Basic health indicators in South Africa have improved recently due to surging government expenditure aimed at combating communicable diseases that have exacerbated existing constraints within the public health system. The advent of universal health coverage under the National Health Insurance (NHI) scheme has led to a number of opportunities and challenges, offering the potential to vastly reduce the economic impact of communicable diseases.

However, the NHI is facing delays as stakeholders seek a viable financing model in the midst of an economic slowdown that has strained the country’s tax base. Private sector participation will be critical to achieving long-term health care targets, and a number of positive indicators, including rising investment in new facilities and strong growth within the pharmaceuticals industry, demonstrate the strong potential for investment in the sector.

Wider Picture

Health care policy and service delivery is overseen by the Department of Health (DoH), which is responsible for rolling out the NHI, delivering primary care, regulating the sector, and implementing policy and spending programmes. The country’s two-pronged system is dominated by its large but resource-scarce public sector and the smaller, better-funded private sector. The department is guided by the National Development Plan 2030, which targets increasing life expectancy to at least 70 years and eliminating new HIV infections within the under-20 demographic by 2030.

An estimated 80% of the population received medical attention from the public health system in 2012, although the segment accounted for just 47.9% of total health care spending. According to the “2015 Health Care Outlook: South Africa” report published by Deloitte, 81% of total private health care spending comes from pre-paid insurance plans and 14% is out-of-pocket payments, as private health insurance remains unaffordable for most of the population. Deloitte reported that the country’s most pressing health challenges in 2015 will be to lower costs across the value chain without affecting patient outcomes, as the ongoing shift from a volume- and value-based to outcome-based care delivery model represents the linchpin to successful sector growth. “Private medical schemes currently service only a fraction of the population, but need to become more affordable and accessible if the industry is to grow,” Dr. Tebogo Phaleng, strategy consultant and former acting principal officer at Medshield, a local medical insurer, told OBG. “Middle- and low -income households offer the most potential for the extension of private health care coverage, and some form of partial or full exemption from prescribed minimum benefits is currently under consideration in order to facilitate the necessary introduction of more affordable benefit options.”


The DoH has benefitted from years of rising state spending in the sector, and Deloitte expects expenditure to increase from $29.8bn in 2013 to $39bn by 2018. The 2013 figure was equivalent to 8.5% of GDP, slightly below the OECD average, which stood at 9.3% in 2012. In February 2014 the government announced health care spending is expected to exceed R492bn ($42.5bn) between 2014 and 2016 in preparation for the NHI roll-out. A total of R221m ($19.09m) was allocated for NHI grants in 2014, while hospital and clinic construction and upgrades received R19bn ($1.6bn). Another R300m ($25.92m) was allocated to establish an Office of Health Standards Compliance, which will act as an independent facilities inspection authority.

Spending for 2015/16 remained robust, with the government announcing a planned allocation of R157.3bn ($13.6bn), equivalent to 11.6% of total expenditure, in its February 2015 budget announcement, while mid-term forecasts will see the health care sector receive R502bn ($43.37bn) in public expenditure up to 2017, including R46.6bn ($4.03bn) for several new HIV/AIDS programmes.

Basic Indicators

A rising health care budget has been identified as critical for improvements to mortality and basic health indicators, which have been in decline over previous decades as a result of an increase in incidences of HIV/AIDS and tuberculosis (TB). A 2014 OECD report on the country’s health care sector found that life expectancy across OECD countries rose from 74.8 years in 1990 to 80.2 years in 2012. However, South Africa’s life expectancy fell from 62.2 years in 1990 to a low of 53.7 years in 2005 as a result of deaths caused by HIV/AIDS, although this figure has improved in recent years. The Human Sciences Research Council reported in 2014 that the incidence of HIV infections among South Africans rose from 10.6% to 12.2% between 2008 and 2012, representing 6.4m patients. In July 2015 Statistics South Africa (Stats SA) reported that one in 10 South Africans is now HIV positive.

The problem is exacerbated by a high incidence of TB in the country, and the World Health Organisation reported that South Africa has one of the world’s highest TB burdens, with an estimated 450,000 cases of active TB reported in 2013, and 1% of the population developing the disease annually – the third-highest TB prevalence globally outside of India and China. TB cases have risen by 400% over the past 15 years, while the DoH estimates that 73% of TB patients are also HIV positive.

