Economic Opportunities in the Healthcare Infrastructure Sector in South Africa - Commissioned by the ministry of Foreign Afairs - RVO.nl
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Economic Opportunities in the Healthcare Infrastructure Sector in South Africa Commissioned by the ministry of Foreign Afairs
Economic Opportunities in the Healthcare Infrastructure Sector in South Africa Report prepared for the Embassy of the Kingdom of the Netherlands in South Africa — October, 2017
Contents 1. Overview of healthcare infrastructure in South Africa Page 4 2. Healthcare infrastructure: trends, plans and policies Page 8 3. Healthcare infrastructure plans and trends: public sector Page 13 4. Healthcare infrastructure plans and trends: private sector Page 25 5. Key considerations for foreign companies Page 28 6. Commercial opportunities Page 31 7. Key stakeholders in the health sector in South Africa Page 34 8. Conclusion Page 39 Annotations and References Page 40 Appendices Page 43 2
Abbreviations B-BBEE Broad-Based Black Economic Empowerment BIM Building Information Modelling Capex Capital Expenditure DOH Department of Health EPC Engineering Procurement Contractors HMI Health Market Inquiry IDMS Infrastructure Delivery Management System IUSS Infrastructure Unit Support System KZN KwaZulu-Natal LED lightning-emitting diode MEC Member of the Executive Council MTEF Medium Term Expenditure Framework MTSF Medium Term Strategic Framework NDOH National Department of Health NHI National Health Insurance NHN National Hospital Network PHC Primary Health Care PPD Paid patient days PPP Private Public Partnership R Rand SIP Strategic Integrated Project TB Tuberculosis VDM Value Driven Maintenance 3
1. Overview of healthcare infrastructure in South Africa South Africa’s healthcare sector is highly polarised. While 82.6% of the population relies on the public healthcare provision, 17.4% of individuals living in South Africa belong to private medical schemes1. Yet, expenditure in the public and private spheres is almost at 50:50 parity2 resulting in a great mismatch in the quality of healthcare provision. The National Household Survey 2016 highlights that users of private health tend to be more satisfied with private healthcare facilities than users of the public healthcare facilities3. The composition and state of the infrastructure in both sectors is set out in more detail in this report. 1.1 Public Sector within provincial boundaries based on The South African healthcare system is referrals from district hospitals. Regional based on a referral system. Primary hospitals are level 2 hospitals and must healthcare (PHC), which includes clinics and provide the following specialist services: ward based healthcare outreach teams, are paediatric, obstetrics and gynaecology, the first point of contact for patients. The internal medicine, general surgery, trauma PHC clinics refer patients to the relevant and emergency services, short-term specialist in a hospital in their area. Public ventilation in an intensive care unit, and hospitals are classified into five categories. services in at least one of the following specialities: orthopaedic surgery, psychiatry, District hospitals operate 24 hours a day anaesthetics or diagnostic radiology. and serve a defined population within a Regional hospitals may provide training for given district. These facilities have general healthcare professionals where practical. practitioners and clinical nurse practitioners. Regional hospitals fall within the jurisdiction District hospitals are level 1 hospitals and of provincial Departments of Health. A may provide the following specialist regional hospital typically has between 200 services: paediatric, obstetrics and and 800 beds. gynaecology, internal medicine, general surgery and family physician. District Tertiary hospitals receive referrals from regional hospitals and are not limited by hospitals may provide training for healthcare professionals where practical. They are provincial boundaries. Tertiary hospitals are owned and funded predominantly by level 3 hospitals and provide supervised provincial Departments of Health, with specialist and intensive care services. some district hospitals under the Tertiary hospitals fall within the mandate of provincial Departments of Health. These jurisdiction of municipalities. They are facilities may provide training for healthcare further classified into:: professionals. A tertiary hospital typically • Small district hospitals: 50 -150 beds; has between 400 and 800 beds. • Medium district hospitals: 150 - 300 Central hospitals provide tertiary and beds; • Large district hospitals: 300 - 600 beds. central referral services, and may provide national referral services. Central hospitals Regional hospitals operate 24 hours a day are level 4 hospitals and are not restricted and serve a defined regional population by provincial boundaries. 4
They provide highly specialised and costly treatments. Such hospitals have a services such as heart and lung transplants, maximum of 600 beds. Specialised bone marrow transplants, liver transplants hospitals can provide services of a or cochlear implants, and require highly secondary, tertiary and quaternary level skilled and scarce personnel. Central hospital. These facilities fall predominantly hospitals are academic hospitals and must within the mandate of provincial provide training for healthcare professionals Departments of Health. as well as conduct research. Furthermore, they are attached to a medical school as 1.1.1 Age and state of infrastructure they are the main teaching platform for Many facilities fail to meet the minimum healthcare specialists. Patients are referred norms and standards as set by the to central hospitals if adequate level of care government. The majority of public hospitals cannot be provided in a tertiary hospital. were built decades ago with relatively little Central hospitals are controlled by the refurbishment done over time. The age of National Department of Health (NDOH). A central academic hospitals is presented in central hospital has a maximum of 1,200 Table 1.1. A number of these hospitals were beds. built in the 1900s, with almost 50% not Specialised hospitals focus on a specific renovated for at least 20 years. Public areas such as tuberculosis, rehabilitation, health infrastructure thus remains in need chronic psychiatric and infectious disease of extensive refurbishment. Table 1.1: List of central/academic hospitals Central (academic) hospital Province Year Year Opened renovated Mahatma Gandhi Memorial Hospital KwaZulu-Natal 1997 N/A Inkosi Albert Luthuli Central Hospital KwaZulu-Natal 2002 N/A Addington Hospital KwaZulu-Natal 1878 1967 King Edward VIII Hospital KwaZulu-Natal 1936 N/A RK Khan Hospital KwaZulu-Natal 1969 N/A Prince Mshiyeni Hospital KwaZulu-Natal 1987 N/A Nelson Mandela Academic Hospital Eastern Cape 2004 N/A Chris Hani Baragwanath Hospital Gauteng 1942 2010 Charlotte Maxeke Academic Hospital Gauteng 1978 2016 Dr George Mukhari Hospital Gauteng 1972 2014 Steve Biko Hospital Gauteng 2006 N/A Groote Schuur Hospital Western Cape 1938 1984 Red Cross Children's Hospital Western Cape 1956 2013 5
