In the next two decades, the ultimate success – or failure – of the Gulf’s economic diversification plan will be carved into history. At the heart of this challenge lies the region’s physical health. An ageing, growing population and a cocktail of lifestyle diseases are fuelling the region’s colossal medical industry, which is set to reach $60 billion by 2025.
Over the next 20 years, treatment demand in the GCC will rise by 240 per cent and the total number of hospital beds will need to more than double to 162,000 to meet the needs of an ailing populace, according to consulting firm McKinsey and Company.
“The GCC suffers from a structural deficit in healthcare infrastructure and delivery. Statistics show there are two hospital beds and 1.6 doctors per 1,000 population in this region, whereas Germany, for example, has nine hospital beds and 3.4 doctors per 1,000 people,” says Arjen Radder, EMEA vice president, Philips Healthcare.
Grossly underfunded to date, the Gulf states are only now starting to allocate large sums of their sovereign wealth to the issue of health. But to meet the grave challenge of doubling resources in the two decades, governments will need to dig far deeper into their budgets.
Race against time
The number of people aged 65 years and over in the region is set to increase seven-fold in the next two decades. The longer you live, quite simply, the more services you need. To meet this demand, the region must close the gap in physical infrastructure, funding, human capital and strategy within a unforgiving timeframe.
“If you look at health spend trends regionally compared to other developed countries the western average is about ten per cent. In the GCC, it’s about 2.5 per cent to five per cent,” says Simon Leary, Middle East healthcare industries leader at PWC. “They’re not spending nearly enough and I think everybody recognises that.”
The pent up demand for healthcare represents challenges and opportunities in equal measure. Unlike in the West, and the US, with its problematic and wieldy healthcare conundrum, the Gulf, at least, is staring at a largely unblemished sheet of paper. Is it possible to learn from the mistakes of others?
“The idea of a health utopia doesn’t exist anywhere in the world. We are trying to take the best from other models. There are general labour market and infrastructure issues, but there are local nuances that are different and community and country specific,” adds Leary.
“The challenge is huge. In everything from mobile-enabled primary care through to a whole range of care delivery models that are more focused on outputs rather than inputs. This is a global challenge but here we have the benefit of no baggage.”
To date, health spending across the GCC has been arbitrary. In the region, communities tend to be disparate owing to the large percentage of foreign workers with varying cultural, ethnic and lifestyle profiles, and the bulk of the local community is rural and difficult to reach.
In many ways the Gulf’s battle is the world’s battle. Lifestyle diseases are blighting global health and the Middle East is no exception. The rising spectre of sedentary and ageing populations affected by obesity, diabetes and cardiovascular diseases has stoked the need for an urgent revision of global health thinking.
“I can’t think of a single country that has it fully worked out. If you think about the challenges healthcare is going to face in most countries in the future, it’s going to be dealing with chronic disease, long term conditions, heart disease, lung conditions, cancer and so on – how do we help people who have some level of background illness over an extended period of time?” says Simon Stevens, executive VP of UnitedHealthcare, one of the largest health companies in the US and the world.
“It used to be thought that those conditions were going on in the rich part of the world but actually recent data shows that in poor countries and in rural villages, it’s chronic diseases caused by diet, lack of exercise and smoking rather than infectious diseases like TB or malaria, that are the issue.”
The Gulf, however, is battling with the highest incidence per capita of lifestyle diseases in the world. One in four people in the UAE have diabetes and one in three hospital admissions in Riyadh, Saudi Arabia, are directly related to the disease.
One consequence of the shift from infectious killers to lifestyle diseases is a need for different forms of care. Lifestyle diseases require long-term strategic care as opposed to rapid-fire hospital treatment. Non-communicable diseases also require preventative education through community initiatives and an increased level of self-care and management over a longer period of time.
“This is a challenge for the UAE and the world. It’s about the rule of prevention and awareness,” says Mahmood Fikra, CEO of health policies for the Ministry of Health UAE. “We must involve the private sector, communities, NGOs. Everyone must be involved in getting the message across.”
Only now is the diabetes movement gaining momentum across the Gulf. Last month’s MENA diabetes leadership forum in Dubai, attended by former US president Bill Clinton, shored up awareness of the issue ahead of the first UN Summit on non-communicable diseases in September.
Novo Nordisk, the Dutch firm that supplies treatments to sixty per cent of the world’s diabetes sufferers and founded Insulin in 1921, is stepping up its presence in the region by moving its MENA office from Athens, Greece, to Dubai, UAE.
Currently the firm only gains about three per cent of its business from the Middle East region but is now expanding its regional clinical trials and government affiliations and expects this sum to grow exponentially.
