Gulf medical tourism: Is the golden egg cracking?

In the first of a two-part feature, Ian Youngman argues that the outbound Gulf medical tourism cycle has peaked, and numbers will decline. Past performance, he says, is no guide to future returns.

Medical tourism targeting goes in cycles. At the beginning, most countries went after the potential of high numbers of outbound US medical tourists, now known to be well overstated. The next cycle was Asia and Europe. After that came the Gulf, followed by China.

As in any business model, the first-mover organisations get into the potential target market at the beginning of the cycle, followed by others and then the majority, all competing for the same dollar. Movers are often guided by “medical tourism experts”, who are not known to be accurate when predicting country trends for targets.

This cycle is not unique to medical travel, it can equally apply to fashion, films and insurance. In recent years for example many health insurers have moved into the MENA region, as experts predicted significant growth. Now the top of the cycle has passed and one of the top five global health insurers has indicated that its MENA business is for sale. That insurer has a track record of getting into and out of markets while others still contemplate an entry strategy.

However accurate they are, numbers for medical tourism are always historic. Past figures are then used to predict future growth, and in the case of historic numbers from the Gulf, this extrapolation could show the huge potential. Just as in health insurance however, it is more likely that the outbound Gulf medical tourism cycle has peaked, and numbers will decline.

Impact of politics

Global politics rather than medicine may determine where medical tourists from Gulf countries go in the near future.

The situation in 2020 in the Middle East, with the regional powers jockeying for position, is looking grim. The region is the most at risk it has been for a decade.

The are worsening problems from Iran-supported groups in Yemen and Iraq; the situation in Syria is unresolved; the Iranian-affiliated Hezbollah continues to clash with Israel; and there is a local political stand-off between Qatar and other countries, led by political and more dominant economic rival Saudi Arabia. The United Arab Emirates, Egypt and Bahrain have as a result cut diplomatic and trade links with Qatar. The Saudi group also includes the Maldives, Mauritania, Senegal, Djibouti, the Comoros, Jordan, plus quasi governments in Libya and Sudan. The Saudi/UAE coalition is backed by the USA but Iran, Turkey and Russia back Qatar. The EU is neutral.

Turkey is becoming more directly involved other countries in the region. The US stirs the pot with an eye on their 2020 election, suggesting that their actions and messages on the Middle East are as much for US domestic audience consumption as global safety. Iraq is moving away from the USA to Iran, while China and Russia compete to influence Arab and African countries.

From a medical travel perspective, one simple result of the above is that Qatari medical tourists no longer go to Dubai. Iran is claiming to be a medical tourism powerhouse rivalling Dubai, and while the former gets patients from Iraq and local countries, Dubai is heavily linked to Europe, USA and local countries.

Historic targeting trends

Once medical travel destinations realised that the mythical millions from the USA were never going to happen, and that most US medical tourists cross the border to Mexico or Canada, they sought new targets.

Outbound patients from Western Europe looked attractive, due to high healthcare costs and long waiting lists at home. In reality however research shows that most Europeans travel within Europe. Add to this the complex mix of private, national and compulsory insurances in European countries, and this potential market becomes a less likely source.

For a time, targeting outbound patients from Gulf states suggested a golden market. Analysts pointed out the oil money, increasing obesity, high personal wealth in a proportion of the populations, and inadequate local healthcare provision. Medical tourism experts used historic numbers of medical travellers from the Gulf to show huge future potential.

However, as all investment advertising says, past performance is no guide to future returns. While it is good to have historic figures, using these to predict the future without understanding the changes in regional politics, insurance and healthcare in the Gulf is a dangerous approach to take.

Is the golden egg cracking?

Healthcare changes underway in the Gulf region suggest that outbound medical travel from the region is not going to be a golden market in future years.

Three main regional healthcare trends reinforce this argument, although it is recognised that individual Gulf countries do differ by what they offer, what compulsory health insurance they have or are bringing in, and where they are in local healthcare provision.

1. More high quality healthcare facilities. There is an increasing number and range of healthcare facilities in Gulf countries, with leading US, UK and European healthcare providers setting up in the region. Dubai is a major medical tourism destination in its own right and Abu Dhabi is competing hard to be the top regional healthcare destination. The more Gulf States that promote inbound medical tourism, the more they discourage locals from going overseas. A country spending millions on promoting medical tourism does not want that undermined by suggestions that thousands of their own citizens distrust local healthcare so much that they go elsewhere for treatment.
2. Oversupply of regional healthcare. Provision of state and private healthcare has grown regionally at an enormous rate. Dubai and Abu Dhabi now have an oversupply of private health facilities and health insurers, as does Saudi Arabia. In all MENA countries there is a rapidly expanding variety of affordable services on offer. This is often linked to the rise in compulsory and voluntary health insurance, and the move by health insurance away from treatment-based, to prevention, as this increases demand. Health insurers use their own networks, and with countries bringing in tech systems that automatically link insurers, healthcare providers and the state, then this pushes customers to use local facilities.
3. Compulsory health insurance for all. Several countries have or are bringing in compulsory health insurance for locals and expatriates. Some have existed in theory for years but not in practice, but this is changing as systems have or will come into play. There is one common thread between all the new country systems, in that none allow for insurers or the state body to send a covered person to another country for treatment. This is unlikely to be a legal oversight. Each of these Gulf states not only wants to develop its local insurance and healthcare sectors, but seeks to encourage overseas investors in non-oil sectors, with health being at the top of the list.

