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Operational Review: AfroCentric Health

The Group has continued with its array of brands strategy characterised by a series of companies with their own brands operating under an umbrella brand, namely AHL.

Medscheme has provided administration and managed care services to our client medical schemes for over four decades with the ultimate objective of ensuring the provision of sustainable healthcare funding and quality healthcare outcomes for the three million lives under our care.

We believe that ‘sustainability’ is more than a buzzword or a vision statement that resides on our wall or corporate documents. It’s a reflection of our commitment to the scheme members and our client medical schemes that we already serve, as well as our commitment to continually improving our systems and processes in order to make healthcare delivery more accessible to all, in a manner that is financially responsible and cognisant of the needs of the communities we serve.

In giving life to this vision, the Company has become the largest health risk management service provider and third largest health administrator in South Africa.

The Group’s vision of “Creating a World of Sustainable Healthcare” is the core focus of each regional business unit by delivering sustainable healthcare solutions within their markets. Each of these units operate independently with its own MD responsible for the performance and operations of that business.

Continued growth within South Africa and further expansion into Africa and internationally is the core focus for AHL and its subsidiaries for the foreseeable future.

The business structure of AHL is available on page 8 of the Group profile section of this report.

AHL achieved an increase in revenue of 10% compared to the prior year with revenue for the year totalling R1.95 billion (2013: R1.77 billion).

The segmental information is available on page 154 of the Annual Financial Statements.

FUTURE GROWTH, STRENGTHS, OPPORTUNITIES AND THREATS FACING THE BUSINESS Future growth AHL has built a formidable group of health administration, health risk management and technology businesses. Leveraging this base to expand into new markets with existing and new capabilities presents a most exciting opportunity for AHL’s growth. Securing a contract with the Road Accident Fund through a rigorous tender process has been a breakthrough achievement for the group. Assisting the Fund with a portion of its claims backlog has been a tremendously positive learning experience and has again proven Medscheme’s tremendous resilience in adapting to new client requirements. The same resilience was evident in the setting up and development of a correspondence management solution for GEMS. We have over the past two years identified and integrated suitable technology infrastructure to workflow, quantify and track correspondence. This solution offers cost reduction through specialist designed efficiencies in workflows as well as offering reduced investment in technology and floor space. The drive to develop new opportunities in new markets has already resulted in a number of international deals now on the table. As we progress, we are learning and refining our opportunity development capabilities.

The consolidation in the South African market in itself also represents an opportunity for Medscheme. As smaller administrators feel the pressure, there will be an increased flight to the big three. In this market, Medscheme offers extensive low-cost option and high-risk beneficiary management capability which are key for medical scheme sustainability.

Strengths

Medscheme offers many advantages to its clients:

In addition, the organisation benefits from the following strengths:

Opportunities

Runaway healthcare cost increases is a global phenomenon. The need for cost containment initiatives, especially those that also ensure quality healthcare outcomes is universal as a result. The range of sophisticated health risk management initiatives developed by Medscheme offers a variety of solutions to this complex, multi-disciplinary problem.

The powerful Medscheme administration capability places the Group in a strong position to develop meaningful partnerships with international third party administrators, not only in the field of health insurance, but also in areas known for its administrative intensity.

There is scope for unlocking greater intergroup collaboration in terms of innovative product development and this is being explored.

tangible returns on investment whereas many of the players in this space started out with a focus on wellness promotion which has battled to do the same.

There is scope for further product development in the local market to increase market share and client retention as well as for additional cross-selling of products.

Threats and mitigation

Medscheme’s solid and reliable nature has not always allowed it to present itself and its product offerings with ostentatious marketing flair. As a result competitors offering highly marketed wellness products that primarily serve as marketing vehicles have been able to attract the attention of some clients. In addition, market consolidation has increased the level of competition for new business. Medscheme’s reliance on fostering good relationships with clients and providing high levels of service delivery will soon be augmented with additional offerings that will counter this. Funding has also been released to improve the quality of marketing collateral.

Technology and systems have been identified as a focus area to ensure stability over the long term in a high-volume transaction environment and vastly expanded flexibility in the use of technology to cater for future product enhancement and development.

There has been increased pressure on administration and managed care fees charged to client schemes and initiatives have been launched to positively impact costing through greater automation and increased focus on higher cost healthcare events.

Competitors’ strong distribution channels have proven effective in their growth of market share. Closer relationships with key brokers are being developed to mitigate this phenomenon to some degree.

Medical inflation above CPI remains a threat to the industry as a whole. Medscheme continues to develop innovative managed care solutions to assist client schemes in containing costs, but increased utilisation of clinically appropriate new technologies and medication is likely to keep up the pressure.

The generally weak global economic recovery is likely to not only impact the South African economy and AHL’s local businesses, but could inhibit AHL’s diversification and growth initiatives. The specialised nature of the AHL business not only insulates it to an extent, but the offering of much needed cost containment solutions only increases its attractiveness during a period of economic constraint.

The rollout of NHI may impact the lower income members on medical schemes. Building the public’s confidence in public healthcare facilities is, however, likely to be an extended process.