AGM 2018

A Time to Refl ect

Organisational Overview

Scheme Performance in 2017

Strategic Objectives

Governance

The Road Ahead www.fedhealth.co.za

contents

Refl ections on an AGM

The 82nd Fedhealth Annual General Meeting took place on Wednesday 27 June 2018 at the Johannesburg Country Club. Thank you to

all our members who made the time to attend.

The year 2016 saw an industry-wide claims blowout, which caused the increase for 2017 to be above average. Just as example, during

2016, mental health admissions increased by 28% and spinal fusions with 22%.

Since 46% of claims are hospital-related, the Scheme implemented some interventions to manage the cost of care more effectively

in 2017. These included a global fee arrangement for Hip and Knee Replacements, and a Conservative Back and Neck Rehabilitation

Programme amongst others. Without these interventions, which benefi t the Scheme and members alike, Risk claims in 2017 would have

been at least 7.7% higher.

The Scheme also introduced weight management, smoking cessation and diabetic managed care programmes for members, which

commenced in 2018. Through these cost containment initiatives, the Scheme managed to only introduce a 9.5% average contribution

increase for 2018. Membership also remained stable in 2017 with 71 730 principal members. The Scheme however managed to attract

younger members onto the Scheme as the average age only increased with less than 0.5% over the last three years.

Once more, we are proud of the fact that Fedhealth remains the scheme which pays more from Risk than any other scheme. Most other

schemes pass costs on to members’ Savings, while Fedhealth continues to lessen the burden on members’ Savings by taking care of

costs like MRI and CT scans from Risk, and not Savings.

From a fi nancial point of view, the Scheme enjoyed positive results in 2017. The Scheme achieved a solvency rate of 32.09%, with an

underwriting surplus of R389 million (R185 million in 2016), and a net surplus of R104 million (R57 million defi cit in 2016). Fedhealth’s

reserves increased marginally from R982 million to R1.085 billion. Accumulated funds per member increased from R13 358 to R15 079.

The Scheme achieved an investment return of 10% (2016: 5.9%) against an infl ation rate of 4.7% (2016: 6.6%) and a Scheme benchmark

of 8.2% (2016: 10.1%). The Scheme’s claims paying ability (from cash and short-term investments) is 4.4 months.

In addition, we’ve also retained our AA- Global Credit Rating since 2007, which confi rms our claims paying ability and stable outlook.

Finally, although we are pleased with these results, we still need to take drastic measures to attract younger, healthier members to the

Scheme. At 39, our average benefi ciary is four years older than the industry average. As such, we’ve been hard at work at developing

a product structure that will appeal to a younger target, and have done extensive research into the millennial market. We will keep you

informed of any new developments in this regard.

Dear Member

Welcome to the 2017 Members’ Report.

Managing a medical scheme requires a wide variety of skills, including fi nancial acumen, an awareness of medical trends and an ability to see into the future. As most of us don’t possess the latter attribute, ensuring that the Scheme remains on a sound footing and continues to meet its obligations to the members, means that a balance needs to be found between benefi t management and quality of care.

While 2017 saw improved fi nancial results and a growth in Fedhealth’s reserves to R1.085 billion, the challenges that face the Scheme are still present. We’ve introduced initiatives aimed at reducing costs and improving care, which have helped the Scheme remain fi nancially stable, and we will continue to explore these opportunities. But it is evident that the Scheme cannot continue on this course and expect to grow membership. Medical aid is becoming increasingly unaffordable and a new approach has to be adopted in order to retain and grow members.

To this end, the Board has authorised scheme management to investigate what opportunities lie in restructuring scheme benefi ts to give members greater choice and cost-effectiveness. Restructuring medical aid benefi ts can create some uncertainty as members struggle to come to grips with how the new benefi t structures work, but every effort will be made to ensure that while the benefi ts may look different, you, the member, are still getting the quality healthcare to which you’ve become accustomed. We need to overcome a number of hurdles, which may impede the successful implementation of the new structure, but we will use every endeavour to bring the proposals to fruition, as we believe that they will be in the best interests of the Scheme and all members.

Reports of the implementation of National Health Insurance (NHI) continue to circulate in the media, but until the Scheme and the industry have any kind of political certainty regarding

the implementation of NHI, the Scheme will continue to operate as normal. Fedhealth is in favour of steps to bring about Universal Healthcare Coverage, but at this stage there are too many uncertainties regarding funding and structure to allow the Scheme to plan in any way for the onset of NHI.

