Private hospital groups squeeze earnings from meagre patient growth

Both Netcare and Life Healthcare results for the six months to the end of March point to a healthcare market where demand remains resilient, but is not exactly roaring.

Patients are still coming through hospital doors, but growth in paid patient days remains thin, while medical schemes are adjusting benefits, some funders are under pressure and hospitals are having to work harder to convert modest activity into earnings growth.

Netcare reported a 4.8% increase in group revenue to R13.3-billion for the six months ended 31 March 2026, while normalised group Ebitda rose 6.6% to R2.5-billion. Profit for the period increased 11.9% to R924-million, and adjusted headline earnings per share climbed 21.9% to 71.7c.

The earnings growth was far stronger than the movement in hospital activity. Total paid patient days increased by just 0.7%, with acute hospital paid patient days up 0.4% and mental health paid patient days up 3.4%.

Netcare CEO Dr Richard Friedland said performance was “underpinned by resilient demand for private healthcare services together with the ongoing benefits of our digitisation and AI strategy, which continues to deliver a meaningful digital dividend, and the continued execution of the Group’s share buyback programme”.

Operational performance
vs financial engineering

In an interview with Daily Maverick, Friedland was more direct about the split between operational performance and financial engineering. Asked how much of the 21.9% adjusted Heps growth came from real underlying demand rather than efficiencies, cost control and buybacks, he said: “If you look at our profit after tax, that rose by 11.9%, so effectively of that 21.9% you’ve got about half of it coming from the operations, and then the rest is a result of our share buyback scheme.”

Netcare returned R948-million to shareholders through ordinary dividends and share buybacks in the first half. It declared an interim dividend of 44c a share, up 22.2%, and continued buying back shares. Since the buyback programme began in September 2023, the group has repurchased 181.7 million shares, or 12.6% of the ordinary shares in issue at the end of September 2023.

Life Healthcare

Life Healthcare showed a similar pattern of earnings resilience against a soft volume backdrop.

The group’s revenue from continuing operations rose 2.4% to R12.4-billion, while normalised Ebitda increased 5.2% to R2-billion. Normalised earnings per share rose 8.4% to 53.1c, and the interim dividend increased 9.5% to 23c a share.

But Life’s paid patient days declined by 0.4%. On a like-for-like basis, excluding the impact of a medical scheme placed under curatorship (Sizwe Hosmed medical scheme), paid patient days would have risen 0.9%. Weighted average occupancy on a like-for-like basis was 67.5%, down from 68.8% in the prior period.

Its acute hospital business was particularly squeezed. Hospital revenue rose 1.1%, despite a 0.9% decline in paid patient days. Excluding the curatorship impact, acute hospital paid patient days would have grown 0.4%. Life said second-quarter occupancies exceeded 70%, and the group achieved an average tariff increase of 3.3%.

CEO Peter Wharton-Hood said the strong balance sheet had given management the optionality to be able to “embark on significant expansion opportunities”.

“From a doctor-relationship perspective, we see a long-term approach to how we invest in specialists. They are the long-term revenue generators of the company, and we’ve already completed 27 sub-specialist programmes with an 89% retention rate. We will be expanding this programme to cover 115 specialists and sub-specialists over the next nine years, at an investment of nearly R500m, but yields an exceptional return over the period of 22%,” he said, adding that 22 of the 116 specialists were currently in training.

Better growth came from areas adjacent to traditional acute hospital care. Life’s complementary services division, which includes mental health, acute rehabilitation, renal dialysis, oncology and diagnostics, grew revenue by 13.7%. Occupancies in mental health and acute rehabilitation increased to 72.7%, while MRI, CT, PET-CT and SPECT volumes grew 4.2%. Renal treatments rose 9.3%, with the renal dialysis business moving into positive normalised Ebitda from a loss in the prior period.

Broader healthcare mix

That suggests private hospital groups are increasingly relying on a broader healthcare mix rather than expecting acute hospital admissions alone to do the heavy lifting.

Both groups also pointed to the role of medical schemes in shaping volumes.

Netcare said some medical schemes were proactively amending benefit structures and plan designs, creating in-year variability in acute hospital volumes. Friedland said the issue was “not widespread” and related to two schemes specifically.

One was Sizwe Hosmed, where Netcare had continued to partner with the scheme despite membership losses. The other was GEMS, where he said the Tanzanite option had been moved to prescribed minimum benefits only, while another option had been moved into a low network scheme.

For consumers, that tells you that although the private hospital system may be reporting resilient demand, medical scheme design, affordability and benefit restrictions can still influence whether patients end up in hospital, where they are treated, and what options are available to them.

Life Healthcare’s outlook also points to caution rather than a surge. For the full 2026 year, it expects paid patient day growth to be relatively flat, revenue growth of about 2%, and occupancies of 68%. It plans to recruit about 140 new specialists and is targeting R400-million in cost savings over three years.

The group is still investing. It plans to add 87 acute hospital beds, 64 acute rehabilitation beds, a catheterisation laboratory and a vascular laboratory. Construction of the new 140-bed Life Paarl Valley Hospital is under way and expected to open in the 2027 financial year. Life also plans to open three PET-CT sites during the year.

Netcare, meanwhile, is pushing its digital and artificial intelligence strategy as a source of both efficiency and clinical advantage. Friedland said the group had achieved R706-million in efficiencies since 2022 through the digitisation of hospitals and other operating platforms through CareOn.

AI monitoring your bloodstream

He said Netcare’s AI models were already being used in ICU settings, including a predictive model that can flag the risk of a catastrophic bloodstream infection or sepsis “eight to 10 hours before it happens”.

The next step is wearable monitoring in general wards. Friedland said the devices would continuously monitor blood pressure, pulse, oxygen saturation, respiratory rate and ECG.

“In a general ward, typically nurses will only measure the vitals of a patient every six hours or six times a day, so 96% of the time they’re not being monitored,” he said. “Here, you’ve got a system that’s going to monitor them continuously.”

He stressed that the device is medical-grade and approved by the US Food and Drug Administration and European regulators, rather than a consumer fitness gadget.

Friedland argues that AI is moving from optional experiment to core infrastructure. “AI is no longer an optional innovation, it’s become essential healthcare infrastructure,” he said.

There is also a green-energy element. Netcare’s wind power purchase agreement, covering six Eskom-supplied hospitals, is on track to deliver up to 100% renewable electricity to those facilities from September 2026. The group is also working to extend wind power to 56 municipally supplied acute hospitals, Akeso and Medicross facilities from March 2027, which could lift renewable energy use to about 60%.

The combined picture from Netcare and Life Healthcare is not one of a private hospital sector enjoying an easy post-pandemic boom. It is a more complicated story of modest patient growth, pressure from medical scheme dynamics, and a sharper hunt for margins.

The hospitals are still full enough to make money, but not full enough for management teams to relax. For patients and medical scheme members, the question is whether the next phase of private healthcare growth improves access and outcomes or simply becomes a more efficient way of rationing care inside an already expensive system. DM