Hospitals in the Middle East are facing challenges as medical expenses are projected to rise by 12% in 2025, surpassing the global average of 10.4% (WTW, 2024). This is the sharpest financial pinch on providers in ten years, marking the third consecutive year of double-digit hikes. Hospital margins are being squeezed throughout the region as expenses rise due to increased utilisation, rising pharmaceutical spending, and costly new technologies.
However, strategic hospitals may maintain profitability, create new value, and provide superior care even in this expensive environment. Here's how.
Why Margins Are Under Pressure
- Medical inflation: Private medical insurance and out-of-pocket costs are expected to jump by 12% in 2025, the highest among major global regions.
- More complex care: An aging, more health-aware population and the rising burden of chronic disease are boosting demand for advanced (and costlier) diagnostics, treatments, and high-end inpatient stays.
- Pharmacy and mental health costs: Nearly 40% of insurers in the region expect pharmacy costs to spike by more than 25% in three years, while mental health expenses are forecast to grow by over 33%.
- Payer pushback: Insurers, facing similar cost pressures, have tightened reimbursement policies. Denial rates now touch 20% in some GCC countries, driven by tougher documentation requirements and automated claim adjudication.
Impact: Even large and diversified health systems are delaying upgrades, freezing hiring, and watching operational margins slip. For independent and community hospitals, these cuts can threaten survival.
Figure 1: Projected Medical Cost Increases (2023–2025)
| Year | Middle East | Global Average |
|---|---|---|
| 2023 | 11% | 10.7% |
| 2024 | 12.1% | 9.9% |
| 2025 | 12% | 10.4% |
Data from WTW Global Medical Trends Survey
Smart Strategies for Staying Ahead
1. Move to Value-Based Care Models
With traditional fee-for-service payment models no longer sustainable, the Middle East is pivoting fast to value-based care. Abu Dhabi now pays many inpatient claims via DRGs (Diagnosis-Related Groups), saving 10–12% on costs.
Action: Hospitals must invest in outcome tracking, care coordination, and robust coding/compliance teams to maximize payments and reduce denials.
2. Harness Technology for Cost Containment
Investment in digital health isn’t just about innovation; it’s fundamental for survival:
- Revenue cycle automation slashes claims errors and speeds up payment.
- Predictive analytics target high-risk patients, reducing avoidable admissions.
- Clinical decision support ensures guideline-based, lower-waste care.
Hospitals embracing AI, integrated EHRs, and digital procurement achieve measurable efficiency gains and superior margins, even in costlier environments.
3. Optimize Procurement and Supply Chain
Pharmaceutical and device costs are the biggest upward variable. The Unified Procurement Program in Abu Dhabi is centralising purchasing, lowering the cost of medications, and guaranteeing price parity. Hospitals must:
- Negotiate collectively
- Use formulary management to steer usage to cost-effective options
- Track and benchmark spending vs. peers
4. Expand Preventive and Outpatient Services
As demand for high-acuity inpatient care rises, forward-thinking providers are expanding prevention, wellness, telehealth, and outpatient clinics. This:
- Helps shift patient flow from expensive beds to lower-cost settings
- Attracts population health contracts as governments seek to manage costs system-wide
Top Medical Cost Drivers in the Middle East (2025)
- Increased utilization of services
- Pharmacy cost escalation
- Uptake of new medical technology
- Mental health service demand
5. Rethink Market Focus
With middle-income patients shifting to basic insurance or public coverage, hospitals that once targeted only the affluent now need lower-cost models, or risk being squeezed out of crowded “premium” segments.
Conclusion: Innovation Is the Margin Multiplier
The pressure on Middle East hospital margins will not ease soon. But through deliberate value-based care strategies, aggressive digitization, smarter procurement, and a laser focus on efficiency, leading hospitals can navigate this high-cost era and thrive.
The strategy is clear:
- Strengthen revenue integrity through smarter RCM.
- Turn surgical units into profit centers with predictive planning.
- Foster preventive care and virtual engagement.
- Focus on profitable, high-impact service lines.
- Embrace digital workforce efficiencies.
The winners will be those who see cost pressure not just as a threat, but as a spur to innovate the missing link to sustainable profitability.
References:
- WTW. (2024). Middle East Healthcare Benefit Costs Projected to Increase by Double Digits – https://www.wtwco.com/en-ae/news/2024/12/middle-east-healthcare-benefit-costs-projected-to-increase-by-double-digits