Managing director’s review
Life Healthcare extends a warm welcome to our new shareholders. We thank
you, and our existing shareholders, for the confidence you have shown in our
group through your investment.
Our Group’s 2010 financial results reflect significant growth, with all our
businesses contributing to Group profits. Revenue increased by 10.8%
to R8 786 million, while operating profit was up 20.1% to R1 867 million.
This strong overall performance resulted from organic growth through the
expansion of existing facilities, investment of capital in new facilities and
technologies, and operational efficiencies leveraged across the group.
Increased hospital admissions
Life Healthcare’s robust results reflect the increasing demand for private
medical treatment in South Africa. Our hospital occupancies have been
boosted by a growing, affluent but ageing middle class population with
medical insurance, a high disease burden and constraints within the public
There is a correlation between higher hospital occupancies and medical
scheme membership, which has grown from 6.7 million in 2004 to over
8 million in 2010. The introduction of the Government Employees Medical
Aid Scheme (GEMS) has made private health insurance more affordable to
government employees, which led to a significant expansion in private health
insurance membership. Our hospital occupancies have also risen due to
our leadership position in preferred network agreements with medical aid
schemes, which offer financial incentives for members to use our facilities. In
addition, South Africa’s sustained economic growth has resulted in a growing
middle class with more citizens opting for private healthcare, especially in
view of the current constraints within the public healthcare sector.
Expanding our horizons
This past year we have focused on growth, quality, efficiency and
We increased the number of registered hospital beds to 8 322 (including
Acute care hospitals
In November 2009 we opened the Life Beacon Bay Hospital in East
London and the Life Orthopaedic Hospital in Cape Town. Furthermore
we acquired the Life Bay View Private Hospital in Mossel Bay. These
hospitals, together with the new cardiac unit and additional 55 beds at
Life St George’s Hospital in Port Elizabeth, as well as other facility and
services expansions, will enhance our revenue in the coming year.
A number of our rehabilitation units were expanded during the year. Additional
adult beds were incorporated at Life St Dominic’s Hospital in East London and
a dedicated acute paediatric rehabilitation facility with 10 beds was opened at
Life New Kensington Clinic in Johannesburg. Application has been made for
a licence for the establishment of a 50 bed rehabilitation unit in the Western Cape. This unit will incorporate a dedicated 10 bed
paediatric facility. Responding to the demand for inpatient
orthopaedic and pulmonary rehabilitation, these services
were incorporated into our rehabilitation product range.
Acute mental healthcare
Scarcity of acute mental healthcare facilities in South
Africa has presented an opportunity for us to expand our
network in this field and to increase the number of beds
in existing facilities. A new 20 bed facility opened at Life
New Kensington Clinic at the beginning of the year, while
the new bed facility at Life The Glynnwood in Benoni is
due to open in March 2011.
Our group’s fourth renal dialysis unit opened at Life
St James Hospital in East London in 2009, bringing
the number of dialysis stations to 40. A fifth unit will be
opening at Life Mercantile Hospital in Port Elizabeth in
Healthcare services division
Life Esidimeni continues to explore opportunities for
clinical healthcare delivery public/private partnerships
(PPPs) with government. Contracts for the operation of the Conradie Care Centre and Siyathuthuka Care Centre
were extended to the end of April 2011 and May 2011,
Life Occupational Health
Stabilisation of the economy and new business growth
resulted in increased demand for our occupational health
services. Some contracts, lost in 2009 due to the depressed
economy, have been re-instated in 2010. We expanded our
presence in the mining sector through new contracts with
mines in the Northern Cape and Mpumalanga. Our focus
over the past year to increase the number of national clients
has paid off, with a number of such new contracts having
been secured this year. The Transnet Rail Engineering
contract, for example, required the establishment of
10 additional clinics.
To add value to our occupational and primary health
services, we offer personal protective equipment to our
existing clients, as well as a range of branded vitamins
to enhance the well-being of HIV positive and other
individuals treated at our clients’ on-site clinics.
We continue to extend the boundaries in our growth
strategies and have ambitious yet realistic goals for the next three to five years. A lready a leading provider of
high quality, cost effective healthcare in South Africa, Life
Healthcare aims to establish itself similarly in other selected
offshore emerging markets. We will grow the capacity of
our existing facilities to meet increased demand and to
enhance profitability while remaining competitive. Capital
expenditure of R 600 million excluding new acquisitions
has been allocated for 2011 to achieve our growth, quality,
efficiency and sustainability strategies and to provide
facilities and technology to attract specialists, healthcare
professionals and, of course, our patients.
