Iran lags behind the region in healthcare delivery

Published in MEED, 24 August 2016

Investors from Europe and Asia are eyeing opportunities in the country’s under-resourced medical system

With most sanctions on Iran now lifted, the country’s healthcare system has been drawing a lot of international interest, and it certainly could do with the boost that foreign capital and expertise could bring.

Iran’s Minister of Health & Medical Education Hassan Hashemi estimates the republic needs to add 100,000 in-patient beds and modernise 60 per cent of its existing healthcare facilities to meet international standards. Those two tasks, along with the need for more medical equipment, ambulances and specialised care facilities, mean investment of at least $25bn is needed in the coming years.

Hybrid system

The Islamic Republic’s healthcare system is a hybrid of public and private sector provision. The Minis­try of Health & Medical Education (MOHME) provides primary healthcare to everyone. More complex care is provided by a mixture of the MOHME, private operators and charities, and is mostly funded through insurance schemes such as the Iran Social Security Organisation (ISSO) and the Medical Service Insurance Organisation.

More than 90 per cent of Iranians have health insurance, which covers 70 per cent of the price of medicines and 90 per cent of the cost of hospital visits. However, there are allegations that some doctors demand fees beyond the set rates and, if the patient refuses, they withhold care. In any case, Iranians have long been used to paying for healthcare directly and out-of-pocket expenses account for almost half of medical spending.

All this leaves the country with a system that is better than some in the region, but far behind the best. While primary provision is generally seen as good, more advanced care is often only available from private clinics and even then does not always reach a high standard. The Switzerland-based World Economic Forum ranks Iran’s healthcare system at 69 out of 140 countries, above North African countries, but below its GCC neighbours.

Part of the problem has been sanctions. While medicines and medical equipment were exempted from trade embargoes, the system was still hobbled by the difficulty in paying for imports due to the lack of banking links. Many projects to renovate and upgrade facilities were put on hold, the cost of imported equipment rose by a third and there were shortages of some medicines. Opportunities to develop the medical tourism market, and thus take advantage of Iranian expertise in areas like cosmetic surgery, were also restricted.

Funding problem

Money is still an issue. The government spends 17.5 per cent of its budget on healthcare, with total spending equivalent to 6.9 per cent of GDP. That is higher than the 5.3 per cent average across the Middle East and North Africa (Mena) region, but below the global average of 9.9 per cent. On a per capita basis, Iran spends $351 a year, compared with $433 per person for the Mena region.

The sector is under-resourced in terms of personnel. According to the Washington-based World Bank, there are 0.9 doctors for every 1,000 people in Iran, compared with 1.6 doctors across the Mena region. There is an even larger gap when it comes to nurses and midwives, with 1.4 for every 1,000 people in Iran, compared with 2.5 in the wider region. Figures for hospital beds are far more worrying. There are just 0.1 beds for every 1,000 people in Iran, compared with 1 for the Mena region.

Iran needs a huge improvement in the quality and quantity of healthcare,” says Ali Nassersaeid, co-founder of the American Iranian Business Council. “It has no shortage of doctors and expertise, but it is short of just about everything else. Medical facilities that can provide high-quality service are rare. The situation is particularly bad in the smaller cities and rural areas.”

As the government has acknowledged, a lot of investment is needed and much of it is likely to come from overseas. With the shackles of sanctions now removed, several deals have already been signed with European and Asian companies. Among them, Italy’s Pessina Costruzioni signed a memorandum of understanding (MoU) in January to build and operate five hospitals, including a 1,000-bed facility in Tehran and 500-bed hospitals in Rasht and Nishapur.

Another Italian firm, the San Donato Hospital Group, is to build a 1,500-bed hospital in Isfahan, in a deal signed with Isfahan University of Medical Sciences in mid-May. A spokeswoman for the Italian group said it was premature to provide further details at this stage, given it is only an MoU. Austria’s Vamed is also partnering with Iran Housing Investment Company, an affiliate of ISSO, to build two 320-bed hospitals in Shiraz and Tabriz, in a deal worth €200m ($224m).

Among Asian companies, South Korean firms have been leading the way. The official Yonhap news agency reported on 18 May that seven firms have signed MoUs to build seven hospitals with a total capacity of 6,000 beds. Seoul’s Ministry of Health & Welfare reported that the deals were worth $2bn in total. Among those involved are major South Korean contractors such as Samsung C&T and Hyundai Engineering & Construction.

Of course, an MoU does not guarantee a formal contract will be signed and it is likely to take time before all these schemes move ahead. Ali Mirmohammad, senior consultant at US-based research firm Frost & Sullivan, says the banking problems first need to be fixed and predicts little will change before mid-2017.

It is not just a matter of building wards and operating theatres, however. There is also a need to modernise hospital equipment and develop medicine supply chains.

The medical devices market was worth almost $800m last year and is expected to surpass $1bn by 2021, according to India-based research firm Mordor Intelligence. Iranian officials have been seeking out new source markets for such goods. A trade delegation to Poland in May resulted in an MoU on the supply of hospital equipment among other things.

Local drugs

Pharmaceutical production is also developing. This is already a significant domestic industry, with more than 85 per cent of the 6,200 generic medicines used in the country produced locally, according to the Organisation for Investment, Economic & Technical Assistance of Iran, the country’s inward investment agency.

The value of the pharmaceuticals market was $4.2bn in 2015 and is expected to grow to $4.8bn by 2021, according to Mordor Intelligence. However, there are some concerns about the medicines produced locally, in terms of both quality and range. During the years of sanctions, Iranian producers came to rely on imports of cheap, low-quality active pharmaceutical ingredients (APIs) from China and India, which, according to Mirmohammad “led to many problems in the country and also led to some deaths among patients”.

It should now be easier to import higher-quality APIs, which should allow Iran to start targeting export markets. “The government plans to encourage foreign brands to transfer technology and [bring] new formulations to produce high-quality generic products, not only for the local market but also for export,” says Mirmohammad. He says the government plans to increase the export of medicines to more than $2bn over the next 10 years, from $180m at the moment.

The most significant recent deal in this area came in September, when Denmark’s Novo Nordisk, a specialist in diabetes, announced plans to build a €70m ($77.6m) facility to make insulin pens, in a deal signed with Iran’s Food & Drug Administration, part of the MOHME. This makes it the first Western pharmaceutical company to build a manufacturing plant in the country and could provide a model for others to follow.

Diabetes is a big problem for Iran. Ole Moelskov Bech, corporate vice-president of Novo Nordisk for the Near East, says “close to 5 million people” have diabetes in the country. According to the Switzerland-based World Health Organisation (WHO), diabetes and cardiovascular diseases are the principal causes of death in Iran, followed by cancer.

But Iranians are in better shape than many of their neighbours. According to WHO, life expectancy at birth in Iran is 74, compared with 68 years for the wider region. If the Islamic Republic can successfully tap into the investor interest in its healthcare system, that could yet improve even more.