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Investing in the_saudi_arabian_healthcare_sector_final


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Investing in the_saudi_arabian_healthcare_sector_final

  1. 1. Perspective Ghassan Barrage René Perillieux Richard ShediacInvesting in theSaudi ArabianHealthcare Sector
  2. 2. Contact InformationAbu DhabiRichard ShediacPartner+971-2-699-2400richard.shediac@booz.comBeirutGhassan BarrageSenior Executive Advisor+961-1-985-655ghassan.barrage@booz.comDubaiRené PerillieuxSenior Executive Advisor+971-4-390-0260rene.perillieux@booz.comThe authors wish to acknowledge the support received fromSAGIA. In particular, we wish to thank Dr. Salim Al-Malik for hispainstaking and valuable input, without which this work wouldnot have been possible.Originally published as:“Investing in the Saudi Arabian Healthcare Sector,”by Ghassan Barrage, Ziad Fares, René Perillieux,and Richard Shediac, Booz Allen Hamilton, 2007. Booz & Company
  3. 3. The new Over the coming years, Saudi Arabia is likely to experience a sharp increase in its healthcare needs. Most observersSAUDI ARABIAN believe that population growth, a slowly aging society, andHEALTHCARE the conditions that affluence often exacerbates, such as obesity,MARKET diabetes, and cardiovascular diseases, as well as cancer, will create a tremendous new demand for healthcare services. At present, the Saudi Arabian Today, the Ministry of Health (MoH) government funds most of the is working with the Saudi Arabian demand for healthcare capital and General Investment Authority operating expenditures. However, (SAGIA) to prepare the sector for analysts believe that government this essential but difficult transition. alone will be unable to continue to As a first step, the two agencies have meet this demand. They have studied the best practices of the concluded that the only way to ensure countries with the most successful that Saudi nationals’ health needs will healthcare systems and drafted plans be met without adversely affecting that adapt these practices to the economic progress is to increase unique needs and circumstances private sector participation in the of Saudi Arabia. While MoH and health care system. Only by attracting SAGIA are still working out the partners from the private sector who details, the underlying goals have can bring world-class medical already been established: knowledge, management skills, and capital to the sector will Saudi Arabia • Create a stronger institutional be able to make high-quality health- set-up and effective regulatory care available to everyone in Saudi framework to promote private society. The government has recog- sector investment in healthcare nized this situation, and has identified and the production and distribu- healthcare as one of the key sectors tion of pharmaceuticals and targeted in its wide-ranging privatiza- medical supplies, tion program (Exhibit 1, page 2).Booz & Company 1
  4. 4. • Develop a business environment pharmaceuticals and medical supplies then at what steps Saudi Arabia that will make Saudi Arabia a more is clear: the Middle East’s largest intends to take to encourage private attractive destination for private market of healthcare consumers healthcare businesses to operate in the healthcare providers, and will become increasingly open to Kingdom, and finally, at which ser- private investment. vices and what kinds of expertise will• Attract investors and other partners be needed most during this transition. to the Middle East’s largest market This paper looks first at the demo- for healthcare. graphic and economic trends that will drive this transition and make SaudiThe takeaway for healthcare Arabia a promising market from theproviders and producers of perspective of a healthcare provider,Exhibit 1Saudi Arabia Privatization Program Sector Targeted for Privatization Objectives of Privatization- Telecommunications - Enhance effectiveness of national economy and promote competition √- Sector Targeted For Privatization √ - Create investment opportunities for the private sector- Water desalination; distribution and waste water treatment √ - Broaden participation of citizens in producing sectors of the economy- Air transport and airport services √ - Promote local and foreign investment- Postal services √ - Create employment opportunities for nationals- Healthcare - Improve the quality and cost effectiveness of services provided to citizens- Education - Reduce public spending- Social services - Increase Government revenues- Sports clubs- Rail transport, roads (e.g., toll roads) and ports √- Industrial cities √- Government hotels √- Grain silos √- Municipal services- Agriculture- Government investments in public companies √√ UnderwaySource: Supreme Economic Council2 Booz & Company
