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Netcare - Announcement and withdrawal of cautionary Network Healthcare Holdings Limited ("Netcare") (Incorporated in the Republic of South Africa) Registration number 1996/008242/06 JSE share code: NTC ISIN code: ZAE000011953 South African Managed Care Co-Operative Ltd ("the SAMCC") Netpartner Investments Ltd ("Netpartner") ANNOUNCEMENT 1 Introduction Further to the cautionary announcement issued by Netcare on 27 May 2003 and renewed on 10 July 2003, the boards of directors of the South African Managed Care Co-Operative ("SAMCC") and Netcare are authorised to announce that the SAMCC, Netcare and one of Netcare"s wholly owned subsidiaries, Medicross Healthcare Group (Pty) Ltd ("Medicross") (collectively "the parties") have entered into a memorandum of understanding ("the MOU") with the overall purpose of creating a comprehensive healthcare provider network. The SAMCC is a voluntary organisation with 50 Independent Practitioner Associations ("IPA") affiliated to it, which IPA"s comprise some 3 200 members (the majority of whom are from previously disadvantaged communities), while Netcare is a leader in the South African healthcare industry. The SAMCC"s role in this initiative will be the setting of standards of healthcare delivery, the accreditation of providers and the implementation of strict clinical guidelines, ethical standards and peer review. It has been Netcare"s stated objective and approach to develop an integrated healthcare delivery model around its core hospital business. This initiative is seen to be strategic in complementing the healthcare provider offering that has been, and is, in keeping with Netcare"s core leadership strategy of customer intimacy, which involves working closely with doctors. 2. Objectives and Rationale Given that: - the medically insured population has remained relatively static for the last five years; plans to make first world healthcare more accessible and affordable to all South Africans have not been successful; - the current third party payor fee for service model is considered not to be sustainable, lacks accountability and offers limited growth opportunities with no incentives for efficiencies; and - Netcare has for many years advocated a change to the current re-imbursive model with the objective of making quality healthcare more affordable to all South Africans, - the parties wish to embark upon this initiative which will facilitate the delivery of accessible, affordable, quality healthcare with a particular focus on presently uninsured low income earners. It is considered that this will be achieved by the creation of a national network of healthcare providers with the objective of becoming the lowest cost provider of quality healthcare. The extensive general practitioner coverage which the network will provide, together with the broad geographic presence of Netcare"s private hospital network, its supporting specialists as well as its portfolio of complementary healthcare interests and networks, makes for a compelling comprehensive national provider network capable of offering a full range of healthcare services. In terms of this initiative, the doctors within the Medicross system (which encompasses practices containing 428 general practitioners and 151 dentists) have become affiliated to the SAMCC. 3. Netpartner Investments Limited In order to align the interests of the parties, an investment holding company ("Netpartner") is in the process of being established for the purpose of investing in a range of healthcare enterprises. Healthcare professionals, Netcare and strategic empowerment partners will be invited to participate, with Netcare subscribing for shares so that it holds a minority interest in Netpartner. Netcare intends to fund this investment through existing financial resources within the Netcare Group. Netcare has agreed to procure the following investment opportunities for Netpartner: - a 20% interest in Medicross for an amount of R50 million; and - up to 100 million Netcare shares at a price based upon 90% of the average trading price on The JSE Securities Exchange South Africa ("the JSE") for the 30 trading days prior to the signing of the MOU (27 May 2003), which price was 274 cents. 4. Managed Care Network Company A Managed Care Network Company ("Networkco") will be established by Netpartner and managed by the Netcare Group to facilitate alternative re-imbursive methods. Networkco will utilise the experience and technology which has been developed by Medicross and the SAMCC to expand their capitated products from the current 50 000 lives presently offered by ten medical schemes (Discovery, Liberty et al). These products have proven to be successful with single digit annual escalations over the past four years. In addition, Netcare specifically formed and piloted the Netcare Medical Aid Scheme that was administered by its wholly owned managed care company, Clinical Partners. Since the Netcare Medical Aid Schemes" inception four years ago, it has successfully kept its annual premium contribution increases to single figures. The Scheme also enjoys reserves in excess of 30% despite the medical providers earning fees above normal tariffs. It is initially intended that Networkco will offer primary care alternatives through existing Medical Aid Schemes and develop new products for the low-income market. It is considered that this venture will also allow Netpartner, in association with administrators, the ability to offer a comprehensive solution for the estimated 480 000 public service employees soon to enter the private healthcare market. 5. Financial Effects for Netcare The financial effects of the proposals to Netcare are not material on a pro- forma basis. However, the successful implementation of the provider network should impact positively on the Netcare Group in the future. 6. Conditions Precedent The proposals are conditional upon, inter alia, Netpartner raising an amount of no less than R100 million in ordinary shareholders funds. It is intended, however, that Netpartner will raise funds in the order of R 300 million. 7. Withdrawal of Cautionary Announcement As a consequence of this announcement, Netcare shareholders are hereby advised that they are no longer required to exercise caution in trading of their Netcare shares. Further announcements regarding the status of Netpartner will be published from time to time. Sandton 24 July 2003 Investment bank and corporate advisors to Netpartner Nedbank Netcare Sponsor Merrill Lynch South Africa (Pty) Ltd Attorneys HR Levin Reporting Accountants Fisher Hoffman PKF (JHB) Inc Date: 24/07/2003 08:00:13 AM Supplied by www.sharenet.co.za Produced by the JSE SENS Department