Furthermore, state clinics and hospitals while catering to a growing and ageing tend to be concentrated in urban areas, population5 and a high burden of disease. which requires rural populations to travel The National Infrastructure Plan, announced long distance to access care. There remains in 2012, aims to address some of the a great need for appropriate infrastructure aforementioned infrastructure challenges capacity to address the existing supply faced by the public sector. The Plan shortage and manage increasing demand comprises 18 Strategic Integrated Projects going forward. However, as staff and (SIPs), addressing the country’s operational expenses tend to consume the infrastructure needs ranging from energy, majority of the budget, spending on capital transport, education and healthcare to ICT and maintenance projects is constrained. connectivity. SIP 12 focuses on extensive The Government is forecast to spend refurbishment of public health facilities, R187.5 billion (€11.6 billion 4), ca 12% of its including the refurbishment of hospitals, total budget, on health provision in the revitalisation of nursing colleges and financial year 2017/18. The total expenditure building or upgrading six major academic of the NDOH over the Medium Term hospitals in preparation for the National Expenditure Framework (MTEF), an annual Health Insurance (NHI) system. rolling three year expenditure plan, is The bulk of the works are being financed by anticipated at R606 billion (€37.6 billion). the state. The six academic hospital However, despite such high projected refurbishment projects were to be procured spending, the public health sector remains and developed under a PPP framework. The underfunded. projects were however suspended soon Many of the challenges faced by the South after coming out to market (refer to section African public healthcare sector are deeply 3.1 on PPPs). New developments suggest rooted in its past. Today the country that the initiative may pick up pace with the continues to grapple with a shortage of government reiterating its commitment to resources including qualified medical staff infrastructure plans and acknowledging the and adequate infrastructure and equipment, role and importance of the private sector. 1.2 Private Sector The private healthcare industry in South Africa is highly regarded for the quality of care provided. The sector is dominated by three large publicly listed companies which control 75% of the market. These companies are Netcare Group (‘Netcare’), Life Healthcare Group (‘Life Healthcare’) and Mediclinic Southern Africa (‘Mediclinic’). The remainder of the market 6
comprises a number of smaller, upcoming been constrained by several factors such as groups 6, with the result that competition is the uncertainty regarding the outcomes of relatively low. The cost of private healthcare the Competition Commission enquiry. The is estimated to be one of the highest in the government has also reduced the number world and became the subject of the of operating licences being issued which Competition Commission inquiry that affected the growth of the larger operators. started in 2014 and is still ongoing. While the smaller independent prospective There are currently approximately 300 operators, on the other hand, have struggled with access to capital to fund private hospitals and clinics in the country. infrastructure projects. Expansion in private healthcare facilities has Figure 1.1: Overview of the National Infrastructure Plan SIP 9: Green Energy in support of the SIP 12: Revitalisation of hospitals South African economy and other health facilities SIP 10: Electricity generation to SIP 13: National schools building support socio-economic development programme SIP 12: Electricity transmission and SIP 14: Higher education infrastructure distribution for all SIP 6: Integrated municipal infrastructure project SIP 15: Expanding access SIP 7: Integrated urban to communication space and public technology transport programme SIP 16: SKA & MeerKat SIP 11: Agri-logistics and rural infrastructure SIP 1: Unlocking the Northern mineral belt with Waterberg as the catalyst SIP 2: Durban-Free State–Gauteng logistics and industrial corridor SIP 17: Regional Integration for African SIP 3: South Eastern node & corridor cooperation and development development SIP 18:Water and Sanitation SIP 4: Unlocking the economic Infrastructure Master Plan opportunities in North West Province SIP 5: Saldanha-Northern Cape development corridor 7
2. Healthcare infrastructure: trends, plans and policies Public health infrastructure has been undergoing a systematic, albeit slow, transformation driven largely by the goals set out in the National Development Plan 2030. In contrast, the private sector has seen no new regulations being introduced in about a decade that would alter the market dynamics. This stagnation is primarily the result of government’s focus on the design and legislating of the National Health Insurance. With NHI finally being gazetted and the Competition Commission’s findings due by the end of the year, change is expected with potentially far reaching implications for the shape and state of both the public and private healthcare facilities. The following sections address some of the key trends and regulatory initiatives. 2.1 National Health Insurance The NHI policy, gazetted on 28 June 2017, reactive treatment. Currently, great aims to provide quality healthcare to all emphasis is being placed on improving PHC citizens and long-term residents in the facilities to meet the required minimum country regardless of their financial status. standards for the NHI Fund accreditation. Furthermore, NHI dictates that PHC centres While the theoretical merits of NHI cannot be located within specific radius of human be disputed, the financing of NHI has been settlements. This requires that additional a topic of national debate. The proposal is facilities be built in order to reduce distance for the scheme to be financed through to healthcare for rural populations in general taxation, which will necessitate particular. significant structural reforms involving higher taxation7. This approach to PHC provision should be beneficial to the public given that PHC The white paper on NHI has also become a clinics remain the first point of contact for focal point in the national debate around the most South Africans. In 2016 64.3% of quality of and access to the public patients reported to first access public PHC healthcare. NHI entails far reaching clinics, followed by private doctors (23.8%) operational reforms designed: and public hospitals (7.1%)8. • To improve service delivery incorporating NHI is currently being rolled out in 10 pilot improvements and expansion of the districts. The results of these pilots will facilities; inform the debate around the ability of • To even access to healthcare in rural and provincial and district health authorities to urban areas; and deliver the significant service improvements • To effectively address the country’s associated with NHI. considerable burden of disease. NHI is expected to result in a shift in focus towards health promotion and disease prevention. This implies that PHC provision will become a focus in lieu of more costly 8
