National Health Laboratory Services (NHLS) Annual Report 2012

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10 October 2012
Chairperson: Dr M Goqwana (ANC)
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Meeting Summary

The National Health Laboratory Services (NHLS) presented its Annual Report 2011/12, noting that it achieved an unqualified report for the sixth year. The financial year under review represented the worst cash flow crisis in NHLS’s history, and was largely due to non-payment by debtors. Kwa-Zulu Natal and Gauteng were identified as the provinces owing the most, with a combined debt of R1.7 billion. This cash flow crisis threatened the future of some laboratories, but interventions by the Minister of Health had managed to avert consolidation and closure, and payment schedules were discussed with debtors. Within this financial climate, NHLS was able to protect its teaching and succeeded in delivering an average price increase of just 0.1% and reducing pricing on priority tests by 5%. The total intake of registrars increased by 5.2%, and black registrar representation increased by 13%, with 42% of these representing African females. Improvements in technology allowed NHLS to provide new and more efficient TB testing, and to provide patients with easier access to their results. NHLS increased the number of accredited laboratories and was selected as the Quality Assurance Regional Centre of Excellence for the SADC and became the only African member of the International Health Testing Asosciation (INHATA).

Members stressed that service delivery and addressing historic inequalities should be a priority for NHLS, to which it agreed, and that it should be judged by its ability to serve the needs of all communities. Questions were raised around the cash flow crisis, including why NHLS was unable to collect debts, and why its inability to do so did not affect the audit finding. Members enquired how austerity measures were affecting employee morale, and about the retention strategies and labour relations. Members asked how NHLS was addressing urban/rural divides and inequalities, in terms of its service delivery and targeting for training opportunities. They asked about the gate-keeping strategies, the downgrading of targets and the reason for so few laboratories being accredited. Members enquired as to the progress on the helicopter, and were requested for assistance in approaching the civil aviation authorities. They also asked how the pilot studies were different in focus, whether NHLS was currently able to absorb students, and whether there was any danger of duplicating the work done by other bodies. Members finally resolved to adopt the Annual Report and note the challenges.

Meeting report

National Health Laboratory Services (NHLS) Annual Report 2011/12
Mr Ralph Mgijima, Deputy Chair, National Health Laboratory Services introduced the delegation and tendered an apology for the absence of the Chair of the National Health Laboratory Services (NHLS).

Mr Sagie Pillay, Chief Executive Officer, NHLS, highlighted that it was the tenth anniversary of the NHLS and therefore an ideal opportunity to re-articulate its vision, mission and 10 point plan, which the Committee had been briefed upon in previous years.

Mr Pillay noted that the NHLS had, in the 2011/12 financial year, experienced its worst cash flow crisis. It closed the year with debt of R2.1 billion, with KwaZulu Natal (KZN) and Gauteng owing R1.7 billion. This cash flow crisis threatened consolidation of laboratories and in some cases even the closure of labs. These situations were only averted through interventions from the Minister of Health, who engaged in mediation with KZN over its debt and also engaged with other provinces that were behind on payment.

For the sixth consecutive year, NHLS received an unqualified audit report with no matters of emphasis. NHLS succeeded in delivering on an average price increase of just 0.1%, and reducing pricing on priority tests by 5%. Its growth percentage was 15%, up from 13% in 2011 and 14% in 2010. Mr Pillay attributed this growth to priority programmes and their success. He stressed that the NHLS managed to keep its prices below 50% on average, when compared to private laboratory services.

On the negative side, collection from debtors was poor. There was a net capital expenditure percentage of turnover of 4%, which was below target of 7%.

Mr Pillay noted that despite having a smaller board, all meetings had taken place and NHLS continued to maintain high standards of corporate governance, proper reporting and good accountability. He noted that in areas where targets were not met, there were clear explanations provided (see Annual Report) including shortages on skills, technology and physical infrastructure. He attributed many of these shortages to the cash flow crisis. Mr Pillay highlighted the commitment of staff and employees as a significant contributor to the organisation’s success, noting that many employees had worked beyond expectation in response to the limitations imposed by the cash flow crisis.

