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Why one hospital takes up almost 30% of this country’s entire health budget

As part of a 2008 public-private partnership agreement, the Lesotho government contributed almost R840-million to the hospital project. The Development Bank of Southern Africa paid another R1.4-million in the form of a loan to Tšepong (Pty) Limited, a company comprised of Netcare and largely local partners, according to a 2013 report by the United States-based University of California San Francisco.

6 February 2020 by Pascalinah Kabi

The once-heralded public-private hospital in Lesotho is the country’s only specialist facility. The catch? It takes up about 30% of the health budget. Credit: Thabelo Monamane, Lesotho Times

Today, the country’s only specialist hospital run as part of a public-private partnership takes up almost a third of the nation’s health budget.

Netcare has applied to the Lesotho High Court to try to save the floundering public-private partnership it embarked on more than a decade ago to run the country’s only specialist hospital.

Today, what was once a much-anticipated hospital is plagued by in-fighting and consumes almost a third of the kingdom’s health budget, shows a Bhekisisa / Lesotho Times investigation.

In 2008, South African hospital group Netcare became the only international partner among a group of companies awarded a contract to build and operate what would become the 425-bed Queen ‘Mamohato Memorial Hospital. Also included in the deal were contracts to build a nearby clinic and refurbish three others.

Today, the Queen ‘Mamohato Memorial Hospital takes up almost 30% of Lesotho’s health budget, according to confidential Tšepong company records seen by Bhekisisa / Lesotho Times. In other words, about M699-million of the country’s M2.5-billion health budget went to the specialist hospital and linked clinics in 2018/19 — and even then, not all wards were operational.

Netcare’s court bid to ask Lesotho’s High Court to intervene in the hospital consortium’s finances comes amid claims that the consortium — plagued by infighting — owes Netcare hundred of millions for services provided at the facility.

High-ranking members of the kingdom’s government, meanwhile, say that the country got a raw deal out of the public-private partnership and that a lack of services at the specialist hospital continue to send patients across the border to South Africa for care.

Hospital consortium allegedly owes Netcare almost 200-million

Netcare general manager Christoffel Smith applied to the Lesotho High Court in December to have Tšepong (Pty) Limited placed under judicial management, alleging that it owes creditors R320-million.

Judicial management is a legal process of appointing independent managers to run the affairs of a company under financial distress.

In court papers, Netcare says the consortium owes it more than R186-million for services Netcare provided to the hospital.

Meanwhile, a last-minute, R75-million price hike in the projected cost of the hospital may be to blame for the project’s dire financial situation, suggests a new report from the international charity Oxfam.

Oxfam says it possesses confidential documents revealing that the billion-rand contract to design, build and operate the specialist hospital was dramatically changed during final negotiations to raise the project’s price tag from R180-million to R255-million.

The contract between the government and Tśepong consortium poses “a continued and severe financial risk for the government of Lesotho”, cautions Oxfam Public Service Policy Manager Anna Marriott.

“The scale of changes — including significant cost escalation — made to the public-private partnership in the absence of competition during the final stages of contract negotiation would be considered unlawful in many other markets and certainly fails the World Bank’s own recommended best practice,” she says.

Marriott explains that there is a worsening trend in which the Lesotho government is unable to pay Tśepong consortium invoices in full — something Netcare has publicly accused the government of failing to do.

Netcare says the Lesotho government owes the consortium R700-million. The Lesotho Minister of Health Nkaku Kabi had not responded to requests for comment by the time of going to print.

The World Bank’s International Finance Corporation advised the government on the hospital deal. Now, says Oxfam, it’s time for the international agency to “take responsibility for many of the serious flaws in the structure of the public-private partnership contract”.

A “dangerous diversion of scarce public funds”

The new Oxfam report, which is based on 2018 research was published in a report coordinated by the financial transparency network Eurodad and is the second time Oxfam has raised concerns about the project’s viability.

In 2014, Oxfam publicly released research alleging that the hospital was then already consuming about half of the kingdom’s health budget and said the public-private partnership was a “dangerous diversion of scarce public funds”.

