The decade leading up to 2013 saw robust growth in the Kingdom’s health care sector, as profits generated during the oil boom years were invested in deepening and expanding health care infrastructure. Although Saudi Arabia’s 2016 health care budget faces considerable cuts, it is important to note that this came on the back of highest allocation the sector had ever received in 2015.
The 2016 budget is part of a wider plan to not just cut costs, but also to boost efficiencies and enhance what is considered a bloated and sometimes inefficient system. Moving forward, the private sector is being encouraged to play a more active role as the government scales back its involvement, restricting itself to a largely legislative, regulatory and supervisory role in line with the Kingdom’s economic development blueprint, Vision 2030.
Recent Growth
During the oil boom years of the decade leading to 2013, the Saudi authorities invested significantly in public services, developing infrastructure across the Kingdom, deepening the reach and the scope of education, and significantly expanding health care services. The government built 81 hospitals over 10 years at a total cost of SR26bn ($6.9bn), while health care spending in general rose at an average rate of 9.6% per year during the period, reaching SR84.4bn ($22.5bn) in 2013.
These investments bolstered the significant advances that have been made in the Kingdom’s health care indicators in the last 25 years. Between 1990 and 2013 infant mortality rates were cut by two-thirds, from 36 per 1000 live births to 13, for example. Continued investment, greater private sector participation and a rapidly rising population are all factors that will continue to drive growth, with the sector expected to expand at a compound annual growth rate of 9% between 2015 and 2020.
Budget
Saudi Arabia’s 2016 budget, announced in December 2015 and the first since King Salman bin Abdulaziz Al Saud ascended the throne, included significant shifts in government spending as the Kingdom adjusts to the effects of lower oil prices, which fell from around $114 per barrel in June 2014 to a low of $28.50 in late January 2016 before recovering to around $50 as of early July. Cutbacks were in evidence across the board as authorities looked to rein in excess spending and boost efficiencies.
Nonetheless, health care formed a significant portion of the 2016 budget, accounting for 13% of total spending, with an allocation of SR104.9bn ($28bn), the third-largest proportion after military and security services (25%) and education (23%).
As part of its plan to allocate its budget resources more efficiently, the Ministry of Health (MoH) has issued various directives to its facilities, including the reduction of bonuses and overtime paid to health care staff, and a review of pharmaceuticals purchases, with operators urged to seek out cheaper options. Insurance was another area that was reviewed, with the government introducing stricter regulations on what is and is not eligible for coverage under its medical insurance policies.
Private Sector
An EY report published to coincide with the annual Arab Health Exhibition & Congress in 2016 identified six areas of opportunity for investment across the GCC’s health care sector. According to the report, primary care services, specialised centres of excellence, home health care services, long-term and post-acute care (LTPAC) rehabilitation, biotechnology and medical disposables manufacturing are key areas that will require significant region-wide development if supply is to keep pace with growing demand (see overview).
Another area where private players can participate is the joint operation of clinics and health centres that are due to come on-line. The MoH announced plans in 2013 and 2014 to build 35 centres for cancer treatment, though the slowdown in government spending will likely see some of these postponed. For those already in the project pipeline, the government has the option of inviting private players to form public-private partnerships.
There are also opportunities in the provision of services that public hospitals are aiming to outsource, such as radiology and pathology. King Fahad Medical City (KFMC), for example, has a large radiology department, whose utility could be maximised by private sector operation. “We are exploring the possibility of outsourcing our radiology department,” Dr Mushabbab Al Asiri, executive medical affairs director at KFMC, told OBG. “This would give the operator easy access to our patients, while also benefitting from the facilities we have. Furthermore, the operator could provide services to other hospitals that need MRI or CT scans as we have a lot of machines but we aren’t maximising their utility.” Non-core services like catering, cleaning and laundry could also be targeted for outsourcing, Al Asiri said. KFMC’s laundry facility, for example, was outsourced to Saudi Arabian Airlines (Saudia). “We had a huge laundry facility that wasn’t being optimised,” he told OBG. “So, to make sure it was properly utilised, we outsourced it to Saudia, and the department is now responsible for the laundry services of various other Riyadh hospitals, as well as hotels.”
Transformation
The National Transformation Programme is a set of strategic economic reforms announced as part of Vision 2030 and launched under the supervision of Deputy Crown Prince Mohammed bin Salman Al Saud, chairman of the Council for Economic and Development Affairs. Vision 2030, announced in April 2016, outlines a comprehensive blueprint for the transformation of the Kingdom’s economy away from its current energy-driven path towards a more efficient, innovative and knowledge-based growth model. The health care sector is expected to play a major role in this.
The government will initially create public corporations onto which it will start to shift its care provision in anticipation of further privatisation in the future. These corporations will then compete among themselves and the broader private sector in a bid to promote competition and transparency in the sector. This should ensure high-quality care while also allowing the government to focus on its legislative, regulatory and supervisory roles.
The then minister of health, Khalid Al Falih, touched on these upcoming changes at the Ninth Global Competitiveness Forum in Riyadh in January 2016. “We will initially corporatise our health care delivery system, with some of our facilities going into non-profit foundations,” he said, before emphasising that the government will gradually be scaling back its involvement in the sector.
“The separation from the government is a certainty. What happens afterwards in terms of privatisation is a process that we will take our time with and carry out in an orderly fashion.”
Taking A Step Back
According to Al Asiri, such a model, where all current public facilities are placed under the responsibility of semi-governmental public entities, would be popular with health care workers, as it would offer greater job security than if hospitals were purely under the control of private sector entities seeking to maximise profits.
However, he agrees that the best long-term solution for the sector is a significant paring back of government involvement, with the MoH transforming itself into a regulator rather than an operator to help them streamline processes and promote efficiencies. “If the government continues to operate the sector, it will not grow in an efficient manner and the bleeding will continue,” he told OBG. As such, moves to place public hospitals under the control of corporate entities represent the first step in the upcoming privatisation drive for the sector that is expected to take place over the next five years. “We will unshackle hospitals and clinics to reform themselves or be doomed by the forces of the marketplace,” Al Falih said in January 2016.
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