Overview
Even though it is the youngest region in the Middle East, the GCC is ripe with opportunities to invest in healthcare and build a patient centric healthcare system as it leverages on the rapid economic growth and the political stability that the neighboring countries don’t have. Unlike the rest of the region, the GCC has smaller populations and higher levels of income and hence healthcare is one of the strongest endeavors that the GCC can leverage on; to shift its dependence from the current oil-based economy in the long run. In fact, as this economic dependence on oil wealth may fall short due to the fluctuating oil prices, developing other sectors is critical to the sustainable development of the region.
With the emergence of lifestyle diseases such as diabetes and obesity, medical treatments are becoming costlier and lengthier. Historically, medical care in the region has been focused on the growing number of younger population; but is now lagging behind in senior care which again is expensive. Because the current quality of healthcare does not meet the demand, the trend of patients seeking medical treatment elsewhere is rising.
Dr. Ayham Refaat, Founder & Managing Director of AccuMed believes that “the most poignant issue to address is how we find a financially sustainable model for all healthcare stakeholders, ensuring that patients are at the front and center of it. The utopia is to be able to provide extremely high-quality healthcare to the public at an optimised price.”
Meanwhile, a lack of local medical staff has pushed operators to hire foreign, transient talent, contributing to the instability of the sector. This shortage of local medical practitioners is in part due to the lack of good medical and nursing schools in the region, combined with a lack of clear guidance to maintain minimum standards.
Regarding this, Dr. Azad Moopen, Chairman and Managing Director, Aster DM Healthcare, said, “More emphasis should be given to resolve the issue of infrastructure shortage and quality healthcare delivery as well as unavailability of trained medical professionals. The cost of healthcare, as compared to other developing countries, is high in this part of the world. It is the reflection of the overall cost of living. We have been trying for the last 10 years to bring down the cost. We are also trying to cut down the congestion at clinics and build more capacity so that people can conveniently access our facilities and not be cramped.”
Based on qualitative interviews with regional experts as well as valuable insights from the Alpen GCC Healthcare Sector 2014 report, this study is aimed at understanding the different investment models that are currently utilised in the regional healthcare sector while attempting to forecast future trends and developments.
Scope of Investment
The GCC has witnessed a CAGR of 14% since 2010. According to the Alpen report, the value of the healthcare industry is projected to grow to reach $69.4 billion by 2018. The study also predicts that Saudi Arabia will remain the largest market in the region, while Qatar and the UAE are expected to have the fastest growth. Bahrain, on the other hand, has the smallest healthcare market in the GCC region, with Oman and Kuwait falling somewhere in between.
Dr. Helmut Schuehsler, Chairman & CEO of TVM Capital Healthcare Partners, said, “As an emerging market displaying accelerated growth, the Middle East and North Africa region is high on the investment agenda. But as with any developing market, there are associated challenges and incumbent risks, including social and economic instability. The GCC in particular is a complex region, with each country looking to address its own specific needs, and maintaining varied legislative and operating requirements for private investors. There is no doubt, however, that the MENA healthcare sector presents significant opportunities and strong returns for experienced investors who bring the international experience and global insight required to identify the right opportunities and help develop healthcare for the local communities.”
As the population and levels of disposable income continue to grow, current healthcare investment schemes need to be rejuvenated and reformed. Currently, the regional healthcare spend per capita remains lower than other developed countries with comparably high income levels. With a low physician density of 1.5 per 1,000 people and a shortage of hospital beds of 21 per 10,000 people, regional healthcare infrastructure is considered to be relatively underdeveloped, with a wide scope for potential investments.
Investment Opportunities
Generally, governments have been the largest provider of health services to populations in the region. As healthcare demands increase, governments across the region are increasingly looking at the private sector to fill the gap. According to Hani Ramadan, Managing Director, Head of Principle Investments at Waha Capital, “This is specifically seen in areas where governments have traditionally been less involved or where demand has increased significantly. The financial burden of providing care to the population has prompted governments to be open to private sector participants who could deliver efficiencies and drive cost downwards.”
However in some areas, neither the public nor the private sectors are able to provide for this growing demand independently. Therefore, public private partnerships are on the rise. While there are grounded arguments against such a model in other parts of the world, PPP structures in the GCC are more critical due to the large expatriate population who are not treated by public services.
Dr. Moopen said, “The UAE is now on a historic transition to guarantee health security for all residents in the country. The major change in the healthcare industry in the last five years has been the permanent participation of private healthcare players, due to government’s desire to have healthcare for expats taken care of by the private sector. Private players continue to dominate the sector, as significant investments in advanced technologies are being made.”
Therefore, various PPP models have been considered by local governments in an effort to provide more efficient yet less costly healthcare provision. These partnerships can be formed in different stages of the value chain, from clinical research to administrative and supportive services. Currently, such partnerships in the UAE and Saudi Arabia are quite active. However, while such models continue to be adopted across the region, they are unfortunately at an early stage.
Dr. Schuehsler said, “Valued at approximately USD 80-90 billion, the MENA healthcare market (excluding Turkey) is going through a large-scale transition. As regional governments strive to save public sector costs, they have realised the importance of private sector participation. It is therefore the private sector that is slowly taking over the growth and development of the healthcare sector. This is a significant step, but one that needs careful consideration in order to effect positive and sustainable improvement. Collaboration between public and private entities is vital in order to develop the healthcare sector in the region into a world-class system and establish services in the GCC and broader MENA region that provide excellent healthcare to the local community.”
Changing lifestyle
The demand for geriatric care in the region is also high, due to the increasing age and life expectancy of individuals. The number of patients who need substantial levels of medical care is expected to rise. In order to cater to them, all the existing health facilities in the region need to increase their capacity and infrastructure. In addition, educational and awareness programmes should target end consumers more aggressively, enabling individuals to lead healthier lifestyles.
