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Market solutions for public goods

There is a growing importance and readiness for redrawing partnership paradigms for public health access

by Thomas Schellen

The proverbial Lebanese entrepreneur is nothing if not agile and adaptive. She or he is a dealmaker par excellence and almost genetically primed to spot opportunities and seek to exploit them. Rules and processes are guidelines more than legal and cultural straitjackets that hold our archetypical entrepreneurs back from the pursuit of business and profit. Thus, whether you encounter them as a theoretical model of behavior or in real life, Lebanese entrepreneurs exemplify keen business senses similarly to any entrepreneur around the world, but just a little more so.

By contrast, the stereotypical setting of the public sector is institutional, inherently cautious and beholden to legal precedents, policy making entitlements and bureaucratic stipulations. When compared with the private sector’s hunger for immediate gain, it moves at a snail pace. The Lebanese public sector, which in addition to the globally common public sector inertia, is infested from bottom to top with partisan identities and competing interests and has managed to make public administrations of other countries look like racehorses.

Despite their many divergent aspects, public and private are today understood to be indispensable partners in systemically important economic systems – including the management of public goods. But is the traditional Lebanese entrepreneurial mold conducive to the creation of good partnerships with a public sector that is still far from formulating a constructive national political will? The question is increasingly critical for a health system whose previous formulas of fragmentation, inefficiency, overlap, and competition by multiple self-interested stakeholders has proven invalid.

The question seems today increasingly relevant even in health concerns that are found on the periphery of a universal care model. Jad Rizk is a seasoned Lebanese entrepreneur who has spotted a problem in the wider health system that he sees as a profitable opportunity. “I am developing a high-end retirement home,” he tells Executive.

Utilizing an existing $5 million hotel property, his plan is to invest $4 million into a refurbishment and expansion that will yield in the first phase 70 rooms for single or double residency of retirement-age Lebanese who will have access to nurses, medical care and a wide range of social amenities, all in-house. The project is planned in three phases, the first of which is the conversion of the existing hotel for opening around the first quarter of 2024 under the name ‘SK Retirement Life-Style Suites’. In later phases, the facility will add 60 rooms and then again 40 chalet-style apartments.

Partnership with a home care services company, the part-time contracting of doctors and other medical staff, and agreements with insurance companies, are either existing or being explored, Rizk says. Conversely, other than obtaining necessary state permits, the one thing that he would not do is venture into collaboration with the state for providing elderly care. “Anything that has to do with the government? Of course not,” he exclaims, pointing to many bad experiences his business ventures have had in dealing with the public sector.

With price tags of up to $1,800 per month for a couple’s full-service residency, the addressable market for the project is both affluent and narrow. “What we are trying to do for expatriates is provide an alternative to ‘warehousing’ old people, or putting them in places to die there,” Rizk says, arguing that this care offering for their senior family members would at the same time liberate the diaspora members of feelings of guilt, and give them an investment opportunity towards their own future care needs.

Having worked on the project since the second half of last year, Rizk goes on to say how he conducted market studies among his prime target group of Lebanese expatriates (in the Gulf region and elsewhere) and received 70 percent positive responses from diaspora Lebanese who are eager to find care facilities for elder family members, many of whom have been deprived by the Lebanese economic crisis of their social interactions and mobility. Undeniably, Rizk has an entrepreneurial market solution to a problem involving the public good of health.

A towering need

From the perspectives of several social and economic business leaders to whom Executive mentioned the project, comments were that such a project may indeed be economically interesting. However, they also noted – some of them in addition to voicing fundamental concerns about retirement homes as often flawed businesses and imperfect societal alternatives to functioning family units – that a high-end retirement home project at this time does not meet a major societal need in Lebanon. Yet the fact that a niche market for luxury retirement homes is seen as interesting by 70 percent of expatriates polled for their responses to such a proposition, illustrates how market logic can work and mobilize investments for a private sector project. This is even at a time when the imperative of broader social safety is still languishing far below the threshold of an inclusive net with mandatory and inclusive coverage of health needs of residents of all ages.

