Let doc­tors own hos­pi­tals

They’d be mo­ti­vated to go the ex­tra mile

Finweek English Edition - - Property Compass - SHAUN HAR­RIS

THE PRO­POSED 26% cap on doc­tors’ joint share­hold­ing in hos­pi­tals is prov­ing con­tentious. Some listed pri­vate hospi­tal groups are ob­ject­ing to it, as is the rep­re­sen­ta­tive body of in­de­pen­dent pri­vate hos­pi­tals. It could also have im­pli­ca­tions for med­i­cal scheme mem­bers.

The Health Pro­fes­sions Coun­cil of SA (HPCSA) has made a sub­mis­sion to the Com­pe­ti­tion Com­mis­sion to limit the share­hold­ing of doc­tors in hos­pi­tals to 26%. One of its ar­gu­ments is that if doc­tors own hos­pi­tals they might try to gen­er­ate ex­ces­sive re­turns through self-re­fer­ral and over­ser­vic­ing.

But the sub­mis­sion also lacks clar­ity. Cur­rently, there’s noth­ing to stop doc­tors – act­ing as pri­vate in­vestors – from buy­ing shares in listed hospi­tal groups, such as Net­care and Medi-Clinic. It seems the HPCSA is more con­cerned about in­di­vid­ual hos­pi­tals, where doc­tors have or might build up a pri­vate eq­uity stake.

Medi-Clinic says some of the hos­pi­tals it now owns – typ­i­cally small hos­pi­tals in smaller towns – were orig­i­nally es­tab­lished and fi­nanced by doc­tors. Without that, Medi-Clinic says, those hos­pi­tals might not have been built at all.

There are at least two pos­si­ble im­pli­ca­tions for med­i­cal schemes. If the HPCSA’s fear that doc­tors will gen­er­ate ex­ces­sive re­turns in hos­pi­tals they have a stake in is cor­rect, that should be a con­cern for med­i­cal scheme trustees. How­ever, Otto Wyp­kema, CEO of the Na­tional Hospi­tal Net­work, says med­i­cal schemes “have de­signed very so­phis­ti­cated pre- and on­go­ing au­tho­ri­sa­tion pro­cesses” that would rule out over-ser­vic­ing by doc­tors. “The HPCSA must have a jaun­diced view of its mem­bers,” he says.

The counter ar­gu­ment is that doc­tors with an own­er­ship stake in a hospi­tal would be mo­ti­vated to en­sure the fa­cil­ity was well run, pro­vided good ser­vices and kept costs down. The last point is par­tic­u­larly im­por­tant for med­i­cal schemes faced with ru­n­away health­care inflation.

One of the aims of the Na­tional Hospi­tal Net­work’s board of direc­tors is to en­sure its 74 mem­ber hos­pi­tals “pro­vide su­pe­rior ser­vice and a cost-ef­fec­tive op­tion for med­i­cal schemes and their mem­bers”.

Wyp­kema says the pro­posed 26% cap raises many is­sues. “For starters, it dis­crim­i­nates against in­de­pen­dently owned hos­pi­tals. Listed com­pa­nies aren’t specif­i­cally ad­dressed in the ap­pli­ca­tion. The own­er­ship struc­ture and vi­a­bil­ity of listed hospi­tal groups are there­fore not af­fected by that rul­ing and in­di­vid­ual doc­tors and other pro­fes­sion­als, as well as their fam­i­lies, can buy shares of listed hos­pi­tals on the JSE.”

Sec­ond, and this is the big is­sue for the Na­tional Hospi­tal Net­work, Wyp­kema says there are prac­ti­cal ques­tions HPCSA has failed to con­sider. “Ques­tions such as who would be will­ing to buy the 74% ex­cess eq­uity in a clinic or hospi­tal. In­de­pen­dent hos­pi­tals are al­ready vul­ner­a­ble to takeovers from the larger groups.”

While the listed hospi­tal groups have been con­sid­ered sound, de­fen­sive in­vest­ments, Wyp­kema ques­tions whether that’s still the case in the cur­rent en­vi­ron­ment. “It’s been re­peat­edly demon­strated that hos­pi­tals and clin­ics make less prof­its than many other in­vest­ments listed on the JSE – even be­fore tak­ing the ex­ces­sive busi­ness risk and reg­u­la­tory com­pli­ance is­sues into ac­count. Looking ahead, with reg­u­la­tory un­cer­tainty sur­round­ing the hospi­tal sec­tor, it’s pos­si­ble po­ten­tial in­vestors may well choose to in­vest else­where. I’m not quite sure if the HPCSA has thought through those is­sues.”

How­ever, he adds the cen­tral is­sue for the Na­tional Hospi­tal Net­work is the view that “doc­tors and med­i­cal pro­fes­sion­als can be trusted with peo­ples’ lives but not their money”.

“It’s in­fu­ri­at­ing for doc­tors that they stand ac­cused of over-ser­vic­ing or prof­it­ing from hospi­tal own­er­ship when there’s no ev­i­dence to sub­stan­ti­ate that view. In fact, in our ex­pe­ri­ence the op­po­site is true: doc­tors who own hos­pi­tals tend to go the ex­tra mile to en­sure their es­tab­lish­ments have rep­u­ta­tions for good clin­i­cal out­comes.”

Wyp­kema says SA’s health pol­icy mak­ers have iden­ti­fied the short­age of vi­able al­ter­na­tives to hos­pi­tals as one of the main fac­tors lead­ing to the in­crease of pro­por­tional spending in hos­pi­tals over the past 10 years. “How is it that those for­mu­lat­ing health pol­icy can iden­tify a need for in­de­pen­dent hos­pi­tals and al­ter­na­tive fa­cil­i­ties on one hand and seek to de­stroy their vi­a­bil­ity on the other? In our view, the reg­u­la­tory bodies should work to­gether on this is­sue.”

Pri­vate hospi­tal groups hope new Health Min­is­ter Bar­bara Ho­gan will pull the dis­parate parts of Gov­ern­ment health pol­icy to­gether. Sub­mis­sions and pro­posed amend­ments to Acts have of­ten been con­tra­dic­tory in the past.

HPCSA must have a jaun­diced view of doc­tors. Otto Wyp­kema

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