10 minute read 2 Feb 2021
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How the GCC private health sector can transform post-COVID-19

10 minute read 2 Feb 2021
Related topics COVID-19 Health Life Sciences
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The GCC private health care sector will need to brace for impact and implement reform initiatives to survive in a post-COVID-19 world.

Across health systems in the Gulf Cooperation Council (GCC) countries, private sector health facilities have collaborated closely with the public sector health infrastructure to enhance critical care capacity to treat patients with moderate or severe COVID-19 infections, test patient populations, provide capacity for isolation of patients, and over the past few months, the inoculation of resident patient populations with approved vaccines.

However, the pandemic has in recent months, dampened the efforts and outlook for private sector providers’ growth, sustainability and the investment in health services in the region.

Except for the need to test patients for COVID-19, as well as the isolation and treatment of patients who require hospitalization and critical care, most of the day-to-day medical care had been on a standstill for months through 2020, and in some GCC regions, these restrictions on elective care have been reintroduced to address the need for critical beds capacity for patients in 2021.

Operating rooms in the private sector, which were already seeing low utilization due to increased capacity in the health system, were closed for several months, while others are seeing a low utilization of inpatient beds. Most emergency room visits have dried out, as patients are growing used to telehealth consultations, and realize that a visit to hospital during the COVID-19 pandemic could potentially be risky.

Five areas the private sector will need to brace for impact

Given the current scenario, the private health care sector in the GCC has to brace for impact in five dimensions that are related to the health system and the economy.

1- Telehealth adoption by payors

In the GCC and many parts of the developed world, some applications, including telemedicine, have struggled to find acceptance and gain traction before the COVID-19 pandemic. However, with the pandemic, telehealth consultations in the UK and France have grown tenfold, and in cities like Abu Dhabi and Dubai, it has more than quadrupled in volume in just a couple of months.

For the GCC, the shift to telemedicine will transform health service delivery and the long-term shift in the patients’ increased acceptance for a “digital doctor”. A number of international insurance companies operating in the GCC as well as leading third-party administrators (TPAs) are developing, integrating and enhancing coverage and access to telehealth platforms.

2- Fiscal constraints and impact on employment generation

While the GCC governments are witnessing a shift in demand for oil and gas, and adapting to lower oil prices and revenues, some economies are certain to witness severe fiscal deficits, and thus have reduced budgetary spend to diversify the economy and further develop social infrastructure.

All of this has impacted employment generation in the short-term, and a growing repatriation of blue-collar and white-collar expat workers from the region in 2020, thus lowering demand on the health system at an overall level, and thus a more pronounced impact on private sector health services.

3- Cost containment and lower utilization for elective care

Given the possibility of lower salaries and lower disposable incomes, acute conditions like cardiology, obesity, and mental health services will possibly see more demand as the population is seeing restrained physical activity and is dealing with work-related and financial stress. People are likely to avoid, delay, or defer elective services such as Lasik, cosmetic and dental procedures, as well as bariatric surgeries and elective orthopedic surgeries.

Between 60% to 80% of a private hospital’s revenue comes from inpatient services, and over 70-80% of inpatient revenue comes from elective surgeries and procedures, as well as the diagnostic, labs and pharmacy services resulting from these procedures.

Most hospitals are thus in a situation where revenue is down when compared with Q4 of 2019, with the exception of some hospitals in the GCC who are working closely to test, isolate and manage COVID-19 cases.

4- Halt in medical tourism impacting business models 

Health tourism bringing inbound patients to the GCC, which many private sector facilities rely on, have observed a stoppage or significant reduction in the next eight to 12 months until the risks and fallout from the COVID-19 pandemic dissipates.

To a large extent most of the private sector, which relies on higher margin elective procedures and surgeries to sustain themselves, are seeing their operating models being severely challenged and are under pressure to reduce and curtail costs, especially as medical tourism which brings in cash flows at the time of delivering care or on payment terms that are significantly shorter than the average receivables cycle from local insurance companies and TPAs, need to reassess and reconfigure working capital requirements in the short to medium term.

5- Payor market changes and potential downgrades of insurance plans

Given the high levels of expatriate repatriation from most GCC markets, health insurance companies are likely to keep the pressure on, given that the insured base is reduced, and many companies are moving their employees from a higher coverage plan to lower ones to offset and reduce cost of healthcare premiums. This would further challenge healthcare providers serving the premium segments to reassess their operating models and develop a cost containment strategy and a restructuring program.

Reform initiatives for growth in a post-COVID-19 economy

The larger health care conglomerates with a network of clinics and hospitals, as well as standalone clinics and hospitals are witnessing shrinking operating margins and cash flow challenges and risks stemming from disputes with health insurance TPA’s on receivables settlements stemming from slower market growth and liquidity pressures.