It went on to warn: “Government spending on the [hospital] is spiralling; drawing resources away from other urgent healthcare needs and exacerbating health inequalities across the country.”

Even former Lesotho Health Minister ‘Molotsi Monyamane admitted in January that the hospital deal, which had once been heralded as the sign of a new era in private sector involvement in healthcare in Africa, may have been ill-conceived.

“The financial risk was taken only by the government of Lesotho,” he said. “The model was flawed.”

The consortium’s own repayments on its R1.4-million Development Bank of Southern Africa loan are factored into what it charges government for operating the hospital.

Former minister accuses World Bank of stifling attempts to renegotiate deal

Oxfam’s findings come hardly two years after a confidential 2016 World Bank report warned crippling conflicts among Tśepong consortium members could have dire consequences for healthcare in the kingdom. Bhekisisa/The Lesotho Times obtained a copy of the World Bank document in December.

The report quoted the World Bank’s then-Southern Africa director Guangzhe Chen as saying: “If the current shareholding agreement unravels because of [these issues], the resulting situation could jeopardise continuity in service delivery in the country’s only tertiary hospital.”

Chen wrote that even then, Netcare was threatening to divest from the project.

Minority shareholders in the consortium, in turn, told the World Bank that the South African hospital group was running the consortium unilaterally. The only answer, said the three Lesotho-based firms, was to restructure the board.

In his report, Chen recommended that the contract be renegotiated and said that the World Bank stood ready to support parties in this.

Former Lesotho Health Minister ‘Molotsi Monyamane, however, now accuses the World Bank of delaying talks on a new agreement.

“We did push for renegotiation but the bank stalled the process by pushing for mediation in the dispute between Netcare and other shareholders,” he says. “The employees of the World Bank want to keep their jobs.”

World Bank representative Omer Ramses Zang Zidjou says the international organisation has been providing technical assistance to the government since 2018 to address challenges.

But Monyamane claims the bank is on nothing more than “charm offensive” to protect the private-public partnership.

Consortium calls own per-patient bills ‘unethical’

Monyamane also says the consortium is charging the government exorbitant fees for patients treated over and above the targets stipulated in the contract.

As part of Tśepong consortium’s agreement with government, the group is paid a fixed amount to treat 310 000 outpatients and 20 000 people in the Queen ‘Mamohato Memorial Hospital each year. Any patients that the hospital sees over and above that number are charged to government at M15 000 per person per day, Lesotho Deputy Health Minister ‘Manthabiseng Phohleli revealed late last year.

When Bhekisisa/Lesotho Times put the Lesotho government’s allegations of price-gouging to the Tśepong board, the board issued a statement saying that it had been unaware of these fees until the government complained several months ago. The board maintained: “We were shocked. That is an unethical practice.”

In 2017 alone, the hospital treated 35 000 extra patients, amounting to an extra M108-million.

Netcare: Hospital has eradicated backlog in hip, knee replacements

Meanwhile, Former Lesotho Health Minister ‘Molotsi Monyamane complains that a lack of specialists at the Netcare-run Maseru hospital meant that the facility still had to transfer patients to South Africa for care.

In practice, he says that “Netcare was given a monopoly to transfer patients to [the Netcare hospital in] Bloemfontein without the ministry’s verification”.

Last year, Health Minister Nkaku Kabi also accused Tśepong of failing to hire the specialists needed to provide the full range of services at the hospital.

But Netcare general manager Christoffel Smith has dismissed this allegation, saying that the group currently employs more than 48% of the specialist doctors in Lesotho: “For example, orthopaedic specialists at the hospital have eradicated the hip and knee replacement waiting list for Basotho patients who previously had been sent to Bloemfontein for years without necessarily receiving the required services.” 

He says only patients who require sub-specialty services not provided at the hospital are referred to Bloemfontein.

“All such treatments have been paid for by Netcare, including the patients’ transport. The government of Lesotho has not been billed for any patients referred to Bloemfontein by Netcare for treatment,” Smith says.

Monyamane says the Lesotho government also owes its South African counterpart R60-million for Basotho patients who had been treated in state facilities in South Africa’s Free State province.

