Arab Health Spring: The Need to Curtail Costs

By: Dr. Mussaad Al-Razouki

The way the healthcare industry accounts for its rising costs is a topic that has received much interest on a global scale from strategic thinkers such as Michael Porter and Robert Kaplan’s article in the New York Times to social commentators such as Steve Lopez of the LA Times. Indeed, the main thrust behind Obamacare and the Accountable Care Act in the United States is the rising cost of healthcare costs. The USA today spends 17 to 19% of its GDP on healthcare while most countries in the OECD spend 8-9% and the GCC spend 3-4%. In fact, the problem is quite acute in the USA, where the government sponsored Medicaid and Medicare payment systems are projected to bankrupt the US fiscal system within the next 25 to 30 years. As the world population swells to just over seven billion, emerging economies along the Silk Road and the ageing economies of the Old World alike are facing the similar challenges of treating more people, for more diseases with dwindling resources.

As Middle East governments pursue ways in which to increase the welfare and particularly their citizen’s access to enhanced quality of life measures, increased spending on healthcare is a top priority. The Kuwaiti Ministry of Health just recently announced a record budget of 1.2 billion KD (~4 billion USD) for FY 2012-13, which represents a 100% increase from the 600 mn KD (2 bn USD) budget of FY 2007-8 five years ago, this spending accounts for over 80% of the healthcare spending in the country. In Saudi Arabia, the GCC’s largest health care market, the Ministry of Health is responsible for close to 75% of health care services according to Dr. Hamad Al Omar, where its budget this year has reached SR 50 billion (~13.5bn USD) not including a further SR16 billion (~4.3 bn USD) for the large health cities projects spread across the Kingdom. This results in a grand total of approximately SR66 billion (~18 bn USD) in Saudi healthcare spending. If you add another 25% for other health care providers ­­– both governmental and private — the total Saudi health care budget comes to about SR80 billion ($21.3 billion) for the FY 2012-13. Back in the fall of 2007, McKinsey and Co. calculated the GCC’s expenditure on healthcare to reach a total of $60 billion by 2025; this, however, seems a great underestimation looking at how both the Kuwaiti and Saudi healthcare budgets are increasing.

Indeed, GCC governments continue to build costly cathedrals of care such as the five medical cities projects in Saudi Arabia, the island hospital of Cleveland Clinic Abu Dhabi, the 1168 bed Jaber General Hospital in Kuwait, and the Sidra Medical Research Center, an arborous oasis of clinical excellent in Doha, Qatar, both multi-billion dollar medical titans in their own right. While tertiary centers of excellence with a focus on research are greatly needed in the Middle East, a strong focus also needs to be placed on prevention that reduces the need for hefty investments in healthcare infrastructure. Another large proponent of these exponential MoH budget increases is the increasing dependency on overseas healthcare spending by GCC governments. The Ministry of Health in Kuwait recently announced an increase in the number of companions and the respective stipends for patients under the age of 18, over the age of 65 and those with specials needs who now have the luxury of two family member companions instead of the one, each person, now also stands to receive a handsome 30-50% increase in their daily stipend to cover lodging, food and transportation (150 USD for patients in the US, 150 Euros for patients in Europe – mainly Germany, France and Belgium and 150 GBP for patients seeking treatment in the UK). Kleos Healthcare recently calculated that the GCC spends roughly $12 billion: $10 billion from the public sector, and $2 billion from the private sector which includes patients paying from their own pockets or through private health insurance companies.

In fact, the generosity of most GCC government’s extends beyond the healthcare of their citizens. Using Kuwait again as example, expatriates living in the Pearl of the Gulf are only required to pay a very low yearly assurance premium of 20-50KD (~70 to 180 USD) that pales in comparison to the 300 to 350 KD (1000-1200 USD) annual cost of their care to the Government of Kuwait. Similar examples can be seen across the GCC, where both nationals and expatriates enjoy significantly subsidized specialty care.

Moreover, the underlying issue behind these increase in healthcare costs, is the unhealthy lifestyle most people in the Middle East choose to live. The GCC is widely recognized as one of the most obese regions of the world, with over 30% of the adult population registering a Body Mass Index (BMI) of above 30, which a further 30% registering a BMI of above 25. This means that close to 2/3rd of the entire adult population of the Middle East is overweight. Recent studies by both the Mayo Clinic and LeHigh University suggest that obesity is an even larger driver of healthcare costs that smoking, whereby obese patients tend to spend 2-3X as much as the average patient on their healthcare needs.

Furthermore, the link between obesity and diabetes type II has also been documented extensively in the medical literature as is evident by the high percentage of adults in the GCC that suffer from diabetes type II (25-30%). It has also been document that these chronically ill diabetes type II patients are 4X more likely to be hospitalized, a further cost burden on GCC health budgets. It should come as no surprise then, that some GCC countries send as many as 10% of all inpatients abroad for emergency care.

However, there are reassuring programs across the GCC to help reduce healthcare costs. In a meeting of GCC Finance Ministers and Health Ministers in May, 2012, the levy charged on tobacco imports was increased from 100 to 200% (subject to an approval by the World Trade Organization). This would be the second doubling in tobacco taxes from a recent increase from 50% to 100% in 2010. However, an increase in tax does not necessary mean a decrease in utilization, as the prices per packs are still significantly cheaper in the GCC (~1-2 USD per pack) versus the USA (~7 to 15 USD per pack). Indeed, despite the heavy custom tariffs levied on tobacco products, Saudi Arabian tobacco imports increased by 57% in 2011 compared to 2009, according to a statistical report issued by the Saudi Customs Department. The Kingdom imported 57,838 tons of tobacco in 2011 valued at SR3.3 billion compared to SR2.1 billion in 2009 according to research by Zawya.

According to statistics, 22,000 people die in Saudi Arabia each year of various diseases resulting from smoking. According to figures released by the World Health Organization (WHO), there are 6 million smokers in the Kingdom, 1.5 million of whom are women. Saudi Arabia is still considered the world’s fourth largest importer of tobacco with the average annual consumption per individual put at 2,130 cigarettes. Surprisingly enough, even approximately 60% of all Saudi doctors smoke.

Another interesting initiative focuses more on patient perceptions. Certain clinical centres of excellence in Saudi Arabia are piloting an interesting initiative whereby physicians are actually made aware of the costs of procedures and prescriptions before prescribing their treatment to their patients through a computerized physician order entry (CPOE) system that prints out the associated cost of the procedure or prescription. This has a dual effect: a) physicians are less likely to prescribe useless tests and psychological placebo medications, thereby reducing the cost burden on their respective department and b) patients, who do not even pay a simple co-payment and are used to receiving both the treatment and prescription for free, are made aware of the ‘value’ of the service the Saudi government is providing them. This is an important segue to more accountable care models; other GCC governments should take note.




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