue to acquire the smaller ones. For the larger institutions, this means that it has become necessary to continuously search, analyze and acquire smaller healthcare institutions with good investment value and that add to the overall product mix or competitive edge,” Says Hesham Tohami, Associate Director, Grant Thornton.
This poses several challenges, Tohami adds. The largest of which is the post-acquisition operation, where there is management and control struggle between the new owners and the old owners who usually become managers after the acquisition. For smaller players this has posed challenges specifically on those smaller institutions who do not chose to be acquired, where it becomes difficult to compete against the resources and economies of scale of the bigger market players.
However, there’s many challenges on the way. One of the biggest is to get the right physician.
“The biggest challenge for healthcare players is to get the right talent, especially good doctors including specialists, physicians and surgeons, among others. Access to good talent is always an issue. The second biggest challenge is to meet the expectations of different people, hailing from different nationalities and culture. This is especially in the case of Dubai where majority of population is expats. The third big challenge before healthcare providers, especially in Dubai, is to adopt themselves with Dubai’s mandatory health insurance regulations whose deadline is June this year,” Dr. Sanjay Agrawal, Chief Operating Officer of Dubai-based iCARE Clinics, and part of The Landmark group. Set up almost 4 years back, iCare managed to grow over 100% in first two years. As of now, it has 6 clinics in Dubai and the seventh one is opening again in Dubai probably by June-end this year.
Another key challenge is associated with implementing the value-based healthcare. Value is simply the patient or population outcomes achieved for a given amount of (financial, workforce or other) resources.
As Dr. Tim Wilson, PwC Partner, Middle East Health Industries Leader, argues, “At the moment little is known in the UAE/GCC about patient or population outcomes- more is known about activity and budgets, but these are not the same. So the number one challenge is to start measuring patient outcomes in a standardised way, preferably using international measures (e.g. for inbound and outbound tourism).”
“In the region,” he continues, “we have been used to a high level of financial resources, and little real competition. Now financial resources are limited, and that competition is increasingly important (e.g. to become a beacon for tourism, reduce the number of people leaving the region for treatment, and as more hospitals open in the region), this will have to change.”
Additionally, as Alpen Capital says, private players face entry barriers such as high cost of setting up a hospital and high payback period. And not to speak of the impact of low oil price. The GCC governments’ budgets are increasingly coming under pressure amid falling oil prices. Accordingly, governments across the region are likely to curtail or defer their expenditure. A prolonged low oil price environment may influence the budgets of the GCC governments and, therefore, the healthcare spending, says Alpen report.
Medical Tourism Boost
In an effort to building on growth in the local private health care market, one of Dubai Health Strategy 2021’s key objectives is to develop Dubai as a regional and international destination for medical tourism. By capitalizing on the emirate’s centralized location in the region and offering high-level services, Dubai officials estimate the medical tourism segment could generate up to Dh2.6bn ($708m) per annum by 2020, says a report by Oxford Business Group (OBG).
Adds Dr. Layla Al-Marzouqi, Director of Health Regulation, DHA, “Dubai has become among the top 15 in the world’s and regions first medical tourism destination as per the MT Association. Healthcare is an important sector to boost tourism, Dubai’s health infrastructure has a huge potential 3000 hospitals and clinics and more than 100 nationalities of healthcare professionals. By supporting these initiatives, we are supporting inbound tourism in Dubai.”
She has also announced that the total number of Medical Tourists (MT) in 2015 was 630,833 in which 47% of them were international MT according to the data collected from 26 private hospitals in the Emirate of Dubai. 43% of the international medical tourists are from Asia, 29% are from Arab & GCC countries, 15% are from Europe and CIS, 7% are from Africa and 5% are from America.
Focus on Holistic Healthcare
In recent years the Dubai Health Authority has focused on shifting the provision of health services from the public to the private sector, with a target 30:70 division of funding. A combined Dh12.8bn ($3.5bn) was spent on healthcare in Dubai in 2014, with the private health sector accounting for roughly two-thirds of the total, at Dh8.5bn ($2.3bn), says the OBG report. This represented a 37% increase over the private health care spend recorded in 2012. The shift towards private health services is being supported in large part by the full implementation of compulsory medical insurance, which is gradually being extended to cover all nationals as well as expatriate residents and workers, the report adds.
In line with Dubai Health Authority’s (DHA) mandate to provide health insurance for all Dubai residents and visitors, the first phase of the plan ensured that companies with 1,000 employees were covered by October 2014, the second phase of the plan ensured companies with 100-999 employees were covered by July 2015. Currently in its last phase, companies with less than 100 employees, as well as spouses, dependents and domestic workers are expected to be fully insured by June 2016. DHA has been working closely with all the stakeholders for a seamless rollout, to ensure quality services and deliverables to the end-customer.
As Amit Zushi, Partner, EY, sums it up, “The GCC health care sector has been growing upwards of 10% per annum across MENA, with significant potential for growth in quality care over the next few years. Mandatory insurance has been and will continue to be a big driver, particularly in Qatar, Saudi Arabia and parts of the UAE.”
Fast & Forward
Many healthcare organizations in the UAE/GCC region are struggling to rationalize costs despite having well-trained staff and qualified doctors. Are the days of business as usual over for healthcare providers? What’re the key strategies that will fix healthcare business in the GCC region? Experts says, the UAE’s healthcare remains attractive for the old players but challenging for new players in terms of returns as well as raising capital.
Taher Shams, Managing Director, Zulekha Hospital, reasons, “A big opportunity for UAE’s healthcare industry is that in many areas the real estate values have come down giving clinic or medical centre owners a wide choice to select the areas where they want to operate with limited budget. Coupled with values, rents have also gone down though in certain pockets only.”
Another encouraging sign, he says, for the UAE’s healthcare industry is the growing emphasis on quality assurance and standardization of regulations. While Dubai has taken the lead by putting in place a stringent regulatory structure, other emirates are following suit and are laying down standardization, quality certification and regulatory guidelines. On a year-on-year basis, Zulekha Hospitals’ growth has been hovering around 30% across Dubai and Sharjah, while its CAGR in Dubai alone has been around 20%.
Summing up, private healthcare players’ involvement is becoming imperative to meet the rising demand for healthcare services in the UAE as well as to reduce the burden of costs on the government finances. Growing health awareness among the residents along with the UAE governments’ effort to improve the basic health indicators by introducing compulsory health insurance is leading to a shift from curative care to preventive care. Favorable socio-economic factors coupled with the government thrust on adopting a patient-centric model and improving the overall delivery system, is likely to continue strengthening the UAE’s healthcare industry, going forward.