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Tipping point leadership

Tipping point leadership. Neville Koopowitz CEO Discovery Health. Tipping Point Leadership. “To appreciate the power of epidemics… we need to prepare ourselves for the possibility that sometimes big changes follow from small events, and that sometimes these changes can happen very quickly”

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Tipping point leadership

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  1. Tipping point leadership Neville Koopowitz CEO Discovery Health

  2. Tipping Point Leadership “To appreciate the power of epidemics… we need to prepare ourselves for the possibility that sometimes big changes follow from small events, and that sometimes these changes can happen very quickly” “Look at the world around you. It may seem like an immovable, implacable place. It is not. With the slightest push – in just the right place – it can be tipped” • We are looking for the small things that lead to epidemic-like contagion • If we can find them – then a small concentration of resources in key areas will produce the maximum effect From: The Tipping Point: How Little Things Can Make a Big Difference, Malcolm Gladwell, 2000

  3. Evolution of private healthcare in SA Solvency Low-income cover Regulatory framework Membership Static Future Past (Pre-2000) Present 2000 - today Industry Developments Access Improved Improved Increased attention Strengthened Tipping point

  4. Coverage of SA population 1m Wealthy uncovered 7m current medical scheme population 4% 16% Over 7 million South Africans uncovered 17% 64% R 0 - R 2,500 R 2,500 - R 5,000 R 5,000+ insured R 5,000+ uninsured Income bands and insured status

  5. Evolution of private healthcare in SA Industry Developments Access Improved Solvency Improved Low-income cover Increased attention Regulatory framework Strengthened Membership Static Tipping point Future Past (Pre-2000) Present 2000 - today

  6. Evolution of private healthcare in SA Industry Developments Access Improved Solvency Improved Low-income cover Increased attention Regulatory framework Strengthened Membership Static Tipping point Future Past (Pre-2000) Present 2000 - today

  7. Tipping Point Variables • Cost & Affordability • Risk Protection • Distribution • Capital • Bold Vision Sound foundation to build on

  8. 1. Cost & Affordability Present Past Future • Risk based pricing restricted access for old and sick • Inflation controlled through product design • Community pricing • Price floor based on minimum benefit package • Inflation managed by focus on underlying cost drivers

  9. The affordability formula Quality of care = f [ ] ( ), Affordability Breadth of access Basket of benefits ) ( ( ), Active Network Management Consumer & Manufacturer demand for new technologies • Floor price for PMB’s R237* per life excluding: • Administration • Reserve build up • Distribution costs Competition Co-operation Regulation * REF community rate

  10. 1. Cost & Affordability Present Past Future • Risk based pricing restricted access for old and sick • Inflation controlled through product design • Community pricing • Price floor based on minimum benefit package • Inflation managed by focus on underlying cost drivers • Flexibility of PMB’s • Co-operation between funders, providers & suppliers • Compete on networks

  11. 2. Risk Protection Present Past Future Poor risks managed through: • Underwriting, declining poor risk members, loading premiums and exclusions • Guaranteed access allows sick & elderly affordable access to quality private healthcare • Freedom of access increases adverse selection risk of groups and individuals with high cost conditions

  12. Adverse Selection Medical Schemes Act Section 29A.6 A medical scheme may not impose a general or condition specific waiting period on a person in respect of whom application is made for membership or admission as a dependent, and who was previously a beneficiary of a medical scheme, terminating less than 90 days immediately prior to the date of application, where the transfer is required as a result of – (b) An employer changing or terminating the medical scheme of it’s employees, in which case transfer shall occur at the beginning of the financial year, or reasonable notice must have been furnished to the medical scheme to which an application is made for such transfer to occur at the beginning of the financial year.

  13. Impact of S29A.6(b) concession 50.7 49.7 Average age of members that joined under S29A.6(b) underwriting concession 45.4 Average age of Discovery Health new entrants during the year 53 51 49 47 45 Age 43 41 39 37 35 2004 2005 2006

  14. Cost impact of high cost conditions 160 245 140 10,000 members 120 206 100 195 84 65 62 Monthly member premium 56 80 Increase in premium to fund treatment 60% 60 40 20 0 Base premium Monthly Premium per member Technology 111 3 19 11 56 6 39 Estimated number of members that would benefit Pipeline Stents (Original Xigris (Original Biologics for Herceptin Biologics for Other new Biotechnology adjuvant conditions other registered drugs Oncology Launch Price) Launch Price) (currently than cancer for chronic Drugs available) conditions • Only way to manage today is to avoid coverage • Expectation of coverage but co-operate to minimize financial risk

  15. 2. Risk Protection Present Past Future Poor risks managed through: • Underwriting, declining poor risk members, loading premiums and exclusions • Guaranteed access allows sick & elderly affordable access to quality private healthcare • Freedom of access increases adverse selection risk of groups and individuals with high cost conditions • REF – responsible solution to adverse selection • Strengthen underwriting protection to restrict opportunistic member movements • Ensure cover for low frequency, high cost treatments through industry co-operation

