As the number of SA’s medical aid members remain stagnant amid growing demand for affordable private healthcare, Dis-Chem says it is well positioned to keep expanding its offering of basic medical care at pharmacies, a move made easier with its 25% stake in a health insurance provider.
Dis-Chem announced on Monday it will pay as much as R195m for a stake in Kaelo Holdings, which offers both gap cover to pay for hospital bill shortfalls not covered by medical aids and other basic health insurance products for people without medical aids.
Dis-Chem announced the purchase more than a year ago but only received competition authority approval to buy the stake earlier this month.
Dis-Chem is expanding from its core pharmacy and retailer business into a primary care provider, offering basic nursing care at its pharmacies and vaccinations at its Baby City stores. It uses video technology that allows nurses to dial up to doctors when patients need it. Dis-Chem’s strategy to move into basic healthcare provision and funding is evident in its three recent acquisitions.
At the end of 2020, it purchased Pure Pharmacy Holdings, which owns 50 Medicare pharmacies that offer telemedicine consultations, allowing patients to see nurses in person and doctors via video care for treatment and scripts.
It bought retailer Baby City the same year and is adding clinics to the retailer, which provides infant vaccinations and antenatal care to mothers.
In December 2020, it announced plans to buy a 25% stake in Kaelo.
Some analysts said buying a stake in a health insurance provider is a good move, allowing it to take advantage of millions of people who work but cannot afford medical aids and who may use Dis-Chem’s nursing and telemedicine services. The stake in Kaelo could become a form of vertical integration.
Buying Kaelo underscores a growing trend in the healthcare industry as consumers battling job losses, high personal debt levels and a weak economy look for alternatives to comparatively costly traditional medical schemes.
Hospital group Netcare also announced on Monday it is offering three more insurance plans backed by insurer Hollard. These will help medical aid members pay for shortfalls not covered by medical aids or pay the excess co-payment if a medical aid charges extra for a member to visit a Netcare hospital instead of their designated hospital.
NetcarePlus MD Teshlin Akaloo said at the launch of the products: “Given the current climate of uncertainty and unemployment, there has never been a greater need for new, affordable ways to access private healthcare.”
Netcare says that during 2020, medical scheme members paid as much as R32.8bn towards out-of-pocket medical bills not covered by medical aids, even though overall medical expenses decreased because of the pandemic
Mike Settas, MD of Cinagi, which provides the type of insurance on offer from Kaelo and Netcare, said: “It thus makes sense for medical providers such as Netcare and Dis-Chem to invest in these private funding markets as demand is going to remain high for some time.”
He explained why these products are becoming more attractive.
“Gap cover serves as a supplementary product to members on medical aid and, as the product name suggests, it is designed to cover the ever-growing gaps in medical aid cover.”
The medical aid regulator released its annual report last month that shows more people are opting to downgrade to cheaper medical aid plans.
“The very dramatic rate of downgrades has been driven by private medical costs rising well above inflation rates consistently over the past two decades,” said Settas.
However, people on cheaper medical aids who go to hospital can face co-payments of up to R20,000.
He said demand for insurance policies that offer doctor or nursing services is growing as fewer people can afford medical aid cover and the quality of public health services remains poor.
Basic health plans are attractive to employers to achieve more equity in employee benefits as companies that provide medical aids for high-end employees cannot morally withhold such perks to lower-income employees.
All Weather Capital analyst Chris Reddy said: “Dis-Chem acquiring the stake in Kaelo diversifies the business and is a possible catalyst to increase customers visiting the store for nursing or testing services.
“We have seen from companies in other sectors the benefits of improving vertical integration and the benefits that you can get from not only diversifying the revenue streams but also betting on economies of scale,” said Reddy.
But one analyst said Dis-Chem is moving away from its core purpose of retail pharmacy.
Gryphon analyst Casparus Treurnicht asked if Dis-Chem was branching into areas too far removed from its traditional business.
“Is this because they are seeing a slowdown? Conventionally, a move like this signals maturity in your main area of business. And the companies that kept doing what they are good at, for example Shoprite, remain the best in their class.”
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.