2.1.1 Ideal Clinic framework 2.1.2 Impact on the private sector PHC clinics will have to meet the minimum In the white paper on NHI, the government quality standards to be accredited for NHI. indicated its intention to involve the private These standards are outlined in the Ideal sector in the administration and provision of Clinic framework, which was launched in public healthcare in the future. July 2013. • Administration: there is expectation, To date, the Ideal Clinic programme has particularly amongst large administrators, assessed all PHC facilities in the country. that existing private sector administrators Initially, none of the government’s 3,477 may be chosen to manage the entire NHI clinics were compliant with the Ideal Clinic Fund. This expectation was created by standards. However, within the first year the need to draw upon “existing more than 190 have reached ideal levels of expertise in the area of administration functioning, with 106 of these facilities and management of insurance funds”, located inside NHI pilot districts. By expressed in the white paper on NHI. 2015/16, 322 facilities qualified as Ideal • Provision: it is anticipated that private Clinics, with the number increasing to an sector operators will receive payments estimated 750 in 2016/17. The NDOH’s plan from the NHI Fund to provide publicly is for 1000 clinics in total to qualify as Ideal funded healthcare. Clinics by the end of 2017/18, 1,500 by the end of 2018/19 and 2,823 by the end of However, at this stage it remains uncertain 2019/209. how the government intends to contract Figure 2.1: National Health Insurance - anticipated impact National Health Insurance PHC facilities Training facilities Academic Other Quantity Quality hospitals facilities 9
with the private sector and what types of decrease in demand for private healthcare services the government sees as priorities. provision once NHI is fully implemented. This uncertainty has been one of the main It is likely that the private sector will need to reasons behind a relative lack of activity in reorganise significantly to reduce its the private health infrastructure market. emphasis on inpatient treatment in favour It is also anticipated that the population’s of PHC provision through NHI. Moreover, it ability to afford private medical schemes is expected that the focus will be on low will decrease as mandatory NHI cost PHC facilities as the NHI rates are contributions through payroll tax are anticipated to be much lower than those introduced10. This may potentially result in a currently paid by medical schemes. 2.1.3 Training facilities for medical staff The expansion of access to healthcare This is an unpopular decision with many envisioned by NHI will require significant provincial health departments, though, increases in the number of healthcare which may face significant resistance. professionals in the country. To date smaller Another possibility is that restrictions on initiatives have been put forward, such as training doctors, nurses and specialists easing the licensing process for foreign- currently imposed on the private sector will trained doctors working in South Africa. be lifted. Some of the large private However, given the scale of the shortage of healthcare groups, including Life medical staff, the country will need to Healthcare, have expressed interest in increase the number of domestic training medical staff12. This might require professionals it trains. developing new infrastructure as currently The training of medical staff falls within the private hospital groups have limited nurse mandate of the NDOH. Central hospitals, training facilities only. which are currently run by provincial Departments of Health, are one of the key platforms for the training of healthcare professionals11. There is an expectation that the following initiatives will be prioritised: • Refurbishment of existing academic hospitals; • Refurbishment of other public training facilities; and • Development of new infrastructure to facilitate training. The NHI envisages that the NDOH will assume control of tertiary care facilities. 10
2.2 Health Market Inquiry As mentioned in section 1.2, the The fee-for-service payment system is Competition Commission has launched the another area that currently encourages Health Market Inquiry (HMI) to investigate providers to produce volume rather than the root causes of the high costs of quality and increase costs. It also prevents healthcare provision in the private sector. cooperation between providers. It is The investigation intends to provide anticipated that this system will be replaced transparency into the system and the with a range of new contracting methods incentives which exist in the private where providers are paid based on the healthcare sector as a whole - and the value they add. For instance, should private hospital market specifically. The payments for treatment be set per inquiry started in January 2014 and took population rather than individual submissions from the sector in 2015 and procedures, it may be more profitable for again in 2016. The findings of the inquiry are private healthcare providers to focus on intended to be released in Q4 2017. disease prevention to reduce the cost of The Competition Commission has reasons treatment otherwise borne by providers. to believe that there are features of the In summary, with regulations in the health market that prevent, distort or restrict sector rapidly being aligned with the needs competition. The initial hypothesis was that of NHI and the anticipated results of the there was an excessive concentration in the HMI, private sector players have already health system, with three large private begun to position themselves to adapt to healthcare providers having 75% of the and take advantage of the expected market, and three medical scheme changes. It is anticipated that the three administrators claiming around 90% of the groups that currently dominate the private market. healthcare market will potentially not However, public submissions have pointed increase the numbers of hospital facilities to a different challenge, i.e. ineffective and they own but rather focus on developing inadequate regulation. As such, it is clinics and innovative home-care services. anticipated that the HMI will trigger Furthermore, it is also expected that smaller regulatory reforms which will be aligned groups and/or outside investors will enter with NHI and other global trends. For the market by developing new facilities in instance, at present tariffs are negotiated areas that the dominant players do not individually between healthcare providers cover. This would create more competition and medical schemes. This creates in the sector and increase coverage to enormous complications and heavily favours unreached areas. the larger players. It is expected that a national tariff list will be introduced to level the playing field and reduce tariffs across the board. 11
