A look into Lebanon’s healthcare

Untangling myriad business strings

Photo by: Greg Demarque/Executive

Health encapsulates economic activity that amounts to trillions of dollars by the—in this context crude—methodology of collating production of goods and services as gross domestic product (GDP). The Global Health Observatory of the World Health Organization (WHO) puts the world’s expenditure on health at $7.2 trillion (2015 estimate), or 10 percent of the world’s GDP. Many countries have health expenditures representing between 7 and 9 percent of their GDP. However, some economies (for example, on the Indian subcontinent and in Sub-Saharan Africa) allocate less than 4 percent of GDP to health spending. Upward outliers, mostly from member countries in the Organization for Cooperation and Development, clock in above 9 percent.

According to a Human Development Report (HDR) by the United Nations Development Programme in 2013, low-income countries early in this decade spent on average 5.7 percent of GDP on financing healthcare, whereas high-income countries show average health expenditure of 12.3 percent. Reports generally show that higher levels of healthcare spending are reflected in higher life expectancy and are very visible in data points such as the number of physicians and hospital beds in relation to a country’s inhabitants.

Disparities between low-income and high-income countries in the density of available health services as shown in the HDR are enormous, with 0.7 physicians per 10,000 people in the former versus 29.2 in the latter. Likewise, low-income countries have about 13 hospital beds per 10,000 inhabitants whereas the average for high-income countries is over three times that, at 42.3 beds. (Nevertheless, having a high share of healthcare expenditure does not automatically signify that a nation’s system is superior in terms of being beneficial or efficient).

A number of international healthcare rankings indicate that Lebanon is on a trajectory of continuous improvements in coverage and performance. The 2018 Healthcare Access and Quality (HCAQ) index by international medical journal The Lancet, for example, ranks Lebanon in 33rd place with 86 points (in a previous HCAQ edition, Lebanon was ranked 31st with the same score), rubbing shoulders with European nations like Estonia and Portugal. Lebanon in this index is also positioned a mere four spots lower than the United States and ahead of Taiwan and Israel.

A May 2018 study on Lebanon’s health governance notes that the country’s diverse (some say fragmented) health system provides “compared to other countries, good value for money.” When the HCAP score is put in relation with total healthcare spend as share of GDP (in constant purchase-power parity dollar), Lebanon’s score of 86 places it below some countries with higher health spending but, as the study points out, the country “is on the frontier curve.” This is to say that none of the countries with lower healthcare spend than Lebanon as share of GDP rank above it in the HCAQ index.   

Good health on systemic level: a function of quality supply, evidentiary decisions, and collaborative governance

According to the Ministry of Public Health (MoPH) in Lebanon, the national spend on healthcare as share of GDP is 7.5 percent. On the basis of the 2017 GDP estimate of $53.4 billion, the health bill would be about $4 billion and be paid for by three main streams of financing in roughly equal measure. One third is government expenditure from tax revenue, one third is covered by private insurance and also provided via contribution-based schemes, such as the National Social Security Fund (NSSF) and cooperative funds, and the remaining third is composed of direct private expenditures by patients, as out-of-pocket (OOP) payments. Commercial stakeholders in the management of healthcare services in the Middle East agree that Lebanon represents an interesting value proposition to its population, even as they note that the growth of the healthcare insurance business has, in recent years, not been as strong as in countries with higher economic growth.

Ahmad Barclay & Thomas Schellen

“Although we haven’t witnessed tremendous growth in GDP in Lebanon in recent years, there has been growth in the market for health insurance. This growth was mainly because of higher health inflation when compared with GDP inflation in Lebanon. However, when I look at all markets under my responsibility, Lebanon has been performing resiliently over the years. There are flaws, and the market is not growing in the double-digits like the Gulf markets, because the economy is not growing in double digits. But the market has been growing steadily and is providing quality care,” says Christian Gregorowicz, chief executive officer of regional third-party administrator (TPA) Nextcare.

