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Finance

‘Corporate governance helps companies grow’

by Maya Sioufi May 15, 2013
written by Maya Sioufi

The need for proper governance is perhaps the paramount lesson of the 2008 financial crisis — one the regulators worldwide are now trying to address to prevent a repeat. Ludo Van der Heyden, a corporate governance and strategy professor at INSEAD business school, gave a talk on the subject at the American University of Beirut last month, having been invited  by the Rami Makhzoumi chair in corporate governance. Executive sat with Van der Heyden to talk about corporate governance in the Middle East.

 

Is there a correlation between solid corporate governance practices and the financial performance of a company? 

More and more research shows that good governance leads to good performance, but that is not always the case. Value creation is not typically done by the board [of directors] but by executives. The board’s first job is value preservation and making sure that no irrational decision is made. In the Middle East, governance is seen as a compliance issue but governance is at the root of sustainable performance.

Shareholder activism is on the rise. Several companies are reassessing merger bids and implementing changes to satisfy shareholder demands. JP Morgan has been pressured to separate the roles of chairman and chief executive officer. Do you expect shareholders to have a more significant say in the future? 

The more there is good governance, the less room there is for shareholder activism, which is a consequence of bad governance. Some shareholder activists are there to make a quick buck. A great example of [harmful] shareholder activism is when Deutsche Börse Group wanted to buy the London Stock Exchange (LSE) in 2006, and the deal was prohibited by [LSE shareholder] activists who said it would destroy value. Lord Rothschild and other English activists didn’t create value as the LSE went out of the game. Deutsche’s board was not active because the CEO did not engage them and because they did not know much about shareholder activism.

So you are saying that having an active board of directors is key for a company to create long-term value? 

The biggest risk for a company is CEO succession, and it’s the board that manages that. Whenever you see a company in trouble, people say, ‘We should fire the CEO.’ But I say, ‘Maybe we should fire the board,’ because with the right board, maybe they would’ve changed the CEO before. I’m not saying the board should fire the CEO, but they should make sure the CEO performs well. 

There is still no internationally adopted standard for corporate governance. Do you expect a convergence toward a universal standard?

No, because governance is an answer to a question in a [specific] context. The Lebanese context is very different than the one in Dubai, which is different than the one in Abu Dhabi. There are common principles, but every country has a different context. It would be a mistake to cut and paste. The key issue is, ‘What is the quality of the debate between the CEO and the board members?’ The mutual confrontation should be very serious and it is a complex formula to get right.

Family businesses account for a large share of companies in the Middle East. If they are not listed and have no duty to report to shareholders, how would you convince these businesses to be corporate  governance compliant?

Corporate governance is about value preservation. It is the value of your money and your mother’s and children’s money. If there is one case for good governance, it’s for family firms. The first thing to do in a family business is to create a council of family shareholders and ask, ‘What is the family project? Who is going to represent us? Do we have competence in the family to appoint directors?’ Families should also ask themselves, ‘Should we be on the board?’ The answer is ‘Absolutely.’ [For the question of] ‘Only us on the board?’, the answer is ‘Absolutely not.’ 

What is the most significant challenge when it comes to implementing corporate governance in the Middle East? 

It is director competence and understanding that maybe in the family, we are not the best directors. Family businesses dislike independence. They want people to be honest but they want to be able to trust them so they hate independence. The best practice at least is to resort to specialists that can judge the quality of directors. 

May 15, 2013 0 comments
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Business

Looking for the leaders of tomorrow

by Joe Dyke May 15, 2013
written by Joe Dyke

For those Lebanese looking to study business in the world’s top educational institutions, the first step is often the QS World Tour’s annual visit to Beirut, taking place today. Leading business schools, including Fordham University, INSEAD and others, have sent representatives to meet the country’s rising stars in the hope of finding the right students for their institutions. Paras Fatnani, QS’ Marketing Managing for the United Kingdom and the Middle East, spoke to Executive about developing Lebanon’s education system.

 

Who can apply for MBAs and what support do you offer them?

The MBAs are for people who have at least a year or two of work experience and are looking to pursue higher education. While Lebanon for us is a small market, we keep coming back because we feel that there is very high potential in terms of the quality of candidates. We have a number of things that we do alongside [running meeting days], including educating people. We also offer [globally] an annual scholarship fund of $1.2 million every year for students looking to study abroad.

How much of that usually goes to the Middle East?

It really depends on quality, we don’t judge based on country — one of the key [rules] is that until the application is successful no candidate details are revealed. Having said that there are also some regional scholarships.

Are students in Lebanon still primarily interested in going to the United States and Europe to study, rather than the Gulf?

We do a lot of research and one key aspect which we pointed out last year in [our] findings was that in the Middle East there was higher earning potential [than Europe and America] for MBA graduates coming to work there, whether that be locals or foreigners.

As such, do you think attitudes towards business education are changing in the region?