  16. 3. Distribution Present Past Future • Unregulated broker market - no barriers to entry • No qualifications, experience or education necessary • Extensive accreditation required • Regulations on how advice is given and recorded (FAIS) • Cost to industry capped, controlled and transparent • 9, 426 accredited brokers (www.medicalschemes.com) • Powerful, educated asset for industry growth

  17. A new broker focussing on low-income products 14,000 Income 2 years to recover upfront losses 12,000 10,000 8,000 Rands per month 6,000 4,000 1 year to reach minimum wage of R1,500 pm 2,000 0 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 Months • Assumptions • Writes 21 cases per month • Average premium of R600 • Legislated commission of R18 per member per month Upfront Expenses FAIS licensing application fee- R1,150 Education (FAIS credits) - R1,000 Council broker accreditation - R1,000 Council brokerage accreditation - R1,000 Petrol, telephone, fax Assume R3,000 per month Environment unlikely to attract new entrants

  18. 3. Distribution Present Past Future • Unregulated broker market - no barriers to entry • No qualifications, experience or education necessary • Extensive accreditation required • Regulations on how advice is given and recorded (FAIS) • Cost to industry capped, controlled and transparent • 9, 426 accredited brokers (www.medicalschemes.com) • Powerful, educated asset for industry growth • Create incentives to encourage growth of distribution capabilities - especially for individual members and low-income products

  19. 4. Capital Present Past Future • Guideline only • Lower levels of capital • Stringent requirement • Rapid build up of internal capital • Inefficient use of excess capital

  20. Industry Reserve Levels R18.5bn held at end of 2004 R13.7bn R12.9bn needed for 25% level R9.7bn R6.2bn R7.4bn 40% R5.6bn excess capital held in industry at end of 2004 35% 30% Reserve as % of Gross premium Potential capital available for improved access 25% 20% 15% 2000 2001 2002 2003 2004 Source: COMS annual reports

  21. 4. Capital Present Past Future • Guideline only • Lower levels of capital • Stringent requirement • Rapid build up of internal capital • Inefficient use of excess capital • Utilise capital efficiently to create optimal balance between member security and future contributions

  22. 5. Bold Vision Present Past Future • Cottage industry – little capital • Underdeveloped infrastructure • Low competitive pressure to meet consumer needs • Period of consolidation leading to world class private healthcare, administration and managed care • Sound regulatory framework

  23. Consolidation over time 250 Total number of Medical Schemes in South Africa 203 198 200 189 181 165 156 154 149 145 150 More than 1 in 4 have been consolidated 100 50 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 Source: COMS annual reports

  24. SA exceeds world class service standards Calls Claims *From interstudy 2000 analysis of 600 HMO’s ** From US Managed Care handbook *** Cap Gemini, Ernst & Young US Managed Care Benchmark Study 2002 Source: 2005 Purdue Report on health insurance industry call centres

  25. International costs of administration Multinacional (Venezuela) 43.5% Sanitas (Spain) 30.0% Adeslas (Spain) 23.1% AXA PPP (UK) 23.0% BUPA (UK) 19.7% Masvida (Chile) 19.4% Brasilsaúde (Brazil) 18.4% Colmena Golden Cross (Chile) 16.2% Sul América (Brazil) 16.1% Isapre Banmédica (Chile) 15.7% ING Salud S.A. (Chile) 15.6% Vida Tres (Chile) 14.7% Consalud S.A. (Chile) 14.7% Norwich Union Healthcare (UK) 14.5% Segment Average = 17.0% Bradesco (Brazil) 14.2% VHI (Ireland) 13.1% SA open scheme average (12.7%) as per 2004 COMS report Asisa (Spain) 9.9% Standard Life Healthcare (UK) 9.8% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% % of Total Premium Income Note: The admin cost comparison is inclusive of broker commissions; the average is calculated excluding the 4 outliers at the top and the bottom of the range; Source: Company financial statements; Monitor analysis SGA+EBIT for Companies in most Similar Operating Environments Having most Similar Operations – Monitor Survey of Healthcare systems 2002 World class service at lower cost

  26. 5. Vision Present Past Future • Cottage industry – little capital • Underdeveloped infrastructure • Low competitive pressure to meet consumer needs • Period of consolidation leading to world class private healthcare, administration and managed care • Sound regulatory framework • Bold vision to build on solid foundation • A sound balance between Competition & Co-operation

  27. Create bold vision September 12th 1962 July 20th 1969 “We choose to go to the moon in this decade and do other things, not because they are easy, but because the are hard…” 10 million lives by 2010…

  28. Tipping Point Variables Cost & Affordability Risk Protection Distribution Capital Bold Vision • Flexibility of PMB’s • Co-operation of providers, funders & suppliers for high cost care • REF implementation • Strengthen underwriting protection • Encourage growth in low-income markets • Improve capital efficiency • Responsible co-operation whilst maintaining competition • 10 million lives by 2010

  29. Tipping point leadership Neville Koopowitz CEO Discovery Health

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