Positive Steps

Despite the challenges presented by communicable diseases, a number of positive developments highlight the success of intensified health care spending in recent years. The country’s infant mortality ratio, although high, improved to 33 deaths per 1000 live births in 2013, down from 35 in 2010, according to World Bank data. Infant mortality is expected to further decline as a result of reduced mother-to-child HIV transmission, which fell from 20% in 2005 to 2% in 2014. Improvements in the availability of antiretroviral (ARV) drugs has also seen the number of patients receiving these medications reach 3m in 2015, with plans to add an additional 500,000 ARV beneficiaries annually in the coming years. Mortality rates have also fallen as a result, with Stats SA reporting that the proportion of AIDS-related deaths had fallen from a peak of 50.7% of total deaths in 2005 to 30.5% in 2015.


As of 2015 there were roughly 400 public hospitals and 215 private hospitals in South Africa. The main private providers in the country are Medi-Clinic, Network Healthcare Holdings (Netcare) and Life Healthcare Group. Medi-Clinic is South Africa’s largest private provider, operating 49 hospitals across the country. The company’s portfolio includes 7600 beds across 52 hospitals in South Africa and Namibia, as well as Hirslanden, Switzerland’s largest private health care group and Medi-Clinic Middle East, operating out of the UAE. In May 2015 MediClinic announced that it had achieved 9% growth in full-year profits during the 2014/15 financial year.

Life Healthcare owns and operates 56 acute care facilities, primarily in South Africa, providing privately insured patients with specialty care options including acute rehabilitation, chronic renal dialysis, mental health care services, and radiation and chemotherapy oncology. In May 2015 the company released its financial results for the six months to March 2015, reporting that total revenue increased from R6.2bn ($535.68m) to R7.1bn ($613.44m) year-on-year, while operating profits fell from R2.49bn ($215.14m) to R1.65bn ($142.56m).

Netcare is in the midst of an ambitious expansion, and Bloomberg reported in May 2015 that the company is expanding services on offer to mid- and high-income earners, with first-half net income up 18% to hit R1.14bn ($98.5m) and revenue rising 5.8% to total R16.3bn ($1.41bn) as a result. The company is also on track to add 362 new beds to its current capacity of 10,000 across South Africa by 2016.

Boosting Public Facilities

With private hospitals continuing to maintain the highest health care standards within South Africa, the government is moving to improve the quality of care in public hospitals, highlighting the public-private partnership (PPP) model as the best method through which to fund improvements. Netcare, for example, is active in a number of PPPs involving construction, refurbishment, operations and management of public hospital facilities, including the Universitas and Pelonomi hospitals PPP, signed with the Free State Department of Health, as well as the Port Alfred and Settlers hospitals PPP, signed with the Eastern Cape Department of Health. Under the Universitas and Pelonomi PPP the company uses spare capacity to provide private services, while the Alfred and Settlers hospitals projects involved refurbishment and the construction of new facilities.

Private hospital groups are also increasingly involved in training, patient administration and pharmacy management, according to Deloitte. The existing disparity between the public and private sectors also provides considerable opportunities for innovative investments. Examples of creative offerings include the mobile health platform, mHealth, and medical devices for early detection and diagnosis, such as LifeQ, a platform using optical sensors and non-invasive devices to measure key metrics, which is under development by South Africa’s HealthQ.


In addition to facility improvements, the NHI scheme is also expected to have a significant impact on basic health indicators and service availability in the coming years. Designed to ensure universal access to essential health services, the scheme has been in the planning stages since 2007. It gained further momentum in 2011 with the publication of a green paper highlighting various universal health coverage targets, including eliminating the current tiered health care system, pooling risks and funds to advance equity and social security, procuring services for the entire population, bolstering purchasing power and strengthening the public health system. According to 2011 estimates, the NHI will cost R213.6bn ($18.45bn) in 2020 and R255.8bn ($22.10bn) by 2025, with plans to fund the scheme through taxes, mandatory employer contributions and government grants, although the future of the programme, which remains contingent on viable financing, has become unclear in the years since.