Increased admissions in all our hospitals have
encouraged us to expand the geographic reach of our
coverage in the acute care hospital sector. Over the
next two to three years, we intend to increase our bed
numbers by approximately 800. This will be achieved by:
||expansion of existing facilities
||new lines of business, and
||construction of new facilities.
We are exploring opportunities to create niches in fields
such as mental health, renal dialysis, acute rehabilitation,
frail care and treatment for tuberculosis.
In support of our plans for international expansion,
our group has formed a strategic partnership with the
International Finance Corporation (IFC), a member
of the World Bank Group, to encourage investment
between emerging market countries. We intend to access
markets where we have identified the scale and financial
resources to drive demand for private hospital services
and where we can leverage our skills.
Quality and clinical governance
The quality management programme we introduced into
our operations a number of years ago has developed into
a comprehensive, consistently applied and measured
endeavour for which our group has received international
recognition. It is important that our quality programme
focuses on our patients’ experience of the service we
provide them, on health and safety issues affecting them,
as well as on the clinical excellence we demonstrate
in caring for them. In the latter respect, we continually
explore ways of improving our clinical interventions,
adopting and benchmarking ourselves against
international best practices, with the ultimate aim of
enhancing patient outcomes.
Our Group is a key role player in expanding the quality
improvements that we have implemented in our hospitals
to the industry at large, including the Department of Health, and is a leading force in the industry wide
collaborative initiative, Best Care … Always. Through
HASA we have participated in developing revised quality
standards for health institutions countrywide.
Life Healthcare hospitals face above inflation escalations
in health professional salaries as well as electricity and
other utilities’ costs, which impact our profit margins.
In an effort to safeguard profitability while continuing to
provide quality care, we have reviewed all our financial
structures and obligations, streamlined our operational
activities and standardised our accounting processes.
Benefits derived from our critical review of efficiencies in
theatre, appropriate medication formularies and usage,
stock classification, and staffing models – to name a few
– have achieved a sustainable culture of performance,
productivity, and efficiency.
For the past four years Life Healthcare has maintained
its international ISO 27001 ISMS (information security
management system) certification. Significant investment
in information management has improved the patient
experience as well as the quality and efficacy of
information used in key decision making. Our systems
have enabled the provision of significant strategic
information to our business processes and enhanced
our management of key business areas.
Our updated information management system, being
phased in over five years, is assisting the hospitals with
quicker and more efficient admissions and superior
patient case management, while modules that will be
implemented in coming years will also enhance billing,
credit management and infection control. The judicious
management of skills allocation through a system that
assesses the number and condition of patients in a ward,
and then ascertains the appropriate skills and number of
nursing staff required, ensures the most efficient use of
our healthcare professionals. This is further enhanced by
our initiative to free nursing staff from administrative duties,
enabling them to focus on patient care.
Healthcare regulatory environment
The problems and challenges facing South Africa are
many and varied. Affordability of healthcare provision
has become a global phenomenon and South Africa is
not alone in facing this. What makes our situation more
complicated is the severity of our disease burden. As
a result, implementation of the Department of Health’s
10 point plan to improve the quality of healthcare for all South Africans, has assumed a greater urgency.
Life Healthcare has appointed Dr Keith Shongwe
as general business manager health policy, to liaise
with government in matters relating to the healthcare
regulatory environment, health research and economics,
and government relations and strategy.
National health insurance (NHI)
In September 2010, the ANC announced their plans to
phase in NHI over 14 years, with 2012 as the starting
point. At the core of NHI will be primary healthcare, as
the first point of entry into the health system. Roll-out is
initially intended in the seriously underserviced areas
where people have difficulty accessing healthcare.
At the time of the announcement of the NHI, the private
sector had been afforded minimal opportunity to assist
in the planning for this extremely complex endeavour.
We look forward to receiving clarification of the process,
so that we can contribute positively to the development
of a model and address existing challenges that will
significantly impact NHI, such as the shortage of medical
professionals and resources in the country.
For many years Life Healthcare has proved, through
Life Esidimeni, that we are proficient at providing
affordable healthcare to the low income sector.