However, this once again illuminates the social distortion factor of market logic that one can see as an historic impediment of the Lebanese health system. As private operators from the start of the post-conflict reconstruction time in the 1990s latched onto earnings opportunities in medical provision, it can be argued that the increase in private sector offerings was a mixed blessing. New medical offerings of private clinics and hospitals were accompanied by accommodation options of different room categories whereby non-medical services enabled private hospital administrations to level charges that only the affluent could pay. Specialized treatments or innovative procedures, machine-intensive diagnostics using the most sophisticated scanners, and branded drug recommendations with a bias toward expensive imported medications all contributed their share to the boosting of health expenses to developed-world levels approaching nearly 9 percent of GDP by the mid-2000s. This was even as the high out-of-pocket contributions and the fragmentation of medical care packages in the first two decades of this century presumably dampened some moral-hazard factors seen in health systems with broad entitlements to care.

Today, as it is undeniable that trust in the Lebanese state’s political readiness for delivering reforms and urgently needed services is exceedingly scarce and doubtful alongside the pernicious total vacuity of political promises during all stages of the economic crisis, several strong factors are pointing to the importance of redrawing partnership paradigms for public, private, and community collaborations. This is especially relevant regarding society’s public goods, of which health is as weighty for the short-to-long term fate of Lebanese society as education is for the long-to-short term.

Global principles and local specificities both come into play as factors here. To summarize them in a short list, one global factor in support of an intensive discourse of public-private and public-private-community partnerships (PPP and PPCP) in the health sector, is the maturing of the principle of PPP from lessons learned worldwide. From failed and successful partnerships over the past few decades, a local collateral benefit of that factor is that PPP has wide support among local health system stakeholders and reform advocates.

Another weighty pro-partnership argument is that unstructured past coexistence of public and private health approaches – in many ways the opposite of an ordered, transparent, and contractual PPP approach – has cost Lebanese society, due to health system inefficiencies and public-private dichotomies in the provision of public goods over the past 30 years. A financial argument further along this line of reasoning is that investments with a PPP approach open new access to finance options, whereas financing of the National Health Strategy through anything but inclusive, innovative and transparent methods or unsustainable betting on concessionary loans and grant pledges by international development finance institutions and foreign governments, appear today as solid as betting a trillion lira on a roulette payout at the Casino du Liban.

Lastly, the perhaps most compelling practical argument from a macro-social policy perspective for the pursuit of public-private partnerships for Lebanon’s public goods is that this country’s private sector is forever racing ahead of the public sector in improving its productivity and performance, with the ongoing resurgence of health and pharmaceutical manufacture being a perfect example.

Private stories of excellence

Arwan received WHO accreditiation  and provides WHO-compliant facilities

The Lebanese pharma producers could meet a high portion of local drug needs during the crisis, ramping up their market shares. “Before the crisis, Lebanese pharma manufacturers used to cover only about 8 percent of the [domestic] market. Now we are around 40 percent of the entire market, but we do not produce everything. If you take the pie of what we are producing as Lebanese manufacturers, we are covering around 80 percent of the market demand for the products that we produce,” says Ruwayda Dham, Ph.D., vice-president and managing director of pharmaceutical manufacturer Arwan Pharmaceutical Industries and board member of the Syndicate of Pharmaceutical Industries in Lebanon (SPIL). According to her, the coverage ratio of local pharmaceutical needs with local production more than doubled from 34 percent in the years before the economic crisis.

Dham emphasizes that meeting the needs of the local market is something that all member companies in the pharma manufacturers’ syndicate are committed to do. While profitability concerns and frustration with delayed or broken state promises are motivating them to look at export markets, manufacturers have a moral stake in their home market and also have invested too much into building their positions in Lebanon for them to cede their hard-won market shares to manufacturers of generics from lower-cost production countries. “We will not leave what we have established here up for others to grab. We never export at the expense of the needs in the local market. All of the SPIL companies have committed to the priority of satisfying the local market,” Dham tells Executive.

The numbers she provides on the increasing role of domestic pharma manufacturers are the same as the ones cited in the National Health Strategy: Vision 2030 document. On the distribution side of the pharmaceuticals supply chain, they are also corroborated by non-profit partners in the health system. Lina Traboulsi and Guita Abou Haidar, the quality assurance pharmacist and chief pharmacist supervising the central drug warehouse of the Order of Malta’s (OML) primary healthcare (PHC) network, confirm that most drugs in the warehouse – which do not include injectable drugs nor oncological and psychotropic ones – are sourced from local manufacturers. “Of the drugs that we procure from the local market, 80 percent are produced by local manufacturers. But we have products that we receive as donations from abroad, which used to constitute a good portion of our stock,” Traboulsi says.