Of great concern to the Board and Scheme management has been the slew of recent press reports regarding KPMG, currently the auditors of the Scheme. While the service and professional expertise that the Scheme has received from KPMG has been exemplary, we are aware of the reputational and professional risks that can occur by association. We will continue to monitor the situation very closely and keep members advised of developments that may necessitate any decisions.

On behalf of the Board of Trustees of Fedhealth Medical Scheme I would like to thank our members, the medical service providers that perform such valuable work, the various stakeholders and partners who contribute to the effective functioning of the Scheme, and our regulator, the Council for Medical Schemes. On a personal level I would like to thank the members of the Board of Trustees and my management team for their application, insight and support during the period under review.

Jeremy YattPrincipal Offi cer, Fedhealth

We’ve introduced initiatives aimed at reducing costs and improving care, which have helped the Scheme remain fi nancially stable, and we will continue to explore these opportunities.

a timeto refl ect

Medical schemes are established in terms of the Medical Schemes Act 131 of 1998, as amended, and are managed by a Board of Trustees (the Board) and a Principal Offi cer (PO).

The Board is responsible for formulating a strategy and effecting comprehensive oversight of the Scheme activities. In his capacity as the executive offi cer of the Scheme, the PO has to implement the strategy as set out by the Board.

MEMBER ELECTED TRUSTEES

In terms of the Scheme Rules, nine Board members are elected from amongst members of the Scheme. Additional Trustees may be appointed if specifi c expertise is required, but this has not been necessary as the current Trustees offer considerable expertise and experience.

As members of the Scheme themselves, Trustees are well versed in the needs and challenges facing medical aid members, and therefore their aim is to make decisions which will improve the member experience. In particular, the fi nancial challenges facing medical schemes mean that it is near impossible to please everyone, but at least members can rest assured that their interests are always a priority.

The Board has an active involvement in the development of benefi ts, taking into consideration new technologies and medical developments as well as healthcare trends. As always, there is a trade-off between what the Scheme can fund and keeping contribution rates as low as possible, as many new procedures and medicines are extremely pricey.

The Board also scrutinises the monthly management accounts and the benefi t utilisation reports generated by the managed care organisation, to monitor claim and cost trends and take corrective action if needed.

Fedhealth’s Board of Trustees comprises nine members, which ensures streamlined portfolios and a leaner management structure that allows for quicker and more effective decision-making.

Board members’ experience and qualifi cations

Nazir Parker:BProc, MBL28 years of legal experience as an attorney.

Trevor Jackson:32 years’ involvement in medical scheme management.

Mike Duly: CFP (Healthcare & Pensions), Certifi cate in Strategic MarketingMore than 25 years’ experience in the medical aid industry.

Gerrit Eloff:BCom and FIA (Fellow of Institute of Actuaries UK)More than 10 years’ experience in strategic business planning and fi nancial modeling.

Marylla Govender:MCom (Cum laude), MA(Econ) EconomicsConsulting Economist

Phil Hemus:BCom (Accounting), CAIB, Associate Coaching UCT GSB27 years’ experience in fi nancial management.

Dr Maggie Mojapelo:MB.ChB M.A.P.32 years’ experience in clinical medicine.

Chris Norton:BA HonsDiploma in Social Science (Oxford)16 years’ experience in medical scheme sales.

Jacobus Cloete:MBA, NHDip (Chem Eng) NHDip (Man Prac) 21 years’ experience in programme/ project management, business improvement/ transformation and organisational design.

Individual mentionsThe Chairman of the Scheme, Mr Nazir Parker, would like to thank the Board members for their hard work, application and careful consideration of the many issues facing the Scheme.

organisational overview

a timeto refl ect

EXECUTIVE MANAGEMENT TEAM

Fedhealth’s Principal Officer, Jeremy Yatt, is supported by Michelle Morton, Commercial Executive. Michelle manages the various channels that provide the Scheme with members, and the relationship with brokers who look after some Fedhealth members. Tilana Endersby assists the executive management team in her capacity as Scheme Operational Executive.

OUTSOURCED ADMINISTRATION MODEL

The Scheme outsources its main functions to a number of different entities. This is mainly because it’s a not-for-profit organisation that strives to keep costs down.

As such, all supplier and entity contracts are reviewed regularly, their performances are monitored by the relevant committee to ensure they meet service levels and that their costs are market-related.

The three main suppliers in terms of costs are:

AdministrationMedscheme Holdings (Pty) Ltd (Medscheme) handles all major administration functions on behalf of the Scheme, and is part of the AfroCentric Health Group.