“If we compare costs of insurance in Lebanon to those in the Middle East or in Europe, the cost of insurance premiums is still cheaper and people here have better coverage than in many other countries,” Joe Abou-Chacra, general manager of TPA GlobeMed Lebanon, notes. “But it is not at all certain how long the insurance sector in Lebanon will be able to keep going without increasing premiums massively.”

Factors contributing to the improved standings of Lebanon’s health today, as compared to its state at the turn of the century, included gains in efficient usage of the people’s private financial resources. For example, OOP health expenditure dropped from 6.2 percent of GDP in 2000 to 2.4 percent in 2015. Further important benefits were generated by a set of successive reforms and systemic improvements implemented under the leadership of the MoPH, in the course of which the health sector was transformed from one oversupplied with underutilized expensive machines and characterized by “perverse incentives”—where the old MoPH system had provided compensations to hospitals irrespective of their competencies or quality—to one that is driven by evidence-based decisions and collective governance.

Fragmented to diverse

The transformation of the healthcare system was in large part systemic but it also entailed a change in perception: discovering strength where the previous perception of Lebanon’s health system structure with its multiplicity of actors had been negative. “In describing this situation, we usually spoke of fragmentation, which has a negative connotation,” explains Walid Ammar, the director general at the MoPH. “You have overlap in some areas of coverage and gaps in others, and you don’t have the global picture. [This fragmented system] is difficult to govern. However, if you apply good governance principles and succeed in managing fragmentation, you mitigate for the negative effects of the multiplicity and what remains is diversity. Diversity is very important, as it gives you flexibility and this means you can adapt to unpredictable situations. In describing the multiplicity of the Lebanese health system, we now use [the term] diversity, which has positive connotations. But if you are not able to govern a system of multiplicity, you have a fragmented system that is inefficient.”

Ahmad Barclay & Thomas Schellen

Lebanon’s national health indicators (see infographic) show values that are today in better balance. No longer is the number of medical doctors higher than the number of nurses, and the number of hospital beds is moving away from previous congestion that was sometimes characterized by questionable quality, toward a more balanced supply, also in comparison with the primary healthcare system. Research by GlobeMed shows some interesting trends in the number of nosocomial infections (infections contracted in hospital and requiring additional treatment). According to findings that GlobeMed shared with Executive, the average rate of nosocomial infections in Lebanese hospitals was 1.6 percent for the period from 2010 until 2017. While this rate fluctuated between 2010 and 2015, it dropped to 1.3 percent in 2016 and then to 1 percent in 2017.

“We do continuous studies on medical care and we inform the hospitals if our studies show any red flags [of rising incidence rates] or when more care is needed because we percieve hospitals as our partners. Our studies on nosocomical infections are indicating that the rate of infections contracted during treatment in hospitals has decreased a lot compared to five years ago. Talking about hospitals in Beirut, the rate of these infections has decreased by 60 or 70 percent,” says GlobeMed’s Abou-Chacra.

The successful shift from a system dominated by divergent self-interested commercial players to a resilient system with better coordinated actors has been demonstrated convincingly during the ongoing Syrian refugee crisis.

An industry with many vital sides

What complicates the overall scenario is the fact that the health sector combines commercial stakeholders with clear profit motives for achieving high sales of goods and services—such as private hospital operators and pharmaceutical manufacturers—with other stakeholders whose business models are driven by cost optimization and rationalization, such as third-party-administrators and insurance companies. This map of health system dynamics is incomplete, however, as there are further important  elements involved, namely third-party stakeholders—medical practitioners—who can or cannot be driven by profit motives, and the usually extensive involvement of public sector interventions.

