Booz Allen Hamilton: The new Saudi Arabian healthcare market
Over the coming years, Saudi Arabia is likely to experience a sharp increase in its healthcare needs. Most observers believe that population growth, a slowly aging society, and the conditions that affluence often exacerbates, such as obesity, diabetes, and cardio-vascular diseases, as well as cancer, will create a tremendous new demand for healthcare services.
“Saudi Arabia’s healthcare system is ripe for investment opportunities,” said Mr. Ziad Fares, Booz Allen Hamilton Health Expert. “The growing affluence of Saudi Arabia and the GCC region as a whole will mean that the healthcare systems of these nations will need both money and expertise from outside sources in order to cope with an aging, yet well-to-do population.”
At present, the Saudi Arabian government funds most of the demand for healthcare capital and operating expenditures. However, analysts believe that government alone will be unable to continue to meet this demand. They have concluded that the only way to ensure that Saudi nationals’ health needs will be met without adversely affecting economic progress is to increase private sector participation in the health care system. The Saudi government has recognized this situation, and has identified healthcare as one of the key sectors targeted in its wide-ranging privatization program.
Today, the Ministry of Health (MOH) is working with the Saudi Arabian General Investment Authority (SAGIA) to prepare the sector for this essential but difficult transition. As a first step, the two agencies have studied the best practices of the countries with the most successful healthcare systems and drafted plans that adapt these practices to the unique needs and circumstances of Saudi Arabia. The underlying goals have already been established:
• Create a stronger institutional set-up and effective regulatory framework to promote private sector investment in healthcare and the production and distribution of pharmaceuticals and medical supplies,
• Develop a business environment that will make Saudi Arabia a more attractive destination for private healthcare providers, and
• Attract investors and other partners to the Middle East’s largest market for healthcare
The takeaway for healthcare providers and producers of pharmaceuticals and medical supplies is clear: the Middle East’s largest market of healthcare consumers will become increasingly open to private investment.
Growth unsustainable without increased private sector participation
Between now and 2016, the population of Saudi Arabia is expected to grow by more than 20 percent, from 23 million to 30 million. Over the same period, health expenditures are expected to increase dramatically, even faster than the rate of population growth. Demand for hospital beds is likely to grow from 51,000 to 70,000, demand for physicians is likely to rise from 40,000 to 54,000 – and the number of hospitals is likely to rise from 364 to 502. There are several reasons MOH planners see such a sharp rise in health needs:
• Saudis will become older. The percentage of the population over 60 is rising, and is expected to more than double by 2020. By 2020, the number of old people is expected to grow from approximately 1 million (4 percent of the population) to roughly 2.5 million (7 percent of the population). At the same time, as incomes increase, Saudis are likely to spend an increasing amount of money on healthcare treatments, such as leading-edge therapies.
• …But wealth will not always bring health. As most countries have learned, affluence is not an unmitigated benefit to health. Today, the average Saudi national is overweight. The average Body Mass Index (BMI) of Saudi nationals 15 years and older is 30 kg/m2, far above the global average of 23. A score greater than 25 is considered overweight.
Such personal choices are likely to continue to translate into expensive and chronic conditions.
• …And the costs of treatment will continue to rise. Paying for care of such chronic conditions is difficult now and is likely to grow worse.
Past experience at MOH suggests that the long-run trend is toward rapidly increasing expense for healthcare. Between 1999 and 2005, government saw a 7.2 percent annual compounded annual growth in its healthcare budget. The Kingdom spent US$13 billion on healthcare in 2005, and this spending is expected to grow to over US$20 billion by 2016.
A blueprint for change
Currently, the government dominates the healthcare sector in Saudi Arabia. Private sector spending for health care in Saudi Arabia accounts for 25 percent of the total. Increased private sector participation in healthcare is generally accepted as essential to achieve the Kingdom’s objective to increase the efficacy of the Saudi healthcare system while reducing the burden on government spending. Present plans call for a transition of the Kingdom to a mixed healthcare system, in which government participation is limited largely to healthcare coverage of the poor and military, with a variety of private healthcare options available to everyone else.
The plan for this transition calls for the following main changes in the current MOH healthcare system:
1. MOH will concentrate its healthcare provision activities on preventive and curative primary care
2. A new government entity will be established, the General Organization for Hospitals, separate from MOH, and all MOH hospitals assets will be transferred to this new organization to prepare the ground for increased public private partnerships in healthcare provision
3. A National Health Fund will be established under the Ministry of Finance, also separate from MOH, to fund directly healthcare services provided to patients
All these changes are likely to create vast new opportunities for international healthcare companies and other healthcare providers. Over the coming decade, a variety of opportunities are likely to open up in virtually every aspect of the Saudi healthcare sector:
Generic pharmaceuticals. The growth in population as well as the drug coverage mandated under the new insurance law will encourage domestic manufacturing of products such as analgesics and vitamins, as well as more complex products such as prescription antibiotics and beta-blockers.
Medical devices manufacturing. Rapidly growing market and more effective regulations will make it more attractive to produce locally many common medical supplies and devices, such as sterile bandages, catheters, and dentures, EKG machines and X-ray film.
Insurance. All employers will be required to provide health insurance. Initially, this policy will be applied to non-Saudis, but eventually, it will be extended to cover all workers employed in the economy.
e-Health. The growth in the numbers of players in the health care sector as well as the increasing sophistication of care available is likely to generate complexity. To cope with this development, the MOH wishes to encourage the establishment of a national electronic records system for healthcare. Accordingly, health systems integrators and potentially telemedicine specialists are likely to be in high demand.
Education. The most basic medical shortage that Saudi Arabia now faces is a shortage of doctors and nursing staff. To satisfy current needs, more medical schools and residency programs must be developed. Accordingly the government supports the development of more medical education facilities, and some of these will be available for private sector investment. Saudi Arabia will actively seek to create partnerships with leading educational institutions to build the country’s medical education capacities.
The fully nationalized system that served an earlier era well is no longer suited for the complex, dynamic country that Saudi Arabia is now becoming. For both economic and public health reasons, the government is committed to a course of change that will in the end create a system that is more responsive to the health needs of Saudi consumers.
“A market-driven healthcare system means competing groups providing the best care possible,” adds Mr. Ziad Fares, Booz Allen Hamilton Health Expert. “In order to cope with the future needs of the country, Saudi Arabia is finding that it must make substantial changes to the way it conducts healthcare.”
This transition to a market-driven healthcare system will not only be good news for Saudis and the Saudi economy. For international healthcare providers and investors, the coming liberalization of the sector will mean increased access to the largest healthcare market in the Middle East, and an exciting opportunity to help millions of Saudis live longer, healthier lives.
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