2ND CMS INDABA

The Value of Managed Care

Lagoon Hotel Cape Town

Lagoon Beach Road, Milnerton

Friday, 1 March 2013

RSVP: forums@medicalschemes.com

Join us in gaining valuable information from well-recognised CMS and industry speakers; we encourage you to participate in the panel discussion. This second Indaba of the CMS aims to explore the meaning and value of managed care in the context of the South African medical schemes industry. How does managed care benefit schemes and beneficiaries alike?

Programme

09:00 Tea 10:00 Welcome Dr Elsabé Conradie 11:00 Topic to be confirmed Dr Stan Moloabi Acting Principal Officer (GEMS) 12:00 Topic to be confirmed Metropolitan Health 13:00 Lunch 14:00 Managed Care: South African Context Danie Kolver Head: Accreditation, CMS 15:00 The limitations of determining the value of Panel discussion managed healthcare using the rand value

16:00 Closure Dr Monwabisi Gantsho

Trends in financial performance

of medical schemes

Tebogo Maziya

Head Financial Supervision

Trends in number of schemes and

beneficiaries

47 49 49 49 48 47 41 41 37 33

27 26

97 97 94 88

85 84

83 81 82

77

73 71

6.7 6.8 6.7 6.7 6.7 6.8

7.1

7.5

7.9 8.1

8.3 8.5

-

1

2

3

4

5

6

7

8

9

0

20

40

60

80

100

120

140

160

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Mil

lio

ns

Open schemes Restricted schemes Beneficiaries

Trends in age of beneficiaries

29.0

29.5

30.0

30.5

31.0

31.5

32.0

32.5

33.0

33.5

34.0

2004 2005 2006 2007 2008 2009 2010 2011

Av

era

ge

ag

e (

ysr

s)

Open schemes Restricted schemes Restricted schemes (excl GEMS) Consolidated

Claims costs pbpm: 2011 prices

0 50

100 150 200 250 300 350 400 450 500 550 600 650 700 750 800 850 900 950

1,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

pbpm (R)

Capitated primary care Other benefits Ex gratia payments

Supplementary and allied health professionals Medicines Private hospitals

Provincial hospitals Dental specialists Dentists

Medical specialists General practitioners

private hospitals

specialists

Risk claims ratio : 2011 prices

89.3%

83.2%

82.1%

79.2% 78.6%

84.1%

88.0%

86.5% 86.9%

89.3%

87.3%

86.5%

72.0%

74.0%

76.0%

78.0%

80.0%

82.0%

84.0%

86.0%

88.0%

90.0%

92.0%

0

200

400

600

800

1,000

1,200

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Year

Risk contributions Risk claims Risk claims ratio

Non healthcare expenditure : 2011

prices

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Administration (Risk+Savings) Managed care: management services Broker fees and distribution costs

Nett reinsurance Impaired receivables

Cost trends pbpa : 2011 prices

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

11000

12000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Total NHE Net relevant helathcare expenditure

outside CMS control

MSA

Net healthcare results

-1,019.7

204.9

1,076.3

2,326.0

2,731.3

-406.5

-2,129.7

-1,056.5 -912.7

-2,583.3

-459.5

1,034.3

167.1

1,453.7

2,409.7

4,317.0

5,010.6

2,291.8

1,142.9

2,786.2 2,553.4

972.1

2,851.5

4,290.7

-3 000

-2 000

-1 000

0

1 000

2 000

3 000

4 000

5 000

6 000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Million (R)

Year

Net healthcare result Net surplus/(deficit)

Solvency

10.0

13.5

17.5

22.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0

20.2 20.4

22.9

29.3

37.3

39.1 37.9 38.0

36.6

32.9

31.6 32.6

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Solvency ratio (%)

Prescribed solvency Level Industry average (all) Linear (Industry average (all))

Trends in financial performance

of medical schemesof medical schemes

Tebogo Maziya

Head Financial Supervision

Trends in number of schemes and

beneficiaries

97 97 9488

85 84

6.7 6.8 6.7 6.7 6.76.8

7.1

7.5

7.98.1

8.38.5

5

6

7

8

9

100

120

140

160

Mil

lio

ns

47 49 49 49 48 4741 41 37 33

27 26

85 84

83 8182

77

73 71

-

1

2

3

4

5

0

20

40

60

80

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Open schemes Restricted schemes Beneficiaries

Trends in age of beneficiaries

31.5

32.0

32.5

33.0

33.5

34.0

Av

era

ge

ag

e (

ysr

s)

29.0

29.5

30.0

30.5

31.0

31.5

2004 2005 2006 2007 2008 2009 2010 2011

Av

era

ge

ag

e (

ysr

s)

Open schemes Restricted schemes Restricted schemes (excl GEMS) Consolidated

Claims costs pbpm: 2011 prices

550600650700750800850900950

1 000

pbpm (R)

050

100150200250300350400450500550

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Capitated primary care Other benefits Ex gratia payments

Supplementary and allied health professionals Medicines Private hospitals

Provincial hospitals Dental specialists Dentists

Medical specialists General practitioners

private hospitals

specialists

Risk claims ratio : 2011 prices

89.3%

83.2%

84.1%

88.0%

86.5%86.9%

89.3%

87.3%

86.5%

84.0%

86.0%

88.0%

90.0%

92.0%

800

1 000

1 200

82.1%

79.2%78.6%

72.0%

74.0%

76.0%

78.0%

80.0%

82.0%

84.0%

0

200

400

600

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Year

Risk contributions Risk claims Risk claims ratio

Non healthcare expenditure : 2011

prices

1 200

1 400

1 600

1 800

2 000

0

200

400

600

800

1 000

1 200

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Administration (Risk+Savings) Managed care: management services Broker fees and distribution costs

