Healthcare Sector in Kuwait

The State of Kuwait has initiated concrete steps and measures towards decentralizing the provision of healthcare services to its nationals and residents and is providing the private sector with specific incentives to develop healthcare facilities.

Simultaneously, restructuring the reimbursement and financial structure of paying for healthcare services by implementing new healthcare insurance and/or assurance schemes has, and will continue to play an instrumental role in driving the healthcare economy towards privatization and, consequently, competition.  In response, the private sector has demonstrated, from an investment perspective, a keen interest in exploring such new opportunities.

However, to date, as with most other Gulf States, the Kuwaiti government is the primary provider of healthcare services.  Consequently, the structure of healthcare coverage is very clear and simple.  All Kuwaiti citizens, as well as foreigners legally residing in the State, are entitled to free access to all governmental healthcare facilities and services, whether they are hospitals or clinics.  Until recently, free access to healthcare services was coupled with free-of-charge care, however, the introduction of co-payments for expatriates coupled with the 1999 mandatory health insurance law changed the outlook to the entire industry.

Today, the MOH is the owner, operator, regulator, and financer of the vast majority of healthcare services rendered, pharmaceuticals purchased, and medical equipment acquired in the Country.  Its operating budget for 2004 (KD 370 Million) was responsible for purchasing KD 50 MM worth of pharmaceuticals, KD 6 MM worth of medical equipment, operating 4,712 inpatient beds out of 5,212 available (91%), admitted 182,024 patients out of 212,873 total hospital admissions (86%), and employed 13,253 clinicians out of 15,228 doctors and nurses working in the country (87%).

Extracted from MOH annual reports, the following table provides historical MOH budgets coupled with adjustments for healthcare specific inflation rates.

Healthcare Investment Sector Outlook

Backed by a supportive external environment and the terms-of-trade gains, coupled with high oil prices and increased oil production to meet robust global demand, results for 2005 indicate another year of lively growth for Regional economies.

The solid financial and external positions present a “window of opportunity” to maximize implementation of structural and institutional reforms that should enhance long-term productivity growth, improve the business climate for private investment (including Foreign Direct Investment) and more importantly, create sustainable jobs for the country’s fast expanding national workforce.

Al Razzi Management believes that the healthcare industry within its geographical mandate offers exceptional investment opportunities due to its current size, intrinsic non-cyclical nature, fragmentation, relative complexity, and compelling growth prospects.  Al Razzi management believe that the unique segmentation of the healthcare industry, coupled with its current comparatively small size and eventual growth characteristics, can provide for a consistent flow of investment opportunities for specialized investors like Al Razzi.

Addressing the size of the healthcare industry, healthcare in general is one of the largest and fastest growing segments of the global economy.  While healthcare expenditures in the developed world range between 9% and 15% GDP, developing countries’ expenditures on health range between 3% to 6% only.  Noting that in developing countries the consumption of healthcare generally tracks increases in income and standards of living, healthcare economists believe that the expected growth rate in healthcare expenditures will be much faster than industrialized countries.

The fragmented nature of current private healthcare “entrepreneurial-ships”, and just like most other economic sectors, will undoubtedly be affected by WTO related compliance initiatives and current trade related barriers.  Mergers, acquisitions, and group alliances appear to be the only way forward.  In Kuwait alone, there are hundreds of companies operating within the healthcare field with only one company listed on the local stock market.  This highly fragmented industry allows experienced healthcare investors to build companies in numerous healthcare sub sectors with a middle market investment strategy.

Addressing the current and prospective complexity of the sector, Al Razzi management believes that the current lack of sector specific professional expertise reduces competition from other investment groups and provides significant, medium and long term, advantages to knowledgeable investors like Al Razzi.  This is particularly true when we note the current and prospective transformation of the role of respective Ministries of Health in the region from owners, operators, financers, and regulators to more of a regulatory role, while leaving the private providers and insurers to gradually take over the delivery and financing of care functions.