Day clinic model fails to take off
Slow uptake stifles Advanced Health’s SA growth prospects
● When Advanced Health began building its day hospital business in SA about five years ago, it had one goal: to provide an alternative to expensive hospital stays for patients and, in turn, medical aids.
SA faces rising health-care costs and a growing divide between the one-fifth of the population who can afford private health care and the rest, who rely on a strained public health system.
Despite high health-care costs — so high, they have triggered a market inquiry — the Pretoria-based company’s cheaper alternative to overnight hospital stays hasn’t gained as much traction as it has enjoyed in the Australian market.
Day hospitals have been a tough sell in SA as patients and doctors are used to most surgeries taking place in acute hospitals.
Advanced Health’s lack of market penetration has seen its Alt-X-listed shares tumble more than 57% in the five years since listing. It now trades at about 59c.
With shares under pressure and cash running out, the company is struggling to open new facilities.
This has put it in a tight spot because its clinics take three years to break even, said Anthony Clark, an analyst at @Smalltalkdaily Research.
And “if they don’t open new hospitals they can’t expand their footprint, but if they expand their footprint they lose money”.
According to its most recent interim results, to end-December, the company is sitting with cash of R50m and has managed to open only one hospital in the past six months.
Clark said that though Advanced Health’s model is “noble and admirable” in a country that is in need of day hospitals, it will take a long time for the industry to buy into the concept.
“As it stands right now, I don’t think they’ll be around long enough to see the benefits. The company that generally innovates first is never the company that in the long run makes the money.
“It’s always the second or third entrants in the marketplace because the people who lead generally always go bust or lose money, and the people who come after them learn from their mistakes.”
Advanced Health’s COO, Bibi Goss-Ross, conceded at the group’s last results presentation that it had made a mistake in anticipating how long it would take to turn a startup business into a profitable venture.
However, she was upbeat about its prospects, saying that the change that had taken place in other countries with regard to uptake was now happening in SA.
The country’s major private hospital groups, such as Netcare, Life Healthcare and Medi-Clinic, aren’t in a healthy position either in an economy that has remained in
The people who lead generally always go bust or lose money Anthony Clark
Analyst at @Smalltalkdaily Research
low-growth territory for five years — during which private medical-aid membership has levelled off. International expansion projects have also failed to deliver as regulation in developed climes such as the UK bite.
Netcare, the largest of the majors, has seen its stock fall more than 43% from its March 2015 peak.
But, though international expansion has proved difficult for leading hospital groups, Advanced Health has fared well in Australia.
It has been operating Down Under for 22 years as Presmed Australia, whose five facilities contributed 68% of the group’s overall revenue in the six months to December. In the same period losses in the SA business deepened.
Marc Resnik, MD and CEO of Presmed, said the group’s South African business is young and has not yet matured.
The Australian business has long-standing doctor support and operates in a big dayhospital market that has about 340 private day hospitals, accounting for 54% of private hospitals in Australia.
In SA, Resnik said, the market is dominated by about 220 private hospitals, and there are about 80 day hospitals.
The strategy for the South African business is to focus on stabilising the new facilities and gaining doctor support.