Ageing populations, high birth rates and rising incidences of illnesses associated with affluence are increasing the pressure on state health services across the Gulf.

Saudi Arabia, home to the largest population in the GCC, has decided to tackle the problem by outsourcing, handing 220 public hospitals to private firms in the most fundamental reform of its healthcare system undertaken by any GCC state.

Until now, healthcare provision in the kingdom has been dominated by the state. By bringing in the private sector, Riyadh hopes to improve standards and introduce an additional source of funding to pay for the expansion of the system.

The policy is being led by the Health Ministry and the Saudi Arabian General Investment Authority (Sagia).

“The bottom line is there will be more money in the sector,” says Ghassan Barrage, vice-president of US management consultant Booz & Company, which recently completed a report on the country’s healthcare system for Sagia.

“The government has been spending, but not in line with income. There is room to spend more. The government is unlikely to reduce spending, but by providing a top-up from the private sector, there will be more money in the sector overall.”

Rising cost

The Health Ministry’s budget increased by 65 per cent to $6bn from $3.7bn between 2002-03 and 2006-07.

According to the Booz & Company report, the total healthcare spending by all government departments was $13bn in 2005, and the figure is expected to increase to more than $20bn by 2016.

Private sector spending in the country accounts for 25 per cent of total healthcare spending – far less than in countries such as the US and India, where the figures are 55 per cent and 76 per cent respectively.

Saudi Arabia’s rapidly growing population is increasing the pressure on the system. Booz & Company predicts the population will grow to 30 million by 2016 from 23 million in 2007, but expects healthcare expenditure will rise at an even faster rate over the same period.

Demand for hospital beds will grow to 70,000 from 51,000, while demand for doctors will increase to 54,000 from 40,000.

This growth in demand is being driven by high birth rates and rising affluence, which means Saudis are living longer. The number aged over 60 is expected to rise to about 2.5 million by 2020, from 1 million.

At the same time, greater wealth is expected to result in higher rates of heart disease, diabetes and other diseases associated with affluence.

About 20 per cent of the population over the age of 20 already suffer from diabetes, compared with 5 per cent of the global population.

Booz & Company also estimates that spending on cardiovascular diseases will grow to one-fifth of healthcare expenditure by 2016

Such statistics mean the government is coming under pressure to improve services.

“Due to the increasing demand on healthcare services in terms of quality and quantity, the government must put in place a plan to guarantee the stability of these services, regardless of an increase or decrease in the budget,” says Ahmed al-Ali, senior health administration consultant and deputy executive director of Saad Specialist Hospital in Al-Khobar.

“Therefore, there have to be other resources available to ensure the provision of these services”

Privatisation drive

The plans to bring in the private sector are part of a wider privatisation drive that was approved by the government in 2002.

Under the plan, all 220 Health Ministry hospitals will be transferred to a new entity, the General Organisation for Hospitals.

Although separate from the ministry, the organisation will still be fully owned by the government. The new body will then enter into partnerships with private companies to manage or own the hospitals.

The transfer of hospitals will be gradual. Hospitals located in remote areas will continue to be run by the government unless the private sector expresses interest in acquiring them.

Hospitals in urban areas will benefit from private sector involvement far more quickly.

The process should attract interest from major local and international healthcare providers, many of whom are already working in Saudi Arabia. With more than 100 private hospitals already in operation, the kingdom has a wealth of experience to draw on.

Saad Specialist Hospital is owned by the local Saad Group and says it is planning to bid for some of the ministry hospitals.

“We aim to be among the first organisations to own the public sector hospitals,” says Al-Ali.

Other firms already operating hospitals include the local Kingdom Holding, which set up Kingdom Hospital in northern Riyadh in 2000. The Saudi German Hospital Group is the largest private healthcare provider in the region. It operates hospitals in Riyadh and Medina and is developing another in Hail.

Exactly how such firms will be brought in to help with the running of the 220 ministry hospitals is not yet clear.

It will be left to the General Organisation for Hospitals to decide how best to introduce private participation, but three methods are being considered, according to Al-Ali.

Assessing proposals

“The first is selling these hospitals in a systematic order to the private sector, which will manage the hospitals in the same way private hospitals are managed at the present time,” he says.

“Another suggestion is the leasing of the hospitals to the private sector, so that if the private sector fails to manage the hospitals, they can be brought back under the management of the Health Ministry.

The third idea suggests leasing the hospitals to the private sector with a promise of ending [public sector] ownership.

“I think this is the method that will be applied, so that if the leasing system proves successful and the private sector manages the hospitals well, the hospitals will systematically be privatised.”

The privatisation of hospitals is only one part of the government’s strategy to reform the healthcare system.

The ministry is handing over its procurement role to a new company, which will take sole responsibility for all medical supplies and equipment.

The National United Procurement Company will be government-owned, but will operate on a commercial basis.

Such reforms should provide opportunities for other private firms. The US’ GE provides equipment to Saudi hospitals and is working with the Health Ministry to train staff.

Richard di Benedetto, president and chief executive officer of GE Healthcare International, says his firm is committed to working with the public and private sectors in the kingdom, and that “public-private partnerships in the healthcare sector are increasingly gaining popularity in the Middle East region”.

However, as the state withdraws from healthcare provision, the cost of treatment is likely to rise for patients, who will increasingly have to pay for it directly, rather than rely on the government.

A new body is being set up to fund healthcare services provided to patients under the new system.

Operating under the auspices of the Finance Ministry, the National Health Fund will cover the cost of medical care and drugs for Saudi nationals, but may not cover the full cost of healthcare, with locals still having to take out private insurance.

It is already mandatory for all foreigners living in the kingdom to have medical insurance.

The rule could eventually be extended to all employed nationals, or their employers, while civil servants and the unemployed are likely to be exempt.

Funding treatment

“The fund will pay for the costs of the treatment of the individuals who are afforded their treatment through the government, and thus will not have their treatment costs covered by the insurance companies,” says Al-Ali.

The reforms will leave the Health Ministry with a much-reduced role. But it will retain a regulatory function and will continue to provide primary healthcare to patients.

In 2006, there were 1,925 healthcare centres in the kingdom and the ministry plans to set up 2,000 new clinics.

The General Organisation for Hospitals will be responsible for all other healthcare provision.

Privatising the healthcare sector will not be without its difficulties, not least in developing new systems to regulate the sector.

“It is a new world,” says Barrage. “It will require a new regulatory environment. One of the main challenges will be building capacity within the government to develop a regulatory framework and administer it.

“Today, given the dominance of the government, it does not oversee itself. Once it has partners, it will have arms-length relationships with them, and will need to develop standards for hospitals and medical services.”

To address this issue, a watchdog to oversee the quality of standards in public and private hospitals has already been set up.

While other countries in the region are also increasing private sector involvement in healthcare by encouraging private firms to set up new hospitals, the kingdom is alone in trying to privatise its existing state-run hospitals.

“What they are doing is pretty fundamental in that the Health Ministry is no longer providing healthcare,” says Barrage.

“In comparison with the other Arab states, the kingdom has a better chance of leading the way for a number of reasons,” says Al-Ali.

“First, we have a well financed, experienced and managed private sector in the field of medical services. Second, the state and all its bodies are convinced of the plan.”