Discovery Limited · JSE:DSY
Discovery — Discovery Health Medical Scheme — Shareholder Meeting (June 2019)
77 slides from Discovery's shareholder meeting presentation, Jun 20, 2019
Slide 1: Welcome to the Discovery Health Medical Scheme Annual General Meeting
2019 WELCOME TO THE DISCOVERY HEALTH MEDICAL SCHEME ANNUAL GENERAL MEETING 20 June 2019
Slide 2: Agenda
Agenda 1. Welcome and quorum 2. Minutes of the 2018 Annual General Meeting - for approval 3. Tabling of the 2018 Integrated Report, including the Scheme's Annual Financial Statements for the financial year ended 31 December 2018 • Presentation by the Chief Medical Officer and the Chief Financial Off
Slide 3: Presentation by the Chief Medical Officer and Chief Financial Officer
2019 PRESENTATION BY THE CHIEF MEDICAL OFFICER AND CHIEF FINANCIAL OFFICER OF DISCOVERY HEALTH MEDICAL SCHEME 20 June 2019
Slide 4: This is how we define value
We provide sustainable access to the best healthcare, connecting our members and their families to an ecosystem that gives them the highest quality of care for the lowest possible cost, at every stage of their lives. THIS IS HOW WE DEFINE VALUE 4
Slide 5: In 2018 87.9% of contributions are used to fund members' healthcare claims
In 2018 87.9% of contributions are used to fund members’ healthcare claims DHMS expense breakdown (2018) 100.0% 87.9% 7.5% 2.6% 2.5% -0.5% Gross Contributions Claims Administration fees Managed care fees Financial adviser Shortfall funded and Scheme from investment expenses income Source: DHMS inter
Slide 6: Contributions are used to fund R56 billion of healthcare claims
Contributions are used to fund R56 billion of healthcare claims Hospitals – R29.5bn R56.4 bn Maternity – R1.5 bn 52% DHMS claims expenditure Of total claims paid 3% Of total claims paid in 2018 (risk + MSA) 673 492 Hospital admissions 38 221 Number of deliveries Oncology – R3.6 bn Screening & Preven
Slide 7: Caring for members with complex and emergency healthcare needs
Caring for members with complex and emergency healthcare needs 10 highest individual member claims paid in 2018 = R 48 million R 5.6m Age 68: Infections 210 years R 5.5m Age 48: Long term use of a ventilator (cardiovascular related) worth of contributions to fund the claim R 4.9m Age 78: Long term u
Slide 8: Hospital admissions contributing most to total claims costs
Hospital admissions contributing most to total claims costs Some hospital admissions are less frequent, but very costly, while R29.5bn others may cost relatively less, but can occur much more frequently Paid for hospital admissions HIGH Size of the bubble represents total Long term use of a ventilat
Slide 9: Increasing prevalence and incidence of cancer
Increasing prevalence and incidence of cancer Top 10 most costly cancers to the Scheme in terms of average cost and R3.6bn prevalence of the cancer Paid for oncology treatment 56% Size of the bubble represents total cost to the Scheme Increase in prevalence since 2011 HIGH Leukemia R281 455 COST Mul
Slide 10: Increasing prevalence and cost of chronic disease
Increasing prevalence and cost of chronic disease R3.3bn Top 10 chronic conditions Top 10 most costly chronic conditions Paid for chronic claims Members Avg cost (R’ 000) Avg age Essential hypertension 376,341 Haemophilia 401 29 Hypercholesterlaemia 230,004 Cystic fibrosis 129 23 53% Asthma 140,196
Slide 11: This is how we define value
We provide sustainable access to the best healthcare, connecting our members and their families to an ecosystem that gives them the highest quality of care for the lowest possible cost, at every stage of their lives. THIS IS HOW WE DEFINE VALUE 11
Slide 12: Safely guiding our members through their healthcare journey
Safely guiding our members through their healthcare journey Member campaigns Disease Management Programmes Value Based Contracts DiabetesCare Surgicom Joint Arthroplasty KidneyCare 12
Slide 13: Driving quality through provider networks and payment models
Driving quality through provider networks and payment models GP Networks Specialist Networks Hospital Networks GP Network Specialist Networks Delta • 6 351 practices • 6 927 practices • 44 facilities • 85% within DPA • 91% within DPA • 20% lower contributions Smart • 43 facilities • 23% lower contri
Slide 14: Higher levels of cover compared to other open schemes
Higher levels of cover compared to other open schemes In-hospital claims pay-out ratio: DHMS vs all other open schemes (2017) DHMS All other open schemes 98% 96% 93% 92% 91% 88% Hospital Healthcare Professionals Overall Amount claimed R36.5 bn R20.0 bn R56.5 bn The difference in claims payout ratio
Slide 15: This is how we define value
We provide sustainable access to the best healthcare, connecting our members and their families to an ecosystem that gives them the highest quality of care for the lowest possible cost, at every stage of their lives. THIS IS HOW WE DEFINE VALUE 15
Slide 16: Members benefit through continuously reducing administration expenditure
Members benefit through continuously reducing administration expenditure that is among the lowest in the industry Administration expenditure as % of gross contribution Administration expenditure as % of gross contribution income (2011 – 2018) income (2017) DHMS All other open schemes 9.4% Ranked 6th
Slide 17: We protect our members' funds from inappropriate use