Netcare and the private-public partnership paid R9.7-million in 2015/16 alone to the Free State government to provide care for Bastho patients who could not be treated at Queen ‘Mamohato Memorial Hospital, according to the province’s annual report. 

In 2016, former South African Health Minister, Aaron Motsoaledi, told the South African Broadcast Corporation that the Lesotho public-private partnership had “plunged the country into financial distress”.

Last year, Lesotho Health Minister, Nkaku Kabi, dubbed the contract with Tśepong the “the cruellest” he had ever seen.

Show me the money, shareholders tell Netcare

A key area of contention between Netcare and Lesotho-based minority shareholders is the  Botle Facilities Management company, which provides maintenance services at the Queen ‘Mamohato Memorial Hospital. Netcare owns 40% of the company while local firm Matsete Investment has a 45% stake.

In South Africa, Theuns Langenhoven is the general manager of Netcare’s property division. But Matsete Investment’s company registration documents lodged with Lesotho’s ministry of trade and industry show that Langenhoven is also listed as an officer of Matsete Investment. 

Tśepong’s minority shareholders allege that with Netcare’s 40% share in Botle and with one of its men at the helm of the company which controls the majority of shares in Botle, the South African hospital group is able to control Botle.

The allegations come as Lehlohonolo Mosotho whose company Afrai’nnai Health has submitted an affidavit, seen by Bhekisisa/Lesotho Times, to the Lesotho High Court claiming that the facilities management company received payments that were not authorised by the board. He says that Netcare “looted” funds from the consortium. Netcare has denied this allegation.

Botle chairperson Pako Petlane says he is unable to respond to media questions.

Meanwhile, Netcare’s Smith told Bhekisisa/Lesotho Times that the agreement installing Botle was drafted by the legal firm, Bell Dewar, and “was subjected to detailed scrutiny by all stakeholders (internal and external) on an open book basis”.

He says the allegations of fellow hospital consortium members are “attempts to raise old issues” that had been resolved by way of a 2018 court settlement. Smith added that these allegations were old and had already been dealt with.

In June, Tśepong’s minority shareholders resolved to bring in forensic auditors to determine whether cash was being irregularly drained from the venture, but Netcare blocked this. Smith defends the move, saying the audit “would be fruitless and wasteful expenditure Tśepong can ill afford”.

Smith also dismissed allegations by Tśepong shareholder, D10 Investment, that Netcare blocked that firm from providing patient transport between Queen ‘Mamohato Memorial Hospital and facilities in Bloemfontein. Smith called these accusations baseless.

“D10 had been allowed to provide services at the hospital initially, but these services were suspended following quality concerns and breach of contract,” he says. “When D10 was asked to submit plans about how to fix problems, the firm failed to come up with a strategy.”  Smith says Netcare and D10 eventually resolved issues as part of a mediation settlement agreement in August 2018.

D10 Chairperson Thabiso Mothabeng denies that there were any contracts, and argues that his company was, therefore “unable to breach contracts that did not exist”.

“The issue was never even taken to the Board, a shareholders’ meeting nor Lesotho government for discussion. From the start, Netcare had decided to set itself up as a do-all. It even called itself the operator as it saw itself as Tśepong and acted as such,” Mothabeng argues.

“Netcare simply took on those activities and then made excuses as to why they did that”.

Subsequently, both Netcare and D10 tendered for the transportation of Lesotho government patients to and from Bloemfontein. Netcare won the tender on merit, Smith says. D10 again tendered to render these services when Netcare’s contract expired in 2018, but Smith says the local firm was again unsuccessful. The Lesotho Ministry of Health had not responded to repeated requests for comment.

Disclosure: Kabi, the author of this story, did freelance work for MTS Enterprise in June. She subsequently discovered that MTS Enterprise is closely linked to D10 — a shareholder in the Lesotho hospital project.

Kabi is an IJHUB fellow and this story was produced as part of a partnership with the Bhekisisa Centre for Health Journalism and the Lesotho Times.

This story was produced and first published by Bhekisisa Centre for Health Journalism.

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