As part of long term sustainability efforts, NHLS was promoting its Learning Academy to grow its own staff. It was very expensive to recruit from the private sector, and was more effective to nurture and train within NHLS. Training was protected, despite the cash flow crisis. In response to shortages of nurses, the Learning Academy offered a phlebotomy technician course, which trained on how to draw blood and freed up nurses to attend to other tasks. The Leadership Academy also offered a leadership course, management development programmes, technical training courses, learnerships, and Adult Basic Education and Training (ABET). NHLS raised R454 million in research grants.
NHLS was doing well overall with employment equity targets. The total intake of registrars increased by 5.2%, and black registrar representation increased by 13%, with 42% of these being African females. Gains were limited with pathologists. In many cases, the demographics of doctors were not reflective of communities that they served, but this was because universities produced the doctors and NHLS had to draw from these pools. However, in the last year, black and African doctor numbers were increasing to the highest percentage yet in NHLS history and more women had also applied for and were holding positions in NHLS than before.

The efforts to improve the quality of services were evidenced by the selection of NHLS as the Quality Assurance Regional Centre of Excellence for the SADC. South African National Accreditation System (SANAS) accredited a further 12 laboratories and another three were ready for assessment. Customer surveys on service delivery resulted in an average rating of 3.5 out of 5, which still showed room for improvement.

NHLS became the only African member of the International Health Testing Association (INHATA), enabling it to make sure that technologies brought to South Africa were appropriate for their locations and that the country did not become a ‘dumping group’ for technologies as had been noted in some other parts of the continent.

NHLS processed 80 milion tests over the past year, which covered 75% to 80% of the population.  The growth in routine testing was attributable to gate-keeping initiatives which focused around the appropriate use of laboratory services. NHLS’ adoption of improved technology included a new automated DNA test for TB, which was more sensitive than smear microscopy, and offered results in about two hours. Patients’ access to results was improved through enhancements in sms services and web view, and significant enhancements to IT infrastructure. Because of the cost of IT infrastructure, NHLS co-sourced models for skills transfers to build capacity to perform tasks in-house. NHLS made gains by supporting gate keeping, GeneXpert and Point of Care roll out.

The Chairperson stressed that one of the Committee’s significant tasks was to ensure the bridging of the gap between the historically advantaged and historically disadvantaged people, and shared some of his personal struggles in his medical training, and the challenges and prejudices that he had to overcome. He wondered if the NHLS was working to address the gap arising from historical inequalities, and how it was encouraging and supporting trainees from previously disadvantaged groups. He noted the unqualified audit, but asked if this reflected service delivery to all people.
Mr Pillay reassured the Committee that NHLS had a priority focus on changing lives. NHLS saw  actual service delivery, rather than obtaining unqualified audit reports, as its primary objective.

Mr Pillay noted that the training of black pathologists was increasing and that, although not all areas were fully transformed, as noted by some of the deans themselves, NHLS was giving attention to this in its own efforts. Given the figures, he was not worried about retention of students across race, although there were efforts to attract more African applicants into the pool. He added that NHLS was working to ensure that proper mechanisms were available to support students from a variety of backgrounds.

Mr D Kganare (COPE) asked whether NHLS’ surplus reflected a profit, and how NHLS was still reporting a cash flow crisis with a R614 million surplus. Related to this was the question of how the surplus was affecting NHLS’ service delivery.

Mr Pillay noted that the surplus for this year was attributable to the wide scale-back, which had included no bonuses and freezing of necessary new positions, amongst other initiatives. The resources did not reflect “money in the bank”, however, as they were already committed to areas that still had to be attended to. He also noted that much of the cash that was now reflected as a surplus only came in to NHLS in the last two weeks of the financial year, so that certain amounts could not be paid out within the financial year. If NHLS had received the money earlier, and been able to attend to other matters earlier, its surplus would have been more in line with what was expected.

Mr Kganare asked how NHLS was approaching debtors and debt collection, specifically who was responsible for debt collection, and how provinces that were not paying as expected were being balanced against those that did, since debt collection was identified as central to NHLS’ cash flow challenge.

Mr Pillay explained that the debt was attributable to volume and not to price. Through handling increased volumes, NHLS could reduce the price. NHLS was delivering on increased economies of scale, thus reducing the price. He reminded Members that, unlike a private institution, NHLS depended on available mechanisms, and could not shut down services. He added that attempting to do so would be unfair to the patients as their access to health services would be threatened.