We protect our members’ funds from inappropriate use DHMS forensic savings and recoveries of R469 million in 2018; and cumulative halo effect of R4.5 billion DHMS fraud savings and recoveries (R million) 472 469 323 333 2015 2016 2017 2018 Members benefit through a 1.0% lower contribution increase e
Slide 18: For every R1 spent R2.02 in value
Our members receive increasing value from Discovery Health Value generated for DHMS members R2.02 R2.00 For every R1 spent R1.85 on managed care and administration fees, R1.73 members of DHMS derived R2.02 in value Reviewed by Deloitte 2014 2015 2016 2017 Source: DHMS data 18
Slide 19: Members experienced a weighted average risk contribution increase of 9.6% for 2019
Members experienced a weighted average risk contribution increase of 9.6% for 2019 DHMS estimated weighted average risk contribution increase vs competitors (2019) 13.2% Top 8 scheme 10.7% average: 9.6% 9.8% 9.9% 9.1% 9.4% 8.9% 6.1% Scheme A Scheme B Scheme C DHMS Scheme D Scheme E Scheme F Scheme G
Slide 20: Contributions are competitively priced across all segments
Contributions are competitively priced across all segments, usually with superior benefits DHMS relative contribution differential Comparative affordability by plan segment Average Market Extensive average Day-to-day DHMS DHMS Delta -16.5% Limited Day-to-day DHMS Hospital DHMS Smart DHMS Low income
Slide 21: This is how we define value
sustainable We provide access to the best healthcare, connecting our members and their families to an ecosystem that gives them the highest quality of care for the lowest possible cost, at every stage of their THIS IS HOW WE lives. DEFINE VALUE 21
Slide 22: 2018 DHMS financial highlights: members' funds are secure
2018 DHMS financial highlights: members’ funds are secure 2017 2018 Measure % change pampm1 (R million) (R million) Gross Contribution Income 59,711 64,649 8.4% Less savings contribution income (11,009) (11,820) 3.6% Net contribution income 48,702 52,829 9.5% Relevant healthcare expenditure2 (41,748
Slide 23: Adjusting for the VAT increase, net healthcare result would be break-even
Adjusting for the VAT increase in 2018, the Scheme’s net healthcare result in 2018 would be break-even Estimated impact of VAT increase on VAT increased to 15%, effective 1 April 2018 DHMS net healthcare result R52.8 bn -R52.8 bn -R350 mn -R352 mn Risk Healthcare and VAT impact Net healthcare contri
Slide 24: Growth and sustainability
How do we know we are delivering value for our members ? We measure key metrics for a sustainable medical scheme: Membership size Absolute reserves Growth and sustainability Financial strength Membership growth Pricing sufficiency Plan movements Prudent investments Contribution increases 24
Slide 25: Growth and sustainability
How do we know we are delivering value for our members ? We measure key metrics for a sustainable medical scheme: Greater risk pooling means more predictable claims Membership size experience and accuracy in pricing, leading to stable performance. Growth and sustainability Continuous growth of young
Slide 26: DHMS continues to grow and attract new members
DHMS continues to grow and attract new members DHMS beneficiaries covered Dec 2017 Dec 2018 2.78m 2.82m beneficiaries beneficiaries 3,000,000 2,800,000 2,600,000 2.1% 2,400,000 Net growth in principal members 2,200,000 from 2017 to 2018 2,000,000 1,800,000 > 41 000 Beneficiaries added 1,600,000 in 2
Slide 27: New members are younger which positively impacts the Scheme's risk profile
New members are younger which positively impacts the Scheme’s risk profile New beneficiaries present a healthy DHMS ages less than a year annually demographic profile 1.3 years aging over a 5-year period 34.6 34.6 26.1 33.3 2013 2014 2015 2016 2017 2018 Average age of existing Average age of new liv
Slide 28: Consistent pattern of stable plan distribution
Consistent pattern of stable plan distribution Stability in plan movements over time | 94% of members do not change plans Downgrade Upgrade Downgrade Upgrade Downgrade Upgrade Downgrade Upgrade 2.3% 3.0% 3.2% 2.9% 2.5% 3.2% 2.9% 2.9% 2015 2016 2017 2018 ………………... ………………... ………………... ………………... No cha
Slide 29: Financial strength
How do we know we are delivering value for our members ? We measure key metrics of a sustainable medical scheme Demonstrates ability to meet large, Absolute reserves unexpected claims variation. Financial strength Surplus year-on-year reflects contribution levels that are in Pricing sufficiency line
Slide 30: DHMS has significant reserves to fund members' claims
DHMS has significant reserves to fund members’ claims Reserves1 (R billions) Investment Highest possible rating in the and solvency level returns industry 27.3% 5.85% R 17.65 R 16.68 AAA p.a. R 14.23 R 12.93 GCR rating R 11.57 R 9.83 ROI Industry ceiling R 8.24 DHMS reserves higher than combined res
Slide 31: Growth and sustainability
How do we know we are delivering value for our members ? We measure key metrics for a sustainable medical scheme: Membership size Absolute reserves For every 2.82m 56.6% Beneficiaries Market share R17.7bn 27.3% R1 spent Reserves Solvency on managed Growth and sustainability Membership growth Financi
Slide 32: Strong, independent governance structures
We protect our members’ funds through strong, independent governance structures ACCOUNTABLE TO DHMS MEMBERS ELECT SERVICES BELONG TO BOARD OF TRUSTEES GOVERNS REGULATES BOARD COMMITTEES REPORTS TO MANDATES APