Healthcare in Saudi Arabia
Through Vision 2030, Saudi Arabia’s ambitious programme of social and economic reform, the Kingdom has set healthcare reform squarely in its sights. SAGIA governor Ibrahim Al-Omar declared plans to allow foreign investors to fully own companies in the healthcare sector, a step that will open up investment opportunities worth USD180 billion over the next five years.
Privatization of the healthcare industry in Saudi Arabia presents private operators in the region with immense opportunity but the industry faces significant challenges both in terms of expertise and resources. The successful privatization of the healthcare industry will also invariably yield benefits for the Government as the Kingdom faces rising medical expenses related to areas such as accidents, smoking and obesity. In fact, Health Minister Tawfiq al-Rabiah recently quoted estimates that medical costs will rise to approximately SAR 250 billion by 2030.
However, does the Kingdom have the proper institutions and legal framework in place to support privatization in the healthcare industry? How would international institutions navigate the complex business and legal framework in Saudi Arabia? While the aspiration of the Ministry of Health is to adopt a more regulatory role, the mechanisms to achieve this goal are in development.
At present, foreign entities in the Kingdom can only own hospitals with a minimum bed requirement and cannot own other healthcare institutions without approval. To push forward with privatization ambitions, SAGIA has identified a number of investment opportunities for international operators ranging from diabetic care to medical cities and primary healthcare centres aimed at revitalizing the Kingdom’s stretched healthcare sector.
Privatization through corporatization of existing service provisions will also arguably provide a key plank in healthcare policy over the next period. The Government intends to support the initiative through two key pillars including the extension of the current contract duration limit beyond three years and defining a referral process approach from the Ministry of Health.
Yet, the existing procurement law of the Kingdom (the Government Tenders and Procurement Law) is not well-suited to the procurement of complex output or outcome based services as understood in the context of Public Private Partnerships (PPPs).
To address these challenges and reassure international investors, the Government will need to present a clear strategy, accompanied with a strong regulatory framework. This will also need to address a number of key issues including: cost recovery mechanisms; the role played by insurance; support of state counterparties; and the position on compensation on termination of long term PPP agreements.
While there are many legislative challenges ahead, there remains significant potential given the Government’s focus on enabling private sector investments within the Kingdom’s developing regulatory framework.