HOUSE_OVERSIGHT_016166.jpg

Table 18: Public and private hospital and bed distribution

Riyadh Jeddah Other
Population 7,717,467 4,224,568 18,828,340
Public
Hospitals 47 13 210
Beds 7,937 2,993 29,370
Beds/hospital 169 230 140
Private
Hospitals 34 33 74
Beds 4,554 3,109 8,001
Beds/hospital 134 94 108
Total
Hospitals 81 46 284
Beds 12,491 6,102 37,371
Beds/hospital 154 133 132

Source: BofA Merrill Lynch Global Research, Ministry of Health

Chart 56: Public and private hospital and bed distribution
[Chart Graphic Omitted - Bar graph showing percentages for population, public hospitals, public beds, private hospitals, private beds, hospitals, and beds]
Source: BofA Merrill Lynch Global Research, Ministry of Health

Hospital quality would be key to attracting private buyers
The government has not invested in hospital infrastructure and some hospitals may require substantial investment by any buyer, if they are acquired at all. One Saudi hospital operator has said that there is no way it would seek to acquire government hospitals for that reason.

Bidders would likely want to obtain scale benefits from multiple purchases
Operating hospitals has benefits of scale in terms of centralising certain non-medical services (e.g. purchasing, catering, laundering) and allocating central costs over a greater revenue base. The greatest financial benefit would come from acquiring groups of hospitals to maximise these benefits. There would likely be cases where staff, and/or high net worth individuals chose to bid for individual assets.

Privatisation proceeds could defray some of NTP cost
Amounts raised from any privatisation would reflect the degree of competition for individual assets as well as level of reimbursement and the profits any acquirer could generate. In terms of pure asset values we assume the Riyadh and Jeddah hospitals (60) would be worth more than those elsewhere (210), simply because of the greater population currently and higher expected future growth. Government hospitals are likely lower cost than that of private facilities given they are not competing on the quality of accommodation offered. Arbitrarily assuming US$100m for hospitals in Jeddah and Riyadh and US$50m elsewhere would imply proceeds of $16.5bn (SAR61bn). If every hospital were sold then it could more than cover the SAR23bn allocated to the MoH for the NTP. That seems unlikely however; there will be hospitals that require substantial investment and aren't worth the indicative figures we have used above, or are in areas where profitability means there will be no return for the private sector at that level of acquisition.

Reforms could attract additional competition
Incumbent private hospital operators are best placed to expand and are seen as the natural buyers of any privatised assets. However, any substantial privatisation process, or the potential created by widespread adoption of private health insurance in general, could attract interest from foreign investors or operators. We note only a small number of international hospital groups to date have experience of successfully operating in multiple countries (IHH, Mediclinic), and we think Saudi Arabia could be too challenging as a first step for those yet to operate outside their domestic market.

Structure of insurance market needs to be set
There are a number of ways the government could roll-out private health insurance more widely:

• Set up its own insurance company

56 GEMs Paper #26 | 30 June 2016
Merrill Lynch
HOUSE_OVERSIGHT_016166