Life Healthcare’s plans big expansion despite NHI

Peter Wharton-Hood, the CEO of Life Healthcare, is pivoting the biggest South African hospital chain by market value to diagnostics and healthcare services as clinical admissions plateau. 

The company is expanding its capacity to check for early signs of diseases such as cancer by building two particle accelerators near Johannesburg.

It’s introducing positron emission tomography scans to help doctors detect early signs of health problems, said Wharton-Hood, who retired from Deutsche Bank AG and got the role at the hospital chain following a serendipitous encounter at the golf course. 

“The natural growth prospects for pure hospital business that are just acute hospital settings-based are not as exciting,” Wharton-Hood, 58, said in an interview at Bloomberg’s Johannesburg office.

“It’s predictable, and it’ll return cash. But if you’re looking for growth, we’ve had to pivot our business away from hospitals.”

Rising costs and increased pressure on disposable incomes have left millions of residents in Africa’s slowest-growing economy after Sudan and Equatorial Guinea struggling to afford full health insurance packages.

Instead, cheaper insurance packages have become popular, allowing people to tap diagnostic tests that can keep them away from hospitals.

The two cyclotrons are expected to be up and running in the first quarter of next year.

The Johannesburg-based company is also considering partnerships with the government, where it could establish hubs in community centres or contracts that enable access to PET scans — which use small amounts of radioactive materials and a special camera to check organ and tissue functions — for public-sector users.

“The use of PET scans in South Africa is a fraction of what happens in developed markets,” Wharton-Hood said. South Africa performs 330 PET-CT scans per million population, which is considerably behind international standards.

Five times the number of scans are performed per million in the UK, according to the company.

Another way Life Healthcare is widening its patient base is by expanding in treatment areas such as kidney care. It acquired local renal clinics that more than doubled its dialysis stations across the country to 1,145. 

Life Healthcare plans to offer fixed-price deals for dialysis patients that cover the care needed rather than requiring payments for every visit to a clinic or a hospital.

Affordable costs could encourage patients to consider using the clinics more frequently and reduce the need to go to a hospital.

One of Wharton-Hood’s first moves since coming out of retirement and joining the company was to find a buyer for its UK-based unit, Alliance Medical Group.

The South African company sold the provider of imaging services for £910 million ($1.2 billion) last year, helping improve its balance sheet and focus on new revenue streams.

That includes Neuraceq, which assists in Alzheimer’s diagnosis, Wharton-Hood said. Doses sold of the FDA-approved molecular-imaging tracer rose 74% in the six months through March 31. 

Still, hospitals accounted for 91% of the company’s revenue in the year ended Sept. 30. Wharton-Hood’s didn’t disclose when the new businesses will scale up and investors are yet to be convinced. 

The company’s shares have fallen 40% in the past 12 months, outpacing a 1.3% decline of the benchmark stock index, and a 12% drop in rival Netcare Ltd.’s shares.

While Life Healthcare had initially wanted to hire a medical doctor as its chief executive, Wharton-Hood’s preparation for the interview following the chance conversation at the golf course helped him win the job.

“About 80% of this job is identical to running a bank — it’s human resources, processes, regulation, government,” he said.

“The other 20% of the job, a bit like running a bank, is you don’t have a clue. A lot of chief executives in charge of banks don’t know what goes on at the trading desk.”