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
82.1.1 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
9with 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.
102.2 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.
112.3 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
123. 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
13Of 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
14Table 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
153.2 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
163.3 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
17In 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
183.3.2 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
193.3.3 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.
20Name 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
21Table 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
22Name 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.
233.5 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:
244. 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.
25In 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.
264.4 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
275. 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.
28In 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.
295.4 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
306. 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.
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