Diaverum and Davita may lose massive Saudi contracts
The Saudi government is looking for cheap alternatives to current providers or a renegotiation of terms on its massive outsourced dialysis contracts worth half a billion dollars when they come up for renewal in 2019, Healthcare Nova has learnt. Other operators claim it could be done 20-25% cheaper than current costs.
In a move that pre-dates the more recent healthcare outsourcing reform, the Saudi Arabian Ministry of Health (MOH) handed out massive five-year contracts to international dialysis providers Diaverum and Davita beginning in 2014 to provide public dialysis services. The contracts come up for renewal in 2019.
The deals were worth US$261m each over five years and mandated the groups to provide dialysis services to, eventually, around 5,000 patients each, each across 90 clinics, a figure said to be about half of the country’s public dialysis patients. It is unclear if that dollar figure was all for services or included some capital expenditure, though statements from Diaverum regarding infrastructure investment indicate it was probably services-only.
We hear the MOH has been paying Diaverum and DaVita US$280-300 per dialysis session (mostly haemo), a figure that seems to be in line with at least one academic study on the cost of the treatment in Saudi Arabia. Neither company would comment on that figure. Nonetheless, the outsourcing program has led some sources to talk about the dangers of “excess value” being given to operators.
Shortly after the contract started, the Saudi government’s main revenue stream plummeted. The hit from the oil price crash in 2014/15 forced a re-evaluation of those costs, and therefore who it outsources to as the contracts come up for renewal, according to an operator.
“The oil crash might have led the government to question the clinical outcomes they were getting from the contract, which might have caused friction between the government and the operators. Clinically maybe results were there, but it’s all about value for money. If I’m paying enormous amounts I want fantastic clinical outcomes, but if I’m getting normal outcomes why would I pay so much?
“In the Middle East value for money is a new phenomenon. Before it was all about getting big names in who could build 7-star hospitals, but since the oil price crashed the whole region is looking at more cost-efficient delivery of healthcare services,” it says, adding that dialysis in Saudi Arabia could be delivered for 20-25% cheaper than current costs.
Both Diaverum and DaVita have been contacted a number of times and we asked the Diaverum CEO for his thoughts. Banking sources have blamed Saudi uncertainty for delays in its IPO which we heard was meant to happen in May 2018. Despite agreeing to defer publication over the weekend until Monday morning so he might respond, we had yet to receive a response as we went to press on Monday afternoon.
Our Analysis: A shrewd business brain will have worked out that US$261m for 5,000 dialysis patients at US$280-300 a session for five years allows for less than one session per week, when the norm for dialysis is three. That’s because the program was set to expand from zero to around 5,000 over the course of the five years. Official figures from the Saudi Center for Organ Transplantation (SCOT) show that as part of the outsourcing, in 2014 Diaverum had 1,068 haemodialysis patients and DaVita had 144, and in 2016 Diaverum had 1,902 haemo and 64 peritoneal, while DaVita had 1,416 and no Peritoneal. Diaverum Saudi Arabia’s own website says it has 4,037 patients today. These figures leave open the possibility of three sessions per week per patient at the quoted rate.
It’s unclear if this was a case of “excess value” or just the government deciding it was paying too much on a whim. What is more interesting is Saudi Arabia shaping up as a battleground between massive European and American healthcare groups and the newer, low-cost models from emerging market providers. If cost-efficiency is the ultimate deciding factor, it’s obvious who’ll win. And Indian groups already have a very strong presence in the GCC.
We would welcome your thoughts on this story. Email your views to Cameron Murray or call 0207 183 3779.