Govt inquiry, uncompetitive structure: Time to sell SA healthcare stocks?
Netcare's CEO Richard Friedland is usually accommodating when asked for his insights. But some months back he started ducking. Try as I might, it wasn't possible to get any comment about the UK's investigations into anti-competitive practices – an area where Netcare is heavily exposed through ownership of the biggest private player, GHG. That's a serious issue for Netcare. But even bigger is the challenge from SA's Competitions Commission which, backed by the medical aid-funded Board of Healthcare Funders, is set to regulate high profit pockets of local hospitals groups. And in this quest, has the Constitution to uphold as the BHF's Humphrey Zokufa explains here. This is a fascinating interview. One that left me with an obvious conclusion – the profitability of SA hospitals companies is about to be hit. Hard. – AH
ALEC HOGG: South Africa's private healthcare sector is undergoing a market enquiry from the Competition Commission. This follows concerns about high pricing. Here to discuss this and related issues is Humphrey Zokufa, who is the Managing Director of the Board of Healthcare Funders of South Africa. Thanks for coming through, Humphrey. Before we go into this subject, just give us, if you like, a disclaimer. Who funds the Board of Healthcare Funders? Who pays your salary?
HUMPHREY ZOKUFA: The Medical Aid Schemes who are our members – 70 percent of the way – the Medical Scheme Administrators, and one or two Managed Care organisations.
ALEC HOGG: So you're very clearly in the private sector camp.
HUMPHREY ZOKUFA: Yes.
ALEC HOGG: And the Competition Commission is investigating. One hopes they're not going to pull out the kind of stuff that they found in the construction sector.
HUMPHREY ZOKUFA: Well, we welcome what they're going to do. In fact, it's there because of our engagement as BHF with the Minister of Health and other parties, indicating that we're concerned about the status of healthcare, especially in the private sector in South Africa. The projections don't show sustainability and viability going forward. Therefore, the eight-point-five-million lives that were pocketed in about 92 medical aid schemes are threatened by this.
ALEC HOGG: We have a really good Minister and it sounds as if he has quite a good relationship with the private sector as well. We have NHI coming along. Is this the best way of finding out what's going on in the sector – asking the Competition Commission to investigate?
HUMPHREY ZOKUFA: I think the Competition Commission will just find one of the cogs. Even if they do, and come up with solutions, I don't think their recommendations – if they're only focused on competition – are going to solve the issues facing healthcare in this country.
The status of healthcare in the private sector is not caused by non-competition.
Even if there were competition, I don't think things would be better. At the core of it, you cannot float healthcare as a market commodity where the free market system and people charge as much as they can. In one way or another, you have to intervene and protect a vulnerable medical scheme member or a vulnerable citizen when it comes to that. It's not as easy as feeling confident in buying any other commodity in any environment in any make all the decisions. In this case, you access healthcare when you are at your weakest and everything that's going to be done to you is going to be decided by another party, and you don't have an option to say 'yes' or 'no' because if you say 'no', you're going to die.
Because of that, you cannot then say market forces must solve that. In fact, to date, market forces in the private healthcare sector has led to what we have today, which has to be solved. Intervention here has to come from government. It can't come from BHF. It can't come from the healthcare providers who are operative in this space. It can't come from the ordinary South African citizen. Everybody else here is powerless, except the Minister of Health who gets those powers from Section 27 of the Constitution. What he has to do is simply carry that out and that section says that when it comes to healthcare, Government must make sure that healthcare is affordable and accessible to the people of South Africa. It goes on to say that if that that's not the case then Government must introduce measures to correct that, including legislative measures.
GUGULETHU MFUPHI: Does this mean that they've fallen short on that mandate?
HUMPHREY ZOKUFA: Yes, they do. An ordinary South African citizens in the private sector now who has a medical aid (like you and I), is not adequately protected by what's in place, and the Constitution is saying you should be adequately protected. Much needs to be done to carry out and actualise what's in Section 27 of the Constitution.