  5. 5. Growth Between now and 2016, the popula- tion of Saudi Arabia is expected to Nor will Saudi consumers be focused entirely on access to advancedUnsustainable grow by more than 20 percent, from therapies. Some surveys give theWithout 23 million to 30 million. Over the same period, health expenditures are Saudi health system a “C” grade, ahead of Lebanon and Jordan butIncreased expected to increase dramatically, behind Kuwait and far behind mostPrivate Sector even faster than the rate of population growth. Demand for hospital beds is of Europe. Even in basic respects, Saudi nationals are underservedParticipation likely to grow from 51,000 to 70,000, today. Just judging by such common demand for hospitals is likely to rise metrics as numbers of hospital from 40,000 to 54,000 — and the beds or physicians, Saudi Arabia number of hospitals is likely to rise lags. At present, the Kingdom has from 364 to 502. There are several 2.2 beds per thousand compared to reasons MoH planners see such a 2.8 per thousand for Bahrain, 3.4 sharp rise in health needs: per thousand for the U.S., and 8 per thousand for France. Physicians per • Saudis will become older. Rising thousand are low as well, 1.7 per affluence is expected to result in thousand for the Kingdom compared longer lives for more Saudis. The to 2.1 in Japan and 2.5 for the U.S. percentage of the population over 60 is rising, and is expected to more • But wealth will not always bring than double by 2020. By 2020, the health. As most countries have number of old people is expected to learned, affluence is not an unmiti- grow from approximately 1 million gated benefit to health. This is true (4 percent of the population) to in Saudi Arabia as well, where roughly 2.5 million (7 percent of the greater material wealth is leading to a population). At the same time, as deterioration of physical condition. incomes increase, Saudis are likely Today, the average Saudi national is to spend an increasing amount of overweight. The average Body Mass money on healthcare treatments, Index (BMI) of Saudi nationals 15 such as leading-edge therapies. years and older is 30 kg/m2, far above the global average of 23. A Some surveys give the Saudi health system a “C” grade, a bit ahead of Lebanon and Jordan but behind Kuwait and far behind most of Europe. Even in basic respects, Saudi nationals are underserved today. Just judging by such common metrics as numbers of hospital beds or physicians, Saudi Arabia lags.Booz & Company 3
  6. 6. score greater than 25 is considered • And the costs of treatment will the type and quality of healthcare overweight. Many Saudis also continue to rise. Paying for care of that they expect to receive in the smoke: roughly 24 percent of all such chronic conditions is difficult Kingdom. As a result, expenditures adult males smoke, and 14 percent now and is likely to grow worse. on healthcare in Saudi Arabia are of school children and adolescents. For example, the spending on expected to escalate very rapidly. Such bad personal choices are cardiovascular diseases, already likely to continue to translate into high today, is expected to grow Past experience at MoH suggests that expensive and chronic conditions. rapidly to reach around one fifth the long-run trend is toward rapidly For example, diabetes is rampant: of healthcare expenditures by increasing expense for healthcare. about 20 percent of the Saudi 2016. Also, modern advances in Between 1999 and 2005, govern- population over 20 years old has medicine are continuously bringing ment saw a 7.2 percent annual type 1 or type 2 diabetes, compared increasingly complex and expensive compounded annual growth in its to 5 percent of the global popula- treatment. With more extensive healthcare budget. The Kingdom tion. Treatments for diabetes and travel, and rapidly spreading spent US$13 billion on healthcare in cardiovascular diseases are information through the media and 2005, and this spending is expected to expected to triple and quadruple the Internet, Saudis will become grow to over US$20 billion by 2016 respectively in the coming 20 years increasingly demanding in terms of (Exhibit 2).Exhibit 2Saudi Healthcare Market Care Provisioning Breakdown by Source−2005 Projected Saudi Expenditures−2006 to 2016 (Number of Hospital Beds) (US$ Billion) Private Beds 11,135 $20.0 22% Conservative Projections CAGR (2006–2016) 4.0% 78% $13.0Government Beds* Total = 51,130 Beds Dental/Other 3%39,995 Pharmaceuticals 9% Health Expenditure Breakdown by Source−2005 Administration 12% (US$ Billion) 23% Outpatient Services Private Spending US$3.2 Billion 25% Inpatient Services 53% 75%Government Spending* Total = US $13 Billion 2005 2016(E)US$9.8 Billion* ‘Government’ includes non-MoH entities such as the Armed Forces, National Guard, Red Crescent Society, etc.Source: Central Statistics Department, MoH Statistics4 Booz & Company
