UAE healthcare: How clinics can survive the crowded market

How can small clinics overcome the increasing pressures caused by oversupply in the UAE’s healthcare market?

Dubai alone has seen capacity massively outstrip demand, leaving many small independents struggling with low occupancy. But providing mutual support under partnerships can help you achieve profits via economies of scale and cost-sharing.

Here, we look at the main issues facing small providers and how you can avoid the perfect storm on the horizon by forming alliances.

1. Too many clinics

Hospitals and clinics in the UAE far outweigh demand. With over 3,295 licensed clinical facilities in Dubai, up from 2,000 in 2016, and with many more under construction, we are literally building a problem for ourselves.

Clinics need at least 50 per cent occupancy to cover costs in order to create any sensible return. However, Dubai simply doesn’t have the patient numbers to justify such rapid growth, with many currently running at 35–50 per cent occupancy.

With plans for facilities in the pipeline – the disparity between capacity and demand looks set to grow further.

This will drastically affect the number of patients who walk through your doors. Even with solid marketing and sales efforts, it will be a constant struggle to attract new patients while the choice of facilities is improving. With patients in control, they will be able to select their clinic of choice at the most affordable price.

2. Population and clinic mismatch

Although running at almost 7 per cent over the past 12 months, the population growth rate still isn’t high enough to balance the supply-demand challenge.

What we are also seeing is the replacement of well-paid, Western-trained professionals with counterparts from India and the Middle East on significantly lower remuneration packages.

These lower incomes represent a reduction in demand at the premium end of healthcare, and often a less generous insurance package that doesn’t allow for expensive hospitals and clinics.

Let’s look at Dubai’s private sector in isolation: most new entries are competing in the mid- to high-end sectors against an estimated annual 1.4 million private beds by 2021, as well as public sector hospitals. This puts almost unbearable pressure on smaller clinics as they fight for a share of a market demand for just 600,000 beds across all providers.

In a dwindling pool of employees with lower remuneration, the cost of attracting each new patient is rising. In short, there will be more competition for fewer customers at the expensive, premium end.

3. Delayed insurance payments or rejected claims

Mandatory health insurance for employers in both Abu Dhabi and Dubai has softened the impact, but it’s not high enough in premium terms to cover the costs of claims. Averaging around Dhs500 – 600 per person, per annum for entry-level cover, this is simply not adequate. It cannot pay for administration costs, brokerage fees and claims for primary, secondary and emergency care, as well as medication and diagnostics.

In Dubai, recent legislation requires emergency cover at public and private hospitals to be settled within seven days. As emergency cover accounts for a large block of business, this adds pressure on insurers who are now unable to stagger payments.

We’ve recently seen at least one employer of over 20,000 staff with unsustainable combined claim ratios exceeding 200 per cent over a 12-month period.

Most insurers are now struggling, leading to claims being rejected and non-emergency payments delayed by over six months, along with a refusal to increase rates for providers.

Certain insurers are yet to settle claims from July 2018 and there are rumours of some trying to negotiate settlements to clear the backlog at half the billed price. Until insurance rates – and premiums – are increased to sustainable levels, the situation is likely to get much worse.

4. Strategic direction is missing

The sector continues to develop with what appears to be blind optimism from investors and a lack of clear guidance from regulators. The Dubai Healthcare City project, which initially aimed to recruit American Board-certified clinicians and nurses, recently dropped this clinical benchmark to become an open geographical free zone.

One of the reasons investment is continuing apace is that there is still a belief, in a region that seems to take comfort from bricks-and-mortar investments, that the headlines of a growing, ageing population with chronic disease make such investment a wise choice.

Despite efforts such as the Dubai Clinical Services Capacity Plan 2015 –2025 to ensure that regulators had clear guidance in licensing facilities according to actual needs, there’s far too much duplication of primary and secondary facilities. Instead, clinic operators need to focus on niche health services.

5. Lack of consolidation

Any market with such massive oversupply desperately needs consolidation. Too many clinics, insurers and brokers, compounded by too few patients, create the conditions for a perfect storm.

Many small clinics are merging with larger facilities while others are admitting defeat and closing.

For many, the only way to stay afloat will be to join a network of smaller clinics. This strategic move could herald improved efficiency and greater success in the future.

Networks can offer small clinics and hospitals the benefits of greater efficiencies in purchasing, recruitment and retention, and sales and marketing. In turn, insurers will be attracted to alliances with networks of high-quality providers that can offer good-value services to suit their members’ budgets.

Trying to go it alone in such an over-supplied market will continue to be an uphill battle in the absence of any significant changes in the market. The reality is that small independents are stronger together.

Mark Adams is chairman of The Healthcare Network