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Can the private health market survive COVID-19? The case of private hospitals in Kurdistan

By Dr. Goran Zangana
on June 19, 2020

In a recent blog, Hellowell and colleagues express concerns about the ability of the private health market to survive the shock of COVID-19 in low- and middle-income countries (LMICs). They call on governments to support the private sector in mitigating the risks imposed by the COVID-19 crisis. WHO’s recommendation for a ‘whole-of-society- approach’ to the pandemic is used as an extra incentive for such calls for rescuing the private health sector. They also cite the essential health services that the private market is providing in LMICs. As the authors rightly highlight, some public support for small and medium enterprises in particular is likely needed and necessary to sustain essential health services. And to give credit where it’s due, Hellowell et al also point to possible risks of providing state & donor support, while giving suggestions on how to mitigate them.

Nevertheless, such overall policy prescriptions should perhaps more carefully take the broader political, economic and social contexts of countries into consideration.  In this piece, we explore the case of the  Kurdistan Region of Iraq (KRI) and its private health market to illustrate some of the issues surrounding such policy recommendations. 

On the political and economic level, calls like this seem to assume that governments have the fiscal space to offer such support. It’s not just the private sector that has been hit by Covid-19, however, the flood of bankruptcies as a result of the COVID-19 crisis has also shrunk the tax bases of many governments around the world. For the KRI, for example, which depends almost entirely on fossil fuel revenues, oil prices have fallen to below zero. Hence, unsurprisingly, the Prime Minister of the region announced recently that his government has a debt of $27 Billion. With the KRG (Kurdistan Regional Government) virtually bankrupt, it is facing difficulties paying civil servant salaries and procuring essential PPE, let alone that it can afford to support the private sector at this moment. 

On the health system level, these prescriptions also seem to overlook the  in-kind support that some governments provide to (parts of) the private sector. Let’s have a look for example at an enterprise such as Seema International Hospital. The hospital is a 161-bed project being built in an area (of about 32,000 square meters), offered by the government through a 25- year cheap lease (from Erbil city). Allowing businesses to construct on public lands (through Musataha agreements) is standard policy in KRI and some of the Gulf countries. In theory, according to Musataha, the government retains the ownership of the land. However, in the case of Seema Hospital, there are plans to transfer the ownership of the land to the project’s company. 

Assuming equal opportunities for all, Musataha could, in principle, encourage private investment and public-private partnerships in the health sector. However, widespread nepotism in KRI can render projects such as Seema hospital foci for clientelism. Seema hospital is built by a company run by a father and his four children. This family-run company is part of a yet another family-owned conglomerate called Zozik group with close ties to the ruling political parties in the KRG.

Once established in the private health market, these well-connected businesses can then apply for international assistance. Along these lines, a few years ago, the International Finance Corporation (IFC), a member of the World Bank Group, provided a $26 million long term loan to Seema Hospital. Along with other parallel lenders, the IFC finances 50% of the $96.6 million project. IFC’s loan to Seema hospital pales in comparison to the $33.6 million recently (re)allocated by the World Bank in response to the COVID-19 for the entire country of Iraq.

In addition to external support, such businesses typically enjoy sustained domestic demand for health services through two main mechanisms. First, health workers’ dual practice in KRI entails channelling demand from the public to the private sector. Second, private hospitals are part of a network of providers covered by Asia-insurance, the leading private health insurance in KRI. Like private hospitals, Asia-insurance is a family-run company that is a member of Faruk Holding, owned by Faruk Mustafa Rasool whose son is the Vice Chairman of Asia-insurance.

Such businesses reflect the (still largely) tribal nature of the society and  ‘Sultanistic’ political system in the KRI. With significant government posts filled by cronies of the Barzani and Talabani ruling families, it is unimaginable that family-run health businesses are treated impartially. After all, in the context of KRI, it is whom you know that matters, not what you know… It is, therefore, a bit unclear to me how the IFC’s CEO,  as reported in a recent Devex article “…helped persuade family-owned companies in Iraq to open up their corporate boards to outsiders — in order to create a more prosperous and sustainable future.” 

It seems more likely that instead, financial support to these businesses will further invigorate corruption, clientelism and nepotism.

Meanwhile, disruption related to COVID-19 is estimated to throw tens of millions of people, (if not  hundreds of millions), around the world (mostly in LMICs like Iraq) (back) into poverty. We need innovative social protection and assistance policies, first of all, before throwing money at already “well-connected” parts of the private health care sector.   

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Mark Hellowell says:

Many thanks Goran. Our piece wasn’t really encouraging subsidy – only acknowledging that governments are under pressure to provide support (both in health care, and many other areas of economic activity), and if they are going to do this, they should have clear and transparent criteria in place, and ensure that they ask for something in return that’s commensurate with the costs and risks borne by society and the taxpayers. The big questions – what are the appropriate criteria, and what are the most appropriate ‘asks’ – are our next focus. Of course, one way of managing these risks would be to focus on the demand side instead – including, perhaps, in the ways you suggest above. BTW – it would be great to discuss the KRG case further if you have time for that.

Goram says:

Hello Mark,

Thanks for clarifying!

I am more than happy to discuss further.

I will send you an email shortly.