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Table 17: Examples of management contracts Company Contracts Dallah Dallah has had two types of hospital contracts. One, which just involves management expertise, was worth SAR4.5m over five years and 10% of the hospitals income. The other was worth SAR89m over five years but in this Dallah was responsible for all staffing and supplies and infrastructure operation and maintenance. Mouwasat Mouwasat managed Najd consulting hospital in Riyadh in return for management fees of c.SAR3m per year; this was subsequently changed to receiving a share of revenues and net profits. NMC NMC was awarded a contract to manage a government hospital in Umm Al Quwain, UAE. The five year contract sees it earn $5m (SAR18m) in fees per year, subject to certain performance criteria being met. During the term of the contract NMC is to train government staff to which it will hand over administration at expiration. Source: BofA Merrill Lynch Global Research, company report Private groups may lack capacity to undertake such contracts The private hospital groups in Saudi Arabia are small. Habib Medical Group, Mouwasat and Middle Eastern Healthcare group are the largest, with only 8, 5 and 4 hospitals respectively. We would question whether any company has the depth of management to undertake management of a large number of government hospitals. Potentially the government could seek to import foreign expertise. Insurance roll-out likely to boost private volumes Longer-term, the roll-out of private insurance would likely have a positive impact on volumes available for incumbent operators to capture. This will depend though on the available capacity of private operators at that time and level at which reimbursement is set. The current listed operators typically target high income patients and a lot of the growth in volumes would likely be in the low-to-middle income spectrum. Cultural shift would be needed to target larger population at lower price point It would require a clear cultural shift for the incumbent listed hospital operators to switch from offering a high quality service to high income individuals to operating facilities that served the wider population at what we presume would be a much lower price point. Investment is difficult until pricing and reimbursement is clarified Until reimbursement levels are clarified, existing private operators/investors will not be able to make decisions on investing in private healthcare facilities. Privatisations seem unlikely in the near-term Given the stated intention to improve the quality of hospitals prior to privatisations, it seems unlikely there will be any near-term, although the NTP does call for privatisation of one of the medical cities in a public-private partnership. Saudi operates a number of medical cities, which are typically collections of hospitals that act as tertiary referral centres. The largest of these is the King Fahad medical city in Riyadh, with 1,095 beds. It is uncertain which city is planned for privatisation. As with further investment by private operators in new facilities, the level of reimbursement would need to be clarified so potential bidders can estimate their return on investment from participating. 270 public hospitals in Saudi currently Latest available data (2014) from the Saudi Ministry of Health discloses 270 public hospitals with 40,300 beds. Of these, 47 hospitals are in Riyadh, with 25% of the population, and 13 hospitals are in Jeddah, which holds 14% of the population. Presumably these assets would be the most valuable during a privatisation process, not only because of the population sizes, but also because the provision of beds hasn’t kept up with population growth, ensuring high demand. Both areas also host the highest number of private hospitals in the country. OS Merrill Lynch GEMs Paper #26 | 30 June 2016 55 HOUSE_OVERSIGHT_016165