GCC Healthcare: In Sickness And In Wealth

GCC healthcare expenditure is on the increase as governments look to cater to the needs of their citizens while also encouraging private investment.

In recent years a vast pipeline of hospital projects has emerged, the largest of which is $6.7 billion King Abdullah Bin Abdulaziz Project for the Development of Security Forces Medical Complexes in Saudi Arabia.

Yet outside of acute care facilities, gaps in the market remain that if left unaddressed could see health systems placed under considerable strain.

“Right now the cost associated with providing on-going care at acute care hospitals is going to present a challenge for the economy,” says David Storto, president of US-based institutions Partners Continuing Care and Spaulding Rehabilitation Network.

Storto, whose Spaulding facility is the official teaching hospital of the Harvard Medical School Department of Physical Medicine and Rehabilitation, says the strain of providing long-term care and rehabilitation in acute care facilities is already limiting hospital beds in the UAE.

“There are capacity constraints now. I met with a physician who is head of operations for the government hospitals who described the situation in detail about their intensive care beds that in some instances are full of people who from a medical and clinical standpoint don’t necessarily need to be there,” he says.

Underinvestment opportunity

Sameer Al Ansari, chairman and CEO of PE+ Advisors highlights the uneven investment in healthcare in the region.

“If I had a million dollars where would I put them in healthcare tomorrow? I wouldn’t build another hospital because there are many coming down the road. But there are many niches that are missing,” he says.

Yet for those who can identify these ‘niches’ or undersupplied areas there is still significant opportunity for investment.

Dr Helmut Schuehsler, chairman and CEO of TVM Capital MENA, has spent over 20 years doing just that. Having led more than 20 direct investments in life science/healthcare companies in Europe and the US he is now leading a push into the Middle East with what is claimed to be the region’s first healthcare focused private equity firm.

After identifying the underserved market for long-term care, rehabilitative care and home care services, UAE- based TVM has gone about investing in three local companies. ProVita International Medical Centre, a provider of rehabilitation services to ventilator dependent residents, long-term care specialist Cambridge Medical and Rehabilitation Center, and home care company Manzil Health Care Services.

“I would clearly think in the next five to 10 years we would invest $500 million into the market, maybe a billion dollars,” he estimates.

Identifying a lack of local expertise in long-term care, Schuehsler contacted Storto and hired him in a consultative role to nurture TVM’s investments.

The arrangement means Spalding’s clinical protocols, policies and procedures are being shared with TVM staff and training provided via Spalding staff travelling to the UAE, and UAE staff travelling to the US to observe care.

“We’ll also use video conferencing. We have what’s called Grand Rounds in the US for example, where it’s a lecture given by a clinician on a particular topic as a educational opportunity for other physicians physicians in training and clinicians,” says Storto.

standardising long term care

This foreign input is deemed significant because of subpar healthcare standards across the region.

According to a recent report by research firm Ernst & Young (EY) healthcare infrastructure in the GCC continues to lag international standards, restraining the market from expanding.

“The region will need to invest in training their local talent to help build a larger pool of physicians to cater to the growing demand,” says Imad U Bokhari, MENA Transaction Advisory Services Healthcare Leader EY.

Schuesler believes private investment can help people in the GCC get “high quality healthcare locally and not in the US, Germany or UK” something which would certainly ease pressure on public funds.

An estimated $15 billion is spent on sending individuals abroad for medical care in the Middle East, with the UAE reported to have spent $2 billion on overseas medical treatments for nationals in 2009 alone.

Storto sees the introduction of international standards as improving confidence in local health services, particularly in less established fields, like long-term care.

“It is important to establish high standards that can be measured and thereby give people more confidence that the care that’s provided in this sector is going to be positive experience, and a better alternative for certain types of patients that stay in hospitals,” he says.

“Otherwise they’ll stay in hospitals forever which is part of the challenge here right now.”

Should such standards be introduced he believes it will enhance the potential for investment in long-term care as the healthcare economic value it provides is realised. “It’s in its infancy here so there is going to be a lot of opportunity for growth. Investors are going to want to be in on it early,” he says.

Encouraging privatE invEstmEnt

To date the bulk of healthcare investment has been government driven, but with soaring costs and the burden this places on public finances there has been an increasing focus on encouraging more private sector participation.

But while private investors may be eager to enter underserved areas they must tread carefully, as the public sector’s focus can change rapidly.

TVM is among those in the region calling for GCC governments to lay down a roadmap for Public Private Partnerships (PPP) in order to encourage more private investment.

“Making them [PPPs] easier to realise and making them profitable enough would certainly encourage investment in the sector,” says Al Ansari.

PPPs reduce the risk for private investors looking to invest in healthcare by guaranteeing the public sector wont encroach on their territory in return for providing the state with a good quality service.

“If you don’t have any guarantees and its not a PPP structure of course you bear a lot of risk and the risk is of course that the public sector one day decides that they want to do it themselves,” says Schuehsler.

“This is the type of decision that you are faced with as a private investor in healthcare because of the strong role of the public sector as a regulator, investor and operator,” he adds.

There have also been calls to attract more foreign investment to the pharmaceutical sector in the Middle East.

In a recent report, drug maker Boehbringer Ingelheim called for a relaxation of the rules restricting foreign ownership to boost investment in the local manufacturing industry.

Government price controls on imported drugs and a higher penetration of generic drugs are anticipated to partially decrease the market growth rate in monetary terms, according to the report.

“Considering the relatively high cost of health care and unavailability of medicines, the MENA region countries have to make some serious efforts to boost their pharmaceutical industry,” says Giham Hamdy, head of Pharmacoeconomic Unit at the Central Administration for Pharmaceutical Affairs at the Egyptian Ministry of Health and the author of the report.

Pharmaceutical and device manufacturers are among the other companies TVM is eyeing for investment, with the aim of helping them to expand to a wider customer base outside the region.

“When it comes to pharmaceuticals and devices there is a lot of indigenous entrepreneurial development with a fair and probably growing number of entrepreneurs here in the GCC and other countries like Jordan,” says Schuehsler.

CHANGING ATTITUDES

From a long-term care perspective there are two main issues in the UAE that need to be addressed, cultural acceptance of care outside of hospital and the necessary capacity to support this care, according to Storto.

“It’s going to require a combination of building the capacity and having a better understanding of the value of the capacity that will be built.”

In contrast he says the current strategy of simply building more hospitals and in turn creating more hospital beds, will not address the problem, and have a detrimental impact on the economy.

“How many more hospitals can you build to have people living there for years who don’t need to be there?” he argues.

TVM aims to expand the likes of ProVita and Cambridge Medical across the UAE, eventually extending their reach to other countries in the region.

“Our general concept is we want to build MENA business platforms, and that’s a tough job because all the countries are very different. It needs a lot of relationships and it needs a lot of good people to be involved,” says Schuesler.

But there is still some way to go until long-term care services become common practice. In this Storto believes the implementation of case rule, as imposed in the US decades ago could prove effective. Meaning hospitals being paid per condition rather than per day for patients in care, as is still the case in many markets.

“Eventually this region and other parts of the world will by necessity create those kinds of incentives. As wealthy as this area of the world is, there are going to be limitations as to how much can be spent on healthcare when there is a way that is not only economically viable but again a better way to care for people.”