The UAE and other Gulf states can still absorb more hospitals and beds — but private health care operators need to keep close watch on their finances. Especially on their inflationary costs and their debt levels.
“Operators face larger challenges vis-a-vis a rising cost of health care services,“ said Krishna Dhanak, Executive Director, Alpen Capital. “Gross medical inflation ranged between 5 and 12 per cent in the GCC [Gulf Cooperation Council] during 2017.
“The capital structure of the business plays a very crucial role in assessing feasibility and, as such, the rising cost of debt will be an influencing factor deciding for new projects.
“[Plus, there is a] shortage of medical professionals and an inconsistent quality in health care facilities. This results in uneven patient outcomes and satisfaction levels and limited specialised care capacities. And results in patients migrating outside the GCC.”
Alpen Capital issued a new summary of the GCC’s health sector prospects, in which it says the UAE could see another 2,000 hospital beds being added by 2022. During the same period, Saudi Arabia will require over 7,500 beds.
Private funds and hospital chains have been piling into Saudi Arabia, and the process could see further action given the kingdom’s push to have higher private sector participation in key sectors. Leading UAE based operators have acquired existing health care facilities or investing in new ones, and the costs have been significant.
But with interest rates pushing higher, will health care operators be forced to take a step back from major expansions? Especially as most of the expansion drives are funded through debt, which is now getting costlier?
Prasanth Manghat, CEO and Executive Director at NMC Health plc, reckons that need not be the case.
“In terms of corporate lending, the 3-month Eibor (the UAE inter-bank lending rate) in December 2009 was 1.9 per cent, while today it is 2.2 per cent,” he said. “Against the backdrop of rising interest rates, (health care) corporates would be encouraged to enhance the internal efficiencies and bring in cost optimisation protocols.
“The acquisition and consolidation spree in the Gulf would be fuelled by macro-economic data. In the decision-making, the lending rates, or the cost of acquiring money, would be only one — yet an important — variable.
“There is still a strong story with tremendous upside in the UAE in terms of capacity enhancement. Yes, there could be consolidation happening in the near future. And health care brands could look at the less saturated markets of the western region of Abu Dhabi and the northern emirates. Yet, in Abu Dhabi and Dubai there is still a lot that can be done.”
One factor health care industry will keep at the forefront is the projected increase in population numbers. Across the GCC, the resident base could see an increase by another 6.6 million to 61.6 million by 2022, according to Alpen’s data crunching. Of this, nearly 17 per cent will be 50 years and above.
“The expanding size of population and the ageing factor is set to exert pressure on the health care system,” the report adds.
Institutional investors have helped with funds by backing primary and secondary health care facilities in new communities or master-developments. In many instances, they have used leasing of their real estate needs as a way to reduce the capital requirements.
And where possible, the bigger health care brands continue with their acquisition of smaller clinic networks.
”With increasing opportunities for the private sector, the health care industry is witnessing a surge in mergers and acquisitions. The inorganic route is being adopted by new players to enter the market and by existing providers to expand market share, physician practices and medical capabilities,” Dhanak said.
BOX — Lot more hospital beds needed
DUBAI: Currently there are more than 700 hospitals with than 103,000 beds in the Gulf. Saudi Arabia had 470 hospitals with 70,844 beds by end-2016, representing nearly 70 per cent of the region’s bed capacity, according to Alpen Capital.
The UAE has a capacity of 12,540 beds, of which nearly 55 per cent is held by the private sector. As for the other Gulf markets, government-owned facilities make up between 75-90 per cent of hospital beds.