A critical test case
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.