At the beginning of the Covid-19 crisis, investing in hospital groups may have seemed like a good idea. If you assumed that, you’d be mistaken.

What is the logic behind this? The most basic reason is that Covid postponed elective surgery, which is where hospitals make the most money.

Last week, the three South African hospital groups showed incremental progress. In certain ways, the Covid crisis has passed, and now is a good time for investment. Life Healthcare  Mediclinic, and Netcare are all solid companies that are innovating and expanding beyond South Africa while also forming international alliances.

What SA’s hospitals are doing is brilliant: adopting artificial intelligence, fighting to make excellent services more affordable by working collaboratively, and collaborating on cross-border research and development. It’s all in there, and it’s extraordinary.

Only Mediclinic has seen a three-year increase in share price. Profit and revenue growth has been consistent and steady across the board. Customers will be relieved to learn that the margins aren’t too high. It says a lot that they’re all dirt cheap.

The healthcare system in South Africa is extremely unusual, with a private entity grafted on top of a public entity. That was not an unusual occurrence in our world, but there is such a stark contrast.

The most effective technique

The dual nature of South Africa’s medical system has sparked a heated debate over which system the country should embrace, with the authorities pushing hard for a national health insurance system that, with a few exceptions, will be almost entirely administered by the government. They would almost certainly take the entire amount. According to the government, South Africa’s healthcare system is unequal, unfair, and elitist. The public health sector serves roughly 71% of the demography, whereas the private sector, which is largely funded by individual donations to medical aid plans or health insurance, serves roughly 27%.

A state-run NHI system is supported by nearly the entire academic and political elite. Noone really wants to admit it because it makes it sound elitist, but I believe a completely state-controlled scheme would be disastrous. It would result in poorer overall healthcare, as well as the undoing of decades of private healthcare progress.

People pay for private medical care with their own money, which the government ignores. It is completely up to them. That money could be put to better use. It does not lessen the state’s effort in health care; rather, it relieves the state’s healthcare system of the burden of caring for those 27 per cent of the population.

Why not go entirely private?

Why not go in the opposite direction, I wonder? Close the public sector entirely and gradually transition to a 100 per cent private sector, with the private sector required to provide healthcare to all at varying rates: free for the poor, subsidized by the healthcare taxes we pay. The government’s role should be to monitor and adjudicate rather than to provide healthcare. 

You’re mistaken if you assume this is a crazy idea. For example, Israel has a completely private medical care system that is wholly funded by taxpayers and is completely free. The main distinction is that you can choose your health professional, implying that competition inside the system is retained.

People often are put off by the concept of private healthcare because, from the outside, the primarily private US system appears dysfunctional and expensive, whereas public systems, such as the United Kingdom’s National Health Service, appear cheap, effective and popular. The problem is that the American system includes trillions of dollars in various interventions, significant supply constraints, and massive demand subsidies. The UK system looks better, except for the fact that simple procedures in South Africa take only weeks which would take months in the UK.

Clearly, this is a complex problem, but visit one of South Africa’s state hospitals for proof of the country’s dysfunctional state system. If you’re sick, bring your own sheets because the hospital’s been certainly stolen.

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