2.3 Energy and water: environmental and consumption of municipal water. Such cost implications solutions could potentially include extraction The primary source of electricity in South of borehole water and/or identification and implementation of water consumption Africa is from the national grid, which is optimisation projects. owned and operated by Eskom, the national electricity producer. The majority of Eskom’s Netcare, for instance, recently undertook a electricity is generated from coal-fired water extraction feasibility study as well as power plants, which is increasingly training of facility managers in identifying becoming a subject of national debate due and implementing opportunities for to the adverse environmental impact of optimisation of water consumption. fossil fuel combustion. Additionally, a drive In the public sector, the Western Cape DOH to reduce reliance on the national grid has has committed to implementing green been triggered by concerns over the strategies across healthcare facilities. Their security of supply and affordability of current approach, called the “5L” strategy, electricity distributed by Eskom. A trend is focusses on all areas impacting the therefore fast developing amongst public environment with specific emphasis on and private institutions alike, to employ water and energy. Such initiatives are likely alternative power generation solutions such to become more common over time, as as photovoltaic panels. Given the country’s limited water resources increasingly conducive climate, solar energy has gained become a concern for the country. a particular appeal despite relatively high capital costs of installing such technologies. Currently, one of two health PPP projects under procurement is the installation of tri- generation plants in Chris Hani Baragwanath Hospital in Gauteng. The utilisation of water in healthcare facilities is an area that also needs improving in order to reduce water wastage. To this end, there are initiatives to implement solutions to reduce 12
3. Healthcare infrastructure plans and trends: public sector As outlined in the previous sections, the state of public health facilities remains poor and therefore needs a significant amount of intervention to ensure access to quality healthcare for all. This requires the government not only to develop policies but also to implement the various projects that have been identified in the Medium Term Strategic Framework (MTSF) and other initiatives such as SIP 12. The following sections set out the prevailing trends in the public health infrastructure sector and plans of the National and Provincial Departments of Health. 3.1 Private Public Partnerships PPPs in South Africa gained momentum in billion (€366 million) by 2019/20. This is the early 2000s with 28 projects closed in expected to be facilitated by improvements the first decade. However, since 2010 the in the PPP implementation processes. The number of PPP transactions has decreased National Treasury is currently considering dramatically, with only 3 projects reaching ways to reduce the time it takes to plan financial close. The total number of closed projects as well as streamlining the PPP projects in the health sector to date is implementation of such partnerships. The 8, with the last one reaching financial close National Treasury has also teamed up with in May 2007. Refer to Appendix 2 for a full both local and international development list of closed PPPs. finance institutions to explore alternative financing mechanisms while diversifying Since 2011/12 the value of PPP transactions sources of funding to encourage private across all sectors, including health, sector participation. This is expected to decreased from an estimated R10.7 billion increase the pool of funds available and (€663 million) to R4.8 billion (€298 million) in help decrease project costs13. 2016/17. This was reported to be mainly a result of delays and cancelled projects in In the 2011 State of the Nation address, the the health and security sectors, driven by President prioritised the PPP Health concerns over affordability of such projects. Flagship Programme. This programme However, going forward the government comprised the development or anticipates that the value of PPP projects redevelopment of six central academic will gradually increase to an estimated R5.9 hospitals as presented in Table 3.1. Table 3.1: PPP Health Flagship Programme: list of central/academic hospitals Name of hospital Region Type of project Chris Hani Baragwanath Academic Hospital Gauteng Revitalisation project Dr George Mukhari Academic Hospital Gauteng Revitalisation project Limpopo Academic Hospital Limpopo New hospital King Edward VIII Hospital KZN Revitalisation project Nelson Mandela Academic Hospital Eastern Cape Revitalisation project Nelspruit Academic Hospital Mpumalanga New hospital 13
Of the six projects, only four were released may also be considered by the relevant to market and transaction advisors authorities for procurement under the PPP procured. The entire programme was framework. These facilities are also in a dire however subsequently suspended. One of need of refurbishment of physical the key reasons for the suspension of the infrastructure and related services, such as programme was the perception that PPPs facilities management. The implementation did not offer value for money, but benefited of PPPs would be subject to affordability the private sector instead. This resulted in and value for money criteria amongst the government having to reconsider the others. However, there is currently no way PPP transactions had been structured. indication of such transactions being actively pursued. The NDOH is anticipated to release these projects back into the market. The following At present, there are only two health PPP four of the six hospitals have been projects confirmed as under procurement, prioritised and should return to market over as presented in Table 3.2. These are: the MTEF. The combined capital value for • The installation of tri-generation14 plants the four projects is R15 billion: at Chris Hani Baragwanath Hospital in • Limpopo Academic Hospital; Gauteng to reduce dependence on the • Dr George Mukhari Academic Hospital; national grid. This is in line with a general trend observed nationwide; and • Nelson Mandela Academic Hospital; and • The refurbishment, staffing and • King Edward VII Academic Hospital. equipping of renal dialysis units in three Out of the above four hospitals, the hospitals in the Northern Cape province. Limpopo Academic Hospital project has There are more opportunities for such been the furthest advanced. projects to be rolled out in other public Lower tier regional and district hospitals hospitals and facilities. Table 3.2: Pipeline of PPP projects under review Project Implementing Capex Project Description Current Name Agent Status Chris Hani Gauteng N/A Installation of tri-generation Procurement Baragwanath Department of plants to reduce dependence Hospital Infrastructure on the national grid Development Northern Northern Cape N/A Refurbishment, staffing and Procurement Cape Renal DOH equipping hospitals in Dialysis Kimberley, Upington and Springbok with renal dialysis units Source: National Treasury, Full Budget Review 2017/2018 14
