DUBAI: The UAE’s healthcare sector has caught a bit of chill — and it’s nothing to do with the weather.
After five years of strong double-digit growth when clinics and specialty hospitals were either opening in every neighbourhood or being announced, it’s slightly different circumstances the industry will confront in 2017. Some of the leading healthcare operators are now trying to come to grips with managing their cost of operations, which in the last five years had shot up significantly in the last five years.
Cost of bringing in doctors and specialists, investing in top-of-the-line equipment and on real estate had shot up beyond all recognition. And then there were all the extremely aggressive acquisitions — of both operators or specific assets.
But, in 2016, those costs have come back to pinch healthcare operators. It was brought on by the dip in the wider economy finally “catching up” with the healthcare industry.
And with insurance companies enforcing their clout on what cost of providing care should be, the industry is having a rethink. There is market talk of some operators having had to go in for lay-offs — which would have been unthinkable in 2015 or even early this year — and scaling down expansion plans.
“Already, in Dubai, you have a number of insurance companies - they know that utilisation rates (after compulsory healthcare became the norm) will naturally be higher,” said Alisha Moopen, Executive Director and CEO – Hospitals & Clinics, Aster DM Healthcare. “Insurers will be monitoring and tracking it more closely.
“For healthcare providers, your tariffs are not supposed to rise by 4.15 per cent [annually]. But other costs such as on real estate have gone up way beyond that [except in the last six months.]
“[High] salaries were a problem a year to 18 months ago. But in the last six months, it’s not gone up that significantly.
“But there will always be pressure on all these costs to increase. The challenge is coming up with some way to not have them increase by more than 4-5 per cent.”
But can costs be reined in a way that healthcare insurers be comfortable with? Universal healthcare is still taking full effect in Dubai, and going by experiences in other markets with similar systems, it can take time for insurers to get some sort of grip over it.
According to a new report by Al Masah Capital, “The greatest impact of these mandatory health insurance schemes is likely to be in the areas of clinical accountability and financial performance. Successful insurance companies in the GCC would… institute control and accountability mechanisms for providers to minimise exposure to malpractices.
“Regional governments are increasingly making health insurance mandatory in a bid to reduce costs and improve healthcare standards. It is expected to be fully implemented in most of the GCC countries by 2020, which would be a significant driver of investment and expansion of health services in the private sector as out-of-pocket expenditures decrease.”
The rollout of universal healthcare and a shift from subsidised healthcare by the government were the drivers behind the great investment boom witnessed by the sector since the turn of the decade. As Al Masah Capital puts it, healthcare is an ideal “defensive sector” when other key sectors of the economy are not pulling their weight.
That’s when private equity and institutional wealth started to flood into the UAE healthcare industry… and continues to do so. In terms of value, UAE recorded deals worth $1.96 billion (Dh7.2 billion) between 2006-16 in the sector, accounting for 64.9 per cent of the total $3.032 billion, says Al Masah Capital. (It was followed by Kuwait with deals worth $585 million (19.3 per cent), Saudi Arabia with $469 million (15.5 per cent), and Oman with $11 million.
Where they could not build new, the private equity demand was chasing a limited number of existing assets. Their prices soared. That, in turn, added to the pressure on existing operators to expand their networks to take on newer competition.
Will the current soft market conditions put a break on these trends? Not going by the recent announcement that NMC Health has offered a substantial Dh2.05 billion for Sharjah-based Al Zahra Hospital from Gulf Medical Projects Co. Al Zahra operates seven out-patient medical facilities in the emirate.
The NMC offer need not be the exception either — other operators are adding muscle to their own expansion plans. “We can see plenty of opportunities to fill service gaps in the region and that’s what we are addressing at the moment,” said Pramod Balakrishnan, CEO of Emirates Hospitals Group, which is committing Dh200 million on a network expansion.
“We have a clear agenda of establishing a high-quality network through greenfield and well-thought out mergers and acquisitions — our expansion plans remain on track.
“But I do agree that there will be a re-think by owners/operators for whom the sector is non-core.”
Balakrishnan does not buy the argument that a bigger network also creates a few bargaining chips when it comes to negotiations with healthcare insurers.
“A large network is not necessary to command a good price — insurance companies understand a professionally managed quality hospital or medical centre means no unnecessary diagnostics or pharmaceutical costs… and higher quality outcomes.
“This means lower long term costs of providing care, and insurance companies are generally willing to compensate you better if you can demonstrate high quality.
“Yes, costs did go up due to demand-supply issues of medical staff, but that appears to have stabilised now. What really needs to be managed better by everybody — insurance company, provider and employer — is overutilisation so that premiums do not go shoot up and out of control.”
For all stakeholders in and related to the healthcare industry to read from the same script might take time. The regulator in Dubai is keeping a sharp lookout to keep the rate of inflation in providing quality cure within manageable proportions. Cost of essential medicines have been revised, and strict limits on the premiums on what insurers can charge.
The new year could well exacerbate some of the inherent issues the industry is going through. But, as the industry keeps stating, it’s far from going critical — the fever will subside.