  7. 7. A Blueprint Currently, the government dominates Specifically, the MoH has developed the healthcare sector in Saudi Arabia. a plan to fundamentally restructurefor Change Private sector spending for health its activities in order to reduce its role care in Saudi Arabia accounts for as the payor of first resort and at the 25 percent of the total, compared to same time boost its capabilities as a 55 percent for the U.S. or 76 percent regulator of private healthcare ser- in India. Increased private sector vices. This plan calls for the following participation in healthcare is generally main changes in the current MoH accepted as essential to achieve the healthcare system: Kingdom’s objective to increase the efficacy of the Saudi healthcare 1. MoH will concentrate its health- system while reducing the burden on care provision activities on preventive government spending. Present plans and curative primary care call for a transition of the Kingdom to a mixed healthcare system, in 2. A new government entity will be which government participation is established, the General Organization limited largely to healthcare coverage for Hospitals, separate from MoH, of the poor and military, with a and all MoH hospitals assets will be variety of private healthcare options transferred to this new organization available to everyone else (Exhibit 3). to prepare the ground for increasedExhibit 3Evolution Planned for the Saudi Healthcare Sector Best-in-Class/Desired Health System Position Saudi arabia Level 1: Level 2: Level 3: Level 4: “Government-Sponsored” “Emerging” “Intermediate” “Market-Driven” Health System Health System Health System Health System HEALTHCARE HEALTHCARE HEALTHCARE HEALTHCARE Patient Patient Patient Patient DELIVERY DELIVERY DELIVERY DELIVERY SERVICE SERVICE SERVICE SERVICE REGULATION REGULATION REGULATION REGULATION FUNDING FUNDING FUNDING FUNDING• Predominance of public sector • Emergence of private sector involve- • Widespread private sector healthcare • Near-absence of public sector activities— ‘Command and ment in healthcare and increasing delivery options healthcare Control’ model private insurance • Public sector provisioning limited • Government role limited to ensuring• Private sector involvement limited to • Decreasing burden on government to selected patients (e.g., the oversight, with limited subsidies few care providers due to private insurance poor/military) • Comprehensive regulations to ensure • Mounting pressures for establishing a • Increasing healthcare regulations fair play comprehensive regulatory framework Increasing Private Sector Participation Degree of Private Sector Ownership Degree of Government OwnershipSource: Booz & CompanyBooz & Company 5
  8. 8. public private partnerships in health-care provision3. A National Health Fund will beestablished under the Ministry ofFinance, also separate from MoH,to fund directly healthcare servicesprovided to patientsThe initial phase of this program willlast three years, and will concentrateon modernizing the overall govern-ment IT infrastructure, establishing anew healthcare regulatory framework.In parallel, SAGIA is workingwith various government entitiesto improve the overall investmentenvironment in Saudi Arabia. The Investment tology, cardiology, and diabetes. Opportunities also exist to establishaspiration is that Saudi Arabia Opportunities community in several areas.will be ranked among the 10 mostcompetitive economies in the world, Ambulatory care and testing terms of investment attractiveness. The high incidence of chronic diseases,To achieve this objective, programs a government-sponsored focus onare underway to further open and preventative care, and the increasing All these changes are likely to createliberalize the economy, enhance the numbers of people on private health vast new opportunities for interna-availability of manpower and other insurance is also likely to create tional healthcare companies andnational resources, establish improved opportunities for physician practice other healthcare providers. Overregulations, and reduce government groups, disease management clinics, the coming decade, a variety ofred tape. and diagnostic imaging sectors. opportunities are likely to open up in virtually every aspect of the Generic pharmaceuticals. The Saudi healthcare sector, as outlined growth in population as well as the in Exhibit 4, and summarized drug coverage mandated under the briefly below. new insurance law will encourage domestic manufacturing of products Tertiary care. Long waiting periods such as analgesics and vitamins, at public hospitals, bed shortages, as well as more complex products increasing incidence of chronic dis- such as prescription antibiotics eases, and the deteriorating quality of and beta-blockers. care in with some areas are creating opportunities for multidisciplinary Medical devices manufacturing. hospitals, specialized centers of excel- Rapidly growing market and more lence including such complex areas as effective regulations will make it oncology and organ transplants. more attractive to produce locally many common medical supplies Secondary care. The high incidence and devices, such as sterile bandages, of chronic diseases such as cardiovas- catheters, and dentures, EKG cular diseases, and diabetes as well machines and X-ray film. as the capacity saturation at public hospitals and the limited availability Insurance. All employers will be of specialists mean that there are required to provide health insurance. great opportunities for specialty Initially, this policy will be applied centers in plastic surgery, derma-6 Booz & Company