Yes, I think they are and I think the demand for MBAs — qualified MBAs — is changing as well. People are valuing that a bit more and they are bringing an international flavor to the table. Most MBA programs try to cultivate the feeling of working together with people from different parts of the world.

When you talk about education in the Middle East, you are primarily talking about the Gulf — in terms of education infrastructure the Gulf is a long way ahead. What can Lebanon, Egypt and other countries do to catch up?

Lebanon I would put as high as the [United Arab Emirates] and Saudi Arabia when it comes to potential to grow in terms of education structure, because there are a few Lebanese who have the vision to make it to that level. Talking about improvements I believe there is potential because you have got a very strong undergraduate education here — you have good universities like [the American University of Beirut] and others. Going towards the post-graduate side, what happens is people tend to go out [of Lebanon] or lose out.

What are the areas where Lebanon lags behind?

The advantage clearly is the language — English being so profoundly spoken here, it makes it easy to feel a part of it. There are a few disadvantages– one of which unfortunately is the security scenario. That is something that influences people.

I think while attitudes are changing they are not changing fast enough — there is not enough effort being made by the universities to say ‘we are not what you think, but this is what you can do.

Gulf governments have been very proactive in building education hubs. Do you feel there could be more from the Lebanese government?

Yes. There are two sides to it — one you can talk about cultivating talent, so when we are talking about students there should be more scholarships available. If you look at Saudi Arabia, students have a very strong chance of getting a scholarship once they get to universities that are acknowledged. The other side is the government can support the initiatives of local universities here so they can attract students from other countries as well.

 

Those interested in learning more about doing an MBA can attend the event at the Crowne Plaza today at 4.30

May 15, 2013 0 comments
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The Buzz

Morning briefing: 15 May 2013

by Executive Staff May 15, 2013
written by Executive Staff

Economics and Policy

Moody’s Investors Service Tuesday warned it could cut Lebanon’s government bond rating over potential spillover effects from Syria’s civil war, including suppressed growth and political instability.

More from Reuters

 

A jailed cousin of former Libyan leader Muammar Qaddafi has accused Egypt of trading his freedom and its principles for US$2 billion in aid for the floundering economy.

More from The National

 

Lebanese taxpayers will soon be able to pay their taxes electronically instead of having to go to the Finance Ministry, according to caretaker Finance Minister Mohammad Safadi.

More from The Daily Star

Dubai's non-oil trade jumped 16 percent in the first quarter and recovery in the emirate's property sector will help keep the pace up this year despite a plunge in trade with Iran and global economic weakness, the Dubai customs head has said.

More from Reuters

 

Companies and Business

One of two Lebanese currency exchange firms accused last month of money laundering by the United States Treasury Department has appointed a U.S.-based legal representative, Halawi Exchange Co.’s general manager told The Daily Star Tuesday.

More from The Daily Star

 

A new round of a business competition has been launched to give a boost to some of Lebanon’s small- and medium-sized enterprises.

More from The Daily Star

 

Dana Gas has boosted its profits in the first quarter on the sale of shares in the Hungarian oil company Mol as revenues declined on lost production in the Kurdish region of Iraq.

More from The National

May 15, 2013 0 comments
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Economics & Policy

Lebanon stops collecting inflation data

by Benjamin Redd May 15, 2013
written by Benjamin Redd

When Lebanon’s central bank announced a stimulus package in January, it was largely welcomed. But for the critics the main concern was inflation — more money in the economy would lead to a hike in prices, effectively negating the effect of the new money altogether. But these critics have been silenced, not by being proven wrong but by the government’s decision to stop collecting data on inflation altogether.

Lebanon doesn’t publish much in the way of professional economic data — there are no regularly published figures for unemployment, jobs created or foreign investment. Since 2008, however, inflation has been a notable exception to this rule: being measured in a professional, systematic way by the Central Administration of Statistics (CAS).

But in January 2013, CAS failed to publish its monthly Consumer Price Index (CPI). The only other time this happened, in January 2011, it was just for one month. This time, CAS has failed to publish CPI for four straight months — and counting. The data show that inflation was at an annualized rate of around 10 percent in the second half of 2012, but since then there has been no way of knowing if it has increased or decreased. Those familiar with the matter dispute whether there are plans to resume publication in the foreseeable future.

“This is scandalous,” said Jad Chaaban, an economist at the American University of Beirut, adding that CPI “was very important for economic planning — even for consumers and employees who need to know how much of a raise they should have at the end of the month.”

Nassib Ghobril, chief economist at Byblos Bank concurred, telling Executive, “There are very big implications: companies use [CPI] for budgeting, salaries and pricing; entire sectors and labor unions use it; and it is used for calculating GDP.” He added that the country already lags behind international standards in terms of the quality of data collected. “We are very frustrated. We already have a weak statistical base, and it’s just gotten weaker.”

Administrative disarray

The reason for the lack of data speaks volumes about Lebanon’s archaic system of government. Officials both in and close to the government told Executive that the issue is not funding — CAS has the money needed to collect, analyze and publish the data — but rather administrative and political. Two sources close to the issue claim that CAS can’t do its job without authorization from the Prime Minister’s office — basically, the agency is waiting on a signature.

