Netcare under pressure from prescriptive medical schemes

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Private hospital operator Netcare says it is under pressure from increasingly prescriptive medical scheme management and the growth of competing private hospital networks.

Netcare said it had seen a healthy 5.6% growth in revenue for the six months to end-March, boosted by the inclusion of Akeso Clinics during the period. According to Business Day, the group said, however, that operating conditions in South Africa’s healthcare sector remains challenging and it expects growth in its second half to be lower than its first, as acute patient day demand is expected to weaken.

The group said its margins should be under pressure in the rest of the year due to stricter management from medical aids, as well as the growth of restricted hospital networks.

The report said Netcare had announced in March 2018 that it had decided to exit the UK and dispose of its controlling stake in the UK’s biggest private hospital group, GHG, due to tough trading conditions and its inability to negotiate lower rent after five years of talks.

The acquisition of psychiatric hospital group Akeso Clinics provided a boost to Netcare however, helping to provide an 8.5% increase in patient days during the period.

Although acute patient demand is expected to be weak during the group’s second half, Netcare is quoted in the report as saying that growth in demand for mental health services is expected to remain strong.

Although a lower foreign caseload is expected during the period, the company would remain focused on controlling costs, it said.

 

SA’s medical aid schemes were “going to put more and more pressure on the hospital groups to be more selective in admitting patients”, Sentio Capital portfolio manager Imtiaz Suliman is quoted in Business Day as saying.

“I think it’s a new fact of life,” said Netcare CEO Richard Friedland, describing the squeeze as the result of medical schemes offering cheaper options to members. “So, patients are paying less… and at the end of the day we’re providing the same services at a lower price point. In a market that isn’t growing at the moment there are going to be certain constraints, at least for the next year or two.”

Friedland said that contrary to perception, “there are loads of competitors out there, despite what the health market inquiry and others tell you. In fact, the largest network today is the national hospital network. So, it’s no longer simply about three large players. There are a good five or six out there, all competing for the same pie.”

The report says the problem for the listed hospital group is that the number of members covered by private medical schemes has remained stagnant as economic growth in SA has stalled.

Netcare forecast growth of 3%-3.5% in patient days for the full year, less than the market had expected. Netcare has budgeted R1.6bn for capex this year, which includes an expansion at its Milpark Hospital in Johannesburg, and a new hospital in Alberton. But Friedland said spending on bricks and mortar was set to take a back seat to investments in digital infrastructure.

Business Day report
Business Day report


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