Nett reinsurance Impaired receivables

Cost trends pbpa : 2011 prices

7000

8000

9000

10000

11000

12000

0

1000

2000

3000

4000

5000

6000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Total NHE Net relevant helathcare expenditure

outside CMS control

MSA

Net healthcare results

2 731.32 409.7

4 317.0

5 010.6

2 291.8

2 786.22 553.4

2 851.5

4 290.7

3 000

4 000

5 000

6 000

Million (R)

-1 019.7

204.9

1 076.3

2 326.0

-406.5

-2 129.7

-1 056.5 -912.7

-2 583.3

-459.5

1 034.3

167.1

1 453.7

2 409.7 2 291.8

1 142.9

2 553.4

972.1

-3 000

-2 000

-1 000

0

1 000

2 000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Year

Net healthcare result Net surplus/(deficit)

Solvency

29.3

37.3

39.1 37.9 38.0

36.6

32.9

31.6 32.6

30.0

35.0

40.0

45.0

Solvency ratio (%)

10.0

13.5

17.5

22.025.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0

20.2 20.4

22.9

0.0

5.0

10.0

15.0

20.0

25.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Prescribed solvency Level Industry average (all) Linear (Industry average (all))

Healthcare brokers Where are we and whereto from here

CMS INDABA KOPANONG

2012

Danie Kolver Head of Accreditation

Council for Medical Schemes

Presentation Outline

• Brokers: current status

• Some undesirable practices emerged

• Broker fees and membership

• What does the future hold?

• The role of the broker

• Broker conduct in perspective

• Managed care matters

Brokers: current status • There are currently 8334 individual health care brokers

and 2237 broker organisations accredited

• All members pay currently for broker services in unfair manner – not scheme expense

• Analysis of FAIS regulatory exam results may change numbers as those who fail become not fit and proper and accordingly fail accreditation

• No accreditation to business or family trusts – incapable of functioning as legal entities

• Recent trends:

– Indicate large influx of apprentice brokers associated with major corporations

– Market penetration by trade union linked broker organisations

– Insignificant organic growth in new members being brokered in open schemes

– Therefore mismatch between broker fees and members enrolled

Some undesirable practices emerged

• Inability of broker fraternity to market scheme cover to uncovered

• Churning of members and battle for market share amongst brokers as a result has become general practice

• Increased emphasis on selling unlawful insurance products (hospital cash plans and gap cover)

• Commercial gain for brokers playing in that environment with much higher income stream cited as main reason

Some undesirable practices emerged

• Independence of brokers is often questioned as their advice

is influenced by other financial and non-financial incentives

attached to the products they sell

• Increase in purported marketing, distribution, survey and

related activities by brokers to secure misplaced loyalty

• Gives rise to questionable income stream for brokers, real

value for members with adverse effect on cost structures for

members

• Overall, competition is driven along inappropriate business

culture

Some undesirable practices emerged

• Conduct of certain individuals tarnish good name of bona fide brokers

• Scheme members allocated to favoured brokers without services being rendered by such brokers

• Brokers expose themselves by false promises wrt waiver of waiting periods and clients failing to disclose material information

229.798698 288.685305 354.235353 581.3042918 704.1015249 847.831361 903.449266 979.510738 1106.664344 1125.054735 1232.972846 1298.724938

1.3

1.5

1.8

1.9 1.9

2.0

2.1 2.2 2.2

2.3 2.3 2.3

0.0

0.5

1.0

1.5

2.0

2.5

0

200

400

600

800

1 000

1 200

1 400

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Mil

lio

ns

Million (R)

Broker fees Average members

BROKER FEES AND MEMBERSHIP

What does the future hold?

• In general terms, aligning health brokers with financial

services industry.

• Consideration given to strengthen environment by

means of legislative amendments.

• Ensure independence of advice to consumers seeking

this service

• No urging priority to dispense with dual licensing and

accreditation.

• Fit and proper requirements and measures to deal with

unacceptable behaviour by two regulators will continue.

• Compliance based regulation to focus on distribution

channel arrangements.

The Role of the broker

• Unlike other investments, clients approach intermediaries to facilitate appropriate coverage to ensure access to necessary health care, not to create wealth

• Health intermediaries should see themselves first and foremost as advisors taking into account

– analysing the client’s health care needs and match with relevant insured benefits

– their means to pay for needed coverage

– effect of transferring clients to another scheme on waiting periods and late joiner penalties that might be imposed

– Individual vs group transfer and effect thereof on all clients

– retirees to join group transferred to new scheme

– transfer within meaning of scheme rules - no person can have more rights than another

Broker conduct in perspective

Maintain high standards of professionalism and integrity

Comply timeously with regulatory requirements

Advanced training towards obtaining required licensing

credits needed

Stay up to date with regulatory developments (CMS website

www.medicalschemes.com for circulars & FSB licensing “F&P”

requirements)

Keep regulator informed of

unlawful conduct

Compliance based regulation = ad hoc evaluation of contracts & conduct to assess fitness and propriety

Guard @

misleading

practices &

undertakings

re admission Investigate

complaints;

suspend &

terminate

accreditation

Managed care matters

• On-site evaluations on track following success with administrators

• Progressing with research towards measuring impact of managed care interventions

• Continued initiative to address value proposition provided ito quality of care and health outcomes

• IPA’s and direct providers of care not required to be accredited

THANK YOU