Healthcare supply-demand gap draws investors to the MENA Region

Dr Helmut Schuehsler, Chairman and CEO of TVM Capital Healthcare, discusses the growth of companies that are addressing the supply-demand gap in MENA healthcare

The rapid growth of healthcare across the MENA region and other emerging markets is offsetting slower growth in North America and Western Europe, drawing investors to make shrewd investments that address health service capacity gaps and improve quality of care and access for patients.

The growth has been particularly fast across the GCC, where a supply-demand gap for hospital beds, doctors and nurses has risen from a growing and ageing population, the rising prevalence of chronic diseases, and a growing number of high-income households. Healthcare spending has increased significantly across the GCC in recent years, with a five-year compound annual growth rate of 11 percent (2010–14).

Despite this, public expenditure as a percentage of GDP lags the developed world by a significant margin. GCC governments increasingly rely on the private sector to help meet rising demand for health services and transfer the burden of healthcare costs, especially in the wake of oil and gas prize squeezes.

To support this shift toward privatisation, some Gulf countries have introduced mandatory health insurance, a move that has ushered in an era of rapid growth for private care facilities, significantly increasing the private sector’s share of health infrastructure capacity and health services utilisation.The most recent push towards privatisation of parts of the Saudi healthcare system is a testament to this overall trend.

As a result, over the next five-to-ten years, private investment in the sector and medical cities in the GCC will boom, fuelled by large healthcare agglomerations by private players across the region and consolidations between SMEs and large hospitals looking to reach public listing size thresholds. The region will also become an increasingly important hub for medical tourism.

This growth will be accentuated by increased focus on tackling non-communicable diseases such as stroke, diabetes, and cancer, which are rising in prominence due to changing demographics and lifestyle patterns. Holistic models focusing on prevention and treatment are already bringing healthcare into the home and other personalised environments outside of hospitals to focus on these diseases.

We will also see increased demand for high-tech pharmaceuticals and medical technology, much of which is not yet available in local markets, as a result of real income growth. Private healthcare companies will be looking to adopt new technologies in the information technology, emergency response, and mobile health spaces to improve patient interaction and monitoring, as well as access to information and advice.

Growing costs for state-of-the art equipment mean that demand for high-tech products and treatments will need to be met with higher efficiency business models.

Meanwhile rapidly evolving regulatory environments across the GCC will continue to create inherent risks for investors due to a certain lack of predictibility and licensing timelines. Markedly different healthcare systems across the region further increase country-by-country risks of tailoring a private care business model exactly to fit the local requirement and regulatory environment.

Companies that are close to regulatory authorities and remain aligned with the various licencing rules and reimbursement systems will be able to adapt to changes as they come. Additionally, natural hedges against these risks can be developed through strong analytical capabilities and country networks, flawless execution on licensing needs, and an overall realistic view on timelines.

As such, emerging market investors need to be very realistic about the speed of execution in these challenging environments, and focus on how they can add value to a company’s operations. And that means it often pays to be a specialist – to use deep sector expertise, to promote efficiency and good governance, as well as to create new business opportunities from own research and sector knowledge.

At TVM Capital Healthcare, for example, we are committed to running a strong “operations group” steeped in healthcare expertise – an accelerator and advisory company that supports our growing businesses. It provides general management support, including the provision of strategy development, interim management, as well as a host of back office services, such as legal, information technology, marketing, accounting, human resources. Setting up this ecosystem is a significant investment in itself. But it brings huge benefits for the companies we invest in, provides a platform for exchange of ideas and developments across the portfolio, and reduces risk for the companies and our co-investment partners. 

We continue to find opportunity in scalable service businesses that address expanding medical needs with a technological advantage or a specialised workforce. Investors need to look for high operating margins, low-to-mid capex requirements, and clear and transparent reimbursement schemes with accepted private pay or co-pay mechanisms. Beyond this, life science companies offering medical products across pharma, device or diagnostics, healthcare IT services that provide software solutions and mobile health services will continue to provide good investment opportunities.

Cambridge Medical & Rehabilitation Center

A great example of a holistic model addressing a supply-demand gap in the UAE is Cambridge Medical & Rehabilitation Center; a specialised rehabilitation care facility focused on helping people with serious injury or illness make large improvements in their quality of life through rehabilitation in personalised environments.

Cambridge Medical opened in the UAE in 2014 to fill a gap for long-term, non-ventilated care for adults and children, caused by the growing incidence of non-communicable diseases and birth defects in children. Prior to its launch, patients who required specialist care had no choice but to be treated in overcrowded hospital ICU units, or treated abroad at great expense to the government. Since its launch, the centre has helped to free up almost 35 percent of ICU beds taken up by patients requiring long-term care.

Cambridge Medical combines the industry’s latest medical technology and techniques with world-class physicians, physiotherapists, and speech and language pathologists, to offer tailor-made care to patients with short and long-term rehabilitation needs, as well as those with chronic health issues. The centre’s facilities are located in villa compounds, with unlimited visiting hours, to create a home-like environment. As well as around-the-clock care, each patient receives at least two hours of rehabilitation work every day, compared to around an hour a week if they were in a hospital.

In 2017, Cambridge Medical cared for over 160 inpatients in clinics in Abu Dhabi and Al Ain, and has carried out more than 5,800 outpatient visits. Expansion into new georgraphies is currently under progress.

Dr Helmut M. Schuehsler will speak on the ‘Opportunities and Risks of Healthcare investing in the MENA Region’ at the Invest Session of the Building Healthcare Conference to be held on Monday, 11th September 2017.