For any firm, in any industry, the ability to compete is tied to the ability to cooperate. This is such a well-studied paradox in business that it even has its own name, ‘coopetition’, and research shows that this practice can improve the efficiency of insurance-based healthcare systems.
Competition is rife
Here in the UAE, the competition aspect is rife. Initiatives by the government have encouraged private sector growth and created a surge in new private facilities.
According to stats from the Dubai Health Authority (DHA), the number of hospitals in Dubai increased from 20 in 2010 to 35 in 2015 – an impressive rate.
But for clinics, the story is a little different: in 2010, there were 1,314 clinics and by 2012 there were 1,607. But by 2015, the number of clinics had dropped back to 1,339.
Why? One reason is that oversupply in the market has meant the smaller, newer centres struggled to compete with the more established ones.
Clinics soon found they were running well under capacity, being outcompeted for the lifeblood of their service – patients. Some went out of business while others were taken over by larger competitors.
Before Brexit, one of the arguments made by those who wished to see the UK remain in the European Union was: ‘We’re stronger together’. A slim majority of Brits rejected that sentiment.
But if you own or invest in a clinic or diagnostic centre in the UAE, I would take heed of it. Consider forming or joining a medical network, where groups of doctors, clinics and other providers form a larger body offering common services. I firmly believe that this ‘coopetition’ is the way forward. Here’s why.
The problem with going it alone
Clinics in the UAE face a wealth of problems that make going it alone an uphill battle. The major issues don’t make for encouraging reading.
1. Tumbling profits: I wrote back in 2016 about the oversupply problem in the market, especially in terms of hospitals. As we’ve already seen, the repercussions are being felt by smaller facilities that struggle to compete in a market saturated with more than 4,000 clinics countrywide. To make matters worse, many target the top end of the market.
This means an oversupply of facilities for middle- to high-income people, but an undersupply for those on lower wages. And then there’s the need to adapt to changing market conditions, such as the recent reductions to state insurance coverage in Abu Dhabi for those undergoing treatment at private hospitals.
These factors combined mean that even some of the larger clinic providers, especially those new to the Middle East such as Medclinic International, have found the going tougher than expected. Medclinic purchased the Abu Dhabi hospital provider Al Noor in 2016, but has since had to issue two profit warnings.
2. Falling patient numbers: Don’t get me wrong: patient numbers are going up. By 2020, it is estimated that there will be another 7.9 million people in the country compared with 2010. But many of these patients are being stripped from the market by larger clinics, which use their weight to attract business from every angle – from bigger corporations, to SMEs and even individuals. For instance, many patients are being locked away by capitation plans, where one provider is paid to cover the care of a large group of people, such as when a big employer sends all its workers to one clinic.
3. Stagnating prices: It’s not only clinics that are facing stiff competition – insurers are as well. Many insurers keep policy prices low to attract business in the hope they can increase prices later. According to the Qatar Financial Centre Authority’s 2016 market survey of the MENA insurance industry, medical insurance is the main engine of growth. But along with motor insurance, it’s also one of the least profitable.
Lower policy prices mean a need for clinics and diagnostic centres to lower prices too, in order to make up for the shortfall. If you want the business, you’ll have to accept reduced prices. Many do just that, but for a small clinic it’s far harder to ride out the tough times than for a large clinic or insurance provider with its fingers in many pies.
4. Dropping market value: The more often smaller clinics fail or are bought out, the lower the overall value of those left. Smaller clinics are stuck in a revolving door of failure, making it difficult to attract investment to grow the business or bargain lower prices with suppliers. The risk is just too high.
Stronger together – developing a medical network
To compete in this system, small clinics need to build muscle. However, doing this alone can take time. A 2014 study published by researchers at Khalifa University, Abu Dhabi, revealed healthcare providers spend 40 per cent of costs on procuring, managing and distributing supplies or devices. This is a cost that could easily be shared.
Becoming part of a medical network may require accepting a specific price for services but on the upside it allows services to be shared, costs to be reduced and the chance to take advantage of real opportunities. As a group, you have consolidated buying power and share services such as human resources, finance and procurement. As a result, in the long term, the group will be better placed to compete with larger centres.
The two traditional ways of forming a medical network is through either a loose cooperation group (LCG) or by joining a group purchasing organisation (GPO). In the LCG model, a group of clinics share the workload to negotiate with suppliers. With a GPO, a separate organisation is set up to which clinics then become members. Let’s look at a couple of examples.
1. GPOs in the US: Many health facilities in the US, from hospitals to nursing homes, join a GPO, which then aggregates purchasing volume and leverages its size to negotiate discounts with manufacturers and distributors. The US Healthcare Supply Chain Association estimates that 96 to 98 per cent of all hospitals participate in some kind of group purchasing – so this idea is nothing new. To be clear, GPOs don’t buy any product, but lay out the deal to the clinics, which then make a decision about what is most appropriate under the circumstances. Sometimes GPOs are free to join, sometimes not. Veira Medical Group, for example, offers access to over 2,000 contracts at no cost.
The Khalifa University study touched on earlier revealed that the benefits of these groups go beyond pure discounts. They can lay down supply chain standards, value analysis, performance comparison, and also implement drug shortage alerts and safety recalls.
2. The Dental Buying Group in the UK: Twenty-five years ago, a select group of dentistry practices in the UK set up the Dental Buying Group (DBG). This GPO has since evolved to include medical, veterinary and chiropody practices, with members from 7,000 practices. Its pricing structure is affordable at GBP 330 plus VAT per year. And for that you get a lot.
On the medical side, as well as purchasing power, the DBG offers training with more than 400 hours of online courses and face-to-face meetings. These include fire safety, health and safety, and even basic first aid for non-medical staff members. It takes care of compliance and even helps calibrate equipment.
So successful has the DBG been in the UK that NHS Scotland has set up its own collaborative purchasing scheme called DenPro. It hopes the scheme will lower running costs for members, as well as reducing variability in products to support patient safety and improve collaborative working. Similar organisations exist around Europe, including Prospitalia in Germany.
Do medical networks work?
This is the big question. Medical networks are common around the world and they sound good on paper, but does that necessarily make them beneficial?
Well, data shows that forming a network is an extremely good way to streamline costs. In 2009, Health Care Sector Advances released a report on US GPOs showing they save the healthcare industry USD 36bn annually in price reductions and more than $2 billion in human resources. To put this into relative figures, a report by the School of Health Administration and Policy, part of Arizona State University, suggests that group purchasing saves ten to 15 per cent of costs in the US.
The future is coopetition
One more example. Back in 1986, the Financial Services Act was passed in the UK. It placed huge pressure on insurance brokers and independent financial advisers (IFAs) to show compliance, training, and introduce new IT systems. Everyone knew they couldn’t do it alone due to the expense, but everyone also knew they wanted to stay independent.
It should, because although this is a different industry, it mirrors the UAE healthcare sector right now. New regulations, new coding demands and growing price pressures put clinics in a difficult situation. And if they are to find a way out, they will learn from what happened with UK brokers and IFAs: umbrella networks were formed, costs shared and prices negotiated. This platform brought a welcome change to the industry; the UAE should welcome it too.
(By Mark Adams, Chairman of Lumina Advisors DIFC and Former CEO of Anglo Arabian Healthcare)