ALEC HOGG: Humphrey, that's fantastic news. We are now – and I say 'we' as a broad term – starting to use our Constitution because there are many things in the Constitution that have not been implemented in a way that those who wrote it, were hoping. How though, are you anticipating that this is going to affect the sector itself? We do understand that the healthcare sector is one of those world-class pockets in this economy. If you start capping costs (or what they can charge), will this not have a negative impact?
HUMPHREY ZOKUFA: Not necessarily. Those who benefit handsomely from what is going now will tell you that the system is going to collapse. It isn't. Other countries have done it. Australia's done it. The U.K. has done it. France has done it. Germany's done it. In fact, at our conference we're having people who are going to give keynote addresses on those issues in terms of what the governments of those countries have done to protect the citizens of those countries from this. Even in South Africa, if you carry out what's in Section 27 of the Constitution, it's not saying 'destroy what's there'. It's just saying 'make sure it's accessible and affordable', which means that on one side of the equation, we must make sure that you can afford what you're contributing towards healthcare. On the other side of the equation, those who provide healthcare must at least, be remunerated adequately, and then find a way of maintaining that balance.
Right now, it's skewed. It's skewed to the side of the providers. If you look at the graphs and everything else, it's skewed to the side of the providers and that is all happening because there is no regulatory environment guiding them. For example, how much should you charge for a tonsillectomy? How much should you charge for an admission/bed rate? How much should a pathological test cost? How much should a radiological or CT-scan cost? They all decide that. There is no benchmark. There is no reason for it. They just decide that and it's all based on a 'fee for service' model, so 'the more I do the more I charge. I charge what I've decided' and there's no control, so it's skewed in that direction.
GUGULETHU MFUPHI: Does this then create an opportunity for partnerships between both the private sector and the public sector?
HUMPHREY ZOKUFA: That is correct, but we must have our eyes fixed on the same goal line, and the goal line is we're trying to protect the healthcare system in South Africa for the benefit of those who access it as well as for the benefit of those who provide it.
ALEC HOGG: Now I know why Medi-Clinic is investing offshore. They're running for their lives to other parts of the world because here, the profits are going to be squeezed.
HUMPHREY ZOKUFA: They're probably faced with the same thing that we're trying to introduce here, in those countries.
ALEC HOGG: For example, Medi-Clinic here in South Africa: it's an R80bn company. They've been investing heavily in Switzerland and the Middle East. I guess they see that the profits are now going to be examined more carefully. Is this what we read out of your message?
HUMPHREY ZOKUFA: What I'm reading there (superficially) is that even if they go and invest in Switzerland, Switzerland has legislation in place that will guide them on how they're going to do things and that legislation is not here in South Africa. In my view, they're therefore subjected to more stringent conditions in my view, in Switzerland, where they're investing.
ALEC HOGG: But whatever is brought in here: would you recommend a light touch or an aggressive change?
HUMPHREY ZOKUFA: Well, it depends. The powerful forces that are benefitting handsomely from this… When you bring about a change, they're going to fight against it. Do you go lightly, or do you go aggressively? That's the million-Dollar question. That why, in our conference, we're talking about ways of change.
ALEC HOGG: Can't you talk? Can't you consult? Can't you say 'a good return on equity is, say 15 percent, relative to the rest of the world; let's work together to make sure that we can bring this to pass'?
HUMPHREY ZOKUFA: Yes, of course, but for those talks to be meaningful, both parties must be of the same mind. For example, Government must have done its own work (due diligence). What is reasonable return on investment in terms of private hospitals? What is reasonable? Then of course, the other party who runs the private hospitals must also come to the party to say 'we're not playing games here. What is reasonable for us, is this', and then find a common ground.
GUGULETHU MFUPHI: Interesting times in the healthcare space, no doubt. Thank you so much to Humphrey Zokufa, MD of the Board of Healthcare Funders of South Africa.