Table 3.3: Major infrastructure projects under way Project Name Implementing Capex Project Description Current Agent (R’bln) Status Health Facility Provincial 17.8 Construction, maintenance, Work in Revitalisation departments upgrading and rehabilitation progress Grant15 of new and existing infrastructure National Health NDOH 3.0 Accelerate construction, Work in Insurance maintenance, upgrading progress Indirect Grant and rehabilitation of new and existing infrastructure Limpopo: Siloam NDOH 1.6 Replace hospital Under Hospital construction Dr Pixley ka KwaZulu-Natal 2.7 Replace hospital Under Seme Hospital DOH construction Ngwelezane KwaZulu-Natal 1.0 Construct hospital complex Under Hospital DOH construction and Lower Umfolozi War Memorial Hospital Complex King George V KwaZulu-Natal 1.2 Upgrade and add to existing Under DOH hospital construction Boitumelo Free State 0.6 Revitalise existing hospital Practical Hospital DOH completion Chris Hani Gauteng DOH 0.8 Construct pharmacy, x-ray Completed Baragwanath and outpatient departments Rob Ferreira Mpumalanga 1.5 Upgrade and additions of Under Hospital DOH the existing hospitals construction Cecilia Eastern Cape 1.3 Construct main hospital Under Makiwane DOH (phase 4) construction Hospital Bophelong North West 1.1 Construct new hospital Under Hospital DOH construction St Elizabeth's Eastern Cape 0.7 Upgrade existing facility Under Hospital DOH construction Source: National Treasury, Full Budget Review 2017/2018 15
3.2 Other infrastructure plans The national government has budgeted equipment, is set out in more detail in Table approximately R606 billion for health 3.3, which indicates major infrastructure provision over the MTEF. Out of this budget projects under way (note that the project R23 billion has been allocated to ‘building costs presented below are not limited to and other fixed fixture’ and R12.6 billion to the MTEF, therefore the total amount ‘machinery and equipment’. The budgeted exceeds the R23 billion in the budget expenditure on infrastructure, including allocated to infrastructure). Table 3.4: Major infrastructure projects in planning over the MTEF Implementing Capex Project Current Project Name Agent (R’bln) Description Status Replace Limpopo: Elim Hospital National DoH 1.9 Identification hospital Free State: Dihlabeng Replace National DoH 2.0 Identification Hospital hospital Replace Limpopo: Tshilidzini Hospital National DoH 2.3 Feasibility hospital Eastern Cape: Zithulele Rehabilitate National DoH 0.5 Identification Hospital hospital Eastern Cape: Bambisana Rehabilitate National DoH 0.7 Identification Hospital hospital Source: Full Budget Review 2017/2018 In addition to the abovementioned projects projects are expected to be financed on that are at various stages of balance sheet, with the procurement of implementation, the National Treasury has construction companies and medical identified the following major infrastructure equipment providers. projects over the MTEF (Table 3.4). These 16
3.3 Provincial Departments of Health Annual Performance Plans (APP) provide departments’ APPs include new and detail of key priorities and projects to be replacement assets, upgrades and undertaken towards achieving the MTSF. additions, rehabilitation, renovations and The plans include expected capital costs of refurbishments, and non-Infrastructure. The individual projects. The most recent 2017/18 total value of planned spending on capital APPs cover projects that are planned for projects by each of the five provinces under the financial years 2017/18 to 2019/20. The review is presented in Graph 3.2. projects included in the provincial Graph 3.1 Provincial Departments of Health: Planned capital projects 1 800 1 600 1 400 1 200 (Rm) 1 000 800 600 400 200 - KZN Western Cape Limpopo Gauteng Eastern Cape 2017/18 2018/19 2019/20 3.3.1 Gauteng DOH The total combined budget of the Gauteng DOH for infrastructure development and refurbishment over the MTEF is R4.32 billion, with 118 projects identified. The five largest projects, in monetary terms, are set out in Table 3.5. Gauteng 17
In addition to the provincial facilities • R30 million for the procurement of indicated above, the City of Johannesburg Health Information System to improve proposed the following health infrastructure health services; and plans over the fiscal year 2017/18: • R1 million to begin work on the new • R22.2 million for the Ebony Park Clinic Naledi Clinic (R31 million allocated over renewal; three years). • R22.2 million for New Florida Clinic; Table 3.5: List of top 5 projects based on budget allocated: Gauteng Name of Project Project Status (IDSM)16 MTEF Hospital Description Capex (R’m) Construct new Project status: detailed design (February district hospital 2017). Construction was expected to Lillian Ngoyi adjacent to existing start in February 2017. Completion 1,102 Hospital community health expected in February 2020. centre Project status: tender was awarded Johannesburg Construct new prior to February 2016. Completion 165 FPS Mortuary mortuary expected in October 2019. Project status: design (February 2017). Hillbrow Convert community Construction was expected to start in District health centre into 150 December 2017. Completion expected in Hospital district hospital December 2020. Project status: detailed design (February Discoverers Convert community 2017). Construction was expected to Community health centre into 120 start in June 2017. Completion expected Health Centre district hospital in July 2020. Project status: design development Daveyton (February 2017). Construction was New Hospital 114 Hospital expected to start in April 2017. Completion expected in March 2020. Source: Gauteng Department of Infrastructure Development, Annual Performance Plan for 2017/18 Financial Year 18
3.3.2 KwaZulu-Natal DOH The total combined budget of the KwaZulu- Natal DOH for infrastructure development and refurbishment over the MTEF is R1.15 billion, with 113 projects identified. Five largest project, in monetary terms, are set out in Table 3.6. KwaZulu-Natal Table 3.6: List of top 5 projects based on budget allocated: KwaZulu-Natal Name of Name of Project Project Status (IDMS) Capex Hospital (R’m) Develop new 8- Project status: Infrastructure Planning theatre block, new (Stage 1). Project completion appears to Ngwelezane entrance, parking be beyond the current MTEF. 400 Hospital and upgrade of sewer/water services Prince Project status: Package Definition Mshiyeni Upgrade fire (Stage 4). Project completion appears to 140 Memorial protection system be beyond the current MTEF. Hospital Project status: Package Preparation Umphumulo Develop new core (Stage 3). Project completion appears to 120 Hospital block be beyond the current MTEF. Storm water unblocking project status: Under Construction (Stage 7); Storm water King Edward Completion date not stated. unblocking and 111 VIII Hospital Upgrading nursery project status: nursery upgrade Design Development (Stage 5); Completion date not stated. Repairs and Project status: Design Development Osindisweni renovations to TB (Stage 5). Completion date not stated. 100 Hospital ward Source: Kwa-Zulu Natal Department of Health, Annual Performance Plan 2017/18 – 2019/20 19