One of the largest medical scheme administrators in the country, Medscheme has introduced various innovations and technological advances to make sure claims are paid quicker, queries are resolved more effectively, and the Scheme’s financial reporting is accurate. The latter is especially important, as it allows the Board to make accurate decisions about the Scheme’s future rates and benefits.

Managed CareTo deal with managed care functions that include clinical governance and clinical policy, the Scheme has contracted Medscheme Health Risk Solutions (MHRS), also part of the AfroCentric Health Group. MHRS is responsible for authorising certain claims like hospital admissions, MRI scans and chronic medication, to name a few.

MarketingThe Cheese Has Moved (TCHM), a marketing consultancy and part of the AfroCentric Health Group, continuously works hard to put Fedhealth at the forefront of branding, sales tools and communication strategies – specifically with the aim to attract a younger, healthier membership base.

SCHEME MANAGEMENT

The members of the Board meet regularly to conduct the business of the Scheme and approve resolutions and proposals. Seven main committees handle the everyday business of the Scheme, and they are:

~ Audit Committee – The Audit Committee comprises five members of whom the majority are independent of the Scheme. Two Trustees are appointed as members of the committee. In summary, the committee assists the Board in its evaluation of the adequacy and efficiency of the internal control systems, accounting practices, information systems and auditing processes applied by the Scheme or its administrator in the day-to-day management of its business.

~ Finance Committee (Fincom) – Fincom meets once a month to review the management accounts and ensure that all financial processes are carried out properly. The members of this committee examine the Scheme’s position in relation to the budget, investigate any material deviations from the budget and approve other expense items.

~ Investment Committee (IC) – Fedhealth must strictly adhere to investment regulations, and as such, the IC is mandated to ensure that the Scheme continuously complies with asset investment regulations. It strives to enhance the investment income as it helps to reduce member contributions, and is determined to ensure that the Scheme’s accumulated funds are not affected by volatility in the marketplace. The IC’s objective is to see to it that the Scheme receives the best possible returns at the lowest risk. As such, the Scheme relies heavily on the support of professional investment advisors and well-respected investment managers.

~ Managed Healthcare Committee (MHC) – This committee meets monthly to discuss matters of clinical importance, the funding of new procedures and drugs, the utilisation of benefits by speciality or discipline, and to consider wellness enhancing initiatives. The MHC is particularly concerned with alleviating burdens created by non-communicable diseases such as diabetes, hypertension and hyperlipidaemia. In addition, it studies the outcomes of disease programmes that deal with HIV/AIDS and cancer, and searches for ways to make them more effective.

~ Marketing Committee – The Marketing Committee fulfils much more than a pure marketing and advertising function; it also oversees communication to members, and drives the Scheme’s effective use of digital communications and platforms.

~ Remuneration Committee (Remco) – This committee meets quarterly or bi-annually, depending on the circumstances, to review the efficiency of the Board, and decide on remuneration for the Board members, independent audit committee members and the Scheme’s executive employees. Where necessary, HR and personnel experts advise the Scheme with regards to comparable remuneration packages to ensure competitive compensation for its top talent.

~ Risk and Legal Committee (RLC) – The RLC reviews the top 25 risks as per the risk register bi-monthly, and confirms that the necessary controls are in place and that mitigating measures are effective. Each Scheme committee is responsible for identifying risks in its particular area, and determining which steps need to be taken to lessen those risks. The role of the RLC is to view the risks in a broader sense and report to the Board on the effective management of the risks.

SCHEME PERFORMANCE

IN 2017

FINANCIAL PERFORMANCE

SURPLUSIn 2017, the Scheme achieved a

solvency rate of 32.09%.

The underwriting surplus

amounted to R389 million

(2016: R185 million), with a net

surplus of R104 million

(2016: Defi cit R57 million).

RESERVESThe Scheme’s reserves

increased marginally from

R982 million to R1.085 billion.

Accumulated funds per

member increased from

R13 358 to R15 079.

INVESTMENT RETURNSThe Scheme achieved an

investment return of 10%

(2016: 5.9%) against an infl ation rate

of 4.7% (2016: 6.6%) and a Scheme

benchmark of 8.2% (2016: 10.1%).

The Scheme’s claims paying

ability (from cash and short-term

investments) is 4.4 months.

