Growing cost of Saudi Arabia’s healthcare system calls for financial sustainability

The cost of sustaining Saudi Arabia’s healthcare system has risen strongly in recent years, and as a result, it is becoming increasingly important to enhancing the return on investments and safeguard the long-term financial sustainability of the system, finds a new report by KPMG.

In its market study, titled ‘Understanding healthcare financing in Saudi Arabia’, KPMG delves into the Kingdom’s healthcare financing structure, providing insight into the development of expenditure patterns, and where potential improvements could – and should – be gained.

On the back of several trends, such as a growing and aging population, the rise of chronic diseases, and growing demand for healthcare services, Saudi Arabia’s healthcare spending has jumped from SAR 22.8 billion in 2007 to nearly SAR 80 billion in 2021. While more recent data is yet to be released, spending between 2022 and 2024 is expected to have continued its historic upwards trajectory.

Although government contributions constitute the majority of healthcare spending, their share has gradually decreased over time. In 2000, government transfers accounted for 72% of total healthcare spending, declining to 62% in the years prior to the Covid-19 pandemic.

Source: KPMG

The increased expenditures in Saudi Arabia’s healthcare system, which spans around 250 public hospitals, primary care centers, specialized facilities such as the King Faisal Specialist Hospital and Research Centre, and various other health centres, have as per the report contributed to the “remarkable advancements” witnessed in the past two decades, among others seen in patient satisfaction, quality of healthcare, progression in medical infrastructure, the advent of cutting-edge technologies, and workforce development.

However, “as the population grows and ages, the demand for healthcare services continues to rise, putting pressure on financial resources. The challenge lies in balancing these growing needs with available funding while maintaining high standards of care,” said Burhaan Khan, Partner and Head of Healthcare at KPMG in Saudi Arabia.

“Our research underscores the urgency of adopting innovative financial models to ensure the long-term sustainability of Saudi Arabia’s healthcare system,” he continued. “With rising healthcare costs, it is critical to shift towards models that prioritize value over volume and emphasize prevention and efficiency.”

Technology

One of the ways that can be achieved is by embracing the use of intelligent technology, in areas such as patient outcomes, healthcare operations, and value chain optimization (for example: shifting some hospital demand to the primary tier).

“Technologies such as AI and digital health solutions not only improve access to healthcare but also enable more streamlined, data-driven decision-making, allowing healthcare providers to focus resources on the most critical areas,” explained Khan.

A key facet where technology also can play a role is in healthcare prevention. The report highlights how technologies such as telemedicine and continuous patient monitoring harness an “enormous potential” for cost savings. “Every riyal invested in preventive healthcare – whether technological driven or non-technological (e.g. health screenings) – can yield a fivefold return by preventing the onset of costly chronic diseases.”

Value-based healthcare

Another recommendation put forward by KPMG, which is regarded as one of the leading healthcare consulting firms in the Middle East, is to adopt value-based healthcare, an approach that is rapidly gaining ground in the sector, with its central focus on reducing unnecessary costs and improving patient outcomes.

Khan elaborated: “Value-based healthcare focuses on tying reimbursements to health outcomes, rather than the volume of services provided. By prioritizing value over quantity, this model encourages efficiency, better care coordination, and a focus on preventive measures that can reduce the long-term burden of chronic diseases such as diabetes and cardiovascular conditions.”

Broadening access to affordable healthcare

A third recommendation from the authors focuses on broadening access to affordable healthcare, particularly for lower-income groups and those managing chronic conditions. The backdrop: in Saudi’s system, out-of-pocket health expenditure (spending that is not covered by a health insurance plan) constitutes a notable portion of total health spending, accounting for 14% of the total. Most of the expenses are made for medication purchases (53%) and physician visits (14%).

Source: KPMG

“The prevalence of out-of-pocket spending underscores the gaps in healthcare coverage and highlights the financial burden faced by individuals seeking medical care,” said Khan, who advises the system to expanding insurance coverage and to better curb pharmaceutical costs to reduce the financial strain on households.

Public-private partnerships

Mohamed Fayek, Associate Director at KPMG in Saudi Arabia, emphasized the growing importance of public-private partnerships in the healthcare sector. “We forecast that increasing private sector participation could reach 65% by 2030. These partnerships are critical to sustaining the infrastructure and resources necessary to meet the Kingdom’s healthcare needs, while also driving economic growth.”

“By collaborating with the private sector, the Saudi government can bring in new innovations, improve service delivery, and create new jobs in the healthcare field by 2030.”

A previous report from KPMG’s Healthcare practice highlighted how Saudi Arabia’s healthcare system could also benefit from better out of hospital and community-based services, also known as an approach integrated care approach.