Your health depends on a balanced healthcare playing field

It is my opinion that one of the greatest moves to support free market capitalism in the UAE is the cancellation for Abu Dhabi Thiqa insurance beneficiaries of the 20% co-pay for treatment at private healthcare facilities.  The 20% co-pay was introduced in June 2016 and at that time there was discussion on the effect on patients.  There was also, however, a massive impact to the economy, but I felt that at that time the personal and social issues should take precedence over the economy. I think that now might be a good time to review that impact of that decision with respect to the economy and the positive effects of the cancellation of the decision.

Why is the co-pay issue important? As a first pass, clearly applying a 20% co-pay to private hospitals would incentivise beneficiaries to choose public hospitals. Money isn’t the only issue for a patient in determining which healthcare facility to visit but in the absence of specialisation issues it is clear that money becomes one of the predominant deciding factors.

The consequence, of course, is material negative impact on the finances of these private hospitals. The effect was quickly felt at three long-term healthcare centres in the Emirate of Abu Dhabi who quickly had their co-pay requirements waived in January 2017,  and the quick government response allowed these institutions to continue providing important healthcare services.

The positive social impact is clear. But what is the positive economic impact? It is the strengthening of the healthcare sector, not because Thiqa is willing to pay for the full cost but because giving private institutions the same economic opportunities as public institutions allows them to not only thrive but to also take risks that only private companies take. Risks such as acquisitions that lead to consolidation in the health care sector and thereby a strengthening of the sector.

Before I get into that there is one question and that is what is the economic impact on Daman, the issuer of Thiqa insurance, in having the 20% co-pay? At first glance one might think that this reduces the cost to Daman. But since there are great government healthcare facilities, many, although not all, patients could switch to the 0% co-pay facilities with the same levels of healthcare. So the impact of having the co-pay or not should theoretically be relatively small to Daman.

Back to the private sector. As I’ve said previously I believe that there is a short term economic contraction that will in turn lead to a much more efficient economy that will then allow for a more sustainable economic growth and more independence from oil. One way this will happen is through consolidation in certain industries.

A perfect example of this is NMC Health’s announcement to acquire Sharjah’s Al Zahra Hospital, the largest healthcare deal in 5 years, which was completed in March 2017. Last month NMC invested in a Saudi hospital. NMC isn’t the only player in the UAE, for example Al Noor and Mediclinic merged last year in a hotly contested deal in which NMC tried to outbid Mediclinic. The pace of these acquisitions is supported by reports that the industry is in need of consolidation, as analysed by InvestAD in a Gulf News article. There was an interesting proposal by a former CEO of Anglo Arabian Healthcare in AMEinfo on using networks of smaller institutions instead of outright mergers.

The point here is the healthcare sector seems to need consolidation and that the private clinics are doing it. This makes sense. The government provides an essential social role in terms of providing healthcare to its citizens. But a balanced approach in treating public and private institutions also the private institutions to also flourish, and provide an important economic contribution that are more suited to private risk-takers.

It is important to note that 0% co-pay is not what is important to the flourishing of public and private healthcare facilities equally. All that matters is that the same co-pay is applied. For example, instead of dropping co-pay to 0% for all, it could have been raised to 20% for all. Or averaged out to 10% co-pay for all. The level of co-pay, 0% or otherwise, is a social and Daman issue in terms of effect. The equalisation of co-pay is a healthcare sector effect.

One comment

  1. Consolidation’s effects in the US healthcare industry were outstanding for investors. For consumers, there seems to be an opposite trend, with classic price increases accompanying reductions in competition, and similar issues with quality of care. Leveling the playing field and weeding out underused capital should be examined separately from consolidation, I think.

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