Private hospitals still flush

On Thursday leading hospital group Network Healthcare (Netcare) reported a 25.5% hike in trading profits to R611m (before the costs of its BEE initiative) off an 11.8% increase in revenue to R4.01bn in the six months to March.

This followed Medi-Clinic's announcement the day before that trading profits had climbed 21% to R987m off a 17% increase in turnover to R4.7bn for the full year to March.

Both groups took fairly large charges for their respective BEE initiatives which make a net profit comparison irrelevant.

Increased utilisation of capacity

What is perfectly clear for both group's is that they have increased utilisation of capacity. Medi-Clinic recorded a 7.6% increase in patient bed-days, while Netcare showed a 4.1% increase in patient days.

Capacity utilisation is a very important number for private hospitals. Essentially the cost of running a hospital is fixed number and every extra patient over the number of patients required to breakeven goes straight to the bottom line.

Aging population

Netcare CEO Richard Friedland attributes a large portion of this to an aging population. But analysts also attribute this to the increasing number of people who do not have medical insurance but would rather avail themselves private care than rely on the state.

Future growth in SA is, however, largely limited by public health policy and competition policy. What growth there is available will come largely from the new Government Employees Medical Scheme (Gems) as well as initiatives in finding solutions to the provision healthcare to low income earners.

Outside of that, the only other avenue for large-scale expansion is offshore and both Netcare and Medi-Clinic have recently announced big initiatives outside of SA.

Netcare is the prime mover in the £2.2bn buyout of the General Hospital Group (GHG) in the UK, and Medi-Clinic recently spent US$46.4m to buy a 49% stake of Emirates Healthcare Holdings in Dubai.