CREDIT CONTROL

DISCREPANCY RATIO (Remittance to billing): 1.39% (2016: 1.81%)

DEBIT ORDER SUCCESS RATE97% (2016: 97%)69% (2016: 74%) of gross contributions collected via debit order

SCHEME’S MEMBERSHIP PROFILE: Direct paying members 61% (2016: 61%) Group members 31% (2016: 31%) Persal members 8% (2016: 8%)

MEMBERSHIP OPERATIONAL STATS: Average applications turnaround time: Less than 2 days

OPERATIONAL FACTS AT A GLANCE

OPERATIONALFACTS

20s

We received 345 563 emails and 82% were dealt with within 48 hours

Total calls answered: 294 056

74% were answered within 20 seconds

87% of enquiries were resolved on 1st contact

63 036 chats in the website chatroom

874 735 enquiries dealt with

Over 64 587secure website logins

Over 7 028 new website users registered

Members with cell numbers = 97%

Members with email addresses = 84%

CLAIM ASSESSMENTS AT A GLANCE

9 808 288 claim lines received

Average: 4.9 claim lines per claim

531 372 paper claims processed

Average time from treatment to received – 3.85 days

Average time from received to captured - 0.17 days

Average time from captured to fi nalised – 4.42 days

Average time from fi nalised to paid – 1.62 days

Average time from treatment to paid – 11.72 days

Average time from received to paid - 4.42 days

MEMBERSHIP DEMOGRAPHIC

GAUTENGPrincipal Members:

30 299Beneficiaries:

60 709

WESTERN CAPEPrincipal Members:

14 468Beneficiaries:

28 248

KWAZULU- NATAL

Principal Members: 7 340

Beneficiaries: 14 132

EASTERN CAPEPrincipal Members:

5 864Beneficiaries:

11 049

NORTH WESTPrincipal Members:

3 413Beneficiaries:

6 942

MPUMALANGAPrincipal Members:

3 167Beneficiaries:

6 600

NORTHERN CAPE

Principal Members: 2 983

Beneficiaries: 6 191

FREE STATEPrincipal Members:

2 734Beneficiaries:

5 437

LIMPOPOPrincipal Members:

1 343Beneficiaries:

2 694

OTHERPrincipal Members:

369Beneficiaries:

726

TOTALPrincipal Members: 71 980

Beneficiaries: 142 728

OPERATING CONTEXT

BackgroundThe rising cost of healthcare in the private sector has a signifi cant impact on medical schemes, managed care organisations and members alike. It negatively impacts medical scheme contributions, causing above consumer infl ation increases and therefore has a direct impact on growth – which is evident in the lack of overall medical scheme membership growth in 2017. Main contributors to the increase in private healthcare costs include private hospitals, specialists and medicine costs. The most commonly proposed explanations for increases in overall healthcare spending are: • Increasing prevalence of disease, whether due to an aging population,

unhealthy lifestyle choices, or other factors (see below); • The ineffi cient structure of the healthcare system, such as Fee for Service

(FFS), Supply Induced Demand (SID), fragmented care and PMBs. • Expensive new healthcare technologies, such as new drugs, medical devices,

and other treatments; and • Wasteful spending, such as over-treatment, ‘defensive medicine’, excessive

malpractice costs and fraud.

Non-Communicable Diseases a growing concernUnfortunately the increase of Non-Communicable Diseases (NCDs) remains a growing concern for the medical aid industry. We believe that these diseases are on the rise as a result of lifestyle changes, changing socio-economic status, urbanisation and an increased rate of obesity. So far salt regulations, the imminent sugar tax and tobacco advertising regulations have seen various levels of impact, but more stringent measures need to be put in place to address this unprecedented increase in preventable disease. The economic development of the country is dependent on a healthier workforce.

AGE BREAKDOWN

30-49 years

28.7%

100%

0-18 years

23.5%

65+ years

14.9%

19-29 years

12.0%

50-64 years

20.9%

OPERATING CONTEXT

BackgroundThe rising cost of healthcare in the private sector has a signifi cant impact on medical schemes, managed care organisations and members alike. It negatively impacts medical scheme contributions, causing above consumer infl ation increases and therefore has a direct impact on growth – which is evident in the lack of overall medical scheme membership growth in 2017. Main contributors to the increase in private healthcare costs include private hospitals, specialists and medicine costs.

The most commonly proposed explanations for increases in overall healthcare spending are: • Increasing prevalence of disease, whether due to an aging population,

• The ineffi cient structure of the healthcare system, such as Fee for Service

• Expensive new healthcare technologies, such as new drugs, medical devices,

• Wasteful spending, such as over-treatment, ‘defensive medicine’, excessive

Non-Communicable Diseases a growing concernUnfortunately the increase of Non-Communicable Diseases (NCDs) remains a growing concern for the medical aid industry. We believe that these diseases are on the rise as a result of lifestyle changes, changing socio-economic status, urbanisation and an increased rate of obesity. So far salt regulations, the imminent sugar tax and tobacco advertising regulations have seen various levels of impact, but more stringent measures need to be put in place to address this unprecedented increase in preventable disease. The economic development of the country is dependent on a healthier workforce.

