A crit­i­cal test case

Finweek English Edition - - BETWEEN THE SHEETS - ANDILE MAKHOLWA andilem@fin­week.co.za

PRI­VATE HOS­PI­TAL GROUP Net­care’s pi­lot pub­lic pri­vate part­ner­ship ( PPP) model with the Le­sotho govern­ment will test the hy­poth­e­sis that lo­cal em­pow­er­ment and own­er­ship – cou­pled with the right level of ac­count­abil­ity and risk trans­fer to the pri­vate sec­tor – can re­sult in af­ford­able and sus­tain­able health­care de­liv­ery, says group CEO Richard Fried­land. Net­care is the lead part­ner in a Le­sotho con­sor­tium tasked with build­ing and op­er­at­ing three fil­ter clin­ics and a 425-bed na­tional re­fer­rals hos­pi­tal in Maseru.

The first of its kind in Africa and one of a hand­ful world­wide, the project will run for 18 years be­fore the con­sor­tium hands over the fa­cil­i­ties to the Le­sotho govern­ment. It’s one of the PPP mod­els Net­care is de­vot­ing time and re­sources to de­velop and re­fine, be­cause it be­lieves part­ner­ships will be­come a strong com­po­nent in the fu­ture of the health­care in­dus­try, par­tic­u­larly in de­vel­op­ing coun­tries.

“For Net­care, this PPP is a crit­i­cal test case that, if suc­cess­ful, has po­ten­tial to be repli­cated across Africa,” writes Fried­land in the group’s lat­est an­nual re­port.

South Africa’s three listed pri­vate hos­pi­tal groups – Net­care, Life Health­care and Medi-Clinic – have been broad­en­ing their hori­zons, ex­plor­ing mar­kets where they never op­er­ated be­fore. Net­care’s pri­mary mar­kets are SA and Bri­tain. How­ever, the group has been ex­plor­ing other growth op­por­tu­ni­ties in emerg­ing mar­kets, par­tic­u­larly in Africa. But bar­ri­ers of en­try in the form of reg­u­la­tions are high and cap­i­tal risks too heavy through­out the con­ti­nent be­cause most coun­tries have a limited pull of med­i­cally in­sured pop­u­la­tions. On the con­trary, Life Health­care, which is also chas­ing emerg­ing mar­kets, is more in­ter­ested in Turkey, In­dia and some Mid­dle East coun­tries, which are con­sid­ered less risky than Africa. That makes the Le­sotho ad­ven­ture a pru­dent tem­plate for Net­care to adopt as its strat­egy for Africa.

The PPP model has thus far been a less trav­elled route world­wide, de­spite it car­ry­ing min­i­mal risk to in­vestors com­pared with green­fields in­vest­ments. In SA, Life Health­care has the long­est (50 years) PPP through its Life Esidi­meni sub­sidiary. Net­care has only re­cently es­tab­lished PPPs with the SA Govern­ment. How­ever, the group has con­sid­er­able ex­pe­ri­ence in PPPs from its as­so­ci­ate in Bri­tain, the Gen­eral Health Group, work­ing with that coun­try’s Na­tional Health Ser­vice.

From the an­nual re­port you can de­duce Net­care sees greater value in PPPs be­yond just us­ing the model as a launch pad into high-risk mar­kets. Fried­land says es­tab­lish­ing ad­di­tional PPPs in SA – par­tic­u­larly in the pri­mary health­care sec­tor – could of­fer a num­ber of ben­e­fits to this coun­try’s health­care sys­tem, in­clud­ing re­duced fi­nan­cial, op­er­a­tional and tech­ni­cal risk ex­po­sure for Govern­ment, fast and cost­ef­fec­tive project ex­e­cu­tion and free­ing up scarce pub­lic funds for more ef­fec­tive use.

But the PPP model isn’t a money spin­ner. Pri­vate op­er­a­tors of such PPPs usu­ally have to deal with limited bud­gets from gov­ern­ments, which also ex­pose them to the risk of fail­ure to pro­vide the level of ser­vice they’re re­puted for. Nev­er­the­less, the model of­fers an­other op­por­tu­nity for com­pa­nies to en­hance share­holder value in the cap­i­tal-in­ten­sive health­care in­dus­try.

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