Lesotho moves to cancel Netcare's annual R500m contract

Organisation: Position: Deadline Date: Location:

Netcare’s R500m-a-year contract to manage the biggest hospital in Lesotho hangs by a thread after the government moved to cancel the deal, reports BusinessLIVEThis came after Netcare, South Africa’s third-largest private hospital group by market value, and its partners in the management of the Queen Mamohato Memorial Hospital QMMH) in Maseru fired 300 nurses who had been on strike for six weeks over higher pay.

Lesotho Health Minister Semano Sekatle said the cabinet instructed him to expedite the termination on the basis that Netcare and its partners were in breach of a contract to provide advanced clinical services.

Netcare owns 40% of Tsepong, the consortium that manages the government’s Queen Mamohato Memorial Hospital, but controls the operations. The other 60% of Tsepong is owned by local shareholders. Tsepong has 21 days to respond to the letter.

BusinessLIVE reports that the termination could trigger a disaster at the country’s only national referral hospital, which serves nearly a quarter of the population. It could also cripple the country’s health system.

The report says in a 17 March letter, the Lesotho government accused Tsepong of violating the contract by failing to resolve the nurses’ strike. The health ministry said Tsepong had "worsened the disruption of clinical services" by firing the nurses when it had already been rejecting referrals from district hospitals in violation of its contract.

BusinessLIVE reports that in terms of the contract, the Queen Mamohato Memorial Hospital is supposed to admit 20,000 patients and serve 310,000 patients a year at its main hospital and three filter clinics. In return, the government pays R480m a year. The fee increases substantially if that threshold is exceeded, as it has since the contract was signed.

 

The Lesotho Times quotes Health Minister Semano Sekatle saying that although the government and the consortium had differed over many issues, the final straw was the latter's weekend decision to fire 345 striking nurses and nursing assistants at the institution.

The nurses, who went on strike since 1 February 2021, began receiving their dismissal letters on Friday. They went on strike to press the government and QMMH to award them salary increments to match their counterparts in other government and private institutions.

The nurses continued with their strike despite a 24 February 2021 interim Labour Court ruling for them to return to work pending the finalisation of their dispute. QMMH Public Relations Manager Mothepane Thahane had said the hospital would continue working with skeletal staff until after the nurses' posts were filled.

Sekatle said the government was particularly unhappy with fact that the QMMH management fired the nurses without first consulting or informing it. He said following the dismissal of the nurses, a government sub-committee met on Tuesday and resolved that the government must sever ties with the consortium due to the "toxic nature" of the relationship.

"Today the government has instructed the Ministry of Health and the Ministry of Finance to cut ties between the government and the Tšepong Consortium," Sekatle said.

"We are going to do this by following the legal procedures as it is only best to handle the matter lawfully to avoid further challenges.

"When the government entered into a Public Private Partnership agreement with the consortium in 2008, the expectation was that this would lead to the revival of the health system in the country. But this has not borne the desired results.

"What we thought was going to benefit our healthcare system has only brought many challenges from day one. Some of these problems have culminated in this dispute (over striking nurses)," Sekatle said.

He said the two parties had over the years quarrelled over many issues including the opening and operation of a private ward for patients. "This (private) ward was established to admit (higher end) private patients who would pay more for services. Tšepong used it for their own gain as they admitted ordinary patients to make more money.

"The other bone of contention concerned the demands for salary increments by employees. The consortium refused to award increments to match those that had been awarded by the government in its other facilities and church-run institutions. They said we had to give them more money before they could award any increments. This despite that more than half the health ministry's annual budget goes to the consortium.

"This is the issue that has now caused the strike which led to the dismissal of nurses. These are just examples of the issues that explain our relationship with the consortium," Sekatle said.

Sekatle told Lesotho Times that in terms of the PPP agreement, they were required to give a 20-day notice of their intention to cancel the agreement.

"We now await their response and if there are any disagreements, we have to agree on an arbitrator. The issue could even end up in the courts of law."

Asked what would happen to the fired nurses, Sekatle said they would return to work as soon as the "divorce" with the consortium was finalised. "They will also receive the long-delayed salary increments because there is no reason why they continued being paid less than their counterparts in other health institutions."

He said the government would look to partner with local and other companies to ensure the hospital provided excellent service as the country's main referral institution.

 

Netcare has responded to the Tšepong issue.
The Netcare Hospital Group (Pty) Ltd (Netcare), a major shareholder in the public private partnership (PPP) between the Government of Lesotho (GoL) and Tšepong (Pty) Ltd (Tšepong), is also responsible for managing the Queen ‘Mamohato Memorial Hospital (QMMH) and filter clinics in Maseru, Lesotho.

Tšepong’s shareholders comprise Netcare, which holds a 40% interest while the remaining 60% shareholding is held by Afrinnai Health (Pty) Ltd (Afrinnai) (20% – South African based), Excel Health Services (Pty) Ltd (Excel) (20% – Lesotho based), D10 Investments (Pty) Ltd (D10) (10% – Lesotho based), and Women Investment Company (Pty) Ltd (WIC) (10% – Lesotho based).