Due to the above, the co-morbidity index (or level of disease burden) of the Scheme continues to worsen. This is despite efforts to attract younger lives. The continued deterioration in the health of the membership base, coupled with overall scheme ageing has a direct impact on the claims experience of the Scheme.

From Fedhealth’s perspective, we are constantly looking at ways to assist our members in making healthy lifestyle choices as preventative measures or taking control if they do have existing NCDs. Our focus on preventative care has seen us introduce Diabetes Focus from 1 April 2018, and the Weight Management and Smoking Cessation programmes from 1 January 2018, to name but a few.

At the end of the day however, members should also take responsibility for their own health and actively participate in programmes designed to improve their health and wellbeing. It is concerning to note that 40% of the Fedhealth population have an indicator of a chronic condition, but only 20% is registered on the chronic medicine management programme. Apathy will get us nowhere and will only cripple medical schemes.

National Health Insurance (NHI) consolidation and amalgamationLast year saw the release of the second White Paper of South Africa’s NHI plan. NHI is intended to lay the foundation of a unifi ed health system and move South Africa towards universal health coverage for all. Nearer on the horizon is the intended plan to consolidate or dissolve medical schemes which have fewer than 6 000 principal members. The impact of this change will be greatest on employees who have access to benefi ts as part of their employer group, estimated to be approximately 228 000 individuals. Regarding other schemes who have greater volumes of membership, the White Paper states that these schemes will need to transform to provide complementary cover to members who would like to have added benefi ts not provided under NHI.

Once NHI is fully implemented, medical schemes will offer complementary cover to fi ll gaps in the service coverage offered by NHI.

State funding for medical scheme contribution subsidies and tax credits paid to various medical schemes will be consolidated into NHI funding arrangements.

Individuals will not be allowed to opt out of making the mandatory prepayment towards NHI, though they may choose not to utilise NHI healthcare services. A single payer, publicly-administered NHI Fund will be established, drawing on medical schemes’ industry expertise to build in-house capacity.

RISKS AND OPPORTUNITIESThe Scheme maintains a risk register that is regularly examined by the Risk Committee, as well as the Audit Committee and the Board. The Risk Committee reviews and rerates risks already identifi ed, and receives and considers risks identifi ed by other committees. It then ensures that action plans are in place to mitigate the effect of these risks. Examples include:

• Deterioration of the Scheme profi le – This is as a result of younger, healthier members leaving the Scheme, and older, sicker members remaining or even joining the Scheme. Many younger members leave because of perceived lack of value because they pay the same rate as older, sicker members, but due to their health status, they use less benefi ts. The Scheme is mitigating this risk by employing marketing and sales strategies targeting younger members, as well as tweaking benefi ts to ensure members select the correct option for their life stage.

• Exposure to fraudulent activities, resulting in fi nancial loss – Unfortunately fraud is a fact of fi nancial service life and we have taken vigorous steps to counteract it by implementing FICO, an international program that uses algorithms to identify suspicious transactions. As a result, our administrator’s identifi cation and confi rmation of Fraud, Waste and Abuse (FWA) has increased by 100% to R7.2 million and recoveries by 128% to R4.1 million. In addition, a R3.5 million drop in provider claims was recorded thanks to forensic interventions. Finally, thanks to manual screening of practice numbers, 63 providers who were trying to circumvent the recovery processes by applying for new practice numbers, were blocked.The Scheme has also identifi ed a number of opportunities for growing the Scheme membership with the right profi le, and these initiatives are being pursued.

• Innovation in terms of product design remains a key strategic focus for the Scheme. Schemes are limited by CMS regulations in terms of the level of creativity that can be applied when designing products, benefi ts and contribution structures. This has resulted in a medical scheme landscape where most benefi ts and contributions look remarkably alike and there is little to no differentiation between schemes. The Scheme believes that it is imperative to develop new products and pricing structures that will allow members the fl exibility to customise products according to their specifi c needs at an affordable price point. This will alleviate the grudge in the purchase decision, especially amongst the desired young and healthy profi le of new members required to ensure the future sustainability of the Scheme. Fedhealth is prepared to challenge the norm within the legislative framework this year in order to ensure differentiation in this ever static market.

strategic objectivesAfter the unusually high claims experienced in 2016, 2017 was slightly more moderate in terms of claiming patterns. This can be attributed in part to the cyclical or seasonal nature of claiming patterns, but also had a lot to do with certain managed care interventions that reduced the number of unnecessary or unnecessarily expensive claims. These interventions can be unpopular with members (and medical practitioners) who feel that the interventions impose on their right to access healthcare, but experience has taught us that we need to be ever-vigilant in managing the limited resources of the Scheme.

