A healthy market

Healthcare ‘free-zones’ hope to attract foreign investment

With an entrenched sedentary lifestyle, junk food as part of the daily diet, a climate that discourages outdoor walking, an aging population and a good few genetic predispositions, the outlook for healthcare costs in the Gulf is both devastating and titillating.

Consulting firm Frost & Sullivan (F&S) calculated the rise in per capita expenditure on healthcare in Gulf Cooperation Council (GCC) countries at a compound annual growth rate of 11.9 percent between 2006 and 2010, and forecasted the spending growth to remain similarly high at 10.3 percent between 2010 and 2018.

The states in the GCC will need some 90,000 additional hospital beds by 2018, according to F&S. The countries with the largest demand are Saudi Arabia and the United Arab Emirates where 4,000 beds are under construction but thousands more will be needed. Another forecast, by consulting firm McKinsey & Co, projects direct healthcare costs in the GCC at $60 billion in 2025.

“The healthcare challenges faced by the region today are unprecedented and would have been unforeseen just a few decades back,” says Aziz Koleilat, general manager for the Middle East at GE Healthcare, the UK-based $17 billion medical technology and services division of the General Electric corporation of the United States.

Demand for medicare investments

Pick up any forecast on the demand for healthcare in the GCC and it smells of a serious opportunity for healthcare providers and manufacturers of pharmaceuticals or treatment machinery. For investors, delving into the regional healthcare sector means dealing with stringent rules and red tape, not to mention high capital requirements for healthcare facilities and technology to stay ahead of the game. But it is well worth the effort, according to Makarem Batterjee of Riyadh-based Bait Al Batterjee Holding Co and Saudi German Hospitals Group (SGHG).

“Investors are getting into this field globally, because they have realized its high entry barriers mean it is not an easy business to get into so it is less crowded,” says Batterjee, whose company just invested over $200 million in the 300-bed Saudi German Hospital in Dubai, the group’s new flagship facility.

Besides the rising demand for treatment, Koleilat sees ample opportunity for investment into the preventative market. “The biggest concern that the Middle East faces is the rising incidence of lifestyle diseases that encompass obesity, diabetes and stress,” he says. “The opportunity for healing is strengthened when the focus of healthcare shifts from an overt emphasis on treatment to early diagnosis.”

According to the International Diabetes Federation, the UAE ranks second in the world for diabetes prevalence, at 20 percent, followed by Saudi Arabia, at 16.7 percent. This explains why Julphar, the only pharmaceutical drug manufacturer in the UAE, chose insulin for its production line, in addition to general medicines which it distributes around the region.

A market more attractive

Some 90 percent of drugs in the GCC are imported, and with a current market size of $1.8 billion and future growth of 7 to 9 percent in the UAE alone, according to F&S estimates, and with few players in the GCC market, there is room for investment in research and development (R&D) and local production.

Nevertheless, regulations and patent laws along international lines slow things down and setting up a plant takes at least two years. But the process is becoming easier as governments set up free zones, such a DuBiotech in the UAE, in order to attract foreign firms to set up both R&D and manufacturing facilities in the region.

“The return on this investment is expected to materialize in the long term, [we are] working toward creating a manufacturing hub in the Gulf,” says Manisha Rawat, research analyst at Frost & Sullivan’s healthcare practice.

The biggest hurdle faced is the need to import raw materials, but in Rawat’s view the problem can be solved by sourcing them from countries such as China and India.

Saudi Arabia takes nearly 60 percent of the healthcare market share and has set aside a large chunk of its budget, 11 percent, to address demand. The UAE comes second with nearly 20 percent, according to a report by investment bank Alpen Capital. More than $14 billion is currently being spent on healthcare projects in the region, of which the UAE public sector alone plans to spend around $11 billion by 2015, triple the expenditure of 10 years ago.

The costs of this increasing supply of hospital facilities is borne mainly by governments, but private-public partnerships, such as Abu Dhabi’s Mubadala-Cleveland Clinics, are increasingly filling gaps that have emerged.

The existing plans to increase hospital beds will suffice to maintain the current ratio of beds to population, says Bipul Kumar Jha, senior consultant in healthcare practice at F&S. “However, matching up to the international standards as in the developed nations is an area of concern,” he points out.

International accreditation

Ashraf Ismail, managing director of the Middle East International Office at the accreditation firm Joint Commission International (JCI), points out that: “The Dubai government’s leadership wants to meet international standards and their directives have been instrumental in implementing the same in terms of facilities, quality of care and staff, thus setting the direction the emirate’s hospitals and other healthcare facilities are heading in.”

