The major challenge facing most health sectors worldwide—including that of the Kingdom of Saudi Arabia—is the problem of insufficient funding coupled with the continuous rise in costs. This is driven by the increasing demand for healthcare services from both citizens and residents, which has hindered the Ministry of Health from fulfilling its assigned role to the fullest extent. The government budget allocated to the Ministry of Health does not cover current needs; at best, it can only maintain the service at its current level, which is unsatisfactory to both citizens and officials. This is due to prevalent traditional operational methods, excessive bureaucracy, slow

decision-making, and weak oversight and incentives, in addition to future challenges represented by the following factors:

Continuous Population Growth in the Kingdom: This growth rate has reached approximately 3.4%, which is considered one of the highest in the world. Furthermore, the life expectancy at birth has increased to 72 years. These factors have contributed to higher consumption rates of hospital services, which are provided free of charge to citizens, necessitating a 15% annual increase in the budget allocated to the Ministry of Health.

Table (1) below illustrates the ratio of the Ministry of Health's financial appropriations to the total state general budget for the fiscal years from 1420 AH to 1425 AH.

:Table (1)

Ratio of Ministry of Health Financial Appropriations

6,1%                                           13,046,528                                 1421AH / 1422 AH

6,8%                                           13,740,910                                1422AH / 1423 AH

6,6%                                           13,857,430                               1423AH / 1424 AH

6,4%                                          14,756,350                               1424AH / 1425 AH

As shown in the table above, the ratio of financial appropriations remained at approximately 6.5% of the total state general budget over the five-year period, despite the expansion of healthcare services. This has resulted in difficulties in executing numerous projects and programs approved in the operational plan, in addition to a decline in the general bed rate in Ministry of Health facilities to 1.5 beds per 1,000 population

... compared to 1420 AH. This decline is attributed to the insufficient number of beds in operation relative to population growth.

High Incidence of Road Traffic Accidents: Which has contributed to increased consumption rates of hospital services.

Rising Costs of Operational Essentials: Including pharmaceuticals, medical equipment and supplies, the high cost of employing highly qualified healthcare personnel, and the rising costs of construction and equipping contracts.

Brain Drain of Specialized Physicians and Healthcare Workforce: The migration of skilled professionals from public to private hospitals due to lower wages. By 1425 AH, the existing deficit of physicians and healthcare personnel in Ministry of Health hospitals reached approximately 23,680 positions. These factors, among others, have converged to lower the quality of services provided by government hospitals and primary healthcare centers. This is further compounded by bureaucratic government management styles, centralization in decision-making, inequities in the geographical distribution of health facilities and budget allocation, disparities in the quality of medical services provided across different government facilities, and public dissatisfaction. Consequently, this has led to a waste of resources available to the health sector and the misuse of health facilities and provided services.

In a clear effort to leverage the capabilities and resources of the private sector in delivering healthcare services, the Council of Ministers, via Royal Decree No. (M/11) dated 23/3/1423 AH, approved options for the privatization of certain facilities. These options include selling or leasing them to a private investor or a joint-stock company, or converting them into state-owned institutions managed under private-sector operational standards.

... private sector, provided that this does not compromise the provision of healthcare to citizens, degrade the quality of care, or hinder access to it.

The strategy of the Eighth Health Development Plan in the Kingdom (1425 AH – 1430 AH) included "strengthening the private sector's capacity to manage large-scale projects by privatizing public hospitals and operating them on economic bases (Privatization), whereby the state pays the cost of treatment for each patient referred to them from its primary health centers."

This is in addition to the Supreme Economic Council’s decision regarding the privatization of healthcare services in the Kingdom.

From the foregoing, it is clear that there are positive indicators that can be built upon. The most significant among these is the increasing role of the private sector in providing healthcare services in the Kingdom through the privatization of public hospitals, while maintaining free treatment through primary healthcare centers—as stipulated in Article (31), which states that "the State shall provide for public health and ensure healthcare for every citizen."

Furthermore, involving the private sector in the healthcare field is not a new concept; it dates back over twenty years when the government entrusted the management, operation, and maintenance of some public hospitals to the private sector.

Conversely, there are a number of negative indicators that may limit the available potential, most notably: the continuous increase in demand for healthcare services, the steady rise in the costs of these services, and the significant financial burdens imposed by these services on the state budget.

Assets (Land, buildings, furniture, medical equipment, etc.): Estimated at approximately 850,000,000 SAR.

Goodwill (Rebranding to "King Fahad Private Hospital," including the hospital’s reputation and prime location): Estimated at approximately 60,000,000 SAR.

Human Resources (Qualified physicians, technicians, nurses, administrators, etc., whom the Ministry has invested in through training and scholarships): Estimated at approximately 40,000,000 SAR.

Consequently, the estimated capital for a single hospital becomes approximately 680 million SAR. Assuming a share price of 1,000 SAR, the hospital’s capital can be divided into 680,000 shares.

To ensure that the Ministry of Health maintains a significant role in planning, organizing, supervising, coordinating, and monitoring the services provided in each of the three hospitals, the Ministry may retain 25% of these shares (170,000 shares) and offer the remaining 75% (510,000 shares) for sale to citizens and the private sector.

.. through Saudi commercial banks, while establishing appropriate criteria for board membership in these hospitals (incorporating the views of experts and specialists). Through comparative studies, one can benefit from the results of implementing this alternative in the United States. Following its implementation in New York City, this alternative contributed to expanding private ownership as an initial step toward the full privatization of the health sector, in addition to easing the burden on the state budget. Key positive results included meeting financial requirements, eliminating bureaucratic procedures, and improving performance and quality.

