UAE healthcare provider looks to gain a foothold in Saudi's privatized hospital market

PHOTO

Abu Dhabi-based private healthcare firm VPS Healthcare is planning to bid to run hospitals in Saudi Arabia once the kingdom's Ministry of Health begins to privatise them, according to the company’s founder.

Speaking to Zawya on the sidelines of the World Government Summit on Monday, VPS Healthcare's founder and managing director, Shamsheer Vayalil, said: "We are waiting for some tenders to be out - from the Ministry of Health - in terms of outsourcing of some of their hospitals."

When asked whether it was comfortable entering into the market without a law governing public-private partnerships (PPPs) being in place in the kingdom, Vayalil expressed confidence that the structures created by the Ministry for private firms to run hospitals would provide the necessary guarantees that project investors would require.

"I don't think they would release such a tender without keeping those things in mind because I think everybody is waiting for the right opportunities to invest in those projects."

Saudi Arabia is planning to privatise many of its existing public hospitals as part of its National Transformation Plan. Last month, the Saudi Gazette newspaper reported that the Health Ministry was in the process of setting up a holding company to manage this process, as well as five health companies covering different regions in the kingdom.

Vayalil said that the nature of healthcare in the region was shifting away from public to private provision.

"And we see the direction is right because we feel that it's overwhelming - we feel public hospitals cannot provide what is required at this stage, so they have to rely on private in some way."

The ‘tipping point’

Vayalil was speaking after participating in a United Arab Emirates Ministry of Finance-organised panel debate on the role of PPPs in healthcare provision. Speaking during the panel session, Vayalil said: "I think the biggest challenge is the rising cost. The only way to overcome this is to use more of the private sector. Even if you see typical systems like the NHS (the United Kingdom’s National Health Service), they're not able to take the stress any more. We've come to the tipping point."

Hartwig Schafer, vive-president of global themes at the World Bank, said that in healthcare PPP projects where the World Bank has been involved, "almost throughout we have seen better KPIs, better performance, more patients being put through the same facility, mortality rates going down”.

He added: "The indicators are clearly showing that by bringing in private sector expertise, the healthcare services being provided are better than what the public sector can provide.”

Ghassan Hasbani, Lebanon's deputy prime minister and minister of health, said that one of its main challenges had been to gain public acceptance for PPPs, adding that it "took us a very long time to get the approval on the PPP law".

He argued that one of the main benefits of private sector firms running hospitals is that they are more likely to invest more quickly in technology that will make operations more efficient.

"In many cases, governments are very good at major capital programmes and they invest once. Then they get challenged with the operating costs later on, and this is where technology starts failing," Hasbani argued.

He said that Lebanon's government has been paying approximately the same amount to send patients to both public and private hospitals, but gets "more effective outcomes" from privately-run hospitals.

"Public hospitals have been accumulating significant issues over the last 10-15 years in terms of being rundown buildings, very little investments going in them, relying a lot on support and foreign aid to support them, while private hospitals have been thriving on more or less the same, or even less, public budget."

Not a cure-all

However, private institutions should not be seen as a cure-all for healthcare delivery. Tedros Ghebreyesus, the director-general of the World Health Organisation, said during the debate that there were areas of "market failure" in the provision not only of technology, but also access to vaccines and other medicines, particularly in poorer countries.

"Addressing the market failure is going to be very important. The private sector will have difficulty addressing it, because they will always operate based on the profit margin," he said.

Building new hospitals through PPP projects can also be much more expensive.

Last month, the United Kingdom's National Audit Office (NAO) published a report analysing the costs of PPPs that had been commissioned under its Private Finance Initiative.

It reported that for 700 PPP assets (such as schools, hospitals and motorways) with a combined capital value of £60 billion ($84 billion), the annual service cost reached £10.3 billion in its most recent (2016-17) financial year. Also, given that many PPP contracts run for up to 30 years, the future liabilities that need to be paid by the government remains high.

"Even if no new deals are entered into, future charges which continue until the 2040s amount to £199 billion," it said.

The NAO report compared costs of schools commissioned by the Department of Education through traditional and privately-financed methods, and found the latter typically cost 40 percent more.

The report highlighted several reasons why PPP projects are more expensive, including typically higher construction costs, higher fees paid to consultants to set up contracts and structures, and the fact that the special purpose vehicles (SPVs) set up to build and run assets have to pay higher borrowing costs (typically 2-3.75 percent) than the government would.

Vayalil told Zawya that in the UAE, public health bodies were already relying on some of the best-known private international healthcare companies to operate facilities, “but now I think there will be a model which changes and moves more towards privatisation”.

“If you look at the recent investment in healthcare into this part of the world, there's been a tremendous rise in terms of the number of hospitals, the number of speciality projects (and) people like us playing a major role in the provisioning side. Now, it's all about how we consolidate that scale.”

(Reporting by Michael Fahy; Editing by Shane McGinley)

(michael.fahy@thomsonreuters.com)

Our Standards: The Thomson Reuters Trust Principles

Disclaimer: This article is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Read our full disclaimer policy here.