Healthcare in the GCC: Boom or Bust?

- Hisham Wyne for Thomson Reuters Zawya

The GCC healthcare market is currently being driven by three key influences on the supply side – rising public health expenditure, higher investments in healthcare overall, and the rise of chronic lifestyle related diseases that need long-term treatment.

On the demand side, the entire region is witnessing rising costs of care and an increase in compulsory insurance premiums. These influences are posing a perfect storm that is driving up healthcare costs, but at the same time leading to investment opportunities in the sector for both local and global businesses.

Healthcare demands and the political will to invest in structures that can cope with this demand are resulting in opportunities for businesses to enter the GCC market across all segments – from private clinics and hospitals to pharmaceuticals.

An introduction to the UAE healthcare market

The UAE has been allocating consistent expenditure for healthcare – around 8.77 percent annually, according to a healthcare market report by Sana Enterprises. There was a slight drop in health expenditure as a ratio of GDP in 2010 compared to 2009 – 3.7 percent compared to 4.37 percent of total GDP (Sana 2011).

However, the report notes that public health expenditure as a fraction of total health outlay has held steady at around 76 percent. The UAE leads the region in healthcare resources and assets such as physicians, nurses and midwives per 1000 population. Aggregate data presented by the report suggests that in 2010, the country had 86 hospitals, 2,665 clinics and health centres, 12,752 physicians, 2,916 dentists and 9,592 bed spaces in 2010, across both the public and private sector (Sana 2011).

As per the Sana Enterprises report, the healthcare sector primarily divides into two key regions- Abu Dhabi, Al Ain and the Western region on the one hand; Dubai and the Northern Emirates on the other. Within this milieu, the healthcare landscape is broken into semi-autonomous players such as the Ministry of Health, Abu Dhabi Health Authority and the Dubai Health Authority. There is some coordination between these entities, but this remains limited.

GCC healthcare and the rise of NCDs

One of the key influencers driving healthcare spending in the UAE and GCC is that of NCDs, or non-communicable diseases, usually lifestyle driven. In fact, life style related NCDs such as cardiac disease and diabetes are the biggest drivers of healthcare costs across the GCC.

Rather morbidly, this translates into opportunities across the healthcare chain, including private healthcare partners and pharma providers. As per a Booz & Co. healthcare study, the economic cost of non-communicable diseases (NCDs) in the GCC this year will reach US$36 billion – one-and-a-half times current official healthcare spending.
Chronic NCDs include cardiovascular illnesses, cancer, respiratory diseases and diabetes, and the failure by governments to curb these in time could mean the cost rising to USD 68bn by 2022, says Booz & Company (Booz&Co 2013).

NCD costs are largely due to sedentary lifestyles, with lack of exercise and healthy diets leading the field in this pandemic. As per the report:

“Cases of NCDs or chronic diseases have shot up in the Arabian Gulf in the past generation in tandem with advances in the region’s economy. As an example, a study completed in June in Abu Dhabi found that one in three children was overweight or obese and at risk of diabetes and hypertension.”

The readings are grim. And their effect isn’t restricted to primary treatment cost alone. Like the economic multiplier, the NCD multiplier costs more than the direct outlay of treating patients. “Such diseases hurt the economy by reducing the size and productivity of the labour market. Direct costs were linked to the treatment of patients. More significantly, the indirect cost involved diminished output from shorter life expectancy and more worker sick days. Illnesses could also take a toll on the output of the families of patients,” notes the Booz & Co report (Booz&Co 2013).

NCDs have risen to epidemic levels, and are leading cause of death in the GCC as per the Booz report, undermining economic gains from an advancing economy. Not only are there direct costs of patient treatment, but also a knock-on effect caused by sick days and lower productivity.

The rise in NCDs has seen governments in the GCC invest substantial amounts in healthcare to head off this challenge. As per the report, 2011 saw the UAE’s public and private healthcare spending hit AED 36 billion – a figure expected to rise to AED 40 billion by 2015 (Booz&Co 2013).
The endemic issue of NCDs is prompting strain in the market and leading to shortages in qualified professionals. This has led to constrained conditions where a premium is set on healthcare professionals, leading to salary spikes for hard to find healthcare professionals.