  9. 9. to non-Saudis, but eventually, it will national electronic records system and residency programs must be be extended to cover all workers for healthcare. Accordingly, health developed. Accordingly the govern- employed in the economy. systems integrators and potentially ment supports the development of telemedicine specialists are likely to more medical education facilities, e-Health. The growth in the numbers be in high demand. and some of these will be available of players in the health care sector for private sector investment. Saudi as well as the increasing sophistica- Education. In some ways, the most Arabia will actively seek to create tion of care available is likely to basic medical shortage that Saudi partnerships with leading educational generate complexity. To cope with Arabia now faces is a shortage of institutions to build the country’s this development, the MoH wishes doctors and nursing staff. To satisfy medical education capacities. to encourage the establishment of a current needs, more medical schools Exhibit 4 Investment Opportunities Market Maturity Needed Mature Nascent High Substitutive 1ry/Ambulatory HMO Insurance Care e-Health Commercial/ Clinical R&D Education Pharmaceutical Fine Imaging/Diagnostic Facilities Chemicals Services Low Risk Medical Devices Other Pharma/ Laboratory I n-Vitro Diagnostics Services Tertiary Care Secondary Care Proton Medium Risk Therapy Medical DevicesEconomic Value Add High Priority Opportunities Preferred Provider Organization Generic Pharmaceuticals Prescription Pharma Over-the-Counter Pharmaceuticals Other Opportunities Supplemental Insurance Clinical Management Services Long Term High Risk Medical Non Clinical Care Devices Management Services Low Source: Booz Company Booz Company 7
  10. 10. Conclusion driven healthcare system. The fully nationalized system that served an earlier era well is no longer suited for the complex, dynamic country that Saudi Arabia is now becoming. For both economic and public healthSaudi Arabia is in the midst of an reasons, the government is committedexciting transition to a more open, to a course of change that will inmarket-driven economy. Over the the end create a system that is morepast ten years, the government has responsive to the health needs ofpushed a variety of changes that have Saudi consumers.made Saudi Arabia a better place todo business, including its decision to This transition to a market-drivenjoin the World Trade Organization. healthcare system will not onlyIn fact, if present trends continue, be good news for Saudis and the Over the next few decades, Saudi Arabiaby 2010, SAGIA believes that Saudi Saudi economy. For international is expected to face a sharp increase inArabia may well be one of the ten healthcare providers and investors, its health care needs. A rising population, a growing percentage of Saudi nation-best places to do business in the world. the coming liberalization of the als over 60, and a surge in the illnesses sector will mean increased access of affluence are all expected to createOne crucial component in this to the largest healthcare market in tremendous new demand for health careprogram—for citizens individually the Middle East, and an exciting services. Planners within the Saudi gov-and for the nation as a whole—is opportunity to help millions of ernment believe that the current, largelythe creation of a more market- Saudis live longer, healthier lives. state-funded health care system will be unable to meet these needs. To cope with that growth in demand, plans are being made to encourage the development of a private health care sector. This is likely to create a tremendous opportunity for a broad range of foreign health care com- panies to participate in the Middle East’s largest health care market.8 Booz Company
