Private partnerships in Gulf health care may be ill-advised

As the healthcare model becomes unsustainable, bringing private companies into the state-dominated sector may be the answer.

Blood donation paperwork at King Faisal Hospital in Riyadh. Saudi Arabia launched 420 health projects last year. Fahad Shadeed / Reuters
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GCC countries have made tremendous strides in providing health care to their citizens during the past decade. Professional standards and regulations have improved. Governments have invested significantly in population screening programmes and new facilities. Last October, for example, Saudi Arabia launched 420 health projects and announced plans for a further 127 health facilities that will cost 12 billion riyals (Dh11.75bn).

Despite rising investment and wider healthcare coverage, problems persist. There are capacity gaps, a shortage of health professionals, and inconsistent quality of care.

In some areas too many specialised programmes exist, such as cardiac surgery centres, too few of which have the competencies for complex procedures. In addition there is the worsening rate of chronic diseases, so-called lifestyle illnesses. The GCC's incidence of cardiovascular disease, diabetes, cancer, and mental and respiratory ailments, are among the highest in the world. Of the world's 10 worst countries for diabetes, five are in the GCC.

What this means is that the GCC healthcare model, in which the state shoulders most of the cost, is unsustainable. The ageing of the region's large young population will oblige even higher government spending. Healthcare outlays are already growing. Saudi Arabia allocated more than 12 per cent of its budget to health care last year. Yet as recently as 2008 health care was just 5.6 per cent of the budget.

One means of tackling these problems is through public-private partnerships (PPPs). Around the world governments have successfully used PPPs to bring private companies into the state-dominated healthcare sector, to improve care and lower costs.

In a public-private partnership, each side contributes differently. Governments can forecast and identify healthcare gaps from the perspectives of accessibility and quality, given their position as licensors of the health sector, and because of their knowledge of health needs.

More importantly, they can regulate the market, introduce incentives and enforce reform. The private sector, for its part, can contribute its expertise in clinical, administrative or support services to improve the efficiency and effectiveness of health operations. It can also inject capital into profitable opportunities and mobilise entrepreneurship to spur innovation.

One successful European example is Spain's Valencia region. The Valencia government uses a PPP to deliver health care that is 25 per cent cheaper per capita than the Spanish national health service. The government pays for the care while regulating and monitoring health services. In return, the private company has access to a captive population. As part of the deal the private firm builds, owns, and will operate the facilities for 20 years, at which time the government will assume ownership of the assets.

Valencia's success is instructive, but GCC governments should not duplicate PPP models wholesale. Each country's unique market dynamics will dictate which healthcare activities the government should open to the private sector, as well as how to structure PPPs. Generally speaking, private opportunities lie in four areas: provision (such as improving and developing patient transportation and electronic healthcare platforms); payment (which could mean front, middle and back-office functions for insurance); supplies (for example manufacturing generic pharmaceuticals and vaccines locally); and education, which could involve training more local doctors, nurses and technicians.

To lure private companies into these partnerships, governments need to create a favourable environment in legal and regulatory, operational and financial areas. The correct business environment will generate reassurance and incentives. For example, the eventual movement of assets from the private to the public sector is legally complicated and unprecedented in the GCC. Operationally, governments need to create opportunities for private entrants that are commercially enticing, while keeping policy, regulation and oversight in the hands of official entities. As for the financial element, governments can make PPPs viable by guaranteeing minimum patient volumes or revenues, or offering low interest rate loans to private players.

Once governments have laid these foundations, they will need to follow a structured process to plan and implement healthcare PPPs. First, they will need to identify specific opportunities to fill gaps in healthcare coverage. Second, they will have to decide which of these the private sector can improve and contribute to.

Third, they must define the objectives of each PPP project, including each side's role and how to monitor performance. Fourth, they have to draft a clear plan going from the transfer of responsibilities to actually achieving the objectives. Fifth, they will have to execute the plan over the long-term through consistent regulation, laws and oversight.

Implementing PPPs will be an important way to alleviate the growing fiscal burden of health care. Of course, the private sector should not just sit back and wait for an official invitation. Private companies should be proactive, conducting analyses and sharing market intelligence with the public sector. By offering this assistance, private companies can build strong PPP relationships with GCC governments from the ground up.

Gabriel Chahine is a partner at Booz and Company. Jad Bitar is a principal and Nikhil Idnani is a senior associate with the firm.