April 24, 2016

Saudi Arabia - Foreign Direct Investment in the Healthcare Sector

SAGIA has announced in early 2016 their plan to focus on priority sectors that have been identified to have a direct impact on economic and human development, including the healthcare sector.

Upon accession to the World Trade Organisation (WTO) in 2005, the Kingdom of Saudi Arabia (the Kingdom) made bilateral free trade commitments to the other members of the WTO with respect to curtailing limitations on market access and national treatment in various industry sectors. The Saudi Arabian General Investment Authority (SAGIA), the governing authority for foreign direct investment in the Kingdom, has announced in early 2016 their plan to focus on priority sectors that have been identified to have a direct impact on economic and human development, including the healthcare sector. A part of this plan is to facilitate the entry of foreign investors into the Kingdom and remove any regulatory obstacles to investments by having meetings and consultations with foreign investors to identify their concerns and/or anticipated investment plans.

At present, the healthcare sector in the Kingdom is not fully open for foreign investors, however, SAGIA should grant licenses to certain providers of healthcare services subject to the relevant party obtaining the required pre-approval from the Ministry of Health (MoH). Healthcare services that cannot be licensed by SAGIA are those included in the "negative list" specified by the Supreme Economic Council (the Negative List) which reserves certain economic activities to Saudi national participation.

The United Nations Statistics Division (UNSD) maintains a classification code that covers product and activity classifications used in different countries around the world.

According to the WTO Schedule of Specific Commitments on Services with respect to the Kingdom's health related services (the WTO Schedule) and SAGIA's latest guideline, the permitted healthcare services that may be licensed by SAGIA are as follows (using the UNSD's classification):

(i) “Hospital Services CPC 9311” - the establishment, management and operation of Hospitals; and

(ii) “Other human healthcare services CPC 9319 except CPC 93191” and excluding the services listed under the Negative List.

According to the UNSD’s classification, the activity “Other human healthcare services CPC 9319” is broken down into the following sub-CPCs:

CPC 93191 – Deliveries and related services, nursing services, physiotherapeutic and paramedical services – this includes:

  • services such as supervision during pregnancy and childbirth;
  • supervision of the mother after birth;
  • services in the field of nursing care (without admission), advice and preventative healthcare for patients at home, the provision of maternity care and children's hygiene;
  • services provided by physiotherapists and other paramedical persons (including homeopathology and similar services); and
  • physiotherapy and paramedical services including services in the field of physiotherapy, ergotherapy, occupational therapy, speech therapy, homeopathy, acupuncture and nutrition. These services are provided by authorized persons, other than medical doctors.

CPC 93192 – Ambulance services:

  • This sub-CPC includes services involving transport of patients by ambulance, with or without resuscitation equipment or medical personnel.

CPC 93193 – Residential health facilities services other than hospital services:

  • This sub-CPC includes combined lodging and medical services provided without the supervision of a medical doctor located on the premises.

CPC 93199 – Other human health services (not elsewhere classified):

This sub-CPC includes:

  • services provided by medical laboratories;
  • services provided by blood, sperm and transplant organ banks;
  • diagnostic imaging services without analysis or interpretation, e.g. x-ray, ultrasound and magnetic resonance imaging (MRI); and
  • other human health services (not elsewhere classified).

We note, however, that the activities described in UNSD classification code CPC 93191are included in SAGIA's Negative List, therefore, the human healthcare services listed under this classification including nursing care, physiotherapy and paramedical services may not be carried out by foreign investors. Services classified under codes CPC 93192, CPC 93193 and CPC 93199 as listed above should be generally open for foreign investment subject to the MoH's pre-approval.

Notwithstanding the Kingdom’s WTO obligations referred to above, the MoH still appears reluctant to provide its approval with regard to foreign investors investing in healthcare sectors/services falling under CPC 93192, CPC 93193 and CPC93199. In fact, the MoH’s regulations have not been amended to reflect the international commitments of the Kingdom. The existing applicable regulations, namely the Private Health Institutions Law and its Executive Regulations (the Regulations), currently still require any private healthcare institution to be wholly owned by Saudi nationals except for Hospitals (as defined below).