“As the economies grow, so does the incidence of diabetes. The problem needs a strong unified government backing. You also need a bottom-up approach, and local healthcare workers in all the local communities,” says Lars Rebien Sorensen, CEO and president of Novo Nordisk.
“Algeria is the strongest growing country in recent years. Unfortunately, the other countries will follow. It’s the children that we need to educate and give exercise initiatives to and, finally, grown-ups, but they are often already on a track that we cannot change. We can slow the growth rate with public activity.”
In recognition of the size of the health gap, governments across the Gulf have not only upped their medical spend but they are now increasingly dropping the role of health provider for health regulator and introducing mandatory health insurance across the region – opening up a lucrative industry to private equity players.
Saudi Arabia, as the most populated Gulf country at 28 million, is a premium target for investors – the country plans to spend over $800 billion on its social and health development over the next five years, according to the Economist Intelligence Unit.
Egypt, with a population of about 80 million, which increased its healthcare budget by 22 per cent in 2009, is the region’s second largest market.
Of the $13.5 billion of Middle East private equity funds tracked by Zawya Private Equity Monitor, around one third are dedicated to healthcare. The gap between demand and supply is so great that the sector offers both high gains and stability.
Abraaj Capital, the largest private equity house in the Middle East, has acquired stakes in Acibadem Healthcare – a premium hospital group in Turkey – Saudi Tadawi Health Care, a pharmaceuticals company, Al Borg Laboratory in Egypt and E3 medical software in the UAE.
“Healthcare is one of the most stable of any investments in any region. Because it’s supported by the government and population growth, most countries are growing in population,” says Ahmed Badreldin, executive director, Abraaj Capital.
“It’s easier to negotiate health deals rather than other sectors because the need is great and the supply demand gap is so large.”
The Carlyle Group’s $500m Middle East and North African fund bought 40 per cent of Turkish hospital group Medical Park in late 2009, while 2010 saw the high-profile $270 million investment in Al Noor Medical by Ithmar Capital and $12 million in Provita health clinics by TVM Capital MENA.
Abu Dhabi-based Centurion Investment recently bought 40 per cent of New Medical Centre (NMC) in a deal reported to be worth more than $1 billion. The firm’s CEO, Dr B R Shetty, said it would allow for health spending across the UAE.
“Demand side factors spell confidence but the industry faces several supply-side constraints, from infrastructure to human capital. Private equity (PE) is the need of the time. PE is an attractive route of capital-raising for a healthcare entrepreneur, especially if comes from a health-care focused fund which understands the dynamics of the healthcare landscape,” Shetty tells Gulf Business.
“NMC will come out with an IPO of its shares within the next three years. We will do so when the market is right.”
The UAE group plans to use its recent cash injection to establish NMC hospitals in Qatar, Oman and other parts of the Middle East, as well as moving into India.
In the UAE itself, the firm is expanding its hospital bed strength in Abu Dhabi from 150 beds to 350 beds. In Dubai and Al Ain, the specialty hospitals will soon be upgraded to 250 beds each. NMC is also opening a new hospital in Fujeirah.
Badreldin says: “We have over $700 million devoted to healthcare, which is nearly ten per cent of Abraaj’s total investment.”
Abraaj Capital recently launched its $250 million RED fund, which has already invested in UAE health software firm, E3.
“The RED fund is about backing and investing in entrepreneurs, this includes pharmaceuticals, hospitals and medical labs,” Badreldin says.
The investment manager says Egypt, Turkey and Saudi Arabia continue to be the largest markets for finance because of their relatively high populations.
“In Egypt, particularly, there is a lack of quality hospitals. Only 20 per cent of the population are getting access to the drugs they need and 80 per cent are underserved and not getting the right drugs. 80 per cent of a population of 80 million represents a huge opportunity,” he says.
Abraaj plans to expand the Turkish Acibadem Healthcare group across the region and build more hospitals through ‘green fielding’ (scouting out fresh plots of land for build-from-scratch projects).
He adds that the ideal solution for expanding healthcare is a mix of private equity and bank money, with the government licensing the model.
“One challenge with the health sector is that it is heavily regulated so things change a lot. For example, Turkey dramatically reduced the price of generic drugs in a day, so that can happen. But there’s now little incentive for governments to change regulation too much as it slows development and solutions when the need for quality healthcare is so great,” he says.
“Based on the huge demand for healthcare, the investment amount is likely to stabilise or grow. We have general funds at the moment, but we never say never to a specific health fund.”
Private or public?
Public private partnerships (PPPs) are being mobilised increasingly in the Middle East to deliver better health sector infrastructure and services, according to a report from PwC’s Health Research Institute.