3.3.3 Western Cape DOH The total combined budget of the Western considering the application of open source Cape DOH for infrastructure development maintenance management systems for the and refurbishment over the MTEF is R1.97 maintenance of healthcare facilities and billion, with 233 projects identified. The five medical equipment (Pragma is currently largest projects, in monetary terms, are set employed in 6 facilities as the maintenance out in Table 3.7. In terms of strategic management platform). direction, Western Cape DOH’s priority is It is interesting to note that the Western the maintenance of existing health Cape provincial government has adopted an infrastructure. The province is currently alternative approach to NHI using their autonomous provincial authority. The approach was called Universal Healthcare Access, which focused on curative and preventative strategies, with 95% of cases seen first at PHC clinics. This approach reduced the number of patients treated in hospitals and hence the overall cost to the province. Western Cape Table 3.7: List of top 5 projects based on budget allocated: Western Cape Name of Nature of Project Project Status (IDMS) Capex Hospital (R’m) Project status: infrastructure planning Tygerberg (Stage1). Start date expected in August Construction of a Regional 2018, with construction potentially 2,400 new hospital Hospital starting in 2021/22 and planned completion in March 2026. Construction budget: R275 million Health technology budget: R45 million Observatory Replacement of Project status: production information Forensic forensic pathology (Stage 6A). Tender for the construction 320 Pathology laboratory and contractors issued in November 2016. Laboratory Health Technology Completion expected in November 2020. Health technology expected to be implemented in May 2019 - May 2021. 20
Name of Nature of Project Project Status (IDMS) Capex Hospital (R’m) Non-infrastructure health technology refurbishment project. Commenced in Tygerberg Health Technology October 2016, implemented in stages, 300 Hospital refurbishment with scheduled for completion in March 2030. Emergency Centre upgrade project status: Design Development (Stage 5). Project commenced in July 2010 with an expected completion in June 2022 (budget R127 million); Ventilation and AC refurbishment A number of Groote Schuur project: Infrastructure Planning (Stage smaller upgrade 237 Hospital 1). Project to commence in April 2018, projects with schedule completion March 2023. Outpatient department refurbishment project status: Infrastructure Planning (Stage 1). Project to commence in December 2018, with schedule completion November 2021. Project status: Preparation and Briefing Bloekombos New community (Stage 3). Project commenced in May Community 100 day centre 2017 with an expected completion in Day Centre April 2022. Source: Western Cape Department of Health, Annual Performance Plan 2017 - 2018 3.3.4 Eastern Cape DOH The total budget of the Eastern Cape DOH for capital projects over the MTEF is R4.54 billion, set out in detail in Table 3.8. A breakdown of the specific projects planned has not been provided in the provincial department’s APP. Eastern Cape 21
Table 3.8: Planned infrastructure spending: Eastern Cape DOH Expenditure Type 2017/2018 2018/2019 2019/2020 Total (R’m) (R’m) (R’m) (R’m) Maintenance and Repairs 436 497 473 1,405 Upgrades and Additions 122 181 229 531 Refurbishment and Rehabilitation 335 326 485 1,146 New Infrastructure Assets 552 501 401 1,454 Total 1,445 1,506 1,587 4,537 Source: Eastern Cape Department of Health, Annual Performance Plan 2017/2018 3.3.5 Limpopo DOH The total combined budget of the Limpopo DOH for health infrastructure development and refurbishment over the MTEF is R1.25 billion, with 265 projects identified. Five of the largest project, in monetary terms, are set out in Table 3.9. Limpopo Table 3.9: List of top 5 projects based on budget allocated: Limpopo Name of Name of Project Project Status (IDMS) MTEF Hospital Capex (R’m) Replacement of Project anticipated to start in 2017/18. hospital on a new Expenditure projected over 2017/18, site: malaria centre 2018/19 and 2019/20. Musina emergency 148 Hospital services, mother lodge, nursing education institute, equipment 22
Name of Name of Project Project Status (IDMS) MTEF Hospital Capex (R’m) Replacement of the Project anticipated to start in 2017/18. Dr MMM nursing school at Expenditure projected over 2017/18 and 77 Nursing School the Thabamoopo 2018/19 suggesting scheduled Hospital site completion in 2018/19. Upgrade health Project anticipated to start in 2017/18. support maternity Expenditure projected over 2017/18 and FH Odendaal complex, 2018/19 suggesting scheduled 60 Hospital reorganisation of completion in 2018/19. casualty and out- patient department Upgrade maternity Project anticipated to start in 2017/18. Sekororo complex and Expenditure projected over 2017/18 and 53 Hospital medical gas plant 2018/19 suggesting scheduled room completion in 2018/19. Replacement of Project anticipated to start in 2017/18. existing clinic on Expenditure projected over 2017/18, Mahale Clinic the same site, 2018/19 and 2019/20. 40 including furniture & equipment. Source: Limpopo Department of Health, Annual Performance Plan 2017/18 3.4 Medical equipment A large percentage of medical equipment is currently imported from abroad. The NDOH expressed concern over the lack of domestic manufacturing opportunities. Therefore, it was suggested that companies explore opportunities to manufacture medical equipment in South Africa, which would be beneficial for the country and add value to the supply chain. Furthermore, the supply of medical equipment, in particular oncology equipment, is monopolised in the country. The NDOH is of a view that this is an area where increased competition would benefit the country. 23
3.5 ICT infrastructure The modernisation of operational systems • Electronic patient records established on within the various hospitals and other public a national database; health facilities has been acknowledged as • Inventory management for better stock vital for the efficient management of control; patients and the facilities themselves. While ICT infrastructure is outside the scope of • Automated ward planning tools for this study, it is an area that is worth effective management of nursing exploring by foreign companies with resources. capability in electronic management Dutch companies interested in commercial systems. The implementation of the opportunities in the health ICT infrastructure following systems, amongst others, has should conduct further research and been identified as crucial to improve the analysis of the South African market. operational management of public health facilities and patient records going forward: 24