“Netcare’s role in the PPP is to provide and deliver all management, clinical and related services, equipment and information technology (IT), laundry, cleaning, security and gardening services, amongst others. In addition, Netcare is responsible for the nurses’ and emergency services training and for the establishment of relations with external training institutions to facilitate peer review and support of medical practitioners. Tšepong as principal contractor of the PPP mainly has the obligation for the employment of staff members,” says Dr Chris Smith, GM: Finance at Netcare.

“Netcare has led the establishment of this pioneering PPP and is privileged to be serving the Basotho people through the provision of quality healthcare. The PPP project has brought a range of specialised services to the Basotho people, unprecedented in the country’s history, and significantly elevated the range and quality of healthcare services accessible by the citizens of the Kingdom of Lesotho.

“The specialised services introduced into Lesotho by Netcare through the PPP include, the first MRI scanner, bone densitometer, emergency neurosurgical interventions, ICU and neonatal ICU service, laparoscopic surgery and endoscopy procedures. QMMH and the primary care services were the first to have been accredited by COHSASA (Council for Health Service Accreditation of Southern Africa). In terms of clinical services, the pneumonia death rate reduced from 34% at QEII (2011) to 5.7% at QMMH and patient satisfaction ratios which improved from 70.7% at QEII (2011) to 98% at QMMH,” he adds.

According to Smith, the PPP has recently experienced strained relations, most notably between Netcare and some of its co-shareholders (Afrinnai, Excel and D10) in Tšepong, as well as between GoL and Tšepong and between Tšepong and some nursing staff. This has mainly been brought about by financial hardships within Tšepong as a result of non-payment or delayed payment of fees by GoL.

“Tšepong is a thinly capitalised entity without access to working capital, and therefore unable to meet financial obligations when monthly payments by GoL are delayed. During these prolonged periods of non-payment – sometimes up to five consecutive months – Netcare provided the interest-free bridge funding to sustain the financial position of Tšepong. When Netcare recovered amounts due to it, once Tšepong’s had the funds to settle its obligations to Netcare, the company was accused of financial impropriety which naturally is not conducive to maintaining relations, especially when Netcare’s financial assistance ensured the viability of the project. Netcare’s financial support of Tšepong in effect means that Netcare is a 100% contributor on the downside and only a 40% beneficiary on the upside,” Smith explains.

“Shareholder relations became further strained when unsubstantiated allegations were made by some of the shareholders that they have not benefited financially from the PPP project. These utterances do not recognise that M65 million advanced by the Development Bank of South Africa (DBSA) to ensure their participation, has been settled in full. It also does not recognise the substantial management fees paid for procurement of equipment and Netcare’s concession to share 50% of its monthly management fees which to date, yielded the shareholders aggregated earnings in excess of M11.5m.

“While Tšepong has been trading solvently, Tšepong’s ability to declare dividends and maintain liquidity has been severely constrained by the poor payment history by GoL and poor support, by some members of the Tšepong board, to act in the interest of the company and take action to collect fees owing by GoL.

“The impasse of the Tšepong board to agree on a remedial plan to restore Tšepong as a going concern necessitated that Dr Chris Smith, Netcare’s representative director on the Tšepong Board, request the Lesotho Commercial High Court in 2020 to place Tšepong under judicial management. Judicial management is the appropriate modality to ensure credible independent oversight of all activities to restore the going concern status of Tšepong. Unfortunately, this matter was dismissed by the court without giving any reasons. Netcare has subsequently taken this matter on appeal,” says Smith.

In an earlier development, The Directorate on Corruption and Economic Offences (DCEO), wrote to Tšepong on 13 February 2020 requesting documentation relevant to the procurement of the project, to which Tšepong replied on 14 February 2020. The DCEO responded more than four months later (July 2020), to which Tšepong again provided further information required by the DCEO. According to Smith, there has been no response from the DCEO since July 2020, and Netcare was surprised by the unannounced raid by the DCEO at the QMMH on 19 March 2021 to remove documents and computers, without any basis of contraventions of any legislation being put to Tšepong.

“The incident was reported in the media and Netcare strongly disagrees with reports in the Lesotho Times (18-24 March 2021) and Lesotho Sunday Express (21-27 March 2021), amongst others, which contained a variety of unsubstantiated, factually inaccurate and inflammatory allegations by two Tšepong board members including allegations of misconduct and financial mismanagement. Netcare refutes these allegations in their entirety and regards them with the contempt they deserve. Netcare is confident that it has acted in accordance with both the letter and spirit of the law and ethical corporate governance and if required, will defend its position in a court of law.

“Whilst contractual arrangements of the PPP project are complex, it remains regulated and complies with sound corporate governance. The financial matters of Tšepong are externally audited by two independent audit companies. Operationally an independent monitor provides an independent quarterly review of the operational performance of the hospital after having assessed no less than 1,000 key performance indicators. As a further quality safeguard, all facilities are accredited by the COHSASA where QMMH is one of only four public hospitals in Africa to have achieved such accreditation,” says Smith.

