LUYANDA NJILO: Investors await clarity as NHI bill signed amid 200,000-bed deficit in hospitals
With President Cyril Ramaphosa expected to sign the National Health Insurance (NHI) Bill into law on Wednesday, a 200,000-bed deficit in hospitals means SA’s healthcare ambitions hang in the balance, with investors on the sidelines awaiting fiscal clarity.
Ramaphosa’s enactment of the bill is expected to kick off a campaign against the legislation that could end up in the Constitutional Court. Meanwhile, the pivotal debate remains: how will SA finance the hefty annual price tag of at least R200bn for proposed universal healthcare?
The discourse on NHI often overlooks a critical question: does SA possess the necessary healthcare infrastructure required to provide universal care and, if not, what is the cost to develop it and what is the source of funding?
Common assumptions suggest that merging public and private sector healthcare infrastructure would suffice but reality paints a different picture.
The World Health Organisation recommends a standard of five hospital beds per 1,000 individuals; SA falls well short at 2.1 (4.8 beds per 1,000 in the private sector, 1.8 in the public sector).
To meet this international standard, an additional 200,000 beds are necessary, supplementing the existing 127,000.
Current trends offer little optimism. Despite a population surge exceeding 50% over three decades, the number of hospital beds has remained virtually the same, declining in the public sector and rising in the private sector.
Yet, growth in the private sector has stalled over the past decade due to a stagnant medical aid membership, which has kept bed occupancy at just 66%. This imbalance underscores the challenges in fulfilling healthcare demands.
Compounding the bed scarcity, the NHI Bill stipulates that the NHI Fund — a government-managed monetary reserve for citizen healthcare services — will reimburse only facilities accredited by the Office of Health Standards Compliance.
Grim scenario
With most public hospitals being noncompliant, immediate, substantial investments would be imperative for refurbishment, in addition to the 200,000 new beds needed if NHI were implemented now.
Clinics also reflect this grim scenario, with only half meeting the mark of adequacy.
A scant 3% of the government’s health budget is spent on infrastructure, in contrast to the 6% of revenue that the private sector spends on maintenance alone.
On paper, SA is an attractive prospect for investors in healthcare infrastructure. Its rapidly growing population is also quickly urbanising, creating ideal conditions for good returns. Life expectancy has improved sharply in the past 20 years and continues to trend upwards, suggesting healthcare outcomes are expected to keep improving.
Investors are also attracted by negative factors, including SA’s obesity rate of almost 30% of the population and the high rate of diabetes.
Given these dynamics, SA presents a promising business opportunity for investors interested in addressing the country’s need for more hospital beds.
Public-private partnerships — with private entities financing the development of hospitals and managing them, while the government contracts for their services — could yield lucrative returns and foster sustained private engagement to satisfy the escalating demand for healthcare.
Yet, until there is clarity on how the NHI will be funded, investors will be reluctant to commit their capital to building out the infrastructure required to make the scheme work.
SA is running a budget deficit over the medium term, which means it is not feasible to fund the NHI from the fiscus without raising taxes or borrowing more money. The R200bn annual cost would require a VAT rate of 22% or a 31% increase in payroll tax, neither of which is practical.
Another suggestion is a monthly levy of R1,600 on all 11-million formally employed people. Still, many of them would find this unaffordable, and this level of cross-subsidisation, with each employed person supporting their own healthcare and that of five other people, would be unsustainable.
Cuts elsewhere
If the government implements the NHI Bill without bolstering infrastructure, it is likely that much of the demand in the public sector would shift to the private sector, where a much higher proportion of facilities meet accreditation requirements.
This shift could catapult bed occupancy rates at private hospitals from 66% to full capacity, and waiting lists would quickly grow. Alternatively, a deliberate redirection of funds to enhance public facilities could elevate the standard of hospitals and clinics, but that would require a very intentional decision by the minister of finance and cuts elsewhere in the fiscus.
A paradigm shift towards preventive care over hospital admissions could recalibrate SA’s healthcare approach.
Our primary healthcare spending is low compared with that of other emerging economies. If primary healthcare in SA were of a higher standard, it would result in improved outcomes. In turn, our demand for tertiary healthcare and additional beds might fall, especially since SA has a relatively younger population compared with most developed countries.
Ultimately, a balanced approach is imperative, one in which those who can afford to provide their own healthcare do so while those who cannot afford it rely on the state, supported by realistic and sustainable cross-subsidies through tax funding and harmonisation of medical schemes and the NHI Fund.
More important, we need the public and private sector to work together to achieve better healthcare outcomes for all South Africans.
• Njilo is global markets research analyst at Nedbank Corporate and Investment Banking.