4. Healthcare infrastructure plans and trends: private sector As mentioned in section 1.2, the legislative framework governing private healthcare provision has remained relatively unchanged in the last decade or so. Private healthcare provision continues to be heavily skewed towards the more profitable treatment of diseases as opposed to prevention. Hospitals constitute the majority of health infrastructure in the private sector, with a limited number of day clinics and a relative paucity of PHC facilities. In terms of infrastructure development, there has been relatively little activity in the recent past, driven by a number of factors including, amongst others: • A reduction in the number of operating licences issued by the government (through provincial departments) to the dominant private healthcare providers. This trend has been observed mainly in large cities, and applies to licences for additional beds in existing facilities as well as new hospitals; • Uncertainty over the implications of NHI; • Uncertainty over the outcome and full impact of the HMI; and • The weakening South African economy driving a number of companies to shift their focus towards opportunities for expansion abroad. Main hospital operators and healthcare providers anticipate limited growth in the near future. For instance, Life Healthcare plans to add 115 beds in 2017, compared to 121 in 2016 and 229 in 2015. Mediclinic is planning to add 54 beds by the end of the financial year 2017/18, compared with 78 new beds over the prior financial year. However, despite this limited growth, prospects for Dutch companies to engage with private hospital groups on a commercial basis exist. Additionally, it is worth noting that the ease of procuring contracts in the private sector facilitates cooperation with foreign firms. During the course of the interviews conducted for this report, a number of stakeholders expressed interest in engaging with Dutch companies on a commercial basis. While no concrete opportunities have been identified while developing this report, the following plans and trends are likely to guide developments in the private health infrastructure sector going forward. 4.1 PHC provision The status quo creates opportunities for such partnerships going forward. partnerships between the government and At present, all three of the main healthcare the private sector. In particular, the providers emphasise growth in their PHC provision of PHC and other low-cost facilities. This trend is driven by NHI. healthcare services should be explored by Additionally, the likely changes in the tariff private companies. The implementation of structure are anticipated to render the NHI is further expected to encourage operation of hospitals less profitable. 25
In similar vein, private healthcare providers, within the same day. such as Life Healthcare and Netcare, However, development of new facilities arelooking to expand their respective may be somewhat limited, as growth in the portfolios of day clinics as an alternative to private sector often occurs through full service facilities. This trend has been acquisitions of smaller private health driven by advances in medical technology, facilities. Life Healthcare, for instance, has which allow for a number of procedures adopted such an approach as a way to that historically necessitated patients to be increase its footprint in areas where it has admitted into hospitals, to be performed in little or no coverage. day clinics with patients being discharged 4.2 Other health facilities There is a growing need in the country for Care, which itself has 13 PPPs to provide mental health facilities. The private sector public sector patients with access to perceives this gap as an opportunity and an dialysis. The group appears to have plans to area to focus on. Growth in the number of further its presence in this area with private mental health institutions is continued upgrade of their existing dialysis anticipated in the medium term. units. However, while this trend may offer Other areas of emphasis in the private some commercial opportunities, there is sector include renal care and specialised also a drive to pilot home-based and shared- oncology treatment facilities. For instance, care dialysis methods, where patients take Netcare has 50% interest in National Renal a more active role in their treatment. This may limit infrastructure investment. 4.3 Energy sustainability There is an observed trend in South Africa, some of its facilities and are using energy across numerous industries in the public efficient LED technologies to reduce their and the private sectors alike, to reduce and energy. It is therefore anticipated that improve the consumption of energy and innovative solutions to ensure water. This is driven by a desire to reduce environmental sustainability (and to reduce the reliance on the national grid for the operating costs) are to be prioritised in provision of electricity, as well as to ensure many health infrastructure projects, offering efficient utilisation of water in healthcare a commercial opportunity for private facilities. For instance Netcare has already companies specialising in such green installed renewable energy systems in energy technologies. 26
4.4 ICT infrastructure The modernisation of ICT infrastructure and may be sought after include electronic existing systems also appears to be on the patient records (established as a database agenda of private health operators, such as on a national level) or inventory Mediclinic. While this report does not focus management systems for better stock on ICT infrastructure, it should be control. This area should be further acknowledged as a potential area for developed to allow for a comprehensive commercial opportunities for foreign overview and assessment of potential companies specialising in such business opportunities. technologies. Services and solutions that 27
5. Key considerations for foreign companies The existing health infrastructure needs and the emerging trends identified in the previous sections result in a number of potential commercial opportunities for Dutch companies. However, there are a number of considerations that must be taken into account by companies wishing to enter the South African market. These include the economic environment, the implications of the B-BBEE Act, a lack of technical expertise in certain areas, technology limitations as well as the norms and standards that govern the development of healthcare facilities, amongst others. These need to be considered in order to ensure that Dutch companies are aware of the challenges and hence can fully assess the opportunities that exist in the sector. 5.1 Economic environment The country’s growth has slowed down in purchasing power decreases. This in turn recent years. The country has a total would have an adverse impact on the unemployment rate of 26% and a youth (15- revenues of private healthcare providers 24 year olds) unemployment rate of a and hence their ability to grow. daunting 52.7%. The adverse economic The decreasing purchasing power of the environment poses a number of challenges South African Rand has seen foreign goods to infrastructure developments in the health become relatively more expensive. This has industry. been of particular relevance for the On the public side the constrained fiscal acquisition of medical equipment which is conditions limit the government’s ability to to a large extent sourced from international expand healthcare provision, to improve the suppliers. It is therefore anticipated that the quality of existing facilities and to address appetite for new large scale projects may the maintenance backlogs. In the private be limited until the economic conditions domain the slowdown could potentially improve. This may limit commercial negatively impact medical scheme opportunities for third parties in the short to contributions, as the population’s medium term. 5.2 B-BBEE Act In order to encourage transformation and be either direct, by way of shareholding, enhance economic participation of indirect ownership, or through employee previously disadvantaged people in South or community shareholding schemes; Africa, the government has implemented • Management and control of the the Broad-Based Black Economic company; Empowerment (B-BBEE) Act, 2013. The act provides a guideline for the level of • Procurement and enterprise ownership and concentration of black developments; and persons across the value chain, including: • Investment in joint ventures with local • Ownership of the company, which could companies. 28
