HOSPITALS, WARY OF CRUNCH, FOCUS ON HEADS
As a stagnant economic environment takes its toll on South Africans, medical aids and private health-care providers alike, the country’s remaining listed private hospital groups are turning to auxiliary health-care services to boost margins
he increased demand for mental health-care services and renal dialysis, and the apparent imminent approval of a drug to treat Alzheimer’s disease, have resulted in South Africa’s two remaining listed private hospital groups taking a chance on health care that will complement their legacy acute hospital services.
Netcare, for instance, told investors at its interim results presentation last month that it has 200 new mental health-care beds in the pipeline. This is in addition to the more than 1,000 beds the group already has in mental healthcare facilities. And it recently commissioned another Netcare Akeso mental health hospital, which will provide a further 72 beds in Gqeberha.
The budgeted capital expenditure on mental health-care 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 available at 10 other facilities.
The move to expand the health-care offering is indicative of how private hospital groups are grappling with a stagnant South African market: weak economic growth, high unemployment and low consumer confidence have kept medical aid membership relatively unchanged over the past five years.
As medical aid schemes are the primary funders of private health care in South Africa, their dwindling membership numbers have meant they have become more frugal in negotiating prices with large health-care providers, including hospitals.
Private health-care providers are also experiencing a decline in certain types of hospital admissions, including for surgeries.
Not all types of admissions are down, of course — as Covid recedes and protocols such as social distancing and mask-wearing fall by the wayside, some are returning to pre-pandemic levels. Netcare, for example, has seen pneumonia admissions return to levels last seen in 2019, while “RSV [respiratory syncytial virus] in children is actually the highest since 2018”, Netcare hospitals head Jacques du Plessis told investors in May.
But with surgeries down and medical aid schemes tightening their belts, Netcare and Life Healthcare have scrambled to protect their bottom line
Tby getting a foothold in auxiliary healthcare services. Netcare, for instance, 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 health care? And are private hospital groups expanding into the right auxiliary health-care services?
Though population-wide studies are few and far between, those that do exist point to a worrying trend in mental health among South Africans.
According to a study by the Council for Medical Schemes released in April, for example, the number of medical aid beneficiaries with bipolar mood disorder jumped 26% between 2014 and 2018; it was 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%.
And that was before the stresses brought on by Covid.
“The rise of mental health needs is not a South Africa-only need, but a worldwide need,” says Ninety One portfolio manager Samantha Hartard. This is due to lifestyle issues and better diagnoses of mental health disorders.
“The understanding of mental health concerns has led to better understanding and better supply for this increasing demand worldwide,” she says.
As Melanie da Costa, director for strategy and health policy at Netcare, tells the FM, the drivers of increased demand for mental health care run from “the destigmatisation of mental health that is facilitating better access to treatment for more people in our country, 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 March 31, 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 March 31, compared with a 67.3% weekday level at its acute hospitals.
Despite the increased demand, South Africa still has a “low allocation of beds” for mental health care, says Hartard. In part, this is 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. As Da Costa explains: “Medical schemes certainly do see the importance of quality mental health care, yet the schemes are working within the confines of very limited benefits for mental health.”
Despite this, the increasing demand for mental health care has made it difficult for medical aid schemes to “push back against mental health issues”, says Hartard — 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 health care has become a higher-margin business for private hospitals. For a start, the cost of operating mental health beds is lower than that of acute beds, says Hartard.
What’s more, “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 underpenetration of mental health beds in both the public and private sectors”, she says.
In the turn to auxiliary services, Life Healthcare is also taking an interest in renal dialysis — the blood-purifying treatment required when patients’ kidneys aren’t working optimally.
Kidney failure is a big killer in SubSaharan Africa. According to research from University College of London’s Institute of Epidemiology and Health Care in 2020, chronic kidney disease and acute kidney injury are almost as deadly as diabetes, which is itself a major contributor to chronic kidney disease. The study found “very poor outcomes from end-stage renal disease”, with up to 80% of patients dying.
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, renal 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.
The understanding of mental health concerns has led to better understanding and better supply for this increasing demand worldwide
In the auxiliary health-care 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 having a significant market share in all the global clinical trials [for the injectable radioisotope detecting beta-amyloids],” Life Healthcare CEO Peter Wharton-Hood told investors last month. “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 can get approval from health authorities.
“There are two drugs currently in various phases that are seeing significant support internationally,” WhartonHood says.
Leqembi, manufactured by Eisai/Biogen, is expected to gain approval by July 6, he says. Eli Lilly, known for its insulin medication, is awaiting approval for Donanemab, with trial data expected to be published next month. Approval could follow in 2024, he says.
“We think an approved drug for Alzheimer’s is highly likely,” Wharton-Hood says. And, should that happen, he expects a boost in demand for Neuraceq.
“What we do understand is if a patient has a treatment pathway to cure Alzheimer’s, we think the demand for the diagnostic will go up on the basis that if you know you can be cured, you can be diagnosed.”
With a push into mental health care, renal dialysis and Alzheimer’s diagnostics, South African private hospitals are bracing against economic headwinds by increasing their offering for those who can afford private health care.