How can Egypt best leverage investor appetite in its healthcare sector? The answer: PPPs
How developing PPP models in healthcare can help funnel private investment to outlying governorates: Last week, we dissected why Egypt saw heightened investment appetite in its healthcare sector over the last 10 years. We found that although investment appetite is high, a demand-supply gap persists due to fragmentation and uneven distribution of facilities — especially by geographic location, with most private hospitals located in Cairo and Alexandria.
Today, we analyze how implementing public-private partnerships could efficiently leverage that investment appetite and make sure all the necessary gaps are filled. Industry insiders we spoke with tell us that the model can be successfully adopted in Egypt to iron out some of the main pain points we identified last week — namely, a lack of talent and profitability in Egypt’s governorates. But while this model has been successfully implemented abroad, a number of hurdles remain before it can be brought to life here.
As with other physical infrastructure, healthcare could stand to benefit from PPPs: Public-private partnerships (PPPs) are popular worldwide when it comes to healthcare. In Egypt, the government has land and large-scale hospitals that are not running efficiently, Neeraj Mishra, group CEO of Alameda Healthcare, explains. The model could revolve around giving part of these assets to the private sector to run, in exchange for a revenue-sharing agreement with the government that could include the private operator providing some subsidized treatment to patients, he says. This way, the government gets two things: a constant flow of revenue, as well as affordable, and subsidized healthcare for a certain number of people.
This model could help private sector hospitals attain a decent ROI, given that a provider’s initial investment is lower. If the government provides the private sector with land or buildings at no cost, the initial investment cost can drop by 60-65%, Mishra says. Thus, the expected ROI only hinges on the 40% that the private sector company injected, and patients can be charged accordingly. Though your cost will be slightly higher, you can still generate decent margins that will give you a decent ROI on the 40% of cost you invested, he explains.
PPP healthcare could help draw talent to the geographic areas where they are needed: If more hospital providers set foot in governorates, talent from medical schools will become more willing to relocate there, Mishra adds. If the model is implemented correctly, it can attract doctors to the places where the projects are taking place, Hassan Fikry, corporate strategy and investor relations director at Cleopatra Hospital Group (CHG), says.
But there’s no talent like local talent: That said, the most effective way of drawing talent is by tapping the local pool, he adds. Investment in the education of doctors in the governorates where they are needed will go a long way towards filling that gap, he notes.
Professional healthcare business managers and centers of excellence are essential to move the industry forward: With the sector’s business model becoming more complex, there is a growing need for professional healthcare business managers that understand the arena and know how to run a business at the same time — this is where we are still lagging behind, Fikry believes. Moreover, demand has been growing for specialties and technologies that require a large amount of initial investment, as well as multidisciplinary centers of excellence. But due to the high capex, supply has been dire, he says.
The World Bank Group said it first: The Universal Health Plan could be a catalyst for PPPs, a World Bank Group had suggested last year in its private sector report (pdf). Under the plan, the government will contract out healthcare services to private sector hospitals who must abide by a specified pricing. The partnership areas include hospital building, diagnostic services, specialist care, IT, and ins. claims administration. Under the plan, it is the Universal Health Ins. Agency’s role to liaise with private hospitals and clinics to provide care to Egyptians under the universal healthcare plan.
Step#1 — Actually develop a PPP framework: So far, the lack of a governing framework to facilitate PPPs in healthcare and a delay in payments to private sector services are major constraints affecting the sector’s competitiveness, the World Bank Group states. Additional hurdles include arbitrary and circumstantial payment mechanisms, and lack of a governance body that adequately represents the interests of the different subsectors. “If the policy reforms are designed correctly, the private sector could have incentives to innovate and develop facilities that can serve greater volumes of patients, provide better quality care, and lower costs,” it suggests.
Current regulations set restrictions that stifle PPPs in the sector: Furthermore, only licensed physicians are allowed to own outpatient clinics. This means that new healthcare providers can only operate after obtaining approvals from at least nine government agencies.
What is clear is that private sector healthcare wants this and is waiting on the government to push a PPP healthcare framework through. But with private sector investment in healthcare reaching EGP 9.3 bn alone in FY2018-2019 and growing, and with Egypt being a market that is primed to absorb healthcare services (what with its large population and prevalence of chronic diseases), we expected that the conversation of PPPs in healthcare is far from over.
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