Rebecca Samuel is Director of Consulting for ICME Healthcare, a management consulting firm based in Hamburg, Germany, with offices in Abu Dhabi and Kuala Lampur. Working with clients on everything from new-facility planning to market entry strategies to process reengineering, Samuel has been involved in healthcare projects in Europe and Asia, and currently focuses on investment opportunities in the GCC.
How do healthcare approaches vary with region?
Healthcare issues are basically the same all over the world. Healthcare is very expensive, and to deliver high-quality, technologically advanced care at an accessible price is difficult. Everyone in the healthcare field, from CEOs to consultants, is focused on that goal. How solutions are implemented, however, can be quite different across regions. In fact, healthcare can even be very different across countries in the same region. Singapore has a very developed healthcare system, for example, with a 2014 per capita healthcare spending of US$2,752, but healthcare spending in Vietnam and Indonesia right next door is just over US$100, and in Cambodia, Myanmar and Laos it’s even lower.
What about in the GCC nations?
Healthcare is more uniform in the GCC region, with systems at a pretty consistent level of development between Saudi Arabia, UAE, Qatar, Kuwait and Bahrain — per capita healthcare spending there varies between Qatar’s US$2,106 and Saudi Arabia’s US$1,147. It’s still a very young healthcare market. At only a few decades old, it isn’t as sophisticated as more developed markets. Diagnosis-related groups (DRGs), for example, were only just implemented in the UAE and Saudi Arabia, and up until recently, these countries relied strictly on a fee-for-service reimbursement model. Now DRGs are pushing healthcare providers to be much more conscious of costs in order to make a profit. The U.S. has had DRGs for several decades, and yet healthcare payment models there are still evolving — it will be a much steeper learning curve for GCC nations.
Regulations are changing quickly in the GCC, as well. The Health Authority of Abu Dhabi (HAAD), for example, is currently updating its data collection and mandatory reporting protocols in order to access near-real-time information on how hospitals are performing. Starting June 1, 2017, the HAAD has mandated that all insurance claims be submitted within 24 hours of treatment. Hospitals have to submit data on infection rates, hospital performance and medical data on a month-to-month basis, instead of quarterly. This means hospitals will be held much more accountable to high-quality standards if they want to stay in the marketplace.
How do you approach healthcare consulting in developing regions?
Consulting gets a bad name in developing markets. Clients have spent a lot of money on strategic reports from McKinsey or Boston Consulting Group, which are big-league names with a big price tag. But if clients aren’t able to implement those solutions, they never see the real value in these reports. Understandably, they are hesitant to spend a lot on consulting.
We’re seeing a shift now, especially in the GCC, towards a demand for consultants who can not only identify the necessary changes and improvements for a project to succeed, but who can also execute those changes. That’s why ICME does more targeted work, on specific projects or facilities, with a focus on keeping the costs contained. We’re not just designing, building and installing equipment anymore. Even at greenfield projects, like our Al Ain public hospital, we’re seeing more requests for operational and hospital management consulting services. If the programs are put in place from the beginning, and which the staff can carry forward once we’ve moved on, the hospital can hit the ground running.
If we just go in and do a feasibility study, it’s four weeks of work. But an implementation plan could be six months, nine months or a year of work. That alone increases the cost — it’s like having extra staff for a period of time. These timelines might seem excessive to clients because the implementation model hasn’t really been done in this part of the world. But at the end of your nine months, for example, the organization is performing better and capturing more revenue: It would have more than paid for the consulting services.
I think consulting companies in this region have to start with more risk, where the consultancy charges a reduced fee but then gets a share of the savings and increased revenue after implementation. If you’re good at what you do, the potential is quite high. A good example is supply chain consulting, which is a hospital’s second largest expense after staffing: By reducing contracts and vendors, a hospital can cut costs by 10 percent, which could mean millions. It’s already common practice for medical records consulting firms. Sharing the risk with clients could be a great way for consultancies to get their foot in the door in this evolving marketplace.
What strategies are proving most successful for providers in the GCC?
It’s a moving target. By the time a planned hospital is operational, the market will have changed significantly. So it’s important to research how the market is changing, and to plan for it. Currently, there’s a lot more emphasis on being efficient and economical, while still providing the high-quality services international hospitals such as Cleveland Clinic Abu Dhabi (CCAD) are known for. Insurance companies are a lot more cost conscious now. A few years ago, a hospital could generate volume by pushing one patient through many different services. But not every patient can be in the ICU, or have lab work and radiation done. As we see insurance providers cutting back on overutilization, that model is going away. Even developed healthcare markets have this issue, but they have different strategies to manage it: The queuing system, for example, in the U.K. and Canada, means you might be on a list to see a specialist for three months.