Their commitment to satisfy the Lebanese pharmaceutical needs as much as possible does not mean, however, that a pharmaceutical manufacturer such as Arwan is resting on their laurels of their recently improved domestic market share and exports-shy orientation of the past few years, which actually meant that some products incurred losses because of cash flow issues and price divergences rooted in the huge volatility of the Lebanese pound.

For the current year, the company’s expectation is to operate without losses and aggressively pursue export earnings. “Our plan for 2023 is to sell 55 percent of our products in Lebanon and 45 in exports,” Dham says, emphasizing that in addition to the growing interest in Arwan’s product range of injectable drugs by hospital clients in the Arab region as well as African and Eastern European markets, investors have shown interest in the company.

While the market positions and production capacities of pharmaceutical manufacturers are improving gradually, there is, however, also no doubt that the pharmaceutical needs of Lebanese patients remain under-served and require more local supply. According to Abou Haidar and Traboulsi, the drug warehouse they are managing serves the needs of OML’s national network of PHC centers. OML primary care distributed 1.7 million units of medication in 2022 and the need is still growing, while the supply is not always keeping pace. “With the increasing number of beneficiaries and the increasing demand, the rotation of our stock is very fast,” the pharmacists say, adding that the OML network’s projected need for medical drugs this year is much higher when compared last year.

They also say that the predominance of locally manufactured drugs in their stock is a reversal of a previous pattern under which until mid-2022 in-kind pharmaceutical donations coming from abroad accounted for up to 70 percent of the stock at the warehouse. The shift to locally produced drugs correlates positively with both the improved value chain position of local pharma companies and with an attitude change among Lebanese patients who now welcome any medication. However, it also reflects the shifting priorities of European donors in the face of other crises, such as the Ukraine-Russia war, and budget restraints on the side of international NGOs. The drug supply for primary healthcare beneficiaries around Lebanon is further complicated by temporary disruptions in the provision of some essential medications by the Ministry of Public Health (MoPH).

Out of the funding abyss

Nabil Khairallah, a dentist at Order of Malta’s Primary Healthcare Center

To progress on the financial management side from today’s health system which is in every respect – from the supply of drugs to the securing of funds for generators at primary and tertiary healthcare providers – dependent on international donors’ good will and hard cash will require integrated solutions for to cover costs through a new public-private insurance partnership, explains Elie Nasnas, a long-standing leader in the private insurance sector of Lebanon.

According to Nasnas, coverage of health insurance needs is part of an economic and social revival plan for the Lebanese economy that is being prepared by the economic associations of Lebanon. “We need to regulate all the existing schemes of healthcare provision, such as charities and primary healthcare centers by long-standing NGOs and make this into a scheme that will align for all the citizens,” he tells Executive.

He concedes that universal health coverage containing an element of basic, ideally mandatory, health insurance is an ambitious vision under the circumstances. It would have to be achieved in a stepwise approach, which he suggests can commence by addressing gaps between the medical coverage provided by the National Social Security Fund (NSSF) to enrolled Lebanese employees and the actual payments required by hospitals. “Today the offerings of social security are very low compared to what hospitals are asking. Our view is that the private sector needs to fill the gap in order to ensure the access to healthcare for the maximum number of Lebanese citizens,” he says, adding that increasing numbers of employers – driven by concerns over employee productivity and retention – are keen on securing such insurance covers for their employees.

Under the initial concept of such an insurance that would augment the NSSF scheme, all employers should have been obligated to acquire for their employee’s health insurance covers with dynamic tariffs and benefits that are determined by what the NSSF provides. However, Nasnas admits that discussions have already shown that institution of a mandatory cover under a new law would be very difficult and likely not be approved by lawmakers.

Noting that concerns over an extension of any mandatory scheme to public sector employees have been presented as a barrier but opining that the rule could be limited to private sector employees, he reasons that costs per insured employee would be lowered significantly under a mandatory cover of basic health insurance for a large swathe of the population. “We have to keep in mind the situation today where employees are forced to tell their employers that they cannot pay a hospital bill of a few thousand dollars. However, if the costs are mutualized for all employees, the cost per policy will be much lower. And once the scheme is compulsory, there will be no anti-selection. This is the principle of it,” Nasnas says.