The production of health goods and services has increased international trade and the manufacture of goods for export. Just to give an idea of its dimensions, European pharmaceutical exports, according to statistics portal Eurostat, have more than tripled since 2002, going from less than 50 billion euros to over 153 billion euros in 2017, and imports grew similarly, from about 26 billion euros in 2002 to 76.7 billion in 2017. IFPMA, the global federation of pharmaceutical manufacturers and associations, reported in a 2017 study that global pharma production was worth almost $1 trillion and that the value added rate of producers was 45.5 percent, or $453 billion.

Ahmad Barclay & Thomas Schellen

While the Investment and Development Authority (IDAL) highlighted Lebanon’s pharmaceutical industry for its investment opportunities and reported that pharma sales reached $1.63 billion in 2015, the bulk of pharmaceutical trade is inbound. Lebanon’s pharmaceutical exports, according to the Najm system tracking Lebanese trade at the customs level, have yet to lift significantly beyond the $50 million per year range. Several leading members of the Lebanese pharma industry were not available or unresponsive when Executive approached them to inquire about the sector’s export development potential.

Beyond pharmaceutical products, Lebanon by all logic has the potential to increase the export and import of qualified human capitals—doctors, nurses, pharmacists, lab technicians, etc.—plus immense potential for health sector disruption by information technology—currently in the form of full digitization—as well as new or growing adjacent economic activities, from preoccupation with wellness and nutrition to medical and wellness tourism.

All in all, it seems practically impossible to overestimate how much health writ large could contribute to this nation’s GDP, beyond what is spend on health as share of GDP. Common categorizations apparently are unable to quantify the role of health in the economy in the way that agriculture and mining can be quantified. However, as Executive examined different health-related fields of the Lebanese economy, it appeared that the proverbial glass is still eminently fillable.

There is room, firstly, to further improve the medical system. Overlap and gaps need to be addressed and, in the management of financial assets that people dedicate to their healthcare, economies of scale could be deployed by introducing a system of compulsory medical insurance, argues Nadine Habbal, the head of the Insurance Control Commission at the Ministry of Economy and Trade.

Untapped potential

Then, there is the presence of ignored societal costs from the neglect of mental health. Arguably, the costs that result from the stigmatization and denial of mental health issues can have repercussions for the Lebanese workforce, including drops in employee productivity, impairment through substance abuse or depression, or mental affliction-related work absences. The resulting costs are staggering and could be reduced by investing more attention and resources into the treatment of mental disorders .

Outside of opportunity costs incurred by employers not securing comprehensive insurance packages or failing to address mental health, there are untapped potentials in Lebanon’s pharmaceutical sphere. This is illustrated by the newly revived discussion of medicinal cannabis, as well as currently untaken opportunities for research into and development of the medicinal potential of other local plants and herbs. In addition, the potentially lucrative fields of wellness tourism, medical tourism, nutrition, and wellness services from yoga to life coaching can all be advanced to realize better economic and health outcomes. Also, with regard to the ambitious Lebanese entrepreneurship sector, which has throughout the decade been striving to make the best of new opportunities in the knowledge economy, IT, and mobile applications, health-tech entrepreneurs tell Executive of unnecessary obstacles and missed growth opportunities.        

Ahmad Barclay & Thomas Schellen

In the bottom line, the health industry of Lebanon appears rife with opportunities that have not yet been fully taken advantage of, or that are still waiting to be captured. At the same time, very encouraging signals as to our health economy potentials are being sent by the health system’s improvements over the past two decades and by its duress-defying performance under conditions of worsening national poverty and inbound despondencies since the outbreak of the Syrian refugee crisis.   

Ahmad Barclay & Thomas Schellen
Ahmad Barclay & Thomas Schellen

All this potential comes with the caveat intrinsic to all dealings with the market for medical care. The economics of health is much more than a matter of pure price and profit, in contrast to markets for goods and services that one can easily live without. As famed economist Kenneth Arrow wrote in the conclusion of a seminal 1963 paper on uncertainty and the welfare economics of medical care, “the limitations of ideal competitive behavior under uncertainty force us to recognize the incomplete description of reality supplied by the impersonal price system.”

Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years.