  11. 11. About SAGIA The Saudi Arabian General Investment Authority (SAGIA) is a service entity aiming to provide services and facilities to promote investment and economic development in the Kingdom of Saudi Arabia. SAGIA was established in April 2000 under the directives of the Supreme Economic Council (SEC) as a catalyst to promote inward investments, facilitate exchange of best practice between the public and private sectors, as well as act as an intermediary between the global business community and the Saudi Government and its ministries and agencies. It also aims to contrib- ute to economic policy-making substantiated by research and strategic criteria. SAGIA’s role is complementary and supportive to the bodies directly concerned with the various investment sectors and working to finalize the investors’ procedures. The mission of SAGIA is to create a probusiness environment while providing comprehensive services to investors, and fostering investment opportunities in energy, transportation and knowledge based industries Six core roles maximize SAGIA’s impact on Saudi economics and investor interests.About the Authors 1. Facilitation: SAGIA’s promise to investors begins by providing comprehensive transactional support services that transcend licensing and extend through to theRichard Shediac is a partner with completion of a project and beyond.Booz Company based in Abu Dhabi.He leads the firm’s healthcare activities in 2. Investor-to-Opportunity Matchmaking: Targeted and focused matchmakingthe Middle East and has participated in defines SAGIA’s marketing and promotion activities.various strategy, operations improvement, 3. Special Incentives for Lesser-developed Regions: In cooperation with regionaland organization projects in the Middle authorities inside Saudi Arabia, SAGIA’s regional development focus leverages aEast, Europe, and Asia. region’s strength for the investor’s profit.Ghassan Barrage is a senior executive 4. Special Incentives for Entrepreneurs: Feeding the leaves and branches of aadvisor with Booz Company in Beirut. healthy economy requires cultivating an entrepreneurial spirit. SAGIA does this byHe has extensive management consulting partnering with The Centennial Fund, a national, non-profit foundation dedicatedexperience in strategic planning andorganization development in various to mentoring and funding Saudi in Europe and the Middle East, 5. Dedicated Sector Services: SAGIA offers its comprehensive investmentincluding healthcare. facilitation package to all investors seeking opportunities in any of the economy’sRené Perillieux is a senior executive open sectors. To maximize the Kingdom’s competitive advantages and set theadvisor with Booz Company in Dubai. stage for further economic diversification, however, SAGIA dedicates sector-specificHe leads the firm’s work with European resources and services in Strategic Business Units.public health organizations and 6. Pro-Business Advocacy: Being competitive in the global economy means aproviders, and specializes in strategy,innovation, technology management, business environment characterized by healthy practices, policies, and procedures.and large-scale transformation for Easing Your Pathprivate and public organizations. The Saudi Arabian General Investment Authority (SAGIA) is the gateway to investment in Saudi Arabia, easing the path of investors and facilitating their progress through the required procedures by providing comprehensive services. The focal points for investors are SAGIA’s One Step Shops in Riyadh, Jeddah and Dammam. Here investors receive personal attention as they are furnished with all necessary information, including details of the benefits and incentives to which they are entitled; guided through the licensing process; and given direct access to all relevant government ministries and agencies in the one location. Post-licensing services such as assistance with land acquisition, site development and the obtaining of utilities is also available. For potential investors the web portal,, ensures easy and effective access to SAGIA and provides regularly up-dated investor-related business information and details of SAGIA-identified opportunities. For more information kindly visit our website: Company 9
  12. 12. The most recent list of Worldwide Bangkok Madrid Dubai South Americaour office addresses and Offices Brisbane Milan Riyadh Buenos Airestelephone numbers can Canberra Moscow Rio de Janeirobe found on our website, Asia Jakarta Munich North America Beijing Kuala Lumpur Oslo Atlanta São Paulo Hong Kong Melbourne Paris Chicago Mumbai Sydney Rome Cleveland Seoul Stockholm Dallas Shanghai Europe Stuttgart Detroit Taipei Amsterdam Vienna Florham Park Tokyo Berlin Warsaw Houston Copenhagen Zurich Los Angeles Australia, Dublin McLean New Zealand Düsseldorf Middle East Mexico City Southeast Asia Frankfurt Abu Dhabi New York City Adelaide Helsinki Beirut Parsippany Auckland London Cairo San FranciscoBooz Company is a leading global managementconsulting firm, helping the world’s top businesses,governments, and organizations.Our founder, Edwin Booz, defined the professionwhen he established the first management consultingfirm in 1914.Today, with more than 3,300 people in 58 officesaround the world, we bring foresight and knowledge,deep functional expertise, and a practical approach tobuilding capabilities and delivering real impact.We work closely with our clients to create and deliveressential advantage. For our management magazinestrategy+business, visit the Ideation Center, Booz Company’sleading think tank in the Middle East,visit and learn more about Booz Company.Printed in USA©2007 Booz Company Inc.