After filling the gap to NSSF coverage with an insurance solution that works with a correct price and very narrow margin, and demonstrating the scheme’s success, insurers and public health authorities could proceed to tackle the challenge of universal health coverage equitably with a basic insurance component, Nasnas advises. “Lebanon is receiving aid from donors for the health sector. Our view here is that the government should not be a risk taker. It has to offer access to healthcare to all citizens but with a cap in financing, so as to run no future budget deficits.”

In his view, it would be possible to achieve this risk mitigation by dedicating aid funds into giving people access to private health insurance at very low rates in form of a low-cost basic product with add-on options for more extensive needs that the insured could buy as top-up covers. “The public-private partnership would be in regulating all this under a regulatory authority that includes numerous stakeholders, NSSF, hospitals, the MoPH, insurance companies, and also representatives of the stakeholders, the insured,” Nasnas enthuses.

This endeavor, according to Nasnas, is on the agenda of public and private sector stakeholders today and would involve the entire qualified insurance sector as a private stakeholder, but under a tight regime of accountability and transparency with participation of stakeholders from the international community who might be willing to help the Lebanese government in financing health coverage: “If we are very transparent and if the donors have a seat on the board of the regulatory and supervisory institutions, proving that there is no abuse or whatever.”

As the entire project in his estimation would hinge on international funding and require convincing donors, he cannot predict if international funding and donor support would suffice to move Lebanon into socially equitable universal health care but acknowledges that the prerequisite will be a public-private partnership of trust and transparency. “The solution is definitely a public private partnership,” he says, concluding that “the crux of the matter is a change of mindset. The main change of mindset will be to have transparency. If we can succeed in this, it would be a first experience to be duplicated in other areas of PPP.”

The wider problem of health

Arwan’s local production more than doubled from 34 percent in the years before the economic crisis

The idea of building sustainable partnerships in health is daunting in the global context. The sheer multiplicity of stakeholders in health will make it more complicated to reach any standard partnership platform anywhere. The prospect of reaching the respective United Nations sustainable development goal, SDG3, “To ensure healthy lives and promote well-being for all at all ages” – is today tainted by detriments such as health cost inflation, losses of social cohesion, global increases in income and wealth inequality, and ever-sharper divergence in political convictions and approaches to defining what constitutes a natural, dignified, good and healthy life.

On the front of medical innovations, unsolved ethical challenges, and divergent quality of life experiences within societies and between countries, humanity in 2023 continues to face risks of exponentially increased, different health speeds between tech dreams of eternal life harbored by some super-wealthy and the fates of an estimated 8 billion humans. Most humans are immersed on one hand in the reality of recurrent infectious disease risks for the highly populated countries with specters of epidemics and pandemics, and on the other hand in the hardly less worrying presence of non-communicable lifestyle diseases and chronic illnesses that accompany the progressively higher age profiles and sedentary urban modes of post-industrial denizens in more and more countries.

In the bottom line of health system developments of the past 38 months since the alarm signals of the Covid-19 pandemic shook up everyday life of the Lebanese people, it is to be expected that distortions and dichotomies in the health system will not diminish in the near term. The MoPH-owned strategy for the national health system contains important insights into the system’s past and present successes and weaknesses, but it has in itself a fundamental deficiency when measured against two essential components of any viable strategy: a clearly sourced budget and an executable timeline.

From the organizational challenges to a rebuilding of basic and advanced insurance for the resident population at large, to operational pressures experienced by private hospitals (see comment page 42) to the reduction in the number of pharmacies – reported in the National Health Strategy as over 15 percent at some point before 2023; Executive’s attempt in vain to conduct an interview with the Order of Pharmacists in Lebanon for a current assessment of this segment in the health system – the challenges on private sector stakeholders in the health system must be expected to linger, especially if political barriers to systemic health solutions fail to be removed.

Wins of new and well-structured partnerships in health cannot be sustainable without sound contractual, governance, and finance underpinnings that bind together the multiplicity of stakeholders in health. This is despite the current hopeful signs in provision of mental health services (see ‘Last Word’), and of astonishing progress by health system stakeholders as diverse as the pharmaceutical manufacturers and non-profit organizations that operate PHC networks. Some of the latter have evolved into meeting needs for non-PHC supplied medical solutions such as dental prostheses, with the daring (and to some almost cheesy) promise to give the Lebanese people, and at least their beneficiaries, back their smiles.

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Thomas Schellen

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

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