Netcare. Picture: FINANCIAL MAIL
Netcare. Picture: FINANCIAL MAIL

Private hospital group Netcare is betting on an ambitious digitisation project to lure patients from its rivals and grow its business in an economy the Treasury forecasts will grow at a mere 0.5% in 2019.

The R600m project aims to introduce electronic patient records and use data analytics to make the business more efficient.

“We are determined to make sure patients can have records that pertain to their health care for their whole lives. We think there are huge efficiencies to be gained with this system, because nurses will manage patients not records. We believe we will take market share as a result of it,” Netcare CEO Richard Friedland said after presenting the company’s results for the year ended September.

Netcare's warned of a tough trading conditions in 2020. The private hospital group is expecting muted patient day growth in the next financial year, and Business Day spoke to CEO Richard Friedland about how the group plans to navigate that environment

Adjusted headline earnings per share from continuing operations rose 3% to 171.2c, while normalised earnings before interest, tax, depreciation and amortisation increased 4.3% to R4.39bn. The company declared a final dividend of 64c, a 6.7% increase on the year before.

SA’s private hospital sector is under pressure. The weak economy has seen the medical scheme industry, which funds the vast majority of hospital cases, stagnate at 8.9-million clients. At the same time, medical schemes have introduced a raft of measures to contain their hospital spend, ranging from tighter control on admissions to network arrangements in which they negotiate lower tariffs in exchange for directing their members to specific facilities.

In a bid to differentiate itself from rivals Mediclinic and Life Healthcare, Netcare is collaborating with Apple, IBM Watson Micromedix, Capsule and Deutsche Telekom on the digitisation project, which is being piloted at Milpark Hospital in Johannesburg. Friedland said digitisation would improve the quality of care and relieve clinicians and nurses of the burden of time-consuming paperwork.

Friedland declined to specify the project’s expected effect on margins, saying only that its rate of return met the company’s internal benchmarks.

“Once we are through the pilot in June we will evaluate exactly how good it is, and give the market a lot more colour,” he said.

Aeon Investment Management’s chief investment officer, Asief Mohamed, said the big question about Netcare’s investment in digitisation was whether it would bring down the average cost of caring for patients. Cutting the cost of care was vital for private hospitals, given the current pressure from medical schemes and the future prospect of the state contracting with accredited providers under National Health Insurance (NHI), he said.

Old Mutual fund manager Philip Short said the entire private hospital sector had a difficult year, with funders putting pressure on tariffs such that hospitals were unable to obtain real increases, though input costs such as salaries and electricity had risen faster than inflation. In such an environment, even holding margins steady was an achievement, he said.

Netcare said its 2019 hospital network arrangements, which had seen it lose out on the network managed by medical scheme Polmed, would affect on the first quarter of 2020. However, it had secured participation in the private hospital network that is to be offered by the Government Employees Medical Scheme on its cheaper options in 2020, which was expected to have a positive effect.

Netcare’s share price rose 5.16% to close at R18.55c on Monday.

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