Within the healthcare industry, there are hidden opportunities we have identified that will help us make meaningful contributions to this sector.
Consolidation of independent hospitals and smaller groups.
A structural change occurred in the South African private health sector when a ruling by the Competition Tribunal in 2004 prohibited collective bargaining between various players. More specifically, this ruling prohibited the HASA, the BHF and the SAMA from negotiating prices collectively on behalf of their respective members.
The consequences are that the big hospital groups now negotiate rates separately with medical aid schemes. This is a disadvantage to the independent smaller hospital groups and thus creates an appealing case for consolidation among the smaller hospital groups. This opportunity can be instituted immediately.
Another opportunity is that, a number of industries are linked to the healthcare sector which gives the company the opportunity to invest in either related sectors or in upstream and downstream sectors. The Razorite Healthcare and Rehabilitation Fund gets presented with opportunities to invest in some of these sectors, but cannot invest because of its mandate’s restrictions.
The company will be able to invest in these opportunities, which include:
There is an opportunity for RH Bophelo to consolidate fragmented players in the healthcare sector through:
- The acquisition of operating assets
- Funding of expansion projects
- The financing of greenfield projects
As a result, hospital operators in a consolidated healthcare group will benefit from the following:
- An integrated IT system which will come at a much lower cost per bed than would be the case if the system was procured individually
- Bulk procurement of equipment, consumables and other inputs which would increase the profit margins
- Increased bargaining power with the medical schemes as is the case for the listed hospital groups
National Health Insurance (NHI)
While the South African Government’s intervention poses regulatory risk, it also presents a good outlook for investors in healthcare infrastructure. The implementation of the NHI will enable a large portion of the currently medically uninsured to gain access to private healthcare facilities. RH Bophelo has the opportunity to invest in healthcare infrastructure and be in a position to meet this anticipated increase in-demand for healthcare facilities.