To this end, the Board will continue with its efforts to attract younger, healthier lives to the Scheme. This will promote better cross-subsidies, while simultaneously carefully managing the setting in which members can access benefi ts as well as promoting healthcare providers who ensure better outcomes. The former will be achieved through cost-competitive benefi t design, while the latter will use extensive intellectual capital and data resources, which will have the added advantage of promoting better healthcare quality.

The Board is confi dent that the strategy encapsulated in the statement of strategic intent – maximise member value through innovation and managing the risk pool – will bear fruit, in membership growth, healthcare quality and cost containment.

The Board has identifi ed several areas that will sustain the Scheme and ensure its fi nancial stability. Breaking the statement down into two component parts, we can consider the following:

1. Innovation

a. Partnerships: An independent relationship has been established with Sanlam whereby the loyalty/rewards programme Sanlam Reality is available to our members who choose to participate. We are also in a position to package other fi nancial services products that, together with Reality, give our members the opportunity to save on the products as well as be rewarded for healthier lifestyle activities. Our research has shown that not only are members more likely to adopt healthier practices if they are rewarded for them,

but also the programme appeals to people who already live a healthier lifestyle. It is thus instrumental in attracting good risk onto the Scheme and helping to change some of the existing poor risk.b. Positioning: While Fedhealth has always had a very good reputation for providing excellent benefi ts (for example, the Maxima Exec option is rated as one of the best value options in terms of the benefi ts it provides), not enough had been done in the past to make the Scheme more attractive to younger, healthier people. Our marketing material, the look and feel of the communications with the market, and the message that we want prospective members to get, have all been brought into line with the message that “family takes care of family”. So far the reaction to this approach has been very positive, and young families in particular are responding well to our approach.c. Channels: In this technological era more people are researching and buying products themselves, rather than using intermediaries. At the same time, the complexity of fi nancial services means that many still like to make use of consultants to advise them on their choices. We have taken an approach of catering for both types of members, ensuring that whatever the choice of approach, we are able to provide a service that meets the need. We have also implemented a channel focusing on the Small, Medium and Micro Enterprise sectors of South Africa (SMMEs). Small employers often don’t have the time or knowledge to assist their workforces with medical aid issues and this channel aims to fi ll that gap for them, giving them the service previously only larger employer groups could expect.d. Benefi ts: One of the biggest challenges is to identify and provide the type of benefi ts that low claimers fi nd appealing. It is easy to design benefi t structures for people who are suffering from a condition, but we want to provide real value to healthier members who seldom claim and who therefore fi nd little value in the more common benefi ts. We have established a benefi t design forum that is doing extensive research on ensuring that as a Fedhealth member, you’re not just buying medical aid but complete peace of mind, whatever life stage you fi nd yourself.

Underpinning all of this is a commitment to service. Service does not just mean paying the claim on time or answering the telephone quickly; it means anticipating a member’s

every healthcare need and finding ways to provide for those needs. Part of the approach to service is the omnichannel platform that we are finalising, called the Fedhealth Family Room. This will allow members to access the Scheme in a number of different ways and obtain information on issues such as benefits, lifestyles and procedures. It’s all part of a drive to ensure that we can, as far as possible, simplify what is otherwise a very complicated industry.

2. Managing the Risk Pool

There are two main objectives to this area of the strategy. The first is to ensure that we source benefits at the best possible price, which is why we encourage our members to make use of our network suppliers around the country. The second objective is to ensure that members get the best quality treatment and that none of the Scheme’s expenditure is wasted or unnecessary. We do this in a number of ways:a. Strategic purchasing: The Scheme secures better rates at healthcare service providers if we enter into network or preferred provider arrangements with them. While this does take away some freedom of choice for members, we believe that the cost saving and quality assurance more than makes up for it. We have also implemented a number of specific health programmes (for example, hip and knee operations, mental health and cardio rehabilitation), which not only provide better outcomes, but also considerably reduce the member’s own out-of-pocket spend.b. Personal activism: Our research has indicated that one of the biggest causes of lifestyle diseases is ignorance. While members may be aware that being overweight is not ideal, too few understand how serious the implications really are. And while members may know that they should exercise more, they don’t exercise enough. At the other end of the spectrum, members with chronic conditions are often unaware of the consequences of not managing their condition and taking their medication properly. To this end, we have introduced an Emerging Risk Management (ERM) programme as well as a Beneficiary Risk Management (BRM) programme to assist certain members in either avoiding or managing lifestyle conditions.c. Employer participation: Wellness programmes have shown that they can be beneficial to staff members, but too often not enough is done with the information gathered at wellness days. Also, employers are in a position to influence the behaviour of their staff members and can drive programmes aimed at diseases like HIV and Tuberculosis as well as behaviour or lifestyle related issues. The Scheme is implementing initiatives aimed at assisting employers to improve their productivity and the workplace experience for their staff members.

In addition to these initiatives, the Scheme has also introduced a fraud detection and management programme that detects abuse and overuse of medical aid benefits. Healthcare service providers are counselled where appropriate if there have been errors in the claims that they have submitted, but where actual instances of fraud are detected, further steps are taken. There have even been cases of collusion between members and providers, which have resulted in appropriate action. This can sometimes cause some noise in the medical scheme environment, but it is necessary to ensure that only legitimate and valid claims are paid.

Continuing the good work in 2018

The efforts mentioned above will be used as a basis for further initiatives that can help the Scheme achieve its objectives of sustainably reducing the cost of healthcare for Fedhealth members while ensuring that quality of care is not compromised Putting the focus on mental healthcare, corporate wellness and preventative screening all contribute to better management of what can be debilitating conditions.

In an attempt to contain costs, several new managed care interventions were implemented in 2017:• Orthopaedic interventions ~ ICPS/Care Expert/JointCare as a designated service provider

(DSP) for hip and knee replacements~ The Conservative Back and Neck Rehabilitation programme as

a prerequisite for spinal fusion surgery~ The exclusion of knee arthroplasty in the setting of osteoarthritis • General interventions ~ A R 10 000 co-payment on elective C-sections~ The mandatory requirement of a referring provider on auxiliary

service provider claims~ A limitation on investigative scopes ~ Changes to chronic formularies~ Review of independent pharmacies’ dispensing fees and

structure

Changes in the product for 2018 have been largely positive, with very little additional tightening of benefits. The front-end focus is largely on personal activism of members with programmes such as the Weight Management Programme, the GoSmokeFree Programme and enhancements to preventative care benefits. Fedhealth continues to embrace the concept of co-ordination of care, as a means to improve the health and quality of care of its diabetic members, and have launched additional support to all diabetic members from 1 April 2018.

The Scheme also continues its relationship with Sanlam Reality, which is the lifestyle rewards and management programme.

The emphasis for 2019In the ongoing quest to understand what Fedhealth members and potential members want, and to find ways to deliver that to them, the Board has commissioned an extensive research project. This project will help the Board determine the best, most cost-effective benefit structures and go a long way to add value to members by empowering them to actively manage their medical benefits and health status. Initial results have been enlightening and will form the basis of our future benefit structure.

The Board has recognised that in order for the Scheme and the industry to survive, a new approach to healthcare financing needs to be found. Efforts are underway to find innovative product solutions that are flexible and empowering while still providing the peace of mind that a solid medical aid product provides. Within the strict regulatory framework imposed by the Medical Schemes Act 131 of 1998 and its interpretation by the Council for Medical Schemes, it is difficult to find solutions that pass.

Asset register

The asset register details all newly acquired assets in order to keep the Financial Department informed on asset acquisition. This register is maintained on an ongoing basis by the Finance Department.

Contract register

The Fedhealth contract register contains all contracts and agreements between Fedhealth and other third parties. It is maintained on an ongoing basis and continually reviewed in conjunction with Medscheme’s Legal department.

• The purpose of the register is to keep track of when contracts are up for review or renewal.• Copies of the contracts are kept on fi le by the Legal department.• Input is requested from the Principal Offi cer on a monthly basis, to establish if there are any new contracts that should be added to the register.• Terminated contracts are kept on the register for the duration of the year in which they were terminated.• The register is included at each Board of Trustees meeting and Audit Committee meeting for noting.

Gift register summary

The Board decided that offi cers of the Scheme would not accept any gifts from service providers, and as such, the need for a gift register has fallen away.

Policies register

We maintain a policies register to ensure that all Scheme policies are assessed as necessary. This register is updated on an annual basis, when all policies are reviewed by the relevant committees. It is included at the fi rst Board of Trustees meeting after the Annual General Meeting for noting.