The reason for this reticence to sign is disputed. Samir Daher, advisor for economic affairs and development in the office of caretaker Prime Minister Najib Mikati, did not deny claims that Mikati’s office was responsible for the delay but said the real issue was a disagreement within the government, telling Executive that “it’s a technical dispute that’s taking place. They say that this is the only team that has been trained and I say I want to take a broader view and build an independent institution.” Asked to specify whom the dispute was between, Daher declined.

Speaking of the need for more statisticians and more competitive salaries at CAS, Daher continued, “This is part of a broader attempt to reform; you don’t want to make minor adjustments. We’re trying to revise the law and give more authority to this institution.” It was unclear how stopping CPI publication would give CAS more authority, but Daher added that he was committed to reaching a deal, saying: “If I don’t finish this [before leaving office], then I have partially failed.” Mikati is due to step down, along with his advisors, if his designated successor Tammam Salam can agree on the formation of a new cabinet.

Chilling effects

But broader reforms do not help in the here and now. Crucially, the issue is not that CAS has collected but not published inflation data — rather, the lack of authorization from the Prime Minister’s Office has precluded even data collection. That means when authorization resumes, there will be at least a four-month hole in the data. “You can’t go back to January and collect data,” noted Ghobril.

Not only is this a problem for local business and employees, but it also causes headaches for organizations like the International Monetary Fund (IMF), which regularly publishes economic data on Lebanon. The fund also provided advice and technical assistance when the CPI was devised in 2007-2008.

According to Ghobril, the IMF “is very concerned about this suspension. When they were here a few weeks ago, it was a big issue.” Daher took a more reserved view, saying, “The IMF is aware of the issue and understands what is happening.” The IMF declined when asked to comment.

Options for judging inflation without the CPI are limited for policymakers, companies and citizens alike. One other organization, the Beirut-based Consultation & Research Institute (CRI), collects such data. However, their inflation statistics differ in methodology and scope from CAS’s. For January through March 2013, CRI calculates that inflation in the greater Beirut area has hovered around 4.5 percent year-on-year, down from 7.75 percent in October 2012. Compare this to the CAS’s October figure of 11.1 percent, and it is clear that the different methodologies make comparison difficult.

Regardless of the high official figures, Ghobril said there was no justification for ceasing publication. “For an open country that relies on capital inflows and free trade, it’s embarrassing…. Developing a comprehensive statistical base should be a priority of any government; proper policymaking has to be based on credible figures.”

May 15, 2013 1 comment
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Economics & PolicyHealthcare in Lebanon

Licensed to slice

by Nabila Rahhal May 14, 2013
written by Nabila Rahhal

You see them everywhere in Lebanon: the women whose faces look as tight as a 20-year-old’s until their wrinkled hands betray them as septuagenarians; the television presenters whose upper lips lump to one side; and all those cute, celestial noses! As you walk down the street you see dozens of faces, male and female, all sporting the same smooth nose with pointed tip. 

It feels like an epidemic of cosmetic procedures all around you. Advertisements for liposuction and filler procedures in places such as beauty or physical therapy centers have become as common as advertisements for the latest hamburger. 

Mind you, reconstructive and plastic surgery can be as vital to a person’s wellbeing and recovery from a burn or accident as any serious surgical procedure. Lebanese specialists do sometimes perform these literally face-saving procedures, and they are to be commended for their work. 

But the bulk of plastic surgery procedures in Lebanon are done for superficial purposes. Though the free-spirited among us would like to think that the Lebanese obsession with cosmetic enhancements is a cliché, the numbers and faces around us force us to face facts. 

Lebanese doctors perform the highest number of plastic surgery operations per capita in the Arab region, and Lebanon ranks among the top 20 worldwide according to the Lebanese Society of Plastic Aesthetic and Reconstructive Surgery (LSPARS). 

Reasons for this obsession vary from an extreme reaction of a society repressed by memories of the civil war to the need to keep up with one’s peers and look as good as they do.

Some believe that physical improvements are not wrong as long as one is comfortable with oneself after seeing the end result in a mirror. While this is arguable, the danger of self-improvements becomes tangible when the practice becomes commercialized to the extent that women are getting Botox injections during their lunch breaks, and not from qualified plastic surgeons. 

Not only the nose

There are currently 83 plastic surgeons in LSPARS — founded in 1967 with just seven members — and they perform an average of 5,000 cosmetic surgery operations annually. This excludes noninvasive procedures such as fillers and botulinum toxin (commonly referred to as Botox), which make up 60 percent of a plastic surgeon’s work. 

Botched operations are increasingly common in Lebanon

 

Among the 40 percent of procedures that are invasive, the most requested operation remains the rhinoplasty, or nose job, with liposuction and breast augmentation following close behind. “We Arabs have very prominent noses, and while some see this as a symbol of masculinity or national heritage, many opt to have it softened,” explains Antoine Abi Abboud, head of plastic surgery at Mount Lebanon Hospital.  

