Advanced retreats…and then holds the line

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DAY surgery specialist Advanced Health has sold its Vergelegen facility in Somerset West – but has given its recently opened Harbour Bay facility in Simonstown a reprieve.

Advanced has battled for traction in South Africa despite a predicted shift towards more cost-effective day surgery procedures. The outbreak of Covid-19 also left Advanced’s operations paralysed for some months when elective surgeries were not considered essential medical procedures.

Cash flows have been tight, and Advanced’s balance sheet took serious strain.

The group recently needed to conclude a R50m rights issue to fortify the balance sheet. Fortunately, Advanced will also receive a much needed R17m for the sale of the Vergelegen facility.

Developments at Harbour Bay in Simonstown, however, might suggest Advanced is finally finding profitable traction. In fact, CEO Gerhard van Emmenis said recently that he hoped Advanced’s local operations would be profitable by the end of 2022.

Advanced’s operational footprint comprises nine day hospitals (after the sale of Vergelegen and the closure of the Soweto facility) – the bulk of which are located in the Western Cape at Knysna, Worcester, Panorama and Durbanville.

The Harbour Bay facility in Simonstown only started operating on January 17 last year with Advanced incurring capital expenditure of R8,3 million on the project.

Shortly after opening, operations at Harbour Bay came to a standstill as a result of Covid-19. The level five lock down, which was in effect from the last week in March 2020 and lasted a full month, had a devastating impact on the functioning of this surgical centre.

Van Emmenis noted: “Not only has Covid-19 had a strong impact on this newly created venture, but the staff and doctors involved, also felt totally demoralized.”

Consequently it was difficult to reactivate this facility for a second time. Van Emmenis said that during this period the facility did not enjoy the growth originally planned. “Larger than anticipated losses were incurred and part of the plan of action was to sell the facility to a prospective buyer.”

Such a decision was easy to justify at the time – remembering that the hard lockdown, for almost the entire month of April 2020, put further pressure on cash flows as about 95% of revenue was lost.

But during December 2020, things changed and Advanced’s board of directors took a decision not to sell Harbour Bay. Van Emmenis said the plan is rather to strengthen this facility and to grow it into a properly functioning surgical centre. “Initial indications are that Harbour Bay is starting to enjoy patients generated by specialists who previously did not make use of this facility.”

So what’s the prognosis for Harbour Bay and Advanced’s other facilities?

Advanced noted that Covid 19 has been in existence for over a year now, and this implied that even those surgeries that did not fall under the definition of “emergency surgery”, which were postponed over recent months, would soon qualify as “emergency surgery” as the waiting time has been long.

The group argued that many of these surgeries can be performed in a day hospital setting, allowing Advanced Health as a group of day hospitals to be a preferred service provider.

“With winter around the corner and experts warning that South Africa may experience a third or even a fourth wave of Covid-19, this is expected to increase the backlog of postponed elective cases and sooner will put pressure on the surgeons to start operating these cases in an environment that is COVID free.”

Advanced maintains that the risk of contracting Covid-19 is negligible in day hospitals because the environment in which these facilities operate is more controllable. “Management is therefore expecting that Advanced Health, should see an increase in the number of surgeries that have been postponed in the recent months, as the day hospital is a safer and a COVID free environment when compared to the acute hospitals.”

What’s more Advanced believed medical funders were also moving away from traditional hospital networks to day hospitals as the day hospitals are viewed as being more cost effective compared to the acute hospitals. “Medical funders are revoking co-payments for patients choosing non-designated service provider hospitals and co-payments linked to certain procedures.”

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