Saudi Arabia's healthcare future will be decided by how it pays for care, not how much it spends, new KPMG report finds

Saudi Arabia stands at a pivotal moment in its healthcare transformation. The Kingdom has achieved near-universal coverage, built world-class infrastructure, and put in place the institutional architecture needed for a modern, integrated health system. But according to a major new report released today by KPMG, the success of Vision 2030's health ambitions now depends on a less visible but equally critical reform: how healthcare is financed.

The report, Investing in Better Health: Financing the Saudi Model of Care, argues that the Kingdom's central healthcare challenge has shifted from expanding access to creating value. With 100% of Saudi citizens reporting basic healthcare coverage in 2024, the question is no longer whether people can get care. It is whether the money flowing through the system is actually buying better health outcomes.

"Saudi Arabia has done the hard work of expanding access, growing capacity, and putting world-class infrastructure in place," said Hanan Al Arfaj, Director, Healthcare at KPMG Middle East. "The next chapter of healthcare reform won't be won in hospitals or clinics alone. It will be won in how we pay for care. Financing has to stop being a back-office function and start being treated as a strategic lever for system performance."

The numbers tell a striking story. Total healthcare expenditure reached approximately SAR 227.7 billion in 2023, representing 5.7% of GDP, well below the OECD average of 9 to 10%. The government continues to fund around two-thirds of total health expenditure. Out-of-pocket payments account for 14 to 15% of total spending, with roughly half going to medications. Meanwhile, the population is projected to reach 39 to 40 million by 2030, with a rapidly rising share of adults over 40, intensifying demand for chronic and long-term care.

At the heart of the report is a simple but powerful idea: payment mechanisms shape provider behavior. When healthcare providers are paid for the volume of services they deliver, whether visits, tests, admissions, or procedures, they have every financial reason to do more, even when more isn't better. The report likens this to paying a contractor for every brick they lay, regardless of whether the house actually standsup at the end. That, it argues, is broadly how a lot of healthcare financing works globally, and Saudi Arabia is no exception. The shift required is to start paying for the finished house. For healthier patients, for prevention that keeps people out of hospital, and for coordinated care that doesn't make patients repeat the same tests three times.

The report draws on detailed cost data to illustrate where reform must focus. Just three non-communicable diseases (chronic respiratory diseases, diabetes, and cardiovascular disease) together affect more than 2.27 million patients and cost approximately $108 million annually in primary care alone. "When you have millions of patients with chronic conditions costing the system this much, paying for one consultation at a time makes no sense," Dr. Mohamed Fayek, Associate Director, Healthcare at KPMG Middle East said. "You need to pay providers to keep these patients well over years, to prevent the heart attack, manage the diabetes, avoid hospital admission. That's value-based financing in practice."

Saudi Arabia has already made significant institutional progress. The Ministry of Health, the Health Holding Company, the Council of Health Insurance, the Center of National Health Insurance, and the NPHIES digital platform together provide the architecture for a modern, value-oriented system. But the report identifies a critical maturity gap: while delivery ambition is integrated and outcome-

oriented, the financing reality remains fragmented, activity-based, and historically driven. The architecture is built and the digital backbone is live, but the financing logic has not yet caught up. Public budgets and insurance claims still operate in parallel, with different rules and different incentives, and until that is resolved, delivery reforms will keep running into a wall.

A particularly striking operational finding relates to claim denials. Initial claim rejection rates currently sit at 15 to 25%, draining liquidity from providers and burdening payers with manual reviews. The report argues that NPHIES, through real-time adjudication at the point of care, can transform denials management from a source of conflict into a lever for value. Cutting denial rates in half would instantly free up cash flow for clusters, reduce administrative burden for the payer, and ensure money is only spent on verified, evidence-based care. The report describes this as one of the quickest, highest-impact wins available to the system today.

The report recommends a phased transition, beginning with hybrid payment models that combine base funding with performance-linked components, before progressively shifting toward bundled payments, capitation for chronic care, and outcome-linked contracts. "This is a transition, not a switch," Al Arfaj concludes. "Done well, it strengthens trust between payers and providers and ensures patients see real improvements in continuity, prevention, and outcomes."

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