The domestic market for invasive procedures has grown for nose jobs and breast modifications. Perhaps it is because Lebanon has become an even more image-conscious society. Practitioners tell Executive that the number of men seeking such cosmetic treatments has steadily risen in recent years. “Men mainly seek liposuction if they are overweight and body sculpting which gives them a six-pack appearance,” says Elias Nassif, plastic surgeon at the Bellevue Medical Center. 

Not all cosmetic surgery operations in Lebanon are performed on Lebanese. Arab clients, lured to Lebanon by plastic surgeons’ reputation for excellence and by the relatively low cost of treatments compared to Europe and the United States, account for a significant percentage of total cosmetic surgeries performed in the country.  Also, in an inverted form of medical tourism, many Lebanese plastic surgeons commute regularly between their local clinics and the Gulf, for added exposure and income. 

“When I first started, I could safely say that 50 percent of my clients were from Arab countries,” says Nassif. This percentage dropped close to zero in the summer of 2012 in the wake of Arab travel warnings on Lebanon, Nassif explains. “Now they are on the rise again and international patients constitute 30 percent of my clients,” he adds. Other practitioners cite similar ratios for their Arab clients and tell Executive of seasonal trends where Arab client numbers peak in July/August when many take advantage of the holidays to ‘readjust’. 

 

Crooked compensation 

The incentive of money not only motivates physicians to specialize in plastic surgery; it also attracts surgeons from different specialties to perform opportunistic procedures. 

“A general surgeon who makes a maximum of a $1,000 on a hernia operation can make $2,000 for a nose job,” explains Abi Abboud.

Legally, any surgeon can perform any surgery, and while dermatologists and ear, nose and throat specialists are technically qualified to perform certain procedures and surgeries, it seems there is ambiguity regarding this issue. “While this is legal, the danger is when a serious mistake occurs due to lack of specialty and then problems will occur,” says Abi Abboud. 

Even among plastic surgeons, there are those who are considered less qualified than others and LSPARS is trying to influence the Order of Physicians to be more selective in licensing plastic surgeons. Sami Saad, secretary of LSPARS and a practicing plastic surgeon, says the problem lies within the system: all a physician needs to do to be allowed to practice in Lebanon is to present evidence of training. 

“Some countries, like Russia, train plastic surgeons only through observation, so when a doctor from such a system obtains a license to operate in Lebanon, he is apt to make errors as he isn’t properly trained,” explains Saad, adding that the Lebanese board of physicians responsible for licensing doctors rarely has plastic surgeons as members, and so it is unaware of the field’s needs. 

Saad gives the example of medical institutions in the US, where students’ internships stretch over several years, more than half of which are spent on hands-on training under the guidance of practicing plastic surgeons. 

Dirty and ugly

Many beauty centers and hair salons in Lebanon have started listing Botox injections, filler procedures and even liposuction on their lists    of services. 

Under Lebanese medical law, it is illegal for anyone except doctors — or those under a doctor’s supervision — to perform injections. Yet these centers continue to provide such services. “These beauticians attend a workshop for several weeks and learn the basics of these procedures, but they lack the years of medical practice. They haven’t studied anatomy and don’t know how the muscles respond to such injections,” explains Saad, adding that liposuction by laser is another treatment provided by such centers, and can result in complications such as permanently burnt skin or hardened fat that becomes impossible to remove. 

“Another danger in those centers is that they use products of unknown sources in their injections, and there are no references or backup if something goes wrong,” explains Saad. “These centers are irresponsible and [in the case of liposuction], which involves anesthesia, they can cause fatal damage,” says Nassif. Plastic surgeons Executive spoke to say they see at least one case of corrective surgery per week from procedures performed in such centers.  

Beauty centers attract clients through their strong marketing campaigns, which physicians are prohibited from mounting by law. In some cases, beauticians go as far as encouraging their customers to buy a Botox injection on the spot, without giving any proper medical advice. “The beautician who was giving me a facial encouraged me to get a Botox injection, saying that it will help me look years younger,” says Hanan, a 42-year-old Lebanese woman in the waiting room of a plastic surgeon. “She said that she could give me one right now, as part of my facial treatment.” 

Hanan did not want to give her last name for fear of embarrassment as her reason for seeing the licensed plastic surgeon was that the beautician had botched the injection and Hanan hoped to have the maltreatment corrected. Other beauty seekers willingly undergo treatments in dodgy centers because of the misconception that the coveted injections cost less there, though LSPARS asserts that their prices are the same and sometimes lower than the centers, in the range of $400 for a filler procedure and $300 for Botox.

 

Faint hopes

Other than prohibiting physicians from marketing themselves, the Order of Physicians has done little to regulate plastic surgery in Lebanon.  

