UAE health sector excites investors
As Abu Dhabi Health Services Company, or Seha, prepares to sell off part of its healthcare services, the region’s investors are studying new opportunities to enter the country’s medical industry.
The UAE’s “high birth rates, increases in life expectancy, rapidly shifting epidemiology profile, and a rise in the incidence of noncommunicable diseases ... combined with a [sub] US$65 oil price, a shortage of health-care workers, and low insurance penetration rates” all create opportunities for private firms looking to enter health care, says Joel Finlayson, a partner at Strategy&, the consulting arm of PwC.
The local private equity houses Gulf Capital, Abraaj and Waha Capital have all dipped their toes in the region’s healthcare market, while the London-listed Al Noor Hospitals and NMC have seen double-digit revenue and patient growth here. The flagship public-private partnership Cleveland Clinic Abu Dhabi has added 364 beds in the capital, with plans for a total of 460 beds.
The investment bank Alpen Capital estimates healthcare spending in the UAE will be expanding by 13.1 per cent annually in the next four years, an increase it describes as “unprecedented”. This country spent an estimated $11.3 billion on health care in 2011, the most recent year for which figures are available.
But despite the rapid growth of spending, the number of hospital beds in the UAE is set to grow by just 1.7 per cent in 2018.
“The UAE needs more of pretty much everything, healthcare facilities included,” says Faisal Durrani, an international research manager at the estate agency firm Cluttons.
“The expat population is growing because the Government is encouraging diversification, and fostering the growth of the country’s non-oil sector,” he says. “This is attracting new households, which puts pressure on existing facilities.”
Dr Helmut Schüsler, a managing partner at the private equity firm TVM Capital, sees investment opportunities in almost every segment of the region’s healthcare industry. TVM aims to launch a $150 million funding round early next year. “There is a growing demand for everything a hospital needs as a service,” Dr Schüsler says, “from cleaning, to hospital management, technology, consulting, electronic medical record systems, telemedicine – everything that hospitals need to function well. All of these would be promising areas to invest in.”
Shortages of skilled workers across the sector create an opportunity for the right firms.
“We are seriously considering investing in healthcare professional search firms,” says Dr Schüsler, adding that he cannot see how the region’s hospitals will gain enough staff to meet requirements.
Regional governments, the UAE included, have historically focused on the construction of primary care facilities – hospitals and accident and emergency clinics that deal with acute conditions. But chronic conditions – long-term, persistent health issues,such as Alzheimer’s or mental health problems – have received less investment.
“As you work your way down the acuity level, you see fewer staff and facilities available – that’s exactly the wrong way around,” says Mr Finlayson.
“The majority of healthcare delivery is related to the prevention of illness, management of chronic conditions and the provision of post acute care through recovery,” he says. But that is not where governments are focusing their efforts – and this creates opportunities for private firms.
Privatisation is not without its risks, however. Some private companies cherry-pick the cheapest patients to treat in order to maximise profits, says John Kaelin, a senior adviser at the Health Authority Abu Dhabi. It is important, he adds, to ensure that private companies compete on the quality and cost of care, rather than risk selection – where private hospitals select only the easiest-to-treat patients in order to reduce costs.
Dr Jad Aoun, the chief medical officer of the health insurer Daman, says “the biggest fear is that the private sector is chasing low-hanging fruit. Some firms will pass a patient on to a different provider if they find that it is a difficult case.” He says the Government needs to set payment incentives in such a way as to ensure quality of provision – irrespective of the difficulty of the medical case.
Private health care also risks spurring health cost inflation, which is already at high levels in this country. Towers Watson estimates the cost of health care in the UAE is growing at an annual rate of 9.3 per cent above the rate of inflation. That is a result of more expensive medical technologies and greater competition between hospitals over wages, leading to rent-seeking behaviour and above-equilibrium wages for skilled staff.
Dr Schüsler is confident that healthcare inflation will be slowed if the Government provides the right incentives to health care providers. If insurers pay per service, they will get oversupply of individual treatments, he says. But if insurers pay per outcome, by contrast, they will give companies an incentive to cut the cost of achieving outcomes.
“I strongly believe that you get what you pay for,” he says.
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Published: December 13, 2014 04:00 AM