Medical aid membership still resilient in weak economy, says Netcare
South Africans are prioritising medical aid membership despite rising unemployment amid the pandemic, supporting Netcare’s partial recovery as elective surgeries resume.
This week Richard Friedland, CEO of Netcare, SA’s third-biggest private hospital group, said the group’s experience to date had shown that medical aid membership remained “relatively resilient” even in the face of rising unemployment and a weak economy.
“This may be a factor of people being unwilling to give up their medical cover in an environment of uncertainty,” said Friedland after presenting Netcare’s results for the six months ended March 31 2021.
This is contrary to Friedland’s earlier concern, conveyed at the company annual results in November last year, that consumers, coming under increasing financial pressure, would cancel their medical aid memberships. This week Friedland said this had still “not yet had a noticeable impact on our business in the past six months” but added that the “potential reduction in medical scheme membership and/or buy-downs remains a risk”.
Peter Armitage, CEO of Anchor Group, said the “logical conclusion” was that people were prioritising medical aid memberships even with the economy coming under pressure — “because of health conditions people are saying: ‘I don’t know what’s going to happen to me, I’ll keep my money in it’ [a medical aid scheme].”
Armitage said medical aid membership had also been fairly resilient over time and that even when people “buy down” to a cheaper medical aid option, this will be a package that includes hospital cover.
“So Netcare is in the most defensive part of that medical aid net,” said Armitage.
Netcare was back in the black for the six months ended March 31 2021, reporting a net profit of R375m compared with the loss of R196m in the preceding six months, a period in which elective surgeries were suspended to free up hospital beds during the first and second waves of the pandemic.
Its R375m profit, though, is 40% lower than the pre-pandemic profit of R635m profit in the six months to end-March 2020. Revenue fell 5.9% to R10.8bn in the six months ended March 31 compared with the same period last year but was up 24% on the preceding six months.
Netcare also has cash resources and committed undrawn facilities of R6.6bn as at March 31 2021.
“Our results demonstrate that six months on six months, in other words sequential performances, we’ve improved substantially, but if you compare us with the same period last year, which was effectively in the prepandemic period, we are yet to recover fully,” said Friedland.
Netcare is applying lessons learnt in the first wave to manage its Covid-19 beds allocation. During the first wave, 80% of Netcare’s total beds were allocated to Covid-19 patients and 60% during the second wave, which Mohamed Mitha, investment analyst for Kagiso Asset Management, said showed Netcare had “adopted a more nuanced approach in managing bed demand for the second wave”.
Friedland said: “We are getting better at understanding what works and what doesn’t, and to make sure we are super efficient in terms of being able to deal with the patient load from the Covid pandemic.”
He said the group was also able to monitor all its oxygen requirements and utilisation remotely on a 24-hour basis.
Armitage said a positive was the group’s turnover number, which although lower due to the increase in “lower-margin” Covid patients and delays in higher-margin elective surgeries in the midst of the pandemic, “wasn’t that much lower” than in the same six-month period last year.
“Elective surgeries, which is about 20% to 25% [of Netcare’s business], is where they make their best margins. So when Covid numbers came down, we saw volumes pick up quite nicely so people felt it was safe to go back.”
In the imminent third wave, Friedland said Netcare’s Covid-19 admissions were “rising daily”, with more than 550 admissions in all its hospitals across the country as of Monday, more than double what it was two weeks ago.
As to the severity of the third wave, Friedland said: “We have no way of telling that at the moment. The season is against us in that we are entering winter and generally people practice less social distancing.
“They are indoors, there is poorer ventilation and that can often exacerbate the spread of Covid.”
But at the same time Friedland said there was “supposedly a high degree of herd immunity in South Africa” already, which may “mitigate the severity of a third wave”.
But there is also the threat of “new variants coming into the country, which may play a role”.
Friedland said Gauteng was of most concern as current infection rates indicated it may be on the verge of a third wave. He said a third wave in Gauteng would be when there were about 1,600 to 1,700 cases daily on a seven-day moving average. Currently there are about 1,300 cases daily in Gauteng.