Consequently, LSPARS has taken upon itself the role of educating the public and raising awareness on the dangers of malpractice in this field. The organization, which has some leverage in its power to grant international recognition of Lebanese plastic surgeons, focuses its awareness work mainly on encouraging the public to only use a licensed public surgeon for any procedure.

Yet, as profits lure and marketing draws customers, it seems naïve to expect that a mere awareness effort will sufficiently alert all Lebanese beauty seekers to the dangers and criminal negligence that might come with some discounted offers of eternal beauty. 

May 14, 2013 0 comments
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Comment

The EU’s pointless oil gesture

by Jihad Yazigi May 14, 2013
written by Jihad Yazigi

On April 22, the European Union lifted its embargo on Syria’s oil exports to enable the purchase of crude oil from the opposition. The diplomatic move also permitted the sale of oil equipment to the opposition and allow the investment in oil fields located in rebel-held areas.

Sanctions imposed by the EU in September 2011 banned the purchase of all crude oil produced in Syria as well as its transport and the insurance of the tankers that transported it. While other Western countries have imposed their own set of sanctions, the EU’s has a more significant impact. Prior to the uprising, the bloc purchased more than 90 percent of all exported Syrian crude.

The rationale behind the decision to partially lift the sanctions appears to be that it will give more financial clout to the opposition, enabling it to finance the purchase of weapons and to spend and invest in the areas under its control.

However, the actual impact on the ground is less clear. Indeed, while most oil fields are now out of the direct control of the central authorities in Damascus, the groups that actually control them are varied and have sometimes competing agendas.

Syria’s oil fields are spread in two broad areas: the first around the city of Deir ez-Zor, in the east, which produced around 100,000 barrels of per day (bpd) prior to the uprising; and the second in the province of  Hassakeh, in the north and north-east, which produced some 250,000 bpd.

The former is under the control of disparate groups of fighters, including local tribesmen or fighters affiliated to radical Islamist groups such as Jabhat al-Nusra. The continued fighting in the region and the fighters’ lack of experience in the oil industry has reportedly led to the eruption of many well fires. In early April, the minister of oil announced that three wells with a cumulative daily output of more than 2,000 barrels of oil had burned. The cumulative loss from all the well fires is estimated by the ministry at the equivalent of around 750,000 barrels of crude. At current global prices, this is some $75 million.

Apparently, the government continues to control some smaller fields and manages to procure additional amounts through purchase agreements it has entered into with some of the groups that control the other fields — unconfirmed reports include even Jabhat al-Nusra among these groups.

Meanwhile, many locals are using their control of oil wells to generate new sources of income and wealth, leading many of them to abandon the fight against the regime.

The fields located further to the north, around the city of Hassakeh, are to some extent under the control of the armed wing of the Democratic Union Party (DUP). The DUP is the best armed Kurdish party and has remained at an equal distance from both the regime and the opposition. Kurdish rebels are relatively well organized and disciplined, and the fields are located in a region that has avoided much of the chaos witnessed near Deir ez-Zor. 

The situation of the Suwaydiyah field, the largest Syrian oil field, which is located around Qamishli, is not clear but even if it were technically still under the control of the government, in practice the whole surrounding area is held by the Kurds. 

Here, too, the Syrian government continues apparently to access some of the oil produced, either thanks to its relatively good ties with the DUP or because it also purchases oil from the groups in charge in the region.

This picture of the current state of Syria’s oil sector is further complicated by the disrupted distribution networks across the country. Not only are the fields under the control of groups that fall outside the scope of the political wing of the opposition; even if the opposition managed to put some order in its ranks and ensure that all oil produced in rebel-held areas fell under its control, it would still have the task of managing the logistics behind the transport and export of the crude. 

The partial lifting of the embargo will do no harm to the opposition. But given current facts of the ground, it will struggle to make any significant impact.

 

Jihad Yazigi is editor-in-chief of The Syria Report

May 14, 2013 0 comments
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The Buzz

Morning briefing: 14 May 2013

by Executive Staff May 14, 2013
written by Executive Staff

Economics and Policy

Lebanon's caretaker Prime Minister Najib Mikati has once again promised  that he would send the long-delayed salary scale bill to Parliament for approval.

More from The Daily Star

 

Three Kuwaiti lawmakers have requested to question Oil Minister Hani Hussein over the payment of a $2.2 billion penalty to Dow Chemical after the emirate pulled out of a deal with the U.S. firm.

More from AFP

 

Saudi Arabia’s central bank has asked commercial banks to increase localisation of some functions as Riyadh pushes to move more of its citizens into jobs now done by expatriates.

More from Reuters

 
Companies and Business

Budget airline Air Arabia , the UAE's only publicly-listed carrier, reported a 20 percent rise in first quarter net profit, it said on Monday.

More from Reuters

 

Bahrain Telecommunications Co (Batelco) reported a 17 percent drop in first-quarter profit on Monday, due to tough competition in its domestic market.

More from Reuters

 

The operators of Turkish electricity barge Fatmagül Sultan based in Lebanon said on Monday that the boat resumed electricity production after fixing a problem related to fuel supplies.

