The Challenge To Provide

The government for the past decade has been working to expand the healthcare system through state spending and by making it easier for the private sector to invest in healthcare. Despite steadily increasing investment by the private sector in healthcare facilities, the Ministry of Health remains the main provider of healthcare service in the Kingdom. According to statistics from the Ministry of Health there are 415 hospitals in Saudi Arabia, 288 state-owned and 127 private, though there are in fact more hospital beds in the private sector—12,817, vs. 10,939—because many state hospitals are small, regional facilities.

The IMF sees a positive role for state spending on healthcare and also in motivating greater participation by private capital. An IMF working paper from January 2014 explored the relationship between state spending and economic growth in Saudi Arabia, and concluded that the main driving forces behind long-run growth are private domestic investment, capital expenditure, and spending on healthcare, which includes human capital. The paper recommended that the government “put more emphasis on the productive part of government spending in the form of public investment.”

BROAD-BASED GROWTH

According to the World Health Organization (WHO) Country Cooperation Strategy for Saudi Arabia, the country increased the number of primary healthcare centers by 9.5% over the past five years, with the 10-year Ministry of Health strategy calling for the establishment of an additional 150 new centers each year until 2016. The report also noted an increase in the number of hospitals, physicians, and nursing staff.

Hospitals operator Dallah Healthcare became a listed company in 2012, raising more than SAR500 million in its initial public offering. The company in 2013 expanded its Dallah Pharma subsidiary, transforming it from distributor to manufacturer with the acquisition of a manufacturing plant in Jeddah—a play to vertically integrate the pharmaceutical business.

Eng. Tarek Othman Al-Kasabi, Chairman of the Board, Dallah Healthcare Holding Company, told TBY that, “We have strong growth plans for Dallah Pharma. We are also planning to build another general hospital in the southwest of Riyadh… There is a strong and growing demand for healthcare services. The population of Riyadh area is estimated now at 5.5 million and is growing every year. Overall, we are targeting double-digit growth.”

The government’s push for the Saudization of the workforce also applies to the healthcare sector, with the Ministry supporting medical and nursing schools as well as providing scholarships for Saudis to train abroad. The Ministry of Health reports that 21.7% of the 66,014 physicians in the country are Saudis, while Saudi nationals fill about one-third of all nursing positions. The Ministry reports spending 6.5% of the government budget on healthcare, or $345 per capita.

INSURANCE ON THE RISE

The WHO collaborates with three medical institutions, King Faisal Specialist Hospital and Research Centre, King Fahd Medical City, and King Khaled Eye Specialist Hospital, to help train Saudi health practitioners and conduct medical research. The WHO representative office in Riyadh cooperates with the Ministry of Health to reform service delivery and develop an integrated and comprehensive system of care throughout the country, a system increasingly reliant on private insurance.

The government’s decision in 2008 to make health insurance mandatory for all expatriates and their dependents transformed the healthcare industry, so much so that insured patients now comprise 80% of patients at private hospitals. The insurance effect is set to grow as the government plans to make health insurance mandatory for all citizens within the next few years.

Mohamed Mamoun Al Najjar, CEO-Jeddah of Saudi German Hospitals, told TBY that, “The insurance companies have become a third party in the equation of client and hospital. Insurance is indeed based on premiums, and two factors are key, namely the frequency of visits and the average claim. These determine pricing in the healthcare industry. Providers raise money to cover the cost of a service, and insurance companies minimize their costs by reducing premiums to gain market share.”

PHARMACEUTICALS ARE PROMISING

The Saudi Gazette in July 2014 cited on a new healthcare industry report that projects the Saudi pharmaceutical market, the largest among GCC members, reaching $5.9 billion in 2020, representing a CAGR of 5.8% from the estimated $4 billion of 2013.

GlaxoSmithKline (GSK), Pfizer, and Novartis are the major multinational pharmaceutical companies operating in Saudi Arabia, though the healthcare field as a whole has many others, such as Siemens and IBM. The big local players include Saudi Pharmaceutical Industries & Medical Appliances Corporation (SPIMACO), Saudi Pharmaceutical Industries (SPA), and Tabuk Pharmaceuticals. Saudi Arabia performs better than its GCC counterparts on drug pricing in the market, of which imports comprise 82.4%—worth an estimated $3.1 billion in 2013.

GSK Saudi Arabia operates with its joint venture partner, Banaja Group, and together in 1997 they established a manufacturing facility, starting with basic manufacturing and gradually adding products. Masood Jaffery, General Manager of GSK Saudi Arabia, told TBY that, “Over the past two years, we have added most of our products into local manufacturing, which includes both secondary packaging and manufacturing from the basic raw materials. We have added at least 13 new products, as well as our antibiotics and some vaccines. All of these products are going through our facility now.”

Generics pale next to patented drugs in the Saudi market, with about a 10% market share versus 77.6% for patents. The over-the-counter share is only 15.2%, but growing fast, posting an estimated 11.3% CAGR over the past five years. The medical devices market in Saudi Arabia reached $1.7 billion in size over 2013, according to the Ministry of Health, which projects the market to approximately double by 2020—led by in-vitro diagnostics, diagnostic imaging, and ophthalmic devices.

Dr. Ali Al Watban, Head of Saudi Arabia at Roche Diagnostics, told TBY that, “In all sectors, our figures are growing rapidly. This indicates that our healthcare sector is greatly improving in the country. There is a trend toward the automation of laboratories, which again is a positive development aimed at improving the quality and consistency of healthcare.”

REGULATION & HEALTH RISKS

The Saudi Food and Drug Authority (SFDA) standardizes regulations with neighboring countries, but differs from other international regulatory agencies in that it not only creates the legal framework for the industry, but also enforces its own rules. The SFDA cooperates with the larger global community as a member of WHO and regional organizations such as the Asia-Pacific Academic Consortium for Public Health.

Dr. Mohammed Al-Meshal, Executive President of the SFDA, told TBY that, “We are monitoring the market very closely, and we know that there is a shift toward new biotechnology products. Accordingly, we are trying to invest more in our biotechnology. Furthermore, we are trying to educate and train our personnel in the drug sector, in particular.”

Income is a key determinant of health, but it’s a double-edged sword. Higher income means having money to afford a better diet as well as better healthcare services, but it also means being able to afford greater leisure—and not everyone buys healthy. As the WHO reports on Saudi Arabia, “high carbohydrate, sugar, and red meat consumption exacerbate the high levels of obesity seen in the country and contribute to the high levels of mortality attributed to cardiovascular disease and diabetes.”

The government and the private sector both aim to emphasize preventive medicine, urging healthier lifestyles so that the healthcare sector doesn’t have to grow on avoidable suffering. But grow it will—that is the market consensus.