The GCC has some of the highest rates of obesity and diabetes in the world. As a result of urbanisation and rising disposable income, residents have adopted a sedentary lifestyle characterised by low levels of exercise and consumption of processed foods leading to increased chronic diseases previously uncommon to the region. According to Mansoor Ahmed, Director of Colliers International, “The rate of diabetes related illnesses in recent years has witnessed an unprecedented increase in the GCC which is expected to increase from 1.5 million cases in 2000 to 4.5 million by 2030.”
Therefore, further extensive investment in healthcare and the development of stable and integrated models of care is essential. According to Dr. Mounes Kalaawi, Chief Executive Officer, Clemenceau Medical Center in Lebanon, “It is necessary to shift current systems of care, which are currently underfunded and skewed from reactive hospitalised care towards preventative, primary and ongoing managed care.”
Technology
Integrating technology in healthcare services is seen as an approach that can reduce cost as well as improve the quality of medical care. Trends such as online medical consultation and swift online pharmacy services are some of the beneficial options of digital healthcare. Also, smartphone applications can now facilitate self-diagnosis, monitoring and medical record keeping services that are easily accessed by patients; reducing physical visits to the hospital. Such examples of healthcare technology can remarkably reduce healthcare costs and enhance preventive care, which is key to the reduction of lifestyle diseases.
According to the Alpen report, the growth of the e-health services market is expected to reach $160 billion by next year. Therefore, governments have been actively attempting to introduce such technologies to the healthcare sector. Last year, the Dubai Health Authority distributed more than 3,000 Android tablets to all health centers, encouraging plans to build smart healthcare services. As the integration of smart technologies into the sector is increasing, it will require larger investment still.
However, Dr. Kalaawi confirmed that not enough medical centers are implementing such technologies. He said, “Healthcare technology is increasingly regarded as the most promising tool for improving the overall quality, safety and efficiency of the health delivery system. However many hospitals in the region do not have or implement that ‘pillar’ in their healthcare model and framework.”
One of the reasons behind the hindrance of growth for industries such as pharmaceuticals, medical devices, healthcare IT is the size of the market, as Dr. M. I. Sahadulla, Chairman and Managing Director at KIMS Healthcare Group indicated, “Since the population in each region in the GCC is small, the market remains non-competitive for developing these industries. However, if the region has streamlined regulations across borders, then these industries can expand to some extent. For a long time medical devices will remain important items since the industry has to develop from high technology and skilled labour. By regulation, the proliferation of clinics and diagnostic centres should be restricted on the basis of demographics,” he said.
Emerging trends
As the contrast between the standards of healthcare services across the region increases, medical tourism has been one of the emerging trends. In the UAE, the growing medical tourism market reached $1.69 billion last year. This growth is expected to continue to reach $330 million by 2016 and $710 million and over 500,000 medical tourists by 2020. Oman, another attractive destination for patients seeking quick recovery and efficient care, is catching up.
In addition, centres that specialise in providing treatments aimed at enhancing “conventional beauty” and mitigating the effects of ageing are also emerging across the GCC. These treatments can vary from cosmetic surgery to dentistry and dermatology. With this rising trend across the region, the UAE now boasts the highest number of plastic surgeons in the world.
Dr. Kalaawi said, “Investors and operators need to work hand in hand and look at the bigger picture as opportunities for investments are high and can contribute to growth and alliance in the sector at both the national and regional levels. Healthcare is no longer a localised phenomenon and, due to the globalisation of the healthcare marketplace, medical tourism has become an increasingly popular trend consisting of a growing number of countries competing for patients by offering a wide variety of medical, surgical, and dental services. Therefore, investors and operators need to assist each other in meeting the challenges of today’s highly complex healthcare organisations and globalised healthcare markets more efficiently and effectively.”
Other trends include the emergence of wellness centres that aim to provide treatments that focus on both physical and mental wellbeing. These treatments include conventional and alternative ones like meditation, dance, physiology, aromatherapy, as well as Eastern healing techniques of Ayurvedic and Chinese medicine.
When asked how investors and operators can collaborate to provide better healthcare services to the regional population? Leading healthcare operators and investors said:
“Involving best-practice partners from around the globe allows specialized healthcare facilities to reach their true potential. This helps to create local centers of excellence that deliver exceptional patient care and unparalleled benefits to public and private stakeholders all looking to build a sustainable future.” – Dr. Helmut Schuehsler, Chairman & CEO of TVM Capital Healthcare Partners
“The key here is to ensure that the ‘right service’ is being provided. Meaning, both the service which is needed and the quality of the service. Regulators and payers in the region are pushing on quality increases whilst maintaining cost control which would imply they welcome offerings that provide value for money. Combining the clinical quality aspects and concerns from the operator with the financial controls of investors will help develop offerings which provide value for money for regulators and payers. Investors with long-term focus recognise that quality translates into sustainability, which leads to higher valuation at exit. This is not always clearly apparent, especially when addressing a market gap that offers short-term market-skimming opportunities that are not sustainable without an early drive towards quality.” – Hani Ramadan, Managing Director, Head of Principle Investments, Waha Capital
“With good return on investment, there are lots of investors to provide funding for healthcare providers. It’s important for the investors to consider this as a long-term commitment with long breakeven period because of high capital investment … More centres of excellence have to be established in the region to cater to the medical tourism segment. There is also a huge requirement for primary health-care facilities.” – Dr. Azad Moopen, Chairman and Managing Director, Aster DM Healthcare
“Very simple; each party needs to do the job very well. While operators need to design the best solutions for the market, investors need to structure the best deals for investors.” – Ghazi Ben Othman, Managing Director at Malaz Capital in Saudi.
