South Africa’s private hospital groups are turning to auxiliary healthcare services to boost margins, with the stagnant economy and a decline in admissions forcing them to think creatively and pursue other means of income-generation from those who can afford private healthcare.
BusinessLIVE reports that the increased demand for mental healthcare services and renal dialysis, and the expected imminent approval of a drug to treat Alzheimer’s, have led to the two remaining listed private hospital groups venturing into healthcare that will complement their existing services.
Netcare, for instance, has 200 new mental healthcare beds in the pipeline, in addition to the more than 1 000 it already has in mental healthcare facilities. And it recently commissioned another Netcare Akeso mental health hospital, providing a further 72 beds in Gqeberha.
The budgeted capital expenditure on mental healthcare beds for the current fiscal year is R111m, says Netcare CEO Richard Friedland.
Life Healthcare, meanwhile, already owns nine dedicated mental health hospitals, adding to the almost 3 000 beds at 10 other facilities.
The expanded offerings are proof of how private hospital groups are battling a stagnant market: weak economic growth, high unemployment and low consumer confidence have kept medical aid membership relatively unchanged over the past five years.
Private healthcare providers are also experiencing a decline in certain hospital admissions, including for surgeries.
Not all types of admissions are down. As Covid recedes, some are returning to pre-pandemic levels, with Netcare seeing pneumonia admissions return to levels last seen in 2019, while “RSV in children is actually the highest since 2018”, said Netcare hospitals head Jacques du Plessis.
But with surgeries down and medical schemes tightening their belts, Netcare and Life Healthcare are protecting their bottom line by getting a foothold in auxiliary healthcare services.
Netcare has invested heavily in digitalising patients’ medical experiences, while Life Healthcare has grown its presence in renal dialysis services and digital imaging such as CT and MRI scans.
“We’ve seen a dramatic reduction in the number of scopes,” said Du Plessis. “Maternity deliveries are also classified under surgical admissions and over the past eight years we’ve seen a drop of about 24% in deliveries.”
Worryingly, “cash-strapped South Africa has less money to spend for prostheses – typically what you see in surgical cases”.
So, if South Africans struggle to afford even prostheses, what about mental healthcare?
Though population-wide studies are few and far between, there are signs of a worrying trend in this sphere.
A recent Council for Medical Schemes study showed the number of medical aid beneficiaries with bipolar mood disorder had jumped 26% between 2014 and 2018, the fastest-growing chronic disease after HIV/Aids in 2012-2017.
A 2018 study by the US-based Institute for Health Metrics & Evaluation found the prevalence of depression among South Africans to be 3.75% of the population, compared with the global average of 3.44%.
“The rise of mental health needs is not a South Africa-only need, but a worldwide need,” says Ninety One portfolio manager Samantha Hartard, due to lifestyle issues and better diagnoses of mental health disorders.
Melanie da Costa, Netcare’s director for strategy and health policy, said the drivers of increased demand for mental healthcare run from “the destigmatisation of mental health that is facilitating better access to treatment for more people, to the daily pressures of modern life in South Africa”.
As a result, paid patient days in Netcare’s mental health facilities jumped 13.5% in the six months to 31 March, compared with a year earlier. Over the same period, Life Healthcare’s mental health paid patient days jumped 11.4%.
Occupancy at Netcare’s mental health facilities jumped to 70.2% in the six months to 31 March, compared with a 67.3% weekday level at its acute hospitals.
But South Africa still has a “low allocation of beds” for mental healthcare, partly because regulations make it difficult for private hospitals to switch acute beds to mental health ones.
Medical aid schemes’ financial constraints also play a role. “Medical schemes do see the importance of quality mental healthcare, yet they have to work within the confines of very limited benefits for mental health,” said Da Costa.
Despite this, the increasing demand for mental healthcare has made it difficult for medical aid schemes to “push back against mental health issues”, even if it means they’re on the back foot both when it comes to pricing negotiations with private hospitals and benefit decisions with funders.
At the same time, mental healthcare has become a higher-margin business for private hospitals. For starters, the cost of operating mental health beds is lower than that of acute beds, says Hartard.
“Private hospitals see higher occupancy rates for mental health beds than for acute beds”. And the scope for expanding into this market is good, given “an under-penetration of mental health beds in both the public and private sectors”, she says.
In the turn to auxiliary healthcare services, Life Healthcare has also taken an interest in renal dialysis.
In South Africa, it is estimated that chronic kidney disease affects “about 10% of the population, with 10 744 people reported (to be) on treatment”, a 2015 study published in the South African Medical Journal found. It also showed that not all those suffering from kidney disease have access to renal dialysis.
For private hospital groups, dialysis offers something of a predictable point of care.
“These treatments happen at set cycles and hospitals can plan accordingly,” Hartard says. “They know they get a steady flow of patients.”
As a result, Life Healthcare is buying Fresenius Medical Care, which owns 51 renal dialysis clinics in South Africa, eSwatini and Namibia, offering beds for about 2 500 patients. (The transaction is under consideration by the Competition Commission.)
Treatments at the 320 renal stations at the 26 dialysis units it already owns jumped 8% year on year in the six months to March 31. Netcare, for its part, has 59 units, with more than 730 renal stations.
In the auxiliary healthcare field, Life Healthcare is also expecting increased demand for enhanced testing for Alzheimer’s disease, as final clinical approvals for drugs to fight this illness appear imminent.
Life Molecular Imaging, a division of Life Healthcare, has developed Neuraceq, one of only three approved injectable radioisotopes used in PET-CT scans to detect the beta-amyloid deposits in the brain that cause Alzheimer’s disease.
“We’ve been blessed with a significant market share in all of the global clinical trials (for the injectable radioisotope detecting beta-amyloids),” Life Healthcare CEO Peter Wharton-Hood said. “The reality is we couldn’t sustain that market share over time. We’ll probably end up with about a third of the market share.”
However, the situation depends on how fast the Alzheimer’s drugs on trial get approval from authorities.
There are two drugs currently in various phases that are seeing significant support internationally. Leqembi, manufactured by Eisai/Biogen, is expected to gain approval by 6 July, while Eli Lilly is awaiting approval for Donanemab, with trial data expected to be published next month. Approval could follow in 2024.
“An approved drug for Alzheimer’s is highly likely,” Wharton-Hood says. If that happens, he expects a boost in demand for Neuraceq.
BusinessLIVE article – Hospitals, wary of crunch, focus on heads (Restricted access)
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Private healthcare shake-up looms large on South Africa’s horizon
SA’s private healthcare sector is starting to recover from the pandemic
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Increasing need for mental healthcare for ageing South Africans
Lack of dialysis Tx in sub-Saharan Africa raises ethical questions
Promising results for new Alzheimer's drug