The UAE’s healthcare reforms and legislative changes appear to have been well received in many quarters. After all, a closer alignment with healthcare regulation in developed Western economies was arguably long overdue. And in the context of the UAE’s aim to position itself as a major destination for medical tourism, bringing local health regulation and oversight up to international standards of best practice seems, on the surface at least, desirable. It makes sense when you consider ongoing efforts to consolidate the country’s status as an international hub for trusted medical and pharmaceutical industries.
But reform can be a double-edged sword if it’s not achieved through a meaningful consultative process that takes account of the private sector’s long-term planning needs and its risk and financial exposure. Legislative reform can blindside operators in the healthcare space, spook regional and international investors and shake market confidence. Once confidence evaporates and investors move to other jurisdictions, a full recovery can be a painfully long process.
The law of unintended consequences can be difficult to evidence until it’s proven right. By then, it’s often too late.
Legislative and administrative reforms: the objectives
Some reforms, especially in the pharmaceutical space, aim to streamline regulation and oversight at a federal level. For example, responsibility for the pharmaceutical industry has passed from the Ministry of Health and Prevention (MOHP) to the Emirates Drug Establishment (EDE).
Many argue that these reforms specifically encourage new international private players into the healthcare market and ensure they’re protected, sustainable and economically viable. That’s a plausible objective in the context of the country’s plans for a modern, high-quality healthcare system that can sustainably accommodate its predicted population growth and increasing lifestyle diseases without runaway costs. In Dubai’s case, such systems will have to adequately handle an estimated 6 million residents by 2030 as the emirate strives to attract immigration to help double Dubai’s economy under its Economic Agenda D33.
Wholesale reform and modernisation – and that means private investment – is also a necessary step for a country gravitating towards a value-based system that prioritises patient outcomes and cost-effectiveness.
In that context, legislation that blindsides private healthcare providers might look like a patent contradiction in a country that’s ostensibly enacting reforms to attract investment and spur innovation and entrepreneurship in the healthcare and digital healthcare space.
The law of unintended consequences: how risk can emerge from nowhere
The UAE’s reforms have arguably led to a more investor-friendly private sector, given the recent relaxation of rules prohibiting foreign ownership of healthcare entities and facilities. Many previous bureaucratic hurdles have been removed, leading to less complex licensing procedures for foreign-owned healthcare organisations, and legal frameworks to protect investor’s interests have been bolstered. For example, new pharmaceutical regulations have given IP greater protection to further encourage innovation and investment.
But whilst various jurisdictions have shown an openness and willingness to listen to and in some cases act on industry lobbying when reforms produce unintended consequences, the opportunities for damaging, out-of-the-blue surprises will persist so long as healthcare is subject to a rolling process of reform without balance or prior consultation.
Above all else, the sector is looking for stability and a level playing field when it comes to healthy competition, financial planning and long-term investment. As a case in point, Abu Dhabi’s decision in 2017 to cut coverage under Thiqa from 100% to 80% hit private facilities like Mediclinic hard, because the same rules weren’t applied to government-owned hospitals. In other words, if patients were treated at a private facility, they had to meet 20% of the costs but paid nothing for using a government-owned hospital. This had the effect of channelling patients away from the private sector and into government facilities.
Some industry insiders describe that action as a necessary correction to address over-utilisation and over-diagnosis. As NMC’s deputy CEO argued at the time, “when coverage is free, no one cares”. But in the case of Mediclinic, those changes came hot on the heels of its USD 1.7 billion acquisition of Al Noor Hospitals, complete in February 2016. To some extent, it’s irrelevant that it may have overpaid for that acquisition; Al Noor's in-patient volumes dropped by around 40% and out-patient volumes by a similar proportion after the changes to Thiqa coverage. "We don't have a problem with the policy on co-payments,” Mediclinic’s Middle East CEO noted at the time, “as long as it applies to the entire industry."
Similar problems have bedevilled the private long-term care sector. Since opening its doors to its first post-acute and long-term care patients in April 2015, Cambridge Medical and Rehabilitation Centre’s (CMRC) facilities in Abu Dhabi and Al Ain have been providing step-down facilities that have successfully reduced the cost of long-term patients whose care was leading to bed-blocking at acute hospitals. This innovation not only provided better care for patients – it significantly lowered costs at acute hospitals by reducing bed blocking. However, the reforms of July 2016 that cut funding for long-term care – coupled with the push towards home-based care – have significantly hit the profitability of operators like CMRC and NMC ProVita.
In January 2017, Abu Dhabi’s national health-insurance agency, Daman, informed private providers that they were waiving the 20% co-payment rules for home healthcare and long-term care, but not before CMRC had suffered 20% losses and shed 10% of staff. After all, the private facilities refused to discharge patients who could not pay because those providers had prioritised quality of care for their patients.
The climb-down was greeted with universal relief from patients and their families, and as CMRC’s Middle East CEO noted, the authorities “realised…that there is a law of unintended consequences – that they were stressing and hurting people that they didn’t intend to hurt”.
Those aren’t entirely isolated incidents. In 2018, NMC Health completed its takeover of the Fakih IVF Group in a deal worth hundreds of millions of dollars. Within months of completion, the health authorities announced plans to reduce the number of free IVF cycles available to Emirati women in the private sector, down from an existing entitlement of three per year. This would have been disastrous for all private fertility operators. On this occasion, the regulators backed down after industry and patient lobbying, but in February this year, NMC announced plans to offload a 65% stake in Fakir IVF to Blue Ocean Health.
More recently, under plans to boost efficiency and reduce waste in the pharmaceutical sector, changes introduced in Abu Dhabi will significantly reduce the margins available to pharmacy chains and operators like Pure Health and NMC Health as regulators reform the purchase and sale of medication with the aim of standardising the composition, pricing and quality of clinical drugs.
Healthcare-efficiency drives from health ministries and regulators are understandable in the context of sustainable healthcare systems, but a blunt approach to reform can make long-term planning and investment decisions for private operators an incredibly risky business.
Balancing entrepreneurial development with regulatory changes
The anticipated demand over the next twenty years necessitates more private-sector entrants into a market that can provide the scale, stability, and level playing field required to remain competitive and economically viable. Consequently, the UAE is actively engaged in efforts to encourage further investment through regulatory and policy changes. However, it will only achieve this if it can successfully navigate the narrow channel between the primary objectives of healthcare reform and the needs of a developing private healthcare sector that cannot withstand excessive risk or financial exposure effectively.