According to the Regulations, which is the regulatory regime of the private healthcare sector in the Kingdom, a Private Healthcare Institution is defined as “privately owned healthcare institutions, which offer treatment, diagnostic, laboratory, rehabilitation, and nursing services (the Private Healthcare Institutions) and includes:

  • Hospitals: being a place equipped to diagnose, treat, and admit patients on an inpatient basis.
  • General Health Centers: being a place prepared to diagnose and treat patients that offer at least three medical specialisations.
  • Specialised Healthcare Centers: being a place that focuses on one medical specialty or more.
  • Clinics: being a place that is established for the treatment and diagnosis of patients.
  • Radiology Centers: being a place for diagnostic imaging and radiology treatment.
  • Medical Laboratories: being a place that is established for conducting lab tests.
  • Same-day Surgical Facilities (i.e. ambulatory surgery centers): being a place that is licensed to admit patients for minor and medium surgeries, provided that patients are discharged on the same day of admission.
  • Supporting Medical Services Facilities: being a place that provides complementary medical and technical services and includes:

- physical therapy centers, vision, nutrition centers; and

- artificial limbs, or any other facilities that are classified as a supporting medical facility by the MoH.

  • Medical Transport Services Centers: being a place that provides transport and first-aid for patients before admission to hospitals in accordance with the standards and requirements of the Saudi Red Crescent Society.”

The Regulations stipulates that, except for the Hospitals (as defined above), the Private Healthcare Institution should be 100% Saudi owned. This means ownership of foreign investors in Private Healthcare Institutions is limited only to Hospitals.

However, the management and/or operation of Hospitals, General Health Centers and Specialised Healthcare Centers (as defined above) by foreign medical operators or foreign investors is not prohibited and such activities could be carried out subject to certain terms and conditions to be determined by the Assistant Agency for Private Health Sector Affairs and the Central Board for Accreditation of Healthcare Institutions (CBAHI).

Furthermore, the MoH has recently required all Private Healthcare Institutions operating in the Kingdom, including Hospitals, to be accredited by CBAHI which is designated as the official authority to grant accreditation certificates to healthcare facilities. CBAHI was formed by the Saudi Health Council as a non-profit organisation and is responsible for setting the healthcare quality and patient safety standards against which all healthcare facilities are evaluated.

Accordingly, it is now mandatory for all Private Healthcare Institutions in the Kingdom, whether they are Hospitals or otherwise, to comply with national standards set by CBAHI and to obtain its accreditation through a survey process. CBAHI has emphasized the importance for Hospitals to obtain such accreditation. It has been reported that if CBAHI discovers, at any time, that a Hospital has not been honest or did not meet the requisite ethical standards, the relevant Hospital may lose its accreditation status which could put the Hospital's operations in the Kingdom at risk and may result in the non-renewal of its licenses and other legal issues.

In summary, the permitted healthcare services that may be carried out by foreign investors, and should generally be approved by the MoH and SAGIA (subject to the relevant foreign investor satisfying the requirements of the MoH and SAGIA), are as follows:

  • establishing and owning Hospitals but not the other different types of Private Healthcare Institutions listed above;
  • the management and operation of Hospitals, General Health Centers and Specialised Healthcare Centers (as defined above); and
  • other human healthcare services described under UNSD classification CPC 9319 excluding the services listed under UNSD code CPC 93191.

For further information on this issue or other legal matters please contact Alain Sfeir (alain.sfeir@clydeco.com) or Faisal Al-Ammaj (Faisal.Al-Ammaj@clydeco.com).

Authors: Alain Sfeir, Partner, Faisal Al-Ammaj, Associate and Noura Al Shaikh, Trainee Associate