February 19, 2012

Making Smart Investments in Healthcare

Booz & Company explores why healthcare providers should emphasize people keeping well, rather than curing illness.

The Middle East is in the midst of a social transformation, with people aspiring to better lives—which includes having better health. Governments are trying to meet this need at a time when their populations are growing rapidly and increasingly developing new, lifestyle-related illnesses such as diabetes and heart disease. At the same time, new and expensive medicines and technology are ratcheting up cost pressures on healthcare systems. Booz & Company’s experts provide strategies on how best to deal with the situation.

“In the face of such disruptive change in the health sector, governments need to fundamentally rethink their approach to providing care. Rather than curing people who are already sick, governments will have to develop healthcare systems that emphasize keeping people well,” said Jad Bitar, a principal with Booz & Company. “They will need to ensure that healthcare systems are operating as effectively as possible, and they must find the right level of involvement for the private sector.”

This level of overhaul is a daunting challenge. To understand what needs to change, it is important to have a solid overview of the industry’s current spending patterns and the way they are shifting. Currently, Middle East governments spend an average of 5 percent of GDP on healthcare—well below the 2009 OECD average of 9.5 percent—ranging from 2.5 percent in Qatar to 9.3 percent in Jordan. But these numbers are on the rise due to the introduction of mandatory health insurance and the growth of chronic diseases. In the GCC, for instance, healthcare spending per capita is growing at more than 5 percent per year, according to the World Health Organization, from $843 per person in 2000 to $1,224 in 2010. More and more of this money goes to treating chronic diseases: In Abu Dhabi, 10.2 percent of spending went to treating cardiovascular disease and 8.6 percent to diabetes.

As the region’s healthcare needs become more pressing, the lack of resources available becomes more obvious. Saudi Arabia, for example, has just 37,000 hospital beds; in order to reach OECD levels of 2.8 beds per 1,000 people, it will need 73,000 more beds in the next few years. Many governments are rushing to fill the gap by building hospitals and encouraging the private sector to do so. In their haste, however, they run the risk of high operating costs and low quality of care due to many factors, such as a lack of national- level planning for demand and a scarcity of skilled talent.

The talent shortage is especially acute. GCC countries average 1.8 physicians and 4.3 nurses per 1,000 people, compared to OECD averages of 3.2 and 11.4, respectively. Abu Dhabi, for instance, will need an additional 3,000 physicians and 6,000 nurses by 2020. This recruitment challenge is compounded by the fact that the majority of the emirate’s existing doctors and nurses are expatriates, who are proving hard to retain for long periods of time, a common challenge across the region. Healthcare systems will continue struggling to build the capabilities they need if they lose their talent every few years.

“With such scarce resources, it is especially important for healthcare systems to be efficient and effective. At present, the delivery of care (including hospitalization, physicians, and drugs) consumes the greatest portion of spending—more than 80 percent of total budgets,” said Gabriel Chahine, a partner with Booz & Company. “Therefore, this is the area most critical for reform. Healthcare systems must control the cost for each episode of care, reduce average length of stay, lower overall hospitalization rates, and make sure hospital beds are used in the way they were intended—for instance, by not putting long-term care patients into acute care wards.”

Finally, to fully understand the dynamics of existing healthcare systems, we must look at the split between public and private care. Currently, governments account for the majority of healthcare provision, contributing 65 percent of care on average and ranging as high as 80 percent. Given the gaps in existing systems, governments are understandably reaching out to the private sector to increase its involvement. This is a welcome development in terms of the private sector’s ability to marshal resources and attract expertise. However, governments will need to be cautious: A two-tier system that includes public and private care presents much more complex challenges than a public care one. Governments will need to develop the capabilities to provide oversight and regulation in order to ensure accessibility, quality and cost control. For example, two-tier systems tend to lead to a segregation of services, with “profitable” services such as bariatric surgery and gastric banding delivered by the private sector, while the public sector maintains the heavier and costlier burden of cases such as vascular surgeries and transplants.


The Healthcare Systems of Tomorrow

With so much for governments to do—respond to changing needs in care, attract talent, control costs, and make healthcare systems more effective—governments will need to make a concerted effort to build the required capabilities for managing the dynamics of a ‘two-tier’ system. There are no magic recipes that will work for all healthcare systems, as each system has its own idiosyncrasies in areas such as financing, care delivery, and policies and regulations. But there are smart investments that would benefit most systems in the region. Although this list is not exhaustive, we believe these are the foundations of the healthcare systems of the future.

Refocus priorities on prevention and disease management: “In the face of the rapid rise of chronic diseases, investments in health maintenance and prevention will help reduce hospitalization rates, mortality rates, and cost per case in the long term while improving quality of care and patient satisfaction”, added Bitar. Recent studies suggest a 10 percent increase in public health spending reduces mortality by 3.2 percent for chronic diseases. This shift will require innovative approaches, with partnerships between the public and private sectors, as well as a shift in budget allotments from curing diseases to preventing them, which empowers citizens to better manage their own health. For example, projects such as a national school health strategy that improves children’s health by emphasizing physical education and nutrition services have proven effective worldwide and have begun to make headway in the Middle East. However, they require proper funding and solid partnerships between entities such as the Ministry of Health, Ministry of Education and private schools. Other solutions include an emphasis on disease-management services, such as risk identification, awareness, education, and adherence to treatment.

Empower providers with the right information:  Offering the right information at the point of care—whether in hospitals, in the physician’s office, or at home—should be a top priority. The infrastructure to capture, store, process, and deliver the right information is essential for the transformation of the healthcare systems. Governments should not be shy about establishing partnerships with the private sector to develop national electronic health records with the potential to reduce medical errors and avoid wasteful duplications.

Develop the private sector and build the right governance capabilities: Regional governments are currently playing the roles of regulator, provider, payor, and licensor, and it is becoming evident that there should be some space for the private sector, especially as providers and payors. For their involvement to be a success, however, governments will need proper governance capabilities, including the capacity to govern providers’ quality of care and accessibility, payors’ fees and coverage, and the interaction between providers and payors. Without such capabilities, systems can descend into a vicious cycle in which providers try to overcharge payors and payors try to squeeze providers, leaving patients as the only victim.

“Although the challenges facing the region’s healthcare systems are numerous, the will to confront them is evident. With the right set of experts and the appropriate resources, this decade should witness the emergence of new healthcare systems in the region”, concluded Chahine.