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costs. Hospitals would be under pressure to be more flexible on prices to avoid any pressure should lower-cost packages impact their volumes. Vision implies a long process To us, the government's vision implies a two stage process over a long time-frame: e In the short-term: improve the quality of care offered in the public sector, potentially with the assistance of private healthcare e — In the long-term: Only when public facilities have improved, privatise such facilities (although one medical city is to be privatised under a public-private partnership) e Concurrently: Prepare for a roll-out of private health insurance to finance private provision Abu Dhabi and Dubai are probably not parallels In Abu Dhabi and Dubai, private healthcare was encouraged to avoid expats relying on public facilities. The large expat population in proportion to the locals (85:15) supported the creation of private facilities that it was then possible for the governments to fully fund Emiratis to use. The quality of public facilities was not a cause for concern - many Emiratis still prefer to use government facilities for more serious problems. Expat population and quality of public system differ in Saudi The proportion of expats (33% of the population) is not large enough to drive the establishment of a large, high quality private hospital base sufficient to serve the entire Saudi population. Additionally, the quality of both care and infrastructure in the public system is seen as lacking, suggesting additional investment in facilities is required. Degree to which private sector will benefit is uncertain Given the lack of detail provided to date, it is hard to assess the benefits, or risks to the incumbent private hospital operators in detail. We see two main ways the private sector can participate in healthcare reform: e Win contracts to run and improve public health facilities e Benefit from volume growth any roll-out of private health insurance could spur e Participate in privatisations In the long-term, volumes up but pricing down, likely to benefit nonetheless At present there is limited supply of quality private hospitals and the incumbents are in a strong bargaining position with insurers. Greater private hospital supply, and competition, would likely pressure pricing, and margins in the longer-term, albeit offset by increased volumes. Assuming only basic services are offered to most citizens under any government-driven scheme, there would still be a place for offering higher-quality accommodation for example, to higher-income patients. Private sector could win public hospital contracts Private operators could be allocated management contracts for public hospitals to improve efficiency of existing hospitals, train public sector administrators and raise clinical standards. Presumably reimbursement under such contracts would be based on a fixed fee, potentially with performance clauses for improved outcomes or lowering costs. More substantive contracts, where the private operator is responsible for all aspects of operating the hospital could be more accretive, but bring greater financial risk. 54 GEMs Paper #26 | 30 June 2016 38 Merrill Lynch HOUSE_OVERSIGHT_016164