In order to promote increased localisation rating may decrease. In other words, private and to create local jobs, the government healthcare providers in South Africa may has aligned its procurement policies with risk lowering their own B-BBEE score by the B-BBEE Act. The Act is therefore an entering contracts with foreign companies important evaluation criteria in the public that do not already have representation in procurement of suppliers and contractors. It South Africa or have a low B-BBEE rating. has far reaching implications for the This, in turn, may have an adverse impact business community in the country, both on their ability to partner with the public those already operating in South Africa and sector. foreign businesses that wish to enter the Therefore, any Dutch company that is country. considering entering the South African Furthermore, it needs to be noted that the health infrastructure market needs to B-BBEE score of a given company depends consider the B-BBEE Act and the possible on its own value chain. Therefore, should it implications on its strategy. contract with a low-score partner, its own 5.3 Technology limitations At present the use of advanced the various professional disciplines involved technologies such as Value Driven in the provision of healthcare facilities need Maintenance (VDM) or Building Information to be integrated before considering Modelling (BIM) in the design of public advanced tools such as BIM. It is health facilities is limited. This is primarily a reasonable to assume that the same result of systemic issues within the public principle would apply to the remaining health sector. These include a general lack provinces in the country. Therefore, while of modernisation of public health the use of advanced technologies would be infrastructure and a lack of integration of beneficial in developing and managing processes including planning, healthcare infrastructure, the implementation, management and implementation of such tools must not be operation of health facilities. These seen as the primary solution to the issues drawbacks were confirmed by the Western facing the health infrastructure sector. Cape DOH, which acknowledged that Furthermore, should the use of such currently the processes are run in isolation, technologies be progressed, it would be preventing implementation of advanced subject to the outcome being aligned with integrated solutions. the norms, standards and guidelines set out Going forward, the province’s view is that in section 5.4. 29
5.4 Norms, standards and guidelines There are a number of norms, standards collaborative unit between the NDOH, the and guidelines designed by the government Development Bank of Southern Africa and to provide a framework within which health the Council for Scientific and Industrial provision is to be delivered and facilities are Research, which was established to to be designed, constructed, operated and optimise the acquisition and management maintained. of South Africa's public healthcare National Health Act, 61 of 2003 sets out the infrastructure in line with the norms and standards for the provision of aforementioned health infrastructure healthcare in South Africa. The Office of norms, standards and guidelines. Health Care Standards was established in 2013, through the National Health Amendment Act, with the key objective of protecting and promoting the health and safety of users of health services. Their role includes the monitoring and enforcing compliance by health establishments, public and private alike, to the standards and norms approved by the Minister of Health; and ensuring consideration, investigation and disposal of complaints relating to non-compliance with said standards and norms. Furthermore, there are a number of mandatory norms and standards that guide the implementation of all infrastructure projects across the development cycle including the areas of clinical services, healthcare environment, support services and procurement and operation. Approval is required should there be a need to deviate from these norms and standards. It is important to note that the implementation of the norms and standards does not currently apply to the redevelopment and/or upgrading of existing facilities. A full set of policies pertaining to the implementation of infrastructure projects is set out on the website of the Infrastructure Unit Support System. This body is a 30
6. Commercial opportunities There are a number of concrete commercial opportunities in the South African health infrastructure sector, including larger PPP and public infrastructure transactions, which are expected to enter the market over the MTEF, as well as smaller scale projects within the PHC sector. It is interesting to note that several stakeholders interviewed during the development of this report expressed interest in cooperating with the Netherlands in the health sector. 6.1 PPP projects As mentioned in section 3.1 of this report, These hospitals are all major central the NDOH is looking for alternative means hospitals with teaching capability. They are of funding and progressing PPP projects for expected to come to market seeking a full the six academic hospitals that were part of funding and services solution from a private the 2011 plans. There is still a need for sector driven consortium. The NDOH stated these hospitals to be developed in the that it would be important that any medium term. Of these six hospitals, the partnership with the private sector takes following have been prioritised with a into account the full lifecycle needs of the combined budget of around R15 billion. facilities. Therefore, some of the separate • Limpopo Academic Hospital (Polokwane services or activities to be provided by the in Limpopo); private sector include: • Dr George Mukhari Academic Hospital • Overall hospital management (this (West Gauteng and North West excludes provision of nurses and Province); clinicians); • Nelson Mandela Academic Hospital (Port • Design and architectural services; Elizabeth in Eastern Cape); and • Space development and utilisation; • King Edward VII Academic Hospital in • All equipment, specialised and non- Ethekwini (KwaZulu-Natal). specialised; Although it is still unknown when these • Information technology; PPPs will be released to market, there are • Facilities management (security, catering, indications that these transactions will be cleaning etc.); progressed in the medium term. It is therefore reasonable to expect that the first • Training and academic facilities; three projects may come to market in 2018. • Special power supply/energy efficient The estimated aggregate cost of these solutions. three projects is around R10 billion. The King Edward VII Academic Hospital project This list is not exhaustive but does provide is expected to follow shortly after with an the best private sector opportunity given estimated R5 billion cost. the wide scope of services required. 31
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