Netcare CEO Dr Richard Friedland is treading a tightrope between shareholders and patients.

Bruce Whitfield:
The Netcare share price under pressure on the day, earnings were flat, 23.7 cents a share with the company coming under serious pressure in its home market. Last year, we reported on the fact that Netcare was being forced to change its billing methodology so it has seen pressure from regulators, from government and also from inflation as well. Dr Richard Friedland, the chief executive of Netcare joins us now and Richard, did that change in the billing methodology actually have a direct impact on these results?

Richard Friedland:
Thank you Bruce, no. What had a direct impact was that we honoured a call by our minister to reduce our tariffs to what CPIX was in November of 7.9, ours was set at about 8.4, and our cost per admission to the schemes has come in at about 6.2 percent which means that we are about 3.5 percent below inflation. We also had some once off items coming through, issues of restructuring and the power outages and they had a significant impact.

Bruce Whitfield:
Well, 3.5 percent below CPIX, we have got inflation in double digit territory as well and that is consumer inflation not medical inflation. Where is medical inflation relative to mainstream CPIX?

Richard Friedland:
Well medical inflation generally tracks higher than CPIX, I don't know what it is at the moment, but certainly in January it was tracking or believed to be tracking closer to nine percent and we are certainly well below that at the moment.

Bruce Whitfield:
Can you sustain those sorts of increases? I mean, by not increasing your prices within inflation ultimately your shareholders are suffering.

Richard Friedland:
Well I think that we have had excellent revenue growth and we have had excellent demand for private healthcare and it demonstrates that despite the issues that are surrounding private healthcare there is an enormous demand out there for private healthcare and you know our patient volumes grew over this last six months quite substantially and I am talking about organic growth here not just by acquisition.

Bruce Whitfield:
So do volumes then make up for the loss of what you are losing out on the fact that you are keeping your cost below three percent below inflation?

Richard Friedland:
Well I think they compensate but they certainly don't make up for it and I think that we have got to find innovative ways of operating in this environment. None of us predicted the chaos that would be caused by the power outages and the huge cost to us both from a capex point of view and also from an operating point of view.

Bruce Whitfield:
Horror stories and lots of anecdotal evidence of what was happening within hospitals because of the power cuts that came through - do you have now sufficient backup operations within your hospitals to ensure that if we do go through another round of power cuts like we did suffer in January that you will be better defended against that?

Richard Friedland:
Well Bruce in all fairness we have always had generators, we have had 85 generators throughout the group there for specific emergencies but I don't think any of us ever expected to be several days or several hours out of power and to suffer the consequences of power surges that damage equipment and affect electronic equipment so you know we have had a whole plethora of side effects from this power outage and we are now committing to spend another 65 million on generators to ensure that our hospitals are fully independent in those key areas of Eskom.

Bruce Whitfield:
Do you have any claims against Eskom with equipment being damaged, the power surges that sort of thing, are you going through a process like that?

Richard Friedland:
Well we have certainly noted down the impact of all of this and we are keeping very accurate records but we certainly made no claim at this point.

Bruce Whitfield:
ArcelorMittal announcing today it has got 12 percent wage increases for its unionised staff. Are you finding that you will have to probably hike by a similar figure in order to retain the skills? We know that we are skills deficient in South Africa and the medical fraternity is struggling - are you having to consider those sorts of wage increases as we go forward six, 12 months ahead?

Richard Friedland:
Well we have settled with organised labour for this year and settled successfully so you know that is an issue we will have deal with in 2009 but certainly for the remainder of the year we settled with the unions in late January.

Bruce Whitfield:
Your UK business how are things going there? I noticed the debt levels are rising a bit in the UK.

Richard Friedland:
Well debt levels in the UK only went up by seven percent as a result of the acquisition of the nine hospitals we made December but the UK is doing extremely well. We are profitable for the first time in two years since the acquisition and that is after debt financing and once off costs and so we are extremely pleased with the UK's performance and that is on track.

Bruce Whitfield:
And so I mean in terms of the percentage of profits generated in South Africa versus the UK what is the split roughly?

Richard Friedland:
Well the UK generates about 59 percent of our operating profit versus South Africa but at the bottom line it is still South Africa that is producing the very bottom line profits.

Bruce Whitfield:
So South Africa obviously very important to the future of Netcare but increasingly one looks at the regulatory environment in South Africa, you have got to as the chief executive be looking beyond our borders for the 20 year growth opportunities as there don't seem to be too many in this market.

Richard Friedland:
Well I think that internationally there is some wonderful opportunities out there and I think we will certainly consider them in the future but this is not an market ex growth and we have demonstrated that with very solid 12 percent organic growth and 16 percent with acquisitions and I think if we are able to broaden access to more affordable care in this middle tier of our society of nine to 13-million employed South Africans I believe we have got enormous growth potential.

Bruce Whitfield:
Richard Friedland, the chief executive of Netcare.