Mr Kganare questioned why, despite the surplus, employees had not received bonuses, and asked if this fact was affecting employee satisfaction. He also enquired how NHLS expected to retain staff morale without financial incentives.

Ms T Kenye (ANC) asked what the staff morale and retention rate was.

Ms M Segale-Diswai (ANC) also referred to the lack of bonuses and additional expectations of employees to help them through the financial crisis, and asked about the retention strategy, and whether NHLS had experienced industrial action.

Mr Pillay noted that the employee satisfaction survey had not been conducted in time for the Committee meeting, but that it was being finalised, and when the final report was ready, the NHLS would make it available to the Committee.

Mr Pillay said that bonuses would be paid this year and specific budgetary allocations had been made for this. He explained that NHLS had a written strategy available to improve staff retention and, when measured against industry norms, it had a good turn over rate of less than 10%. NHLS also had a high number of employees who had long-service track records. Finally, it tried to also find non-monetary incentives for employees.

In answer to the question about morale, he noted that there were good labour relations between staff and management. Negotiations for salaries had not been acrimonious, partially because of the professional nature of the organisation. There was a three-day strike in the last financial year, but, through consultation with the respective unions involved, the matter was resolved with two or three days.
Mr Kganare referred to the turnaround strategy, and asked why the NHLS targets were downgraded from 95% to 85%, which was the reason why NHLS had then achieved the target at 86%.

Mr Kgarane asked why so few laboratories had been accredited. Ms Segale-Diswai (ANC)was also concerned as to why only 24% of laboratories were accredited.

Mr Pillay noted that SANAS did not accredit more laboratories, because both the preparation for, and the actual accreditation cost money. NHLS felt it was better to set itself a limited target that was affordable.

Mr Kganare, and Ms Dube, enquired what happened to the use of the helicopter that NHLS had proposed in its previous annual report.

Mr Pillay explained that NHLS was constrained by the civil aviation authorities and the many requirements stemming from the regulatory body. Everything had been done, and NHLS was just awaiting civil aviation approval. He would appreciate any assistance the Committee could offer in getting that approval.

Mr Kganare wanted to know what was different in the pilot studies for the districts, when compared to other districts.

Mr Pillay responded that the pilot sites were focused on building capacity and ensuring the clinics and hospitals were prepared for National Health Insurance (NHI). At the moment, NHLS was ensuring that laboratory services were responsive to what the district needed, which was part of the Road Map process. NHLS was making sure that the models addressed the urban, rural divide, were adequately adapted to different needs, and were cost-effective, which to some extent made them different from existing services. Pilot sites were being used to ask whether laboratories needed to be realigned along district lines rather than current model of provincial lines, in line with changes around NHI. Work with the pilots was still in its infancy, so more detail would be given at a later stage.

Ms T Kenye (ANC) asked whether NHLS absorbed all of the students after completion of their training. She also asked how information about bursaries was disseminated to rural areas.

Ms Kenye wanted more information on the distribution of Gene Xperts, specifically whether experts were sent to rural and remote areas.

Mr Pillay noted that a clear and determined stance had been adopted to actively engage with schools in rural areas, increasing technologies and training in these areas. This was especially important because it promoted the training of individuals who would then go back and work in rural areas. In the current climate, it was currently a challenge to find trained technicians willing to work in rural areas.

He added that NHLS did not absorb all students, because cash flow crisis did not allow increases in hiring. In the past there was total absorption, but this was not possible in the current financial climate. He stressed that although NHLS ideally needed the students who graduated, it could simply not afford them.

Mr Pillay also explained that the distribution of the Gene Xpert, across the urban/ rural divide, was not done by the NHLS, but rather was based on what the National Department of Health identified as priorities. The high-burden districts guided the NHLS, and these were primarily rural, so that weighed heavily on distribution. He reiterated that this was not a decision that NHLS made on its own, but the decision was based on what the clinic required.

Ms Kenye asked how gate keeping initiatives influenced service delivery and patient health.

Ms D Robinson (DA) asked for explanation of the term ‘gate keeping’ and of the purposes that it served.