Turning to Government, he says that the main contention between Tšepong and GoL revolves around inconsistent and prolonged periods of non-payment or delayed payment of agreed fixed monthly fees. In addition, contractual disputes which emerged at the start of the project remain unresolved albeit that these matters have been referred for resolution through arbitration. The arbitration process was interrupted when the International Finance Corporation (IFC) (advisors to GoL) was given a mandate to mediate a solution which was then revoked by the GoL on 17 February 2021, and the parties have again reverted to arbitration for final adjudication. The protracted processes to resolve long outstanding disputes do not consider the urgency to resolve the plight of disparity in remuneration of nurses employed by Tšepong versus that of nurses employed in civil service.

Smith adds that some nursing staff at QMMH participated in an illegal strike which started on 1 February 2021. Their grievance stems from material salary adjustments awarded by GoL in 2013 to civil servants and nurses. In 2014 an agreement was concluded between Tšepong, GoL and the Lesotho Workers Association (LEWA) whereby GoL committed to review salary structures at Tšepong and to provide additional funding to restore parity between comparative nursing job grades at the respective institutions. The mechanism to restore parity is regulated through the PPP agreement. The GoL has yet to honour its 2014 undertaking, and the matter was subsequently referred for resolution through arbitration when the parties could not agree on restitution.

“Netcare consulted with the GoL’s Honourable Minister of Health during the strike period and submitted proposals to the Ministry for consideration. The discussions between Netcare and the Ministry were productive and on 15 February 2021 the Principal Secretary Health on behalf of the Honourable Minister of Health wrote to Tšepong requesting a board meeting on 17 February 2021 to resolve the disputes. Regrettably on the same day, Netcare was informed that the Ministry is no longer prepared to negotiate on any of the disputes and that these should be resolved through arbitration.

“On 22 February 2021 a special Tšepong Board meeting, attended by Netcare, Afrinnai, D10, WIC and Excel unanimously resolved that Tšepong had no alternative options but to maintain the current terms of employment and continue with the arbitration process,” explains Smith.

“Given that the arbitration process has commenced, and the critical need to continue providing essential healthcare services to the Basotho, the striking staff were encouraged to return to work. The Labour Court also issued an interdict on 24 February 2021 instructing staff to return to work by 25 February 2021 or risk losing their jobs. Sadly, the majority of staff continued with the illegal strike and therefore remained in contempt of court. Although the staff’s frustration is understandable, Tšepong has unfortunately been left with no option but to invoke its rights to restore order through enforcement of the disciplinary code.

“Tšepong remains sympathetic to the rights of workers as well as the staff’s grievance. Regrettably, the funding required to restore parity falls outside of what is affordable to Tšepong. Despite Tšepong continuously imploring staff to have faith in the arbitration process and to return to work, 265 staff members (and not 345 as reported in the media) elected not to return to work and were subsequently dismissed.

“Many nursing staff, however, did not participate in the illegal strike, maintained faith in the arbitration process, and continued to provide services during this uncertain period. Hospital services have therefore continued, and the health and safety of patients remain the hospital management and staff’s priority, especially during these difficult COVID-19 times. Non-critical services such as outpatient services continue without much disruption. In-patient and emergency services also continue and QMMH continues to maintain the average number of in-patients ordinarily treated per day while maintaining safe nurse-to-patient ratios. We commend these staff members for putting the needs of the Basotho people ahead of their own needs,” he adds.

Smith stresses that the manner in which this matter has evolved is regrettable. Media articles have suggested that Tšepong absorbs as much as 50% of Lesotho’s annual health budget. This is factually incorrect. Tšepong in fact only absorbs between 22% and 25% of the 2020/21 annual health budget.

“We confirm the receipt by Tšepong of a default notice from the GoL on 18 March 2021 which Netcare plans to challenge as we believe it is indeed the GoL that has defaulted. Netcare also duly notes the alleged media statements by the Minister of Health of government’s intention to terminate the 18-year-long PPP agreement, now in its 13th year. Netcare remains committed to providing Basotho citizens with the best and safest care, and will keep engaging GoL on these issues in an effort to avoid any disruption to service delivery,” concludes Smith.

Issued by MNA on behalf of Netcare

 

Full BusinessLIVE report (Restricted access)

 

Full Lesotho Times report (Open access)

 

 


Receive Medical Brief's free weekly e-newsletter



Related Posts

Thank you for subscribing to MedicalBrief


MedicalBrief is Africa’s premier medical news and research weekly newsletter. MedicalBrief is published every Thursday and delivered free of charge by email to over 33 000 health professionals.

Please consider completing the form below. The information you supply is optional and will only be used to compile a demographic profile of our subscribers. Your personal details will never be shared with a third party.


Thank you for taking the time to complete the form.