There’s been a recent new regulation in Abu Dhabi that came down from the Ministry of Health to cut overutilization costs, for example. Here in the Middle East, people love to go the doctor. The average hospital visits per year is eight to ten per capita, compared to the three or four a year in the U.S. It’s very common for patients here to see four or five doctors and get their opinions on the same issue. This exponentially increases the cost of care. So the new regulation says that insurance will pay for one visit, and unless you get special permission for a second, you’ll have to pay out-of-pocket.
Expensive hospitals like CCAD have to prove they can be self-sustaining over time. Many patients don’t have to leave the region now for super-specialized care, which translates into huge cost savings for the public economy, and there’s real value in that. CCAD still needs to find a happy medium, where it’s an economically efficient facility and a viable hospital, as well. The GCC patient population is too small to support all the services and size of that kind of hospital. Hospitals have to expand their ability to take more patients in their facilities to maximize utilization, by accepting insurance and payers who won’t pay the same fees that government and high-end insurances will pay.
Is there an ICME project that you believe will have a major impact on healthcare in the region?
Our flagship project, Al Ain Hospital in Abu Dhabi, will be quite something. Similar to CCAD, it’s another hospital at a level that hasn’t been seen in this part of the world. And it’s a public project for the government hospital system Abu Dhabi Health Services Company, one of eight public hospitals in the Emirate. It was planned at around the same time as CCAD, starting in 2007–2008. It’s taken a while to come to fruition, and we expect it will be operational in 2019, with 700 beds. We’ve been involved since the first planning stages, as part of the site management and supervision teams, seeing all the way through to handover.
Because it’s a public, government-owned and -operated hospital, it’s meant to serve as a safety net for the local population, while still providing a high level of care. Although it doesn’t have the advanced super-specializations of CCAD, it does have proper departments such as emergency rooms, ICU, oncology care and cardiac care. Most private hospitals here don’t have those units, because they don’t have the necessary volume to make them cost effective.
What trends are you seeing in healthcare investment in the GCC?
The focus in the GCC is shifting from public to private healthcare spending. Private healthcare investment in the region grew to US$14.7 billion in 2013 — out of a total investment of US$49.5 billion — which was up from US$9.7 billion in 2008. We’re seeing GCC governments use public-private partnerships, like the collaboration between UAE’s Ministry of Health, the private investment firm Mubadala, and Cleveland Clinic to inaugurate CCAD. These partnerships are a good way for the UAE and meet its ambitious healthcare expansion goals.
We’re also seeing more and more involvement from local investors, like GCC-based companies and families. Homegrown investors want to give back to their community, and because it’s a good long-term strategic investment. The same is happening in Africa — ICME just took on its first project in Ghana for a local investment company, and we’re seeing similar interest in Nigeria, Ethiopia and Sudan. We’re getting more calls from small, local investors than from any other type of investor. These investors are looking for greenfield projects, mergers and acquisitions, and tech and medical device companies.
In the past, investment firms have seen returns upwards of 20 percent in the GCC region, which has drawn a lot of attention. In the U.S., a five to eight percent in annual returns is considered not bad — only top performing hospitals in the U.S. see 10, 12, or 15 percent returns. But the percentages in the GCC won’t remain that high — the competition is increasing, and there’s a lot of infrastructure already in place. Now we’re seeing returns in the teens, around 12–17 percent. In the future, annual profits here will drop into the single digits.
Is there still strong interest in greenfield hospital projects in the GCC?
Investors are increasingly interested in acquisitions and mergers over greenfield projects. Instead of starting from scratch, investors want to buy an established facility, then expand and improve its efficiency and quality of care. We saw it 18 months ago, when Mediclinic purchased Al Noor Hospital in Abu Dhabi, and NMC Health last month acquired two hospitals in Saudi Arabia, after moving into Abu Dhabi, Dubai and the Northern Emirates. Even some small scale, private equity firms and investors are using this model, purchasing one or two small hospitals and building upon that investment. They want to invest their money in a smarter way, to recoup their investment earlier or to get into the market quicker, especially when there’s more competition. An acquisition is much quicker — you can be up and running within a year or less. But you also buy all the headaches that go with it. If you purchase more than one hospital, for example, you have to integrate all the processes, as Mediclinic did when it acquired Al Noor. Greenfield projects take longer, but everything is entirely under your control.
Our firm has been enlisted on two acquisition projects this year as technical advisors, which means we assess the current facilities and the technology operating the facilities, and determine how they impact value and whether proposed changes would increase revenues or decrease costs. The data we collect then gets used for valuation for the acquisition. It’s a very different process than it would be for a greenfield project.
There have been some unexpected market disruptions, as well. The big one in July 2016 was the HAAD deciding that all Emiratis getting services outside of the public healthcare system would have to pay a 20 percent copay. The impact on private hospitals was huge — they suddenly went from a full patient load to struggling to fill beds. The decision was reversed in the summer, thanks to pushback from both the Emirati population and hospitals. But as the HAAD and insurance companies look for more cost-containment strategies, we’ll likely see more changes like that.
— Alex Freedman
Alex Freedman is a freelance healthcare writer based in Portland, Oregon.