Day hospital specialist Advanced Health, which has had a torrid time on the JSE since listing in 2014, might finally be on the mend — partly thanks to Covid-19 protocols.
A brief but upbeat trading statement was well timed last week, coming days ahead of the company formalising a R67m rights offer.
The underwritten rights offer is significant, considering Advanced Health’s market capitalisation of about R70m. It has already sold down its interest in its Australian day clinic subsidiary and is selling two local facilities to cut debt.
Improved trading conditions appear to have also prompted a re-think about the sale of a recently opened day hospital in Cape Town.
Day hospitals have been mooted as affordable alternatives to traditional hospitals, and, as a potential "disrupter", Advanced Health was initially touted as the Curro of the health-care sector. But the company has battled for profit traction in SA, and losses mounted as it rolled out its network of facilities.
There were, however, signs of hope in the half-year to end-December, when revenue increased 30% to R340m and earnings before interest, taxes, depreciation and amortisation rose by 84% to R73m. Cash generated from operations shifted up 67% to R73m. The company notched up a R5.6m loss at bottom line – considerably lower than the previous interim period.
The latest news contained in the trading update is also hearty, with the firm reporting turnover for January and February for both the SA and the Australian operations up a sprightly 19% compared with the same months in 2020.
Advanced Health CEO Gerhard van Emmenis says that in the wake of the uncertainty surrounding Covid 19 — with the lack of sufficient vaccines and winter looming — it is apparent that day hospitals have become safe havens for specialists to operate in.
Van Emmenis says this is an emerging trend that bodes well for Advanced Health’s business.
"Day hospitals have no long-stay medical cases or critically ill patients, and all patients must undergo a PCR [polymerase chain reaction, or virus] test prior to surgery. This secures a safe and infection-free environment in day hospitals."
The livelier trading position coincides with Advanced Health’s decision to sell its Vergelegen facility in Somerset West and to discontinue the Soweto hospital operations. Van Emmenis says these actions will boost the cash flow of the SA operations.
In an interesting about-turn, the company’s Harbour Bay facility in Simon’s Town (which started operating on January 17 last year) has been given a reprieve from what would have been an alarmingly sudden sale.
The facility, which Advanced Health spent R8m on last year, got off to the worst possible start. The level 5 Covid-19 lockdown brought Harbour Bay to a standstill and the company initially felt it would be difficult to reactivate it a second time. Larger than expected losses were notched up, prompting a decision to sell the brand new facility. But in December the board decided instead to strengthen Harbour Bay to be "a properly functioning surgical centre".
The company reports in its recent rights offer circular that Harbour Bay is starting to accommodate patients referred by specialists who have not been using the facility. The circular says SA medical schemes are aligning to the day hospital model, and Advanced Health is seeing traction in schemes directing surgical procedures towards day hospitals. In 2019 Discovery Health Medical Scheme introduced the Discovery Day Surgery Network, of which Advanced Health is part.
The company says Discovery Health has implemented a system of "enhanced remuneration" to identified specialists in return for performing a large number of short-stay surgical procedures in day hospitals.
For 2021, Advanced Health has secured favourable designated service provider contracts with a number of medical schemes — including the low-cost options of Bonitas, Medihelp and BestMed (which previously excluded Advanced Health from certain plans).
"This should secure better patient volumes for our facilities," says the company. "Specialists and patients who are nervous of Covid-19-related infections prefer to [undergo] their same-day surgical treatments in day hospitals instead of at acute hospitals, which are more prone to Covid-19-related risks."
It says a large backlog of patients who could not be operated on due to Covid-19 restrictions is now starting to filter through various health-care systems. The company believes a third or even a fourth wave of infections will increase the backlog of postponed elective cases and put pressure on surgeons to start operating in a pandemic-free environment.
"Management is therefore expecting ... an increase in surgeries that have been postponed in the recent months," it says.
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