CHIEF EXECUTIVE OFFICER'S REPORT
Antoine Van Buuren
The Group underwent a period of internal consolidation over the past year. We integrated the WAD acquisition in 2015 into the business. We also cemented the relationship with Sanlam, gaining a deeper understanding of the value creation we can derive from the partnership. We invested in growing the business, and that investment impacted our financial performance in the short term. Growth was subdued to an extent but we are now starting to see our efforts provide a return.
These are testing times for our medical scheme clients. The slow-down in the economy means that young people cannot afford private medical cover, which impacts on the capacity for medical schemes to grow.
In the current economic climate, our growth will come from expanding the client and customer base rather than organically, and through diversification of revenue streams. A recent example of this expansion was the successful tender for the Polmed scheme.
For various reasons – the weak rand, scarcity of skills, and fewer young and healthy entrants to schemes diluting the risk pool – healthcare inflation is outstripping general consumer inflation, which is approximately 6.5%. We want to see more value delivered to the customer for every healthcare Rand spent, and are committed to driving that value and reducing costs to make healthcare sustainable.
Our acquisition of Pharmacy Direct and Curasana is another way we are lowering healthcare costs. This provides our medical scheme clients with more economical solutions to customers’ needs, and creates value for shareholders by allowing AfroCentric to access more of the healthcare Rand.
One of the ways we seek to achieve this is through greater cost efficiencies in the business. We actively pursued a strategy of process optimisation and moved from a ‘best of breed’ ideology to one of ‘fit for purpose’. We fostered a culture of cost consciousness across the business – helping to bring down healthcare costs for clients and their beneficiaries.
Our strategic commitment to cost consciousness is supported by the R150 million investment in our enhanced IT platform – Fusion. Once we are at the end of the development phase, Fusion will be a more stable platform. Our current Nexus IT system has the ability to generate income in the form of licence and service agreements.
Our clients require operational efficiency and exceptional service. Cost-efficiency alone will not retain clients. We worked to integrate our businesses and instil a culture of client focus, putting the customer at the heart of the value proposition. We reviewed and adapted the structure within the Group, removing redundancies to help us get closer to the customer. Through a process of continuous engagement, we work to determine the best individualised client solution and don’t impose a ‘one size fits all’ philosophy.
DIVERSIFYING OUR REVENUE SOURCES
AfroCentric is primed for growth, but the prevailing economic conditions make it difficult for us to grow organically through increasing membership in current client schemes. Therefore, we are actively seeking new medical scheme clients. We are also scanning the environment for opportunities to diversify our revenue sources, particularly in the
non-health administration and health risk management market.
We are in a position to leverage the Sanlam investment, which gives us access to short-term insurance products, a loyalty programme, an extensive distribution network, and a recognised consumer brand. This partnership will enhance our product suite and marketing capacity, creating cross-selling opportunities; and the Reality customer loyalty scheme will boost customer retention. In the long term, we aim to derive 30% of income from non-health administration and health risk management related sources, and we are certain that our partnership with Sanlam will contribute to growth in new markets.
We are pleased that Medscheme Mauritius is now part of the AfroCentric Health Solutions (previously Medscheme Africa) stable. We are currently in discussions with partners in East and West Africa to expand our footprint in those regions. We are not aggressively targeting international expansion; however, we remain receptive to opportunities outside of the South African market.
OPPORTUNITIES FOR GROWTH
In addition to the prospects presented via diversification, opportunities exist in the current healthcare market. It is unfortunate that rising costs make medical schemes on a smaller scale unviable on their own, especially if they are failing to attract younger members. These conditions make medical scheme mergers more likely; and we are positioned to capitalise on scheme consolidation. Our target for the next financial year is an increase of 120 000 lives under administration.
Some of these new members may arise from our relationship with government. We administer two government medical schemes, GEMS and Polmed. We also deliver chronic medication to 180 000 patients in pilot NHI districts through our subsidiary, Pharmacy Direct. We are negotiating with government around a number of tenders and consider government to be a key client and partner to our business.
As mentioned previously, we actively seek ways to support the government’s efforts to introduce NHI. The White Paper signals changes to the healthcare market for all participants, in the private and public sectors. The NHI is scheduled to be phased in over a 14-year period, so its impact will not be felt immediately. In the meantime, we look forward to the outcome of the health market inquiry and hope it will address some of the imbalances in the market.
The objective of the health market inquiry is to make healthcare more affordable, which is exactly what we are trying to achieve for our clients. Everything we do is aligned to this objective.
We continue to strive to deliver value to shareholders and we are aware of the erosion of profits caused by fraud, waste and abuse in the industry. While it is the medical schemes and not the health administrators who are directly impacted by fraud, inevitably a reduction in medical scheme revenues has a domino effect for the Group. Therefore, fraud detection and containment is in the interests of clients as part of our commitment to exceptional customer service. It is also an important part of our strategy to enhance shareholder value. We invested heavily in a fraud detection system and most of our clients seized the opportunity to deploy it for their schemes, thus contributing to improved sustainability for the client and the health administrator.
AfroCentric is proud to declare that their investment for the exclusive licencing of the Insurance Fraud Manager (“IFM”) predictive analytics software is demonstrating material savings for their client medical schemes. IFM is licenced through FICO, the world’s leading software provider of credit scoring analytics. By continuously scoring healthcare claims and providers using advanced analytics, AfroCentric is able to proactively monitor and detect irregular claiming behaviours much sooner than conventional retrospective methods.
The impact of this game-changing initiative positions AfroCentric well to becoming the supplier of choice for the management of fraud, waste and abuse.
I express my appreciation to all the AfroCentric employees who embraced change and worked tirelessly to implement it, in particular all those who were involved in the Polmed tender and business integration. I thank all the management teams and employees of the AfroCentric Group for a job well done in a difficult trading environment. I also congratulate those colleagues who were winners of ‘Passion’ awards, our employee recognition programme. Thank you for your continued excellence and diligence in what we deliver to our clients.
We will continue to strive to make healthcare affordable and sustainable and we face the future with our appetite for growth undiminished.
|Antoine Van Buuren
Group Chief Executive Officer