More from The Daily Star

 

May 14, 2013 0 comments
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Economics & PolicyHealthcare in Lebanon

Healthcare the American way

by Thomas Schellen May 13, 2013
written by Thomas Schellen

A cornerstone of the renewal of the Lebanese healthcare industry is a series of investments in hospitals, paradigmatic among which is the project to expand and improve the medical center at the American University of Beirut (AUBMC). First announced two years ago in April 2011, ground was broken on the project last autumn. Construction is currently in the excavation phase for the new, nine-story academic and clinical center on a corner lot once occupied by a low-rise building. Other structures will be razed in the coming years to allow for new units in the massive project.

While the excavation activities and an extensive display project the scope of the project, the plan goes significantly beyond developing several physical structures. 

“The idea is to make this institution really deliver the best care and maintain an edge in education and research,” says Dr. Mohammed Sayegh, AUB’s vice president of medical affairs and dean of the Faculty of Medicine. “When we are talking about best care, we are talking about North American standard-type care because this is, after all, the American University of Beirut,” he adds. 

In pursuit of this aspiration, AUBMC came up with a 10-year, six-point concept that was dubbed Vision 2020 when it became clear that its schedule would run until 2020. When viewed against other “2020 visions” that have been produced for cities, statelets, and whole countries in the Middle East and elsewhere, the AUBMC project has a rather concise feel to it. 

The six components of the plan are: building new physical structures, recruiting medical faculty, improving patient care and service, establishing new clinical and research centers, redesigning the curriculum for the Faculty of Medicine, and creating a collaborative network through strategic partnerships. 

 

Aiming for the top

The driving force behind the plan is Sayegh, a 1984 graduate from AUB medical school and recipient of numerous awards in his field. He spent most of his career at Harvard before allowing himself to be recruited back to AUB in July 2009. 

An initial assessment of AUBMC at the time showed that it “provided good care but I wouldn’t classify it as the best care we can provide,” Sayegh tells Executive. This insight led to the determination “to elevate standards on all levels”, with the six components of the plan all feeding into the provision of excellent care while fulfilling the medical center’s mandate as an academic institution. 

In an approach typical for such a venture in the United States, the institution is relying on fundraising to develop new physical structures.

“We value this project at around $400 [million] to $500 million for the physical structures,” Sayegh says. In addition to the hefty construction price tag, he estimates that another $100 million or so will flow into hiring, investments in new research capabilities, network building and
so forth. 

Cost factors related to the concept are vast and varied, as AUBMC has a host of 500 residents and fellows in the practical extension of the medical school. This training program alone, according to Sayegh, represents an annual budget of $4 million to $7 million in costs to AUBMC. On the patient side, the facility has to wrestle with the inequities of the Lebanese healthcare compensation, just as many other providers of healthcare services do.  

Unlike the US, where the government allocates funding to support residency training, the Lebanese government provides no subsidies for the training of young physicians. On top of that, AUBMC feels the relentless pinch of the “dismal” reimbursements for treatment of patients that are admitted on Ministry of Public Health and National Social Security Fund (NSSF) accounts, Sayegh says. “We have an obligation and accept these patients but they cost us money. The nice thing is that we have a nice mix of patients, where we have some insurance patients, some self-payees and some who are [covered by] government and NSSF.”

 

The importance of networking

AUBMC’s mix of lucrative and money-losing patients makes balancing the bottom line easier than it is for other Lebanese hospitals. 

The institution additionally changed its stance from academic isolationism of sorts to increased interaction with Lebanese hospitals. According to Sayegh, this was realized by entering into affiliations with several institutions to which AUBMC can dispatch physicians to treat patients who under existing contracts with municipalities and public sector entities are not eligible for admission to AUBMC itself.

Medical provider networking is one of the lessons taken from the AUBMC dean’s US experience at Harvard. Creating such partnerships, which represents the sixth component in AUBMC’s Vision 2020, is also on the agenda of regional interaction with Arab countries. 

Although the six strategic items of the vision are equally important, implementation of some points does presuppose progress on other agenda items. The most pivotal point is reversing the brain drain by attracting highly qualified faculty members to Beirut. Expanding the hospital care capacity to about 360 beds in the immediate term and 600 beds later on is another facilitator required for entering into more strategic partnerships.       

While a sound business model in today’s world is a must also for an academic medical center, the idea for AUBMC’s overall path forward is not commercial or profit-oriented but to financially sustain operations. “Sustainability is critical, otherwise you are losing money every year and cannot in fact have the best academic medical center,” says Sayegh. 

This future will mean, however, a continued dependency on donors who support needy patients through several funds such as the Brave Heart Fund and the Neonate Fund, established in 2012. “The availability of citizens who believe in these missions is very important. You cannot sustain our operation with just pure business models, and none of the academic medical centers can do it unless [they] compromise either on training or on care,” says Sayegh. 