Salary spikes and a shortage of healthcare professionals

A rise in demand for healthcare professionals is outstripping supply, leading to instability in local market equilibrium across the GCC, particularly in the UAE. In fact, private sector growth – particularly in hospitals and specialist clinics – is seeing players source from the local market because the influx of professionals from abroad is not keeping pace.

This has not only increased the incidence of poaching between healthcare concerns but has also led to a sharp rise in the salaries required to recruit new staff. Commensurately, cost barriers have sprung up for newer concerns in the healthcare market. The problem in the UAE is particularly acute, with only 1.5 physicians per 1000 people; a ratio that falls under staffing levels for Qatar, Oman and Kuwait.

Nurses are also in short supply regionally, particularly in the UAE, with staffing levels at 2.7 per 1000 people; fewer again than Qatar, Oman Kuwait and Bahrain. These figures can be contrasted with more developed markets: Germany has a ratio of 3.7 per 1000 when it comes for doctors. In a similar vein, Holland boasts 13.4 nurses per 1000 people.

As per estimates by the Health Authority Abu Dhabi (HAAD), Abu Dhabi would require an additional 3,100 doctors by 2020.

A shortage of supply is leading local entities, particularly private sector newcomers, to hire expertise away from extant institutions, leading to a shortage that in turn promotes salary spikes. Institutional barriers to bringing in temp staff from overseas are exacerbating the shortage.

For a region where healthcare demand is predicted to increase 240 percent over the next 20 years, healthcare shortages in the GCC could assume catastrophic proportions if not tackled.
On the positive economic front, this creates opportunities for private sector talent recruitment firms that could play a role in relocating professionals from overseas to the GCC, using superior remuneration and tax-free conditions as an incentive.

Rising cost of public healthcare

NCDs and salary spikes have impacted the market for public healthcare, particularly in the UAE. In particular, Dubai public sector hospitals have increased their treatment costs drastically to cover rising expenses, to the point they’ve almost achieved parity with private sector concerns. The going public sector rates range between AED 250-400 for a non-emergency consultation, with an ICU bed costing up to AED 3,100 a day.

In addition, the Dubai Health Authority has rescinded the right to free cancer treatment for expatriates, asking them to bear either a subsidised cost or that in its entirety. This has resulted in a knock-on depressor effect for civil societies – charities, finding that they can’t raise sufficient funds for public sector treatment cases, are diverting resources to other causes.
Healthcare is becoming more expensive, even for marginalised sections of society, with the welfare net for expatriates shrinking further.

From a market vantage, this opens up opportunities for low-cost clinics and health establishments to capitalise on disenfranchised customers, assuming they can get the necessary licensing.

GCC pharma opportunities

Analysis indicates a fundamental gap between demand and supply in healthcare within the GCC, coupled with government desire to address the issue. This creates an environment favourable for local and foreign investment in pharmaceuticals as well in private sector healthcare.

The pharmaceuticals sector in the GCC is a sector witnessing tremendous growth. As per AlpenCapital (2013), the GCC pharmaceutical sector is growing at a double digit rate. In particular, the exploitation of post-patent drugs creates opportunities for generic manufacturers. On the other hand, uncontrolled growth is checked by legal and regulatory barriers to entry within the GCC.

But opportunities for generic drug manufacturing might diminish as GCC markets adhere to international laws concerning intellectual property rights. On the other hand, the massive increases in the prevalence of NCDs that require swift and decisive action might convince regional regulators to turn a blind eye.

The rise of compulsory insurance

In the UAE, compulsory insurance for Emiratis and expatriates is slowly gaining traction. In Abu Dhabi, UAE citizens are given compulsory healthcare cover as per HAAD’s directives, while employers are responsible for offering cover for expatriates.

Dubai has recently followed suit, with a yet to be enforced law that will require all expatriates to have health insurance provided by employers. While these initiatives offer welcome cover for residents, they further drive up the overall cost of healthcare as providers realise the opportunity inherent in billing firms as opposed to individuals.

For businesses looking to expand into UAE and GCC healthcare, the rise of compulsory insurance across the region creates greater market gaps offering new business opportunities.