Despite announcing plans to unveil a white paper detailing the proposed framework, funding mechanisms and delivery strategy for the NHI in 2012, the government has not yet unveiled this critical policy document. Although the DoH reported it was in the final stages of drafting the white paper in early 2014, the NHI received little attention in the 2015/16 budget announcement, and the white paper has yet to be published. “For the last almost 18 months things have been extremely quiet with regards to the NHI, but there is a flurry of activity happening behind the scenes. The major challenge is that because the tax base in South Africa is so narrow it will stress the economy to roll out such a huge programme using contributions from a small portion of the population, which is already being taxed to the hilt. It is going to be a major challenge moving forward,” said Nkaki Matlala, Medi-Clinic’s executive director of government and industry affairs.

Stakeholders speculate that the NHI will be modelled on the UK’s National Health Service, with the Competition Commission’s two-year market enquiry into the affordability of private health services carried out in collaboration with the UK and scheduled to finish in November 2015, although the final system will likely be a hybrid of multiple universal insurance schemes, according to Matlala. “What would make sense is to incorporate some risk equalisation, where everyone employed would be forced by law to be a part of certain medical schemes, which could accommodate low-income patients, meaning fewer operations dependent on taxes. Then, as economic development increases and improves, schemes would begin to accommodate more people who could be taxed to source the NHI,” he said.

HR Challenges

In addition to funding challenges, a scarcity of qualified medical professionals also constrains service expansion, both within the NHI scheme and the wider health care industry. The public sector has long struggled to recruit and retain appropriate medical staff, with the World Bank reporting the doctor-to-patient ratio at 0.8 per 1000 patients in 2013, while a presentation by the Hospital Association of South Africa showed the ratio of nurses stood at 121 per 100,000 patients in 2014. Although the government is increasingly pursuing agreements aimed at discouraging poaching of key medical professionals from outside the country’s borders, according to Deloitte’s 2015 outlook, the challenge of retaining staff persists.

In 2012 the government launched an NHI pilot programme across 11 of the country’s 53 health districts, but the programme has been severely constrained by a shortage of physicians, with local newspaper Business Day reporting in March 2015 that fewer than 200 of the 8000 private practice general physicians in the country had agreed to work in public clinics since 2012, citing a preference to work in their own consulting rooms.

A nursing shortage is also affecting both private and public providers, and in February 2015 MediClinic, Netcare and Life Healthcare, which together control 70% of the market in the private hospital segment, released their submissions to a panel inquiring into the cost rises in the private health sector. Stakeholders from each argued that labour inflation plays a major role, driven by a nursing shortage and corresponding salary hikes required to retain skilled nurses, with Life Healthcare reporting that labour costs accounted for more than 60% of overheads in 2013. Although currency depreciation and rising food and electricity prices were also cited, a lack of available human capital remains a major constraint.


Outside of private hospitals, the pharmaceuticals industry remains a major high-potential growth driver within the health care sector. South Africa’s pharmaceuticals market is two-tiered, with the public sector characterised by high demand and low prices and availability. In the private sector, drug prices are similar to the developed world, while the government sets a single exit price for all prescription medicines in the country, regardless of where they are purchased. Generics account for 60% of the overall market in terms of volume, but roughly 33% of the market’s total value.

The pharmaceuticals market is the largest in sub-Saharan Africa and was valued at around $3.9bn in 2013, according to Deloitte. Although revenue growth has been constrained in recent years by government price regulations, Deloitte anticipates the pharmaceuticals market will grow by an average of 6% annually to reach $5.1bn in 2018, driven by expansion in the generics segment. The sector will also benefit from the government’s Ketlaphela project, which targets establishing a robust ingredients manufacturing segment by 2017 through agreements with international partners. Jennifer Power, Pfizer’s CEO, country manager and global established products business lead for the Southern Africa region, told OBG, “South Africa has the capabilities and potential to become a destination for foreign direct investment in the pharmaceuticals segment, but a more cohesive and sustainable enabling policy framework is required to achieve this.”


Although financing for human resources and universal health care coverage remains a major constraint, recent improvements in basic indicators bode well for future expansion. Indeed, considerable opportunities exist within the private segment, as the government moves to partner with the private sector to expand service delivery, while private hospitals and pharmaceuticals players record stable growth, creating positive forecasts for the future.