Despite the uncertainties of the Lebanese health care system and despite anticipated dependency on the goodwill of the donor community, the leader of AUBMC and driver of Vision 2020 exhibits no shred of doubt in his return-on-investment projections. When asked how much value he expects each dollar invested in the institution’s universal upgrade project will generate, Sayegh’s answer is categorical: “hundreds, of course.” 

May 13, 2013 0 comments
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Economics & PolicyHealthcare in Lebanon

Danger awaits an unhealthy sector

by Thomas Schellen May 13, 2013
written by Thomas Schellen

The maxim in approaching the Lebanese healthcare “system” today appears to be simple: do not upset the patient. Keeping calm with strict bed rest can be a good short-term rule in caring for an acute heart condition or explosive backache. But for solving the Lebanese healthcare condition of ‘chronic dysfunctional systemitis’ (that disease newly discovered by Executive), not upsetting the status quo is nothing but a contraindication. 

Besides overdue reforms to advance the social side of healthcare and make access equitable, the economic muscles of the healthcare industry in Lebanon need coordinated exercise. Unless these muscles are toned today, the health industry here will soon be outshone by other Arab countries and may even atrophy. 

The Lebanese well know of the fragmentation of public health services and the weak supervision  of commercialized private healthcare providers. Indeed, more than 90 percent of healthcare is conducted within the private sector, as Dr. Roger Sfeir, former adviser to the Ministry of Public Health (MoPH) and to several international bodies, told Executive. Meanwhile, public hospitals are underfunded, the National Social Security Fund (NSSF) is inefficient and bleeding money, and the political will for reforming the mess is lost in corruption. 

Hospital operators across the quality spectrum suffer under the long delays in payment transfers from the NSSF and MoPH, and the more their patient mix is skewed against self-paying or privately insured patients, the more they are stressed, said Dr. Mohammed Sayegh, dean of the faculty of medicine and vice president of medical affairs at the AUB Medical Center. But even AUBMC, with a comparatively high share of well-compensated treatments, is impacted by the low payments coming from NSSF and MoPH. “The reimbursement is dismal and it costs the institution money, which impacts the efficiency,” he said.      

From academic hospitals and diagnostic centers to plastic surgeons and specialists in stem cell medicine, stakeholders in the healthcare industry confirmed that their area of activity lacks legal frameworks and efficient collaboration with the public sector entities. 

The World Health Organization (WHO) likewise said in a 2010 six-year country cooperation strategy (CCS) paper for Lebanon that “equity and fairness of the healthcare system are still far from being reached.” It also advocated a strong need to streamline and focus cooperation among key programs aiming for anything from accident prevention to tuberculosis control. 

Notably, the WHO took the further view that “meaningful changes to health system expenditure will not occur without better management of the private sector.”

The CCS paper criticized competition among hospitals in acquiring costly medical machines and linked what the WHO called “the excessive use of resources and new technologies” to “perverse incentives that arise out of the way hospitals and health care providers are paid.”

Alarming medical outcomes

While the Lebanese health sector has seen massive investments in private and non-profit hospitalization facilities in recent years, including investments in high-end diagnostic machinery, the monitoring of hospitals for unintended negative patient experiences has neither a comprehensive scope nor an independent structure to report and evaluate all incidents and their causes, whether physicians’ errors, inadvertent infection, false medication, or others. 

A glimpse into the issue and incident rates was offered in a recent study undertaken by GlobeMed, a healthcare payment services company affiliated with the insurance industry. Some of the findings in the study, published last November, were not pretty.   

According to the study, one in every 143 people admitted to a hospital is going to die in what is called a “medical outcome” or negative change in the health status of a patient due to clinical intervention. Under the definition used in the study, medical outcomes also include infections, complications, readmissions and deaths. 

The total rate of medical outcomes in Lebanon was 5 percent during the years 2005 to 2010, and the study only looked at patients whose accounts were managed by GlobeMed, which means large patient groups such as those on NSSF and MoPH accounts were not included. GlobeMed said the outcomes rate in Lebanon was higher than in the United States (3 to 4 percent) but lower than in Canada (7.5 percent). 

Averages may be very deceiving

However, the average rate of medical outcomes at 5 percent was computed from 152,000 admissions, of which 137,000 represented a stay in hospital of one day or less. When counting the rate for the 15,000 admissions that exceed one day length-of-stay, the outcome rate more than doubles to 12 percent. Even more concerning is the timeline of incident rates: the number of outcomes advanced from less than 800 in 2005 to nearly 1,400 in 2010, and the percentage of outcomes recorded each year moved from 4 percent in 2005 to beyond 6 percent in 2010. 

Shaking the picture further was that it only captured data on adverse events that occurred in the hospital, not recognizing any outcome that occurred after the patient was released. 

