Reforms decentralise public health care provision and facilitate private investment in Saudi Arabia

Transforming the delivery of public health services forms a key plank of Vision 2030. For decades facilities owned and operated by the Ministry of Health (MoH) have formed the backbone of the country’s health care system. While the private sector’s share has increased in recent years – with the share of beds in private facilities reaching 25% in 2018 – the public sector remains the primary vehicle for treatment and care. Rising costs associated with increased incidence of lifestyle-related diseases, along with a growing population, are increasingly weighing on public expenditure. The government budget allocated to health care grew at a compound annual growth rate (CAGR) of 12.1% between 2010 and 2019. At the same time, government revenue has come under pressure from lower oil prices. Recognising the need to create a more sustainable and cost-efficient health system, the government is rolling out the New Models of Care programme to restructure the sector and promote greater private investment.

Plan of Action

The New Models of Care programme – which was launched in 2017 and is expected to run until 2030 – comprises 42 initiatives aimed at restructuring the way public health care is delivered, financed, developed and regulated. The programme also aims to facilitate the handover of service delivery responsibility to the private sector. The initiatives fall under four categories: decentralising the public health care system; financing reforms to optimise and reduce government spending and increase private sector investment; reforming governance to redefine the MoH’s regulatory role; and facilitating public-private partnerships (PPPs) to address any gaps in health care infrastructure.

These initiatives are being rolled out in three phases. The first phase, which runs from 2018 to 2020, focuses on reorganising the public health system into different regional clusters, while utilising PPPs to address gaps in service. The second phase, which is scheduled to run from 2021 to 2025, is set to focus on the creation of accountable care organisations (ACOs) to serve as autonomous corporate bodies responsible for health care in each cluster. The third phase running from 2026 to 2030 centres on extending national health insurance to all residents, citizens and visitors, while simultaneously encouraging the expansion of private insurance to provide more choice and competition.

Cutting Costs

One of the key goals in reforming the sector is to cut public costs and boost private sector investment. In 2020 the government allocated SR167bn ($44.5bn), or 16.4% of its budget, to health care, the third largest after education and military spending. “Currently, Saudi Arabia’s public hospitals are very costly for the government,” Abdulaziz Saleh Alobaid, CEO of domestic provider National Medical Care, told OBG. “Reform is required to better control spending while still increasing local capabilities.” Under the reform programme, public health spend is projected to reach SR126bn ($33.6bn) by 2030, roughly 41.3% lower than government estimates for public expenditure in a business-as-usual scenario. Enacting these reforms will involve significant financial investment, with current government estimates for the cost of implementation through to 2030 standing at around SR129bn ($34.3bn).

However, according to government analysis, the benefits outweigh the costs, with every SR1 ($0.27) invested forecast to generate SR1.80 ($0.48) in economic returns. While this kind of economic modelling provides a useful framework for understanding the longer-term return on investment to be gained through sector reform, the spread of Covid-19 in early 2020, and its potential impact on the health care system and public spending, complicates the prediction of future health care demand and expenditure (see overview).

Health Clusters

In late 2018 the MoH established a holding company to separate the delivery of health services from its other functions. This company comprises five public health bodies, each responsible for the provision of care in their respective regions. These regional corporate entities are, in turn, tasked with creating health clusters of 20-25 hospitals and clinics. Under the plan, there is expected to be 20-30 such clusters across the country, each serving 1m-2m people.

The decentralisation and clustering of public health service delivery is being undertaken in an effort to increase competition, transparency and efficiency. Health clusters compete with each other and the private sector for clients, as well as for the most highly-trained health care professionals. Registered medical practitioners can decide which clusters they want to work in, and clients have more right to choose doctors, hospitals and clinics under this model.

Integration is also part of the newly decentralised system. Through the independent clusters, the MoH aims to integrate primary, secondary and tertiary care at a regional level to streamline the provision of services to patients. Together with the MoH, the clusters will work to effectively bolster prevention by focusing on health awareness campaigns and increasing primary health care visits per capita from two to four per year.

Making Progress

As of early 2020 eight health care clusters had been established across the country, with the delivery of services in each cluster supervised by a consultative council. Thanks to their budgetary independence, these clusters are able to actively build new facilities to meet demand. For example, in April 2019 clinics catering to women and children were opened in the Riyadh cluster, offering treatment for the prevention of breast cancer and osteoporosis, among other services. Clusters also have autonomy to run their own programmes. In October 2019 the first cluster established in the Eastern Province launched a campaign called AnHour4Nation to promote health awareness.

Handing Over Control

As in other sectors of the economy, privatisation is playing an important role in the health care transformation programme. Over the coming decade, the MoH intends to privatise 290 hospitals and 2300 clinics. Recent regulatory changes have been a crucial first step towards achieving these goals. Foreign companies can now own 100% of health care companies and compete for PPP deals. As per the New Models of Care, privatisation initiatives will be accelerated during the third phase of the programme. During this period, ACOs, having consolidated their clusters, will be encouraged to transfer the ownership, management and operations of institutions to private companies. These firms will also take on a key role in the supplementary health insurance market, which is due to be expanded during this period. “The New Models of Care programme will be key in developing the national health care strategy of the Kingdom, including the plan for a universal health care coverage,” Alobaid told OBG. “Many industries, including the insurance sector, will be able to capitalise on such reform policies.”

Private Sector Participation

Health care clusters have begun issuing tenders for private companies to provide consulting services as they consolidate their operations. The MoH has also ramped up the number of opportunities on offer through its PPP scheme, which is run by separate business units each responsible for expanding specific health care segments. These business units have been charged with increasing private sector involvement in eight strategic areas: primary care, hospital commissioning, the construction of medical cities, rehabilitation, radiology, long-term care, home care and laboratories. With joint financing provided by the Public Investment Fund – Saudi Arabia’s sovereign wealth fund – numerous PPP projects are planned.

The New Models of Care has opened the sector to privatisation across the board, from service delivery to development. In the short term, PPPs will provide a pipeline of opportunities for construction and operation of new facilities, while the latter half of the decade will see the privatisation of existing public facilities ramped up. In March 2019, one month after the Private Health Institutions Law was enacted, the MoH announced its first PPP calling for proposals to upgrade radiology and medical-imaging services at seven hospitals in Riyadh.