Welcome to the Doctors' Portal
00:00 Sunday
Mediclinic News : Health shares ailing as costs cut growth

Title

Health shares ailing as costs cut growth

Date

2017-05-07

Link

News Description

BUSINESS TIMES In uncertain times, investors turn towards defensive stocks such as healthcare, where prospects aren’t as dependent on the overall economic cycle as retail shares. However, it is an investment ethos that has recently provided little benefit to South Africa’s medical groups. Over the past year, all three of the JSE’s listed hospital groups suffered deteriorations in their share price, staining the princely status of these stocks. Netcare declined by 22 percent, Life Healthcare is down 19 percent and Mediclinic has seen its shares tumble 25 percent. In comparison, the All Share has climbed 3.21 percent. Analyst at Gryphon investments, Casparus Treurnicht, explained that under the local economic climate, managers have seen limited opportunities locally and healthcare companies have been looking offshore for expansion and growth. Subsequently, healthcare services had been hit by the falling pound while the local economy negatively affected medical aid subscriptions. As disposable income declined, people downgraded their medical aid plans or dropped them altogether. Treurnicht said it is funny how these factors always come together at the same time. A recent report from US banking group JP Morgan expects lower volumes from South African hospitals because of stagnating medical scheme growth, concerns over affordability and regulatory risks. Industry players have been hit by a variety of market-related factors which have led to these defensive stocks plummeting. Administration costs and other non-healthcare expenditures contribute to the increase in hospital fees to which medical aid and gap cover costs are added for consumers. The exorbitant cost of private healthcare continues to negatively affect patients’ pockets and those with the budgets to stay on have been slapped with double-digit increases of between 10 percent and 11.9 percent this year by most major open medical aid schemes. Inflated increases in medical aid costs coupled with a sluggish economy have led to stagnating membership numbers. As costs increase, fewer people can afford hospital care or medical aid cover. The Council of Medical Schemes reported a 0.05 percent drop to 8.810-million scheme beneficiaries at December 31, 2015 from 8.814- million at the end of the previous year. In its health publication, Diagnosis 2016-17, corporate healthcare consultancy Alexander Forbes highlighted that the number of principal members in the top 10 open medical schemes had stagnated since 2013 while dependant numbers were lower, reducing the subsidy benefits that young, healthy people usually provide for older people in need of greater medical care to a scheme’s pool of funds. Despite a one percent drop in patient days, Netcare’s April trading update revealed that revenue for the group had risen 7.7 percent for the first half of the 2017 financial year. PWC’s medical trends 2017 report said that in the early 2000s price and utilisation had pushed growth in healthcare costs. Since then, use of services had declined and higher prices were driving growth. Private healthcare strives to align itself with quality care and that means importing state-of- the-art equipment. This is regardless of the region's poor operational environment and barriers to accessing healthcare. BMI Research medical device analyst, Ethel Kuntambila, said sub-Saharan Africa had limited manufacturing capabilities so most medical equipment was imported from Europe, the US or Asia. Director at Econex, Mariné Erasmus, said that because hospital groups imported a great deal of equipment they were directly affected by exchange rate fluctuations. Over the past five years the rand has weakened more than 73 percent and a weak rand made imports more expensive. The hospital groups’ earnings continue to be affected by the dilutive effect of interest costs on the funding of international investments. Difficult regulation, political instability and unpredictable conditions contribute to the challenges of having global operations and affect the overall attractiveness of healthcare companies. But risk does come with its rewards. Mediclinic, which has been faced with regulatory and other challenges in Abu Dhabi, received a boost last week when co-payment for holders of Thiqa medical insurance cards was waived by Abu Dhabi’s crown prince, Sheikh Mohammed bin Zayed al- Nahyan. Abu Dhabi introduced the 20 percent co-payment system in July 2016, five months after Mediclinic acquired Al Noor Hospital Group for about £1.5-billion. The company, which remains confident about long-term growth opportunities in the Middle East, expects performance in the region to improve in the year ahead.
Created at 2017/05/18 04:45 PM by Mediclinic
Last modified at 2017/05/18 04:45 PM by Mediclinic