Furthermore, an evaluation conducted ten years after the implementation of this alternative in the United States showed that an investment of $50 million contributed significantly to the construction of specialized primary healthcare centers.

This alternative is characterized by the following:

Preservation of State Rights: By retaining 25% of the shares, the Ministry of Health maintains several rights that ensure the protection of achieved national healthcare gains and the State's general objectives, preventing the total transfer of all services and personnel in these hospitals to the private sector.

Continuous Public Coverage: The treatment of citizens continues to be covered at the State’s expense without imposing any costs on them, as stipulated by the Basic Law of Governance. This can be illustrated as follows:

a) There are 35 public hospitals in the Riyadh region. By privatizing just one of them—representing 2.9% of the total hospitals in the region—there would remain 34 public hospitals, in addition to 136 primary healthcare centers.

b) There are 14 public hospitals in the Eastern Province. By privatizing one of them—representing 7.1% of the total hospitals in the region—there would remain 13 public hospitals, in addition to 112 primary healthcare centers.

c) There are 12 public hospitals in the Jeddah region. By privatizing one of them—representing 8.3% of the total hospitals in the region—there would remain 11 public hospitals, in addition to 75 primary healthcare centers.

d) Furthermore, the Ministry of Health’s ownership of 25% of the shares in each of the three hospitals provides the ability to treat citizens there at the State’s expense, without imposing any costs on the patients.

Financial Relief for the State Treasury: This alternative contributes to alleviating the financial burden on the State’s general treasury, which can be estimated as follows:

The Ministry of Health’s budget for the fiscal year 1424/1425 AH was 14.08 billion SAR, equivalent to 6.4% of the Kingdom's total budget for that year.

The number of hospitals affiliated with the Ministry of Health during the same year was 200, accounting for approximately 80% of the Ministry's budget, or about 9 billion SAR.

Consequently, the average annual expenditure per hospital is: 9 billion ÷ 200 hospitals = 45 million SAR.

Consequently, the privatization of the three hospitals will contribute to savings of 135 million SAR annually (45 million × 3).

Furthermore, this will revitalize the State treasury through the sale of the three hospitals, valued at approximately 2,040 million SAR (680 million × 3). These funds can be invested in enhancing primary healthcare centers, as well as constructing new health centers and distributing them according to the needs of the various regions.

Broadening Ownership and Promoting Competition: This alternative contributes to expanding the ownership base among members of the Saudi society, increasing competition, and stimulating the capital market. It prevents monopoly by a single investor or group of investors by offering shares for public subscription (IPO), with a specific percentage of shares allocated to hospital staff, which contributes to the success of the privatization process.

Alternative 2: Private Placement

Selling 75% of each hospital’s shares through a private placement system—that is, selling to a single anchor investor or a selected group of investors who possess the financial capacity and the necessary administrative and technical expertise to improve the quality of healthcare services.

This alternative is characterized by the following:

Preservation of State Rights: By retaining 25% of the shares, the Ministry of Health maintains several rights that ensure the protection of achieved national healthcare gains and the State's general objectives, preventing the total transfer of all services and personnel in these hospitals to the private sector.

Continuous Public Coverage: The treatment of citizens remains covered at the State’s expense without imposing any costs on them, as stipulated by Article 31 of the Basic Law of Governance: "The State shall provide for public health and ensure healthcare for every citizen." This is maintained through the Ministry’s 25% ownership stake in the hospital.

Financial Relief: This alternative contributes to alleviating the financial burden on the State’s general treasury and provides the Ministry of Health with the necessary funding to construct and upgrade health centers in various regions.

Streamlined Decision-Making: Private placement is characterized by a smaller number of shareholders, which facilitates management's ability to make decisions that would have been difficult to execute had the shares been offered for public trading.

However, a drawback of this alternative is that it does not contribute to broadening the ownership base, nor does it allow employees the opportunity to purchase shares. Consequently, this alternative may face resistance from staff, which could impact the success of the privatization process.

Alternative 3: Management Transfer (Outsourcing)

Transferring the management of certain public hospitals to the private sector while retaining State ownership, through lease or management contracts.

The Kingdom’s government has utilized this method for over twenty-five years. While this approach offers advantages—such as retaining State ownership of hospital assets and equipment, introducing modern healthcare management techniques, providing highly qualified technical and administrative personnel, and relieving the Ministry of Health of certain administrative burdens—it is criticized for failing to alleviate the Ministry’s financial burdens or providing the reliable funding needed to improve and develop service standards.

...healthcare centers. Furthermore, several drawbacks and operational issues have emerged in the management of these hospitals.

Formation of a Specialized Committee: To be chaired by the Minister of Health and comprised of specialists in health, administrative, legal, and economic fields—whether from the Ministry of Health, other government agencies, or the private sector. This committee shall be responsible for the following:

a) Establishing the necessary regulations for transferring hospital ownership from the State to the private sector.

b) Drafting the contracts under which the hospitals will be sold.

c) Identifying the hospitals to be offered for sale and supervising the valuation of their assets and the determination of appropriate share prices.

d) Establishing administrative regulations to govern the relationship between the Ministry of Health and the privatized hospitals, and determining the procedures for the composition of their boards of directors.

c) Establishing guarantees that protect the rights of both the Ministry of Health and the parties purchasing these hospitals. This ensures the Ministry’s ability to supervise and monitor operations, maintains the provision of free treatment for Saudi citizens, and prevents the total transfer of all services and personnel to the private sector. Simultaneously, it safeguards the rights of shareholders to encourage them to maintain their ownership and to support the expansion of privatization operations in the future.

d) Studying how to utilize the proceeds from the sale of the hospitals and making decisions regarding the allocation and expenditure of these funds.