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 cardiovascular diseases, as well as cancer, will create a tremendous new demand for healthcare services.
“Saudi Arabia’s healthcare system is ripe for investment opportunities,” according to a senior associate at Booz Allen Hamilton. “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 struggle 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 to prepare the sector for this essential but difficult transition. As a first step, the MOH has 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 setup and effective regulatory framework to promote private sector investment in healthcare, including the production and distribution of pharmaceutical 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 suppliers 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
By the year 2020, the population of Saudi Arabia is expected to reach 30 million. Over the next decade, 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% of the population) to roughly 2.5 million (7 % 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% annual compounded annual growth in its healthcare budget. The Kingdom spent $13 billion on healthcare in 2005, and this spending is expected to grow to over $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% 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, including tertiary care, secondary care, ambulatory care and testing centers, generic pharmaceutical, medical devices manufacturing, insurance, e-Health and education.
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 a senior associate of Booz Allen Hamilton. “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.
Ziad Fares is a Senior Associate at Booz Allen Hamilton. He is a member of the Global Health team at Booz Allen and is currently responsible for growing the health practice, leading engagements and consulting teams in various countries in the GCC and MENA regions.