The researchers additionally admonished the lack of legal obligations for hospitals to publish medical outcome rates and the reluctance of many doctors to completely fill in patient files. These insecurity factors on data quality notwithstanding, the reasons for the increase in adverse patient experiences in recent years need to be researched and understood. The GlobeMed study suggests that the expansion of hospitals might play a role in the rise of medical outcomes, due to hospital staff learning curves. Other possible reasons alluded to, but not further elaborated on, by the study are the increase in the average age of GlobeMed clients from 34.8 in 2005 to 36.5 years in 2010 and deficiencies in the ways adverse incidents are reported. 

The study said that due to under-reporting of incidents, not enough measures will be taken to correct the underlying problems and avert repeat incidents. According to Dr. Sami Faddoul, a noted radiologist and diagnostic specialist, another factor driving the rise in incidents could be the freezing of treatment compensation that hospitals receive from public agencies and commercial insurance companies, as inflation and cost increases at hospitals have outpaced reimbursement rates that have been stuck at low levels for many years.  

It was clear from the GlobeMed study that longer stays in hospital increase the probability of negative outcomes, such as contracting a dangerous hospital bug (nosocomial infection). Another clear conclusion was that the cost of a nosocomial infection is stellar. At an average cost ratio of 842 percent (!) when comparing an outcome-free hospital treatment with one involving a nosocomial infection, this type of infection is a supernova, blowing national medical expenses out of proportion.            

Constructive needs

In the WHO’s view, Lebanon scores relatively well on overall health indicators, and life expectancy is above the regional and global averages for women and men. 

Some of the organization’s documents on the Lebanon website cause wonderment — the CCS put its population estimate for the country at 3.4 million whereas another factsheet said 4.3 million people, for example, and the information value of regional comparisons is impeded by the fact that the WHO saw it fit to define the “Eastern Mediterranean” as a region comprising over 580 million inhabitants from Afghanistan to Somalia and from Morocco to Kuwait. Nevertheless, the WHO factsheet attests that the country has around 3.5 times the number of physicians, 35.4 per 10,000 residents, of the regional average.

The high ratio of medical doctors and the above-regional ratio of nurses point to the strengths of the Lebanese healthcare industry and its potential. The country’s healthcare sector has immense potential to be a lead supporting actor in the country’s wellbeing and economic growth. 

It may not steal banking’s Oscar for gross domestic product contribution or claim the real estate sector’s function as a treasure chest, but besides education, and given that it creates a great deal of tourism, Lebanese healthcare has what it takes to be a national profit center. 

As evidenced in Executive’s discussions with sector stakeholders and its research on healthcare, the industry provides jobs and services that can earn massive revenues on three levels: income from treatment seekers who come as “medical tourists” for anything ranging from oncology to a elective plastic surgery; as a source of remittances and financial giving by Lebanese who work as doctors abroad and support their preferred causes with generous amounts; and a source of revenue for companies that provide healthcare-related services from Lebanon across the Middle East.

All these economic potentials deserve to be fostered by a sound national strategy that begins with proper laws, regulation and oversight of the sector. It should provide efficient and equitable access to healthcare to all residents, and proceeds to extend support for the quality and regional growth of the Lebanese healthcare industry. 

The potential of the Lebanese healthcare industry to generate revenues needs to be understood and quantified. The industry is seen today as a drag on GDP thanks to ballooning medical costs, but an alternative perspective can be realized through research and reform.

Executive’s special features on plastic surgery, radiology and stem cell banking show that physicians in each of these disciplines have taken the individual initiative to export Lebanon’s health services to the region.

Meanwhile, incentives for investment in the industry have only recently been extended by the Investment Development Authority of Lebanon, Lebanon’s national investment promotion agency, through investment assistance for pharmaceutical manufacturers and medical centers. Results of and potential for this investment support are still too early to gauge thoroughly, as the trade balance of pharmaceuticals in the past few years was ambiguous.  

One difficulty in assessing the role of the healthcare industry is that the expenditure on GDP in a country’s balance sheet is perceived less as an economic activity than it is a social expense. 

This perspective may be worthy of realignment in the context of the increasing globalization of healthcare, whereby medical capacity building, accumulation of specializations and preventive care and wellness environments can be seen as assets for an economy.

In the liabilities column of the healthcare balance sheet, challenges will continue to mount as a result of the increase in lifestyle diseases and of medical needs that go hand in hand  with an aging Lebanese population. But both these health risks entail expanding economic opportunities in healthcare and thus need to be managed. Here is where the public sector’s limitations on devising a long-term health and healthcare industry strategy can be decisive.  

The most disconcerting insight from our examination of health care provision in Lebanon is that so much is known about what is wrong and so much is agreed about what needs to happen to fix it, yet so little is done.  

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The Buzz

Morning briefing: 13 May 2013

by Executive Staff May 13, 2013
written by Executive Staff

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Since its first edition emerged on the newsstands in 1999, Executive Magazine has been dedicated to providing its readers with the most up-to-date local and regional business news. Executive is a monthly business magazine that offers readers in-depth analyses on the Lebanese world of commerce, covering all the major sectors – from banking, finance, and insurance to technology, tourism, hospitality, media, and retail.

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