Affordability and cost containment are attained through
good primary healthcare and ensuring that patients
access health services at the correct level. We hope
for an inclusive process which will enable us to engage
with the state and other stakeholders in a spirit of cooperation,
to work towards constructive solutions in
ensuring an NHI that is appropriate to South African
needs and conditions.
National health reference price list (NHRPL)
In 2007, the Department of Health provided pricing
guidelines for the establishment of a reference tariff set
out in the NHRPL based on current costs, reasonable
returns on capital invested, and spread over current
occupancies. These tariffs were to be established as a
combined approach by business and the Department
of Health, and would facilitate competition and the
entry of new participants into the industry.
To ensure a fair and accurate NHRPL process, the
private hospital industry commissioned Deloitte to
collate data and to maintain confidentiality between
the various participants. The exercise proved useful in
that it established the basic cost of services provided,
highlighted any cross-subsidies between services, and
identified areas where services under recovered costs.
It also emphasised the fixed cost element of the private
hospital business and therefore the need to plan and
ensure that facilities were able to maintain minimum
levels of occupancy.
Unfortunately no agreement was reached with the
Department of Health, and as a result the published
2009 tariffs and the 2007 regulations were rescinded
by High Court order.
We will continue to update and maintain the costing
model to assist us in any future price negotiations.
Shortage of doctors and other healthcare
It is of national concern that insufficient doctors are
qualifying to serve the healthcare needs of the country.
The shortage of doctors in South Africa in both the public
and private sectors, coupled with the long development
lead time for specialists in particular, will impact the
future quality of healthcare. According to research done
by Econex there are approximately 27 400 general
practitioners and specialists practising in South Africa.
This is much lower than the often quoted number of
36 912 doctors, which fails to take into account doctors
who are still registered but do not practise for a variety
of reasons. This equates to a ratio of 0.55 doctors per
1 000 people compared to 2.1 in the UK, 2.7 in the USA and 1.7 in Brazil (WHO 2008 figures).
In addressing skills shortages, Life Healthcare has a
clinical directorate comprising doctors who are tasked
with improving access to academic institutions with an
emphasis on fields such as cardiology, neurosurgery,
internal medicine, orthopaedic surgery and paediatrics.
We are keen to partner with academic institutions to
address the current lack of capacity for doctor education
at recognised institutions. We currently sponsor a
fellowship for gastroenterology at the Pretoria Academic
Hospital and trainee cardiologists at both the University
of the Witwatersrand and University of Cape Town.
Of equal concern for South Africa is the shortage of nurses
as well as pharmacists. Demand for nursing services
corresponds with demand for hospital beds and our
group has been successful in attracting and retaining
nurses of a high calibre. The Life College of Learning
with its geographical spread of 10 learning centres and
our national network of acute care hospitals, position
us ideally to train and develop nurses. Our Group’s
pharmacy management services resource development
programme focuses on the training of pharmacist interns
and pharmacist assistants in conjunction with eight S outh
Business stakeholder relationships
Although the doctors – mainly specialists – who work
in Life Healthcare’s hospitals are clinically independent
from our group, they play a strong consultative role in
the operation of our hospitals through participation in our
medical advisory committees and/or hospital boards.
Our supporting doctors have contributed meaningfully
to the success of our quality initiatives and business
efficiency projects. In return Life Healthcare ensures that
our medical professionals are supported with quality
personnel, facilities, technology and equipment in the
treatment of their patients in our hospitals.
At Company level, Life Healthcare has provided
investment opportunities for doctors, and they currently
own a 5.9% shareholding in the Group. Doctors have
also purchased shares in certain hospitals, aligning their
interests with those of the Group.
As a support to both doctors and line managers our clinical
directorate safeguards professional conduct and standards
and monitors procedures to ensure best practices are
Private medical insurers
Our commitment to providing world class quality and cost
effective healthcare is underpinned by our strategy to
make healthcare accessible to all sectors of the private
Life Healthcare is the leading hospital provider to private
insurers for preferred network agreements, under which
patients are either encouraged or restricted to use our
group’s hospitals rather than other healthcare facilities.
Due to our ability to contain hospital costs without
comprising quality of care, we have maintained strong
relations with the medical insurers.
Life Healthcare has initiated innovative models to ensure
that our pricing structures are current, appropriate and
accurate. Through information sharing and co-operative
relations with medical schemes, we have introduced
alternative reimbursement models (ARMs), changing
our billing systems and fee structures. These models
consist of a mix of per diems, fixed fees and diagnostic
related groupings (DRGs) that commit Life Healthcare
to managing and containing costs, and passing on a
portion of the savings from such cost containment to the
private medical insurers.
