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Health: Not Tremendously Prescriptive Vision 2030 a start but Needs Transparent Proposals The Saudi government’s Vision 2030 document calls for an improvement in healthcare in Saudi Arabia. The private healthcare sector has some role to play; the National Transformation Plan (NTP) targets the private sector to be responsible for funding 35% of healthcare spend in 2020, up from 25% today. How it intends to do this is uncertain. We believe the incumbent private hospital operators, including listed companies (Al Hammadi, Care, Dallah, MEAHCO and Mouwasat) should be beneficiaries of increased private sector funding, although increased investment would be needed to meet growth in demand longer-term. Improve public facilities, work towards privatisation The government wants to step back from financing and providing healthcare and adopt an oversight and regulatory role. Firstly the government wants to improve the quality of care offered in the public sector, with the eventual aim of working towards privatisation of public assets and healthcare provision. This implies no privatisations short-term. Near-term: Management contracts for public hospitals In the near-term the government could seek to improve healthcare provision in the public system by using private sector expertise, through, e.g. contracting management of public facilities to the private sector. Individual such contracts are unlikely to transform company earnings, and the small size of existing Saudi hospital groups limits the depth of management available to capture large contracts, in our view. Long-term: insurance coverage up to 31m from 10.5m In the long-term a widespread adoption of private health insurance is likely to raise volumes, spurring an increase in private healthcare capacity, either from organic investment or participation in privatisations. In Saudi currently, 10.5m/31m people have insurance. We assume a more universal scheme would offer lower pricing than that today, and listed incumbents would need to make a cultural shift towards addressing this market. Such a market could attract new competitors, domestic or foreign. Type of insurance system and reimbursement uncertain We believe reimbursement levels would need to be known before privatisations can occur so bidders can budget and estimate their return on capital. It is still uncertain whether the government would seek to introduce insurance through the incumbent private operators (Bupa Arabia, Medgulf and Tawuniya) or set up its own insurance company e.g. an Abu Dhabi-style Daman. Nor whether it would subsidise premiums or simply force the private sector to employ more Saudis. Government needs to improve private sector relations At present the government has not paid private hospitals for the treatment of public patients referred to them for over a year. Until the relationship improves, engaging with the private sector could be difficult. Healthcare implications of National Transformation Plan The Saudi government’s Vision 2030 document calls for an improvement in healthcare in Saudi Arabia. The private healthcare sector is likely to be a beneficiary both in the short-term and long-term. In the short-term the National Transformation Plan (NTP) targets the private sector to be responsible for funding 35% of healthcare spend in 2020, up from 25% today. In the longer-term, the Saudi government wants to remove itself from directly providing and financing healthcare, instead focussing on public health and the regulation of the healthcare sector. Raising private sector funding thresholds to 35% appears possible if a number of measures are used, e.g. more rigorous enforcement of requirement that Saudis working in private sector hold insurance could increase penetration by 6% alone. The quality targets set for the public sector do not appear unduly onerous in theory, but execution remains key. OS Merrill Lynch GEMs Paper #26|30 June 2016 51 HOUSE_OVERSIGHT_016161