Investors in healthcare stocks on the JSE have seen value destruction of about R14bn in three days of trading as the market grapples with the possible effect of government reforms to the sector.
The National Health Insurance (NHI) Bill, tabled in parliament on Thursday last week, paves the way for the establishment of a central NHI Fund that will purchase services on behalf of the entire population. In terms of the bill, medical schemes will ultimately be limited to only offering cover for benefits not provided by the fund. The bill makes no provision for scheme administrators.
Last week the government said the fund would be publicly administered, and it did not intend to outsource this function to the private sector.
Shares in the country’s biggest medical aid administrators continued to fall on Tuesday as details of the NHI bill drove uncertainty in the market around the future of private healthcare.
Medscheme operator AfroCentric Health was down 4.04% (R104m), Momentum shed 2.19% (R326.9m), with Discovery taking the biggest hit since Thursday and down 11.79% (R9bn) at its close on Tuesday, bringing the sector down about a combined R9.44bn.
Discovery closed 3.19% down at R102.35, its worst close in almost five years.
Now the negative sentiment has spread to other healthcare-related stocks.
Warwick Bam, analyst at Avior Capital Markets, said the NHI bill adds uncertainty to the future of the healthcare value chain.
“Over-regulating an industry is seldom beneficial for shareholders or consumers. Private hospitals are currently underutilised due to affordability issues. It’s uncertain whether NHI changes this as employees will be burdened by higher taxes and NHI will determine where services are procured from,” said Bam.
Discovery’s medical scheme administrator subsidiary, Discovery Health (DH), is a significant part of its business and contributed R1.46bn (38.5%) to the group’s R3.8bn in normalised profit from operations for the six months to December 2018. DH’s key client is Discovery Health Medical Scheme, which paid it R2.86bn in administration and managed healthcare fees during this period.
Asief Mohamed, chief investment officer at Aeon Investment Management, said healthcare-related stocks have been under pressure for some time but news around the NHI has accelerated negative sentiment beyond the medical schemes. He said pharmaceutical companies may face pressure on their revenues if the NHI is implemented in its current form.
With global trends moving towards lower drug prices, the Government Employees Medical Scheme (GEMS) could use its pricing influence to force prices down for local drug makers, and this would affect their profitability, he said.
Pharmaceutical company Aspen has lost about R4.57bn, with competitor Adcock Ingram having lost about R255.1m of its value since Thursday, bringing the total loss to R4.8bn.
“NHI is concerning for the healthcare sector but poses a systemic risk to SA from a fiscal and economic growth perspective,” said Bam.
Mohamed agreed, saying President Cyril Ramaphosa seems quite set on making sure the NHI is implemented. However, with share prices depressed, he said this was probably a good time to invest in healthcare companies.
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