Life Healthcare is committed to building a better South
Africa by improving healthcare in the country. The Group has, through Life Esidimeni, maintained a long standing
PPP with the government in providing quality long term
healthcare services to indigent patients. Our group is
also in partnership with the Eastern Cape Department
of Health and an empowerment partner in Life Isivivana
Hospital in Humansdorp.
Corporate social investment
Sustainable corporate social investment is an inherent
component of our business ethos and is aligned to our
long term objectives. In A ugust 2010, the three week
strike action by nurses from the National Health and Allied
Workers Union (NEHAWU) led to widespread shutdowns
of state clinics and hospitals. In total 109 patients, most
of them in dire need of specialised medical care, were
admitted to various Life Healthcare facilities. Several
state paediatric patients were admitted to Life E sidimeni’s
Matikwana H ospital, a PPP district facility near H azyview,
while other Life E sidimeni facilities admitted mental health
and other long term patients from state hospitals affected
by striking healthcare workers.
Our own private hospitals were in no way affected by
the public sector strike. I applaud the compassion
shown to these patients by our nurses and supporting
doctors during the strike action. This generosity of spirit
is evidenced in many examples of services rendered in
our community outreach projects (see page 40 to 41).
In another public sector outreach, Life Healthcare
responded to the call to support the government’s
national campaign to have 15 million citizens counselled
on, and tested for, HIV and screened for other chronic
conditions by June 2011. Capitalising on our ability to
access employed but medically uninsured people, we
are engaged in free counselling, testing and screening
services at more than 50 of our occupational health sites
and also at a number of our hospitals.
Key to our continued success is the ability to adapt to a
changing healthcare environment and explore innovative
methods of healthcare delivery to ensure sustainability.
It is premature to predict the effect the planned NHI will have on the private sector. We await clarity from the
government on the role of private healthcare providers
in this initiative. We are confident of our ability to make
a meaningful contribution both to NHI and the country
as a whole.
In particular, we can share expertise with the public sector
in providing management, systems and administrative
support; by training healthcare professionals and
partnering in addressing issues such as skills shortages; by reducing waiting lists of patients requiring elective
surgery; and by establishing clinical quality benchmarks
and understanding disease patterns. We are committed to
broadening access to healthcare for low income groups
and to making a positive impact on people’s lives across
the spectrum of society. Our outreach to government
Skills development is essential to the country’s
sustainability. Training of nurses and pharmacists remains
a priority to mitigate the skills shortages in meeting the
needs of doctors and patients, and to ensure continuity of
high quality patient care. In striving to attain our strategic
objectives, we remain committed to investing in the
further education, development and well-being of all our
We will continue to focus on our growth objectives in
South Africa and in selected offshore emerging markets.
To enhance performance, productivity and best
practices throughout the group we will pursue
our quality management and clinical governance
strategies, aiming to maintain and exceed internationally
accepted standards of care. In promoting affordability
and accessibility we will continue to focus on cost
containment and business efficiencies.
Life Healthcare has a consistent strategy, a disciplined
framework, and exciting opportunities for sustainable
growth. Aligned to our growth, quality, efficiency and
sustainability objectives and our vision of providing world
class healthcare for all, we will adhere to the ethics for
which Life Healthcare is renowned. I look forward to
2011, confident that we will once again add value for
This year we welcomed Dr Keith Shongwe to our
executive management team. We believe his extensive
experience in clinical and government matters will
broaden our expertise.
Two changes to the executive team are Dr Dena van den
Bergh, general manager national healthcare functions,
who resigned after 27 years of service, and Dr Steve
Taylor, general manager coastal region who has stepped
off the executive team but will remain within the group
as medical director. I thank them for their effort and
contribution to executive management over the years.
Our corporate activities intensified during the year with
the share offering and subsequent listing on the JSE, and
I would like to thank the board for their guidance and
resolute support of management during this time.
Life Healthcare employees across all of our operations
have shown dedication, often beyond the call of duty.
Our financial results and the progress we have made in
expanding our group are evidence of every individual’s
contribution to the Company. We are also indebted to
the healthcare professionals, patients and suppliers who
support and strengthen our endeavours. Thank you to all