Moving away from oil and state-sponsored outbound medical travel

Historic figures often refer to patients sent abroad for treatment by a Gulf state government, and government purchasers do still sponsor patients with complex healthcare needs for treatment abroad. Some of the bodies doing the sending no longer exist however, while others will be phased out as new national health insurance schemes become fully operational. Countries that used to spend large amounts on outbound medical tourism will no longer have that spending power, mainly due to the waning power of oil.

According to a new International Monetary Fund report ‘The Future of Oil and Fiscal Sustainability in the GCC Region’, the Gulf oil market is undergoing fundamental change. New technologies are increasing the supply of oil from old and new sources, while rising concerns over the environment are seeing the world gradually moving away from oil. This is a significant challenge for oil-exporting countries, including those of the Gulf Cooperation Council (GCC) which groups Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates, and accounts for a fifth of the world’s crude supplies. Oil income currently makes up 70-90% of public revenues.

Over recent decades, these six nations accumulated US$2.5 trillion of financial assets, invested mostly overseas through sovereign wealth funds. But the oil price shock of mid-2014 impacted finances, significantly reducing their revenues and forcing them to borrow and draw down on their assets to cover persistent budget deficits. GCC government debt rose from US$100 billion in 2014 to nearly US$400 billion in 2018. Net financial wealth is on track to turn negative by 2034 or even faster if global oil demand peaks, turning the region into a net borrower.

Most GCC states have embarked on economic diversification and reform programmes that include subsidy cuts, raising power prices and even imposing value-added tax and other forms of taxation. But this and rapid diversification of economies may not be enough, as the process must be accompanied by reductions in government expenditure and the introduction of broad-based taxes. GCC nations must also rationalise spending, reform their large civil service sectors, and reduce public wage bills.

Most Gulf states see these measures as highly sensitive and a political risk, because of the potential adverse affect on citizens who have grown accustomed to subsidies and low taxes. The proposed measures would have a multitude of socioeconomic consequences affecting employment, household incomes, and business confidence and investment.

The bottom line for medical tourism is that Gulf states cannot afford to send people overseas for treatment, unless there is no local alternative.

Less expat workers, more citizen employment = less outbound medical travel

Saudi Arabia and Oman are leading the region in replacing expatriate workers in state and private jobs, not at the low level of drivers and domestic servants but at middle and top management levels. Some countries now demand that foreigners can only fill certain professional and managerial roles if no local is available; and in some industries there is a minimum percentage of the workforce that must be local citizens.

This move will eventually reduce the number of expatriates. The more local citizens working for the state or the private sector, the more people are covered by health insurance, the less likely they are to go overseas for medical treatment.

All MENA states have a higher number of young, qualified educated people than the number of jobs available. If a larger percentage of these find “real” careers, the more rooted they are to their country and the less time they will have to find treatment abroad.

There will still be wealthy Gulf patients who want to pay for private care overseas, but arguably as the numbers insured rise and the volume and scale of local healthcare facilities increase, the need to go to the USA, Europe or Asia will fall.

And a common mistake that some medical travel destinations make is that they do not differentiate between genuine wealthy Gulf patients travelling from country A to country B, and Gulf citizens who live in the country permanently, temporarily or part-time. A proportion of the Gulf business, such as in London, are actually wealthy Arab families who have London homes, plus staff and families attached to embassies or businesses.

So, if not Gulf states, how about patients from China instead?

No need to panic say the experts, the massive Chinese market will fill any gaps. Be careful however, as not only has Chinese healthcare and health tech exploded in the last five years, the Belt and Road Initiative is exporting Chinese healthcare into Africa and Asia.

Outbound travel from China is heavily influenced by state reaction to global politics; so a Trump tweet could cause an overnight outbound ban.

Gulf countries themselves are targeting Chinese medical tourists, but this is difficult due to politics, ways of life and customs. Which countries China backs in the region economically and politically, may determine where outbound Chinese medical tourists go.

It is also yet to be seen whether the current Covid-19 virus will destroy outbound Chinese medical tourism in 2020, or if numbers will be rebound in a few months with pent-up demand.