Mr Pillay responded that gate keeping was about ensuring that diagnostic laboratories were used in responsible ways, so as to optimise available resources. With young doctors who have less supervision there was often more over-investigation, in part from lack of experience and also as part of defensive medicine, in response to increased litigation. Gate-keeping was effective because it was possible to determine what was clinically responsible, relevant and necessary. This allowed NHLS to increase volume and decrease prices.

Ms M Segale-Diswai (ANC) was not particularly satisfied with this report. She was concerned as to why KZN and Gauteng had not paid their debt, and enquired how KZN’s payment of a flat rate impacted other areas. She also asked how resources were then weighted and allocated, given that some provinces were managing better than others, and where the money for non-paying provinces was being sourced.

Ms Segale-Diswai noted the different payment levels, and asked whether distribution was allocated according to rural and urban areas.

Ms M Dube (ANC) asked how NHLS received an unqualified report if its debts and receipts were not balanced because of its poor debt collection.

Ms Segale-Diswai commented that the Committee had been made aware of the problems around payment as far back as 2009, and asked whether and how NHLS planned against this non-payment. She also asked whether penalties were imposed upon provinces that did not pay their debt. It was particularly frustrating that this appeared to be an ongoing situation. She too questioned how the NHLS could have got a clean audit, given this situation.

Mr Mgijima responded on the question of debtors. He explained that, historically, KZN was unique in that that it was the only province to have wholly provincially-owned laboratories and that its systems developed differently from other parts of the country, which was part of the problem. If KZN were to pay what it should, it would be paying around R95 million rather than the R45 million that it currently paid. Following the Minister of Health’s intervention, an amount was agreed upon, although this was not favourable to NHLS, and that this was something the Ministry and NHLS should reconsider. Unfortunately, there was very little that NHLS could do to force KZN to pay its debt. He noted that provinces that did not pay were in violation of existing legislation and policies. He also conceded that because some provinces did not pay, they had to be carried by other provinces. In relation to the planning around non-payment, the NHLS has worked to ensure that even though resources were limited, its spending was kept as lean as possible.

Mr Ronald Moyo, Director and Chair of Audit, NHLS, explained the audit result. He said that when assessing the audit as unqualified, auditors factored in uncollected money and looked at the form of collecting. The policy prescribed that when debt had been accurately reported, and all avenues for collection had been exhausted, then an unqualified audit could be issued.

Ms Segale-Diswai expressed disappointment that the NHLS Chair was not present, thought that she should have viewed this meeting as a priority and suggested that a written explanation for her absence was needed.

Mr Mgijima explained that he would need the permission of the NHSL Chair to explain where she was. He did note that she was on a “mission of national importance” and that she would likely respond to the Committee in writing.

Ms D Robinson (DA) acknowledged that NHLS was working under difficult circumstances and that staff have demonstrated significant commitment.

Ms Robinson wanted to know more about the administration of the provinces, in relation to NHLS payments, and stated this was an important political question.

Ms Robinson was worried whether the new Information Services (IMU) might be duplicating existing work by other bodies and asked whether there would be collaboration with similar bodies.

Mr Pillay gave the assurance that the IMU was not reproducing work by Medical Research Council (MRC) but the two had a good and close working relationship. NHLS also worked with other research partners around the country.

Ms Robinson asked whether resources were being allocated to cancer, given the high mortality related to this in South Africa. Noting that pap smear results were in some cases delayed for months at some clinics, she asked how services could be improved with primary health care.

Mr Kganare commented that KZN had raised the point that NHLS was too expensive and had disagreed with some of NHLS policies. He noted that KZN should be treated differently from Gauteng, which faced different challenges ,and commented on the unique history and challenges that made KZN different from other provinces.

The Chairperson noted that Mr Kganare’s points were more of a commentary than question and therefore did not require a response.

The Chairperson highlighted that laws and institutions needed to be monitored to see if the institutions were still doing what they were intended to do, and whether they were cost-effective. NHLS should also note any laws that were not serving their needs. He highlighted his support for NHLS, and noted that primary health care was expensive.

The Annual Report was approved by the Committee, and the challenges were noted.

The meeting was adjourned


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