JCI was established in 1994 to assist international health care organizations, public health agencies, ministries and others to improve the quality and safety of patient care in more than 80 countries. Some 450 public and private healthcare organizations have been accredited globally since 1999, of which the UAE alone has a total of 56 health facilities with JCI accreditations, says Jha.

According to JCI, the Middle East is the world’s fastest growing region in terms of accreditation, a trend that is driven by higher awareness on quality medical care and supported by the growing importance of insurance companies, which rely on accreditation as part of evaluating medical facilities that policy holders can access.

“[Insurers] are aware that accredited places offer more cost-effective, efficient and better service, quality and safety, so now hospitals are competing to get accredited,” Ismail adds. “Insurance is the future for providing healthcare in the region. People simply can’t afford healthcare without it.”

Connecting care

Dubai Healthcare City (DHCC), the emirate’s medical cluster with free-zone status, is leading the field of provider growth, with Sharjah and Ras Al Khaimah also intent on getting in on the action.

DHCC, which was launched as a project in November 2002 and served about 3,000 patients in 2005, has grown from footfall of 410,000 patients in 2010 to more than 500,000 in 2011.

“The DHCC has been successful in attracting foreign companies, education institutions and medical supply companies,” Jha remarks. “This has in turn helped to improve the situation of the entire UAE healthcare system as a whole.”

Besides improved efficiencies, healthcare operators have an important opportunity in streamlining diagnostics and treatment services to better meet the needs of patients. The Ambulatory Healthcare Services (AHS), a unit of state-owned Abu Dhabi Health Services Company (SEHA), could be a trend-setter for integration of diverse health services in the UAE. “We have all the services under one roof, meaning we don’t need to refer patients for tests, x-rays etcetera. It all stays in our network and we have specialists which analyze all the results centrally, so your doctor has the test results within 24 hours,” says Dr. Omar al-Jabri, chief medical officer at AHS.

AHS has this summer become the first health care organization globally to receive a new “network accreditation” certificate from JCI. “We’re happy to collaborate with other health facilities in the UAE, who are interested in taking the accreditation and share our experience of the process with them,” Jabri tells Executive. “We already had some inquiries from several medical facilities in the Northern Emirates, for example RAK Hospital came to visit us.”

In Dubai, all government hospitals are already JCI accredited and the leadership’s directives point to all privately owned healthcare businesses having to follow suite. “As far as I am aware all privately owned medical centers, laboratories and even the smaller private clinics are expected to get accreditation by 2013,” confirms Ismail.

This could become a bit of a conundrum, however. Although accreditation itself isn’t expensive — $12,000 for the average hospital every three years —small non-purpose-built clinics will find it hard to make the cut, as they will simply fail on the physical building safety and security aspects, Ismail explained.

While the Dubai Health Authority (DHA) and Health Authority Abu Dhabi (HAAD) have taken the lead in implementing more stringent rules to raise standards over the years, medical providers say the rules and systems between themselves and the DHCC are in need of unification, and they claim time-consuming licensing procedures mean skills can’t always go where they are needed.

Calling for licensing to be completed within weeks instead of months, providers in Dubai are putting their hopes on an electronic process which is a work in progress at the DHA and envisaged to become reality by year-end.

According to Jha, a talked-about Emirates Health Authority could improve the health situation in a more equitable manner and with a greater focus and reduce localized development of healthcare infrastructure.

Another bottleneck is education. “The local talent pool is insufficient in fulfilling the demand,” Jha says. “The dependency on expatriate workforce is high and the private hospitals face a tough challenge in hiring and retaining the right kind of employees.”

As UAE authorities and private medical providers have been busy teaming up with medical educational institutions to offer government-endorsed medical degrees in the UAE, the country is today rife with opportunities for committed long-term investors whether in medical care or education.

Abu Dhabi-based NMC Health, the UAE’s largest private healthcare provider, only this spring proved the voracity of international investor appetite in regional health issues — seeking capital for its expansion in the UAE, the company in April raised the equivalent of $180 million via an initial public offering on the London Stock Exchange. Other providers are now planning to do the same.

The demand is definitely there, but whether the planned new free zones can be successful would depend on the regulations the authorities put in place and what type of medical facilities would want to set up, says Ismail, noting that: “Today the name of the game is quality.”