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AfroCentric INTEGRATED ANNUAL REPORT 2016
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Strategy
MATERIALITY
AfroCentric’s definition of materiality is defined by the IIRC’s
<IR> Framework as those matters that substantially affect the
organisation’s ability to create value over the short, medium
and long term.
The Group views materiality determination and assessment
as a continuous process because we appreciate that the
external environment is continually evolving. Through
understanding how material risks and opportunities as well
as stakeholder expectations inform the strategy (how the
business is responding), the Group is able to execute a
successful business model.
AfroCentric’s external environment, risks and stakeholder
engagement culminate in the material risks and
opportunities.
A risk assessment is undertaken regularly, and the results
are combined to arrive at strategic, financial, reporting, IT,
compliance, reputational and operational risks. These risks
are considered in relation to the external environment and
stakeholder expectations.
The process involves considering the risk and opportunity
likelihood and potential impact within the quantitative and
qualitative parameters set by the Group. These matters
form the foundation for the Group’s future materiality
assessments as management continuously seek to align its
strategic approach with the critical factors in its operating
environment.
EXTERNAL BUSINESS ENVIRONMENT
SOUTH AFRICAN ECONOMY
The South African economy has endured a minor economic
setback over the past few years, from which it has not yet
recovered. The Rand experienced a significant reduction
in value in 2015, and remains weak against international
currencies. The severe drought experienced across large
parts of the country, during the summer months further
exacerbated the economic stress, which resulted in increased
commodity prices. The impact of these combined factors
were felt across all industrial sectors and by all demographic
groups. Inevitably, some were more exposed to the effects of
the economy than others. Some industries that experienced
a setback responded with a reduction in employment levels
and/or reduced remuneration and benefits packages for
employees, including provision for private healthcare, directly
impacting our clients and thus the Group.
IMPACT ON SOUTH AFRICAN HEALTHCARE SECTOR
Rising inflation unmatched by economic growth and
remuneration increases impacts on disposable income. This
results in limited choices for consumers. In some instances,
consumers choose not to pay for private healthcare. These
decisions are also influenced by escalating healthcare costs,
which is unaffordable for most of the population.
This further increases healthcare costs, as the young and
healthy opt for low-cost insurance alternatives or choose
not to join a medical aid scheme at all, using public sector
facilities for acute care. Lacking young entrants, what remains
is an ageing membership base with increased medical scheme
claims, resulting in even higher contribution requirements, an
‘actuarial death spiral’ which further drives out existing healthy
members, unable to afford the rising premiums.
The increased costs of medicine and medical devices is
mainly attributable to the importation from countries with
stronger currencies (predominantly the United States).
The value of the Rand, however, presents opportunities
to diversify into international markets. International
contracts could yield lucrative returns if the Rand remains
comparatively weak.
NATIONAL HEALTH INSURANCE
The government’s plans to introduce NHI are underway.
Since 2012, 10 health districts in seven provinces have been
running pilot projects. The pilots were designed to test the
ability of health districts to assume greater responsibilities,
to assess utilisation patterns, and to determine the cost and
affordability of implementing a primary healthcare service
package. According to the White Paper “NHI represents
a substantial policy shift that will necessitate a massive
reorganisation of the current healthcare system, both public
and private”. Government is committed to ensuring access
to quality healthcare for all South Africans, regardless of their
financial standing.
The private sector will be instrumental in the success of the
NHI. The NHI is intended as a national scheme, based on
the principle of a ‘single fund’ and a ‘single payer ’, and will
require sophisticated IT solutions. AfroCentric, through its IT
subsidiary, Helios IT Solutions (“Helios”), manages a range
of IT solutions with healthcare specialisation that includes
technical support.
AfroCentric is supportive of the NHI. The Group welcomes
the revitalisation of the public health sector and endorses
the ideal clinic model described in the White Paper. Through
Medscheme, AfroCentric possesses the necessary skills
and experience in health risk managment as well as health
administration and is willing to share this expertise with the
architects of the NHI. Medscheme also has electronic tools
that profile general practitioners (“GPs”) and specialists
applying cost and quality metrics of treatment that impact on
healthcare outcomes. These tools could provide government
with the means to implement its plans for a reimbursement
strategy that rewards evidence-based healthcare and
effective use of resources.
There is currently engagement with the NHI implementation
process. Pharmacy Direct has been providing courier
pharmacy services to the Department of Health in 5 of the 8
pilot districts under the Central Chronic Medicine Dispensing
and Distribution (“CCMDD”) Programme.