Private hospitals suffer from no ops
● Private hospital groups may need to take on more debt or raise money from shareholders to fund the shortfall from the reduction in elective surgery during the Covid-19 pandemic, analysts say.
With their focus on treating private Covid-19 patients, as well some state patients, the question is what condition private hospital groups will be in once the crisis is over.
Casparus Treurnicht, a portfolio manager of the Gryphon All Share Tracker Fund, says the “most profitable” part of any hospital’s business is “definitely elective — where they do scans and surgeries and beds are then occupied for an extended period”.
“They are now in a scenario where the most profitable part of the business is basically on lockdown. Obviously when lockdown is lifted there will be a massive amount of people coming forward for surgeries because they have been postponed for now.”
But the longer elective surgeries are postponed, the bigger the losses and more likely private hospital groups will have to take on more debt, he adds. Payment of R16,000 a day from the government to treat state patients with Covid will cover basic costs.
“That is for one person to occupy a bed. It doesn’t cover the cost of the rest of the building. There is still space and equipment that is underutilised, so the health-care companies will be making losses on them.”
Michael Treherne, a Vestact portfolio manager, says it is a myth that private hospitals will do well in the crisis.
He says the big question is how long private hospitals will have to stay in this “semi-shutdown mode”.
“If it goes on for two to three quarters, then it starts becoming a problem.”
If they don’t make money, options are to increase debt through bank funding or raise cash from shareholders, he says.
Netcare CEO Richard Friedland says the group “experienced the real impact” of Covid-19 in April under full lockdown.
“This dramatically impacted non-urgent surgery, medical and trauma cases.”
Acute hospital occupancies fell to 33% but have recovered to over 50% and emergency cases increased significantly as the lockdown eased.
Friedland says elective surgery resumed at Netcare hospitals from May, albeit on a limited scale because some patients might have had concerns about being hospitalised in the pandemic.
He says the costs involved in each Covid-19 patient’s care are “condition dependent”. About 70% of Covid-19 positive or patients under investigation for Covid-19 in the group’s hospitals do not “require care in critical care units, ventilation or high-flow nasal oxygen treatment”.
Friedland says Netcare has “very few patient referrals from the public sector” but the situation is “fluid and no-one can predict with certainty how it will unfold”.
Stefan Smuts, chief clinical officer of Mediclinic Southern Africa, which is owned by JSE-listed Mediclinic International, says the group’s “current occupancy levels are high, particularly relating to admissions to ICU and high-care units. For this reason, only hospitals with capacity and available doctors will receive patients through the public sector referral mechanisms.”
Smuts says surgical cases and medical cases are lower than pre-Covid-19 levels because people are avoiding seeking health care.
Mediclinic has postponed spending on capital projects to focus on managing costs. It is re-prioritising all projects in line with managing the Covid-19 crisis.
Smuts says Mediclinic International benefits from most of the financial contributions coming from outside SA, such as Switzerland and the United Arab Emirates, where life has “returned to a relatively normal level”.