Project register

The purpose of the project register is to track all ongoing strategic and operational projects and is maintained on an ongoing basis. The register is included at each Board of Trustees meeting.

Register of Offi cers

The Register of Offi cers is currently in the process of being formulated. It will include the following information pertaining to the Scheme’s Trustees:

• Copy of page from the Board of Trustees meeting minutes on declaration

• Letter of appointment• Increase letter• Code of Conduct• Assessments• CV

Risk register summary

Our risk register summary contains all relevant information pertaining to identifi ed risks which may have a negative impact on the Scheme if not properly managed. This register is maintained on an annual basis.

The master copy of the risk register is maintained in line with the register summary, while each individual identifi ed risk has been allocated to one of the Scheme committees for monitoring and updating at each committee meeting.

New risks that pose potential threats are discussed at committee level and if necessary, added to the risk register for review at the next Risk and Legal Committee meeting.

The register summary is included at each Board of Trustees meeting, Risk and Legal and Audit Committee meetings.

Scheme policies

• Investment strategyo Reviewed annually by the Investment Committeeo Investment policy has been updated

• Trustee Remuneration policyo Outlines the responsibilities, duties and obligations of the Trustees as well as their remuneration structureo Reviewed annually by the Remuneration Committee

• Code of Conduct o Reviewed annually by the Risk and Legal Committee o The purpose of the policy is to govern both the ethical and legal conduct of the Trustees of the Scheme

• Confl ict of Interest policy o Reviewed annually by the Risk and Legal Committee

• Expenses and Procurement policy o Reviewed annually by the Finance Committee o Provides an expenses and procurement framework

against which to determine who has the authority and when to perform certain actions on behalf of the Scheme. It also serves as a guideline in determining the type of expenses for which employees are allowed to claim.

GovernanceFedhealth employs a world-class governance structure that is transparent and fair in all its

policies. This structure spans management, marketing, remuneration and everything in-between.

• Succession Planning policyThe Scheme is currently in the process of setting out asuccession planning policy relating to Scheme executives. The Scheme is also interacting with the legislator in this regard.

Terms of Reference register

The purpose of the register is to serve as a reminder of when each Committee’s Terms of Reference must be reviewed. This process commences annually after the Annual GeneralMeeting and once new committee structures have been fi nalised.

The Terms of Reference is distributed to committee members for their review and input, and once the fi nal version of the Terms of Reference becomes available, the document is included for ratifi cation at the Board of Trustees meeting. The register is also included at each Audit Committee meeting.

Trustee Induction Programme

This programme has been introduced to new Trustees joining the Board since June 2016, with the aim to equip Trustees to effectively carry out their new role and to meet key staff and stakeholders.

The programme includes:• An induction pack• Fedhealth introduction• Third party provider introductions• Product training• Legislative information session• Council for Medical Schemes training and courses• Mentorship• Feedback session to gauge the success of the programme

PROJECTED INCOME STATEMENT

2018 2019* 2020*

R’000s R’000s R’000s

Gross Healthcare Result 468 625 528 315 595 515

Less Expenses 444 526 495 382 525 105

Net Healthcare Result 24 099 32 933 70 410

Plus Investment Income 81 793 90 834 94 916

Surplus 105 892 123 768 165 326

Surplus as % Net Contributions 3% 4% 4%

Accumulated Funds at Start of Year (R’000s) 1 099 042 1 204 934 1 328 702

Accumulated Funds at End of Year (R’000s) 1 204 934 1 328 702 1 494 027

Solvency Ratio 34% 33% 35%

Average Membership (#) 71 961 71 961 71 961

*Projection Assumptions (2019 and 2020):

• Assuming 2018 membership• Contribution increases in line with claims increases• 7% investment return on accumulated funds The budgeted surplus for 2018 is R106m, or R123 pmpm, which is equivalent to 3% of net contribution income, and the solvency ratio at year-end is projected to be 34%. The solvency level is projected to remain stable over the next three years, and is above the statutory minimum of 25%.

Fedhealth follows a conservative approach when doing fi nancial projections to ensure that the Scheme will remain viable, even in the worst-case scenario. The Scheme has a positive outlook for the future, and expects growth to signifi cantly exceed the conservative three-year projections refl ected below:

The Road AheadThe past year has been fraught with challenges for medical schemes across the board, as well as their members. However, the Fedhealth family remains positive about the future, and has put various strategies in place to weather the storms and continue to look after our members’ healthcare needs. We look forward to what the next year holds!