Dr Anna Mokgokong
I am proud to present the AfroCentric Group’s Integrated Annual Report at the end of a year that
saw continued economic upheaval and pressure on the healthcare sector. I believe that we
weathered the storms with resilience and enjoyed healthy growth in the number of lives under our care. In part, this is thanks to our success in securing the administration of Polmed, effective from 1 January 2016.
The year was one of internal consolidation, with the acquisition of Pharmacy Direct (Pty) Limited (“Pharmacy Direct”), Curasana Wholesaler (Pty) Limited (“Curasana”) and a 26% interest in Activo Health (Pty) Limited (“Activo Health”) collectively termed the (“WAD Acquisition”) and the Sanlam investment into ACT Healthcare Assets. Our current positive financial standing places us in the perfect position to pursue our ambitions for growth.
The Group is positioned as an integrated healthcare company with the expansion of the business into new areas of healthcare management, represented by interests in the pharmacy sector and ICT solutions for health. We hold the number one market position in managed care and are proud of our industry-leading expertise and our long track record as a medical scheme administrator.
However, we continue to operate in a difficult environment. The weakness of the Rand has impacted on the purchase price of medicines and equipment, contributing to healthcare inflation. Fraud, waste and abuse is a serious concern for the industry, with fraudulent claims and over-servicing (due in part to a ‘fee for service’ provider payment model) also increasing total healthcare costs. We take the elimination of fraud seriously and invested R100 million in ‘Insurance Fraud Manager’, a fraud detection software application.
I am proud of AfroCentric’s status as a majority black-owned company and of the role transformation plays in our business. The main purpose of transformation is not to drive value creation, but to support the legislation that advances our Constitution. Transformation does however add value as diversity ignites innovation. We believe in the importance of good corporate citizenship and promote this through our transformation strategy, our CSI policy, and our ED and SED practices.
The B-BBEE codes of practice were revised in 2015 to address abuse, close loopholes and reflect a more actively interventionist and prescriptive approach by government to the implementation of B-BBEE. We are delighted to have retained our Level 2 B-BBEE rating, considering the enhanced rigour of the eligibility scorecard against which our renewal was measured. I would like to thank the Transformation Committee and all who worked on the successful submission for the renewal of our rating.
AfroCentric’s willing compliance with the new codes reaffirms our commitment to transformation, to securing new contracts, and to the retention of current clients. The Group and our stakeholders benefit from the diversity of our workforce; our skills development initiatives which build the capacity of our employees to continuously improve customer service; and our development of new industry entrants as a result of our ED and SED programmes.
Rising healthcare costs create the right conditions for market consolidation. Currently, the medical scheme sector is highly fragmented, with many small players. The Group is the largest manager of medical schemes through Medscheme in terms of number of lives covered and is ideally placed to lead the consolidation necessary to drive costs down, particularly non-administration and health risk management costs.
Key components of the healthcare value chain are unregulated, such as medical consumables and surgical devices. This has resulted in significant price variance and high mark-ups. Ultimately, it is the schemes and scheme members who suffer the effects of this uncontrolled pricing through increased healthcare inflation. The Group leverages its clinical, actuarial, data analytics and health intelligence capability to identify pockets of inefficiency and so creates value though negotiating fairer prices of these items in order to make healthcare more affordable. We want to see more of each healthcare Rand being spent on patients care; and improving the effectiveness of the system will mean more value created for members.
Medscheme is the largest manager of medical schemes with approximately 3.7 million lives under our management.
NATIONAL HEALTH INSURANCE
The NHI system, currently being piloted by the National Department of Health, is discussed throughout this report. It features prominently in our future plans. We are aware that the 3.7 million lives we look after represent a small proportion of the South African population, most of whom do not currently enjoy the quality of healthcare found in the private sector. The aim of the NHI is universal access to quality care. This is a goal we support.
The White Paper on the NHI was released in December 2015 and states clearly that the private sector is expected to co-operate in the development and implementation of the new system. Declining to participate is not an option. We welcome the opportunities presented by the NHI, and believe we can use the experience gained through 44 years in the private sector to assist the government in the design and provision of services. Pharmacy Direct is our courier pharmacy subsidiary and is already providing chronic medicines to patients in NHI pilot districts.
We administer the Government Employees Medical Scheme (“GEMS”) and Polmed. We envisage that our experience in working with government will stand us in good stead to be a major contributor to the NHI.
HEALTH MARKET INQUIRY
The Group awaits the outcome at the end of 2016 of the Competition Commission’s health market inquiry into private healthcare costing. We support the investigation and made a detailed submission to the Commission. We share the concerns informing the inquiry: healthcare costs are escalating in excess of the rate of inflation in this country and private hospital costs compare unfavourably to other Organisation for Economic Co-operation and Development (“OECD”) countries, even for wealthier countries.
Young, healthy people are withdrawing from schemes or opting for insurance-only cover due to current healthcare costs. This is increasing the actuarial risk profile of various schemes and making them more expensive. We believe all industry players must work together to make medical schemes more affordable for young people and for all scheme members. This will ensure diversification of the risk pool and greater access to quality healthcare. We look forward to the recommendations of the inquiry, in anticipation of a more level playing field for the industry and a more accessible market for all.
In a year of transition in the business and investment in the future, the Board supported major initiatives such as the development of the next generation IT system, Fusion. This will enhance and support all our administrative activities. Capital investment decisions of this scale are not taken lightly. However, the Board has faith in the management team’s capacity to successfully implement these advancements.
The Board and Executive Committee worked together to determine the strategic direction for the short and medium term. We are certain we have the right team in place to lead the Group through this period of change.
I also welcome the entrepreneurial spirit of Antoine Van Buuren as Chief Executive Officer, to the Board of AfroCentric.
The current trend of increasing costs cannot be sustained, and is not in the best interests of the nation. The private sector accounts for 50% of the total national spend on healthcare, but provides services to less than 20% of the population. This is a inequitable system in a society striving for a fairer distribution of wealth and social benefit. We believe the Competition Commission’s recommendations will help to reduce healthcare costs; but it is the NHI that will level the playing field.
Our focus for the foreseeable future is on delivering value for the healthcare Rand. Consolidation is key, and AfroCentric intends to lead the way. We will drive efficiencies throughout the healthcare value chain and support the government, as appropriate, in the transformation of health service delivery in South Africa.
Thank you to all who make AfroCentric Group what it is: our management team, employees, clients, service providers, and shareholders, without whom we could not do business. I recognise our outgoing Chief Executive Officer, Dewald Dempers, for his dedication to the business during his term of office. I wish his successor, Antoine Van Buuren, every success.
I am delighted to announce that Medscheme and its clients secured the vast majority of awards at the Board of Healthcare Funders (“BHF”) Titanium Awards Gala event. Medscheme received the awards for Service excellence in healthcare administration, Service excellence in managed healthcare and BHF member of the year.
Finally, I thank you to the rest of the Board of Directors for their guidance and support in the leadership of the Company, and the stewardship they provide to our
|Dr Anna Mokgokong