PWC’s Leary says: “The motivation to use PPPs varies widely across the region. Some countries are drawn to PPPs by financial and risk transfer considerations. But the main reason we are seeing more use of PPPs in the Middle East is the access they bring to bring to the acquisition and transfer of skills, global intellectual property in terms in content and process terms, and clinical and management leadership.”
Build and Beyond: The (r)evolution of healthcare PPPs tracks the evolution of PPPs from a mechanism used largely for infrastructure finance to a modern solution for the problems in healthcare service delivery and wellness. Health PPPs have already proven to save governments as much as 25 per cent of healthcare costs.
Turkey is currently the only country in the region utilising PPP projects, following the launch of the EUR250mn Kayseri Health Campus Project, the country’s first health PPP, in 2009.
Leary adds: “Healthcare is getting increasingly expensive. There’s a build from scratch need, plus the fact that healthcare spending needs to be increased to match western countries. The government will play a role in some form in all countries, whether it’s regulator, funder or provider. But increasingly public sector hospitals are not a solution in their entirety.
“Private equity is clearly going to be part of the solution, including PPPs. Some of the most profitable private equity investments have been into funds that have been in PPPs. There is an exponential need for it everywhere. The challenge is making sure your health investment is agile and in the right place.”
One key health lesson the Gulf can learn from the West is moderation and pre-planning. Without the legacy of maintenance, it’s easier to ensure budgets are spent wisely. Another lesson is the importance of prevention in stemming costly prescription amd health bills.
“Output-based is one of the world’s new approaches and it could be done here much more. You buy healthcare on the basis of your output. In Abu Dhabi and KSA you can get mobile units, and you can provide access and, therefore, you don’t waste money building a hospital that will be redundant for 95 per cent of its lifetime,” says Leary.
“The lack of investment in primary care is a concern; what tends to happen here is that people get a cold and go and see an ear and throat specialist, that’s ridiculous, it’s not good for the patient and it’s not good for the tax payer. Question one is what are the health needs of your country? It’s difficult to get information here, partly because of very high turnover of residents and partly because of cultural restrictions. There are some fantastic health professionals in the Gulf who get this, but it’s in the very early stages of being institutionalised into the culture.”
Leary adds that there has been an under recognition of the importance of engaging the general society in health issues. In Kuwait, for example, where 80 per cent of the population is obese, fat is most definitely a community issue.
“There are big issues here that are generational and aren’t going to be sorted out by nice hospitals.
There’s a whole range of issues around getting treatment embedded in the community,” Leary adds.
Leary says that caveats must be placed in health insurance schemes to incentivise patients to seek healthier lifestyles and those who smoke or exercise little should be penalised. The UAE and KSA have already rolled out mandatory health insurance schemes and the other Gulf countries are set to follow suit.
“A big issue is who pays for the service when the user walks through the door? There’s no model that has worked 100 per cent anywhere. One challenge is that there has been what levels of co-pay to use,” Leary says.
“The idea is to make people think twice about the consumption beforehand. It’s a fine balance, you don’t want to stop genuinely ill people seeking care but you do want to deter the ‘worried well’.”
But for investors, the Middle East medical market is an unusually healthy one. The region’s $60 billion medical goldmine offers unequivocal evidence that there’s a degree of recession proofing around death and taxes.
As for the patients themselves, the staggering figures say it all. The next two decades will decide the health – and wealth – of our Middle East nations.
State of the nation
The Philips Health and Well-being Index 2010 survey highlighted widespread misconception of good health: UAE & KSA residents are unaware of obesity and diabetes epidemic in their countries.
Fundamentally, it appears that there is a misconception among the people of the UAE about what is the correct body weight, about what food is good or bad to eat, about how much food should be consumed and about how much physical activity is required in order to lead a healthy lifestyle.
Mobilising health services
Qatari telco, Qtel Group, has launched a strategic partnership with The Mobile Health Company to offer “mHealth” (mobile health) services across the Middle East, North Africa and Asia.
mHealth solutions use mobile phone technology to deliver lifestyle guidance and continuous updates through customers’ handsets. The Qtel Group will be among the first companies in the region to deploy these solutions and is emphasising wellness enhancement and prioritising illnesses that have an endemic impact across the region.
The evolving disease pattern moving towards complex, chronic disorders puts pressure on existing facilities. This leads to the rising importance of home healthcare solutions. Older people are becoming increasingly active in managing their own health.
“The patients of the future being empowered, technologically-savvy consumers, playing an active role in the management of their healthcare,” says Arjen Radder, EMEA VP, Philips Healthcare.
Customers will be able to subscribe directly to the services, and personalise the package of applications. Utilising a mass population approach, the mHealth service will also be targeting customers at rural and remote communities with limited access to conventional health services.