Netcare, SA’s third-largest hospital operator by market value, says it is scaling back health and management services in Lesotho and handing over a hospital and primary healthcare facilities early amid a payment dispute with that country’s government.
The multimillion-rand deal to build and manage Lesotho’s biggest hospital was supposed to be a model public-private partnership. But the agreement was marred by a wrangle between Netcare and the Lesotho government.
In March, Lesotho health minister Semano Sekatle said the cabinet instructed him to expedite the termination of the deal, saying Netcare and its partners were in breach of a contract to provide advanced clinical services.
The agreement has been terminated prematurely from the end of August, but Netcare said the handover was brought forward because the Lesotho government is four months in arrears. Netcare’s role was to provide all clinical and management services, ranging from gardening and security to nurse training.
Netcare owns 40% of Tsepong, the consortium that manages the government’s Queen Mamohato Memorial Hospital in Maseru in return for a fee of R500m a year. The 18-year contract was set to run until 2026, but relations with the Lesotho government deteriorated after the hospital operator moved to fire 300 striking nurses earlier in 2021.
Reports have also suggested that Lesotho officials are dissatisfied with the costs of the venture, said to be taking up some 50% of the country’s health budget. Announcing termination of the agreement, Sekatle said in March that it had been “clouded by conflicts and misunderstandings since its inception”.
These included the issue of doctors’ accommodation, which he said was to be paid by the consortium in line with an agreement made in 2015, but was mistakenly paid by the Lesotho government until 2017.
Netcare said the Lesotho government had been adamant that full services should be provided until the end of August and “will only consider payment” after that.
The group said it was therefore no longer willing to provide funding for the partnership, and was entitled to suspend services.
“The refusal by the government of Lesotho to pay the outstanding fees clearly places an unreasonable expectation on suppliers to continue providing full services at a substantial level of commercial risk to their businesses,” Netcare said in a statement.
Total fees owing since March 2021 amount to R275m, Netcare said. This includes debt repayments due to the Development Bank of SA, which provided loans for the hospital’s construction, staff and nursing salaries, as well as payments to suppliers for services.
However, the hospital will accept all urgent cases and emergencies, including obstetric emergencies, and outpatient services will remain available for any unstable patients, the group said. All other patients will be referred to different state clinics and facilities.
The Lesotho government had agreed to put together a team to start the process, said Netcare.
“In financial terms, the contribution from the Lesotho public-private partnership is not material to the Netcare group’s earnings and there is no impact on any other parts of the Netcare business,” CEO Richard Friedland said in the statement.
“Netcare will be handing over the hospital and the primary care clinics to the government of Lesotho as fully operational facilities.”
As of Netcare’s year to end-September, it operated 53 hospitals in SA and one in Lesotho, with the latter making up 425 of the group’s 10,411 beds.
At the end of its 2020 financial year, the 40% stake in the Lesotho facility had a carrying value of R112m out of a total investment in associates of R378m.
The attributable earnings of associates and joint ventures brought in R56m, with the Netcare group generating R1.39bn in operating profit.
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