S.AFRICA: BIG HEALTH DEBT PROBLEM: Medical supplies to 2 major city Health Depts – Gauteng Health over R62m debt

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[Gauteng is Johannesburg and Pretoria. Jan]

The Gauteng Health Department faces mounting challenges as it owes suppliers nearly R1-billion in outstanding payments. Global medical giant Smith & Nephew has suspended supplies, citing unpaid invoices totalling R62-million.

Adocument in the possession of Daily Maverick shows that the medical supplier Smith & Nephew has temporarily suspended orders to Gauteng Health after it breached its credit limit and was late in paying an open debt of R62-million.

In an internal note from October the multinational supplier of orthopaedic and other medical supplies revealed that Gauteng health facilities owe it R62-million. “To reinstate services, we kindly request immediate payment. Once payment is received, we can promptly restore the credit limit,” it states, adding that it regards it as “a matter of significant importance”.

Open orders with Smith & Nephew were R6.7-million while Gauteng Health had additional outstanding debt of R9.8-million in consignment and loan stock.

Smith & Nephew’s vice-president for communications, Charles Reynolds, said the company did not comment on commercial relationships. However, the Gauteng Health Department has confirmed the debt and said R15-million had been paid in the past three months.

“The department is aware of the matter. The processing of the amounts owed is with facilities where the services were rendered. We are engaging service providers to agree on payment arrangements,” spokesperson Motalatale Modiba said.

The department owes suppliers R860.4-million. Modiba confirmed that R117-million has been owed to 125 suppliers for more than six months. Over a year, 69 suppliers are owed R743-million.

“There are some services impacted,” said Dr Arthur Manning, CEO of the Rahima Moosa Mother and Child Hospital. He said the hospital had to contract additional nursing services, while orders for consumables such as needles and gloves could be affected by non-payment if this was not sorted out.

Other staff who work at Gauteng health facilities but cannot be quoted in the media have also told Daily Maverick about supply shortages. They said supply procurement inefficiency was a perennial problem and that they couldn’t know what was due to non-payment and what to general slackness.

“I think you would be surprised at how the most basic items are often not available. From certain size needles or IV cannulas to life-saving consumables used to deliver high-flow oxygen. Doctors have been known to drive to different hospitals to get stock, at their own peril,” said a doctor at a public hospital.

“There are often shortages and these are impacted by non-payment,” said another doctor, adding that utility problems including water and electricity cuts added to the difficulties.

“A number of mitigation measures have been put in place to remedy the situation as the department is alive to the impact of delayed payments on suppliers, especially emerging businesses,” Modiba said. He added that late invoicing, long resolutions to supplier queries and cash constraints caused high debts. The department had the following 12-step process to fix things:

Mitigation measures in place
Monthly reconciliation and verification of all accruals through clearing the work cycle;
Preventing recurring accruals by not uploading any work processed outside the procurement plan;
Procurement monitoring: Ensuring no procurement occurs outside the procurement plan and budget. Verification of work is conducted before invoice payment;
Accountability by facility CEOs: They assume full responsibility for oversight as accounting officers, as per section 38 of the PFMA Act;
Instituting consequence management for non-compliance;
Budget and cash ring-fencing: Securing specific allocations of budget and cash for intended purposes;
Inclusive payment strategy: Implementing a payment strategy aligned with available cash flow;
Supplier payment arrangements: We are establishing improved communication and payment arrangements with suppliers;
Avoidance of invoice duplication: Using SAP system locks and additional verification to prevent duplicate invoices;
Verifying invoices older than three years by CEOs and finance managers;
Conducting an overall verification process with Treasury assistance; and
70:30 cash allocation strategy: Allocating 70% of monthly cash to supplier payments within 30 days of processing invoices. The remaining 30% is provisioned for invoices processed outside of 30 days.
The mitigation measures were summarised and clarified using ChatGPT and checked by an editor before and after. DM

Source: https://www.dailymaverick.co.za/article/2024-11-28-smith-nephew-halts-supplies-to-gauteng-health-over-r62m-debt/?utm_source=Sailthru&utm_medium=email&utm_campaign=first_thing