These challenges are compounded due to the economic slowdown, cost pressures, stricter utilization measures from insurance companies, and long payment cycles that led to liquidity risks and required facilities for working capital management along with increased claim rejection rates.

The private health care sector facilities thus need to urgently reflect on, develop, and implement certain reform initiatives to sustain and repurpose for growth in the post-COVID-19 pandemic economy:

  1. Short-term crisis management and rapid funding response
    Hospitals in the private sector are facing a significant challenge in managing costs, availability of supplies and protective equipment, and ensuring the safety of their staff.

    It is imperative for private health providers to closely assess the current operating requirements and plan for different scenarios and model out costs and revenues, in a rapidly evolving environment. This helps in planning for the near-term to ensure liquidity, manage salary payments and to develop a significant analysis of patient volume, changing trends in volume, and the impact of deferred and canceled surgeries and procedures.

    While cash flows need to be monitored frequently, liquidity impacted areas need to be identified, funding requirements for different scenarios need to be assessed, risk assessment needs to be conducted with quantification for the sources and uses of funds, and short-term action plans need to be developed, implemented and revised as necessary.

    Cash forecasting tools need to be put in place and possibly digitized to enable quick management, and crisis measures need to be implemented, including the acceleration of receivables recovery or solutions and credit facilities for working capital management.

  2. Reassess and optimize the cost structure for medium to long-term
    With demand for in-hospital and in-clinic services likely to stay stagnant or decline, and with patients shifting to undergo lower acuity and minor procedures in ambulatory care or day surgery settings, as well as the use of telemedicine for most outpatient consultations, there is a growing pressure to carefully manage costs and reassess business plans and projections that are ambitious or outdated, especially if these were based on plans that are three to five years old.

    With hospitals and clinics spending a third to half of their cost on third parties, more of an effort can be made to benchmark against best practices, and streamline and standardize the purchasing function. It can be done using strategic sourcing, integrating supply function with combined buying along with other providers with the aim to improve category management and generate value through more agile outsourcing functions.

    As part of this effort, it is key to also reshape the funding strategy, adapt governance where required, and update the business continuity plan based on the revised operating model in light of payor reform and a more sustainable, agile and flexible cost structure.

  3. Restructure the service portfolio
    A number of private sector facilities in the region have been modeled as “general hospitals” or “general polyclinics or medical centers,” attempting to offer a broader suite of patient services across specialties. When constrained by size of the facility (less than 100 beds in most cases) and lower level of investment, such a model is faced with challenges, and many have ended up with little differentiation in perception among the patient community. Given the increase in capacity and improvement in access to primary and secondary care in the private sector, many would do well to carefully assess the top three to four specialties and services that are driving patient volume and focus entirely on these services.

    Private sector facilities should urgently develop scenarios and identify the demand for services and clusters that they can serve in a market that has been disrupted by the COVID-19 economic challenges. This will allow them to reshape and restructure their service mix, and to make the investments that can deliver highly specialized and efficient services to their identified patient segments.

  4. Optimize patient pathways and integrate services
    Stemming from the need to be more specialized, private sector facilities - particularly smaller clusters of clinics or standalone general hospitals - could partner with community clinics, specialized clinics, rehabilitation centers, and tertiary care hospitals, to refer or offer patients for specialized services.

    Globally, coordination of care is improving with the formation and rise of integrated health networks supported by value-based health care initiatives that help improve patient access, improve efficiencies, and reduce costs. This could also enable the formation of structured clinical partnerships, with a cross flow of physicians coming in as visiting doctors to address the needs of patient groups that require multidisciplinary, coordinated care, also supported and enabled through a digital interface.

  5. Overhaul and enhance patient experience
    While much of patient revenue flows in through out-of-pocket payments by patients and insurance reimbursements, the future is expected to see a continued shift toward the latter, and most health facilities operating in cities with mandatory health insurance are dependent on insurance reimbursement for 80% to 90% of their revenue.

    Payors will continue to exert pressure on limiting overutilization of services and there is a strong push to move away from delivering “sick care” to “evidence-based care” with a focus on efficiency and managing risks.

    Private facilities that offer more holistic, patient-centric services with a greater emphasis on patient awareness, offer a digital interface and enable telehealth consultations, and focus on prevention and chronic conditions management will be better poised to sustain and grow in the coming years.

With the COVID-19 pandemic having a severe negative impact on economies, the impact on the private health sector will be one fraught with serious challenges despite the need and demand for health services to combat the pandemic. The understanding and implementation of these initiatives can aid the private health care sector move toward to integrate advancements happening across the sector.

Summary

The COVID-19 pandemic has dampened the efforts and outlook for private sector providers’ growth, sustainability and the investment in health services in the region. To overcome the economic and health impacts of the COVID-19 pandemic, the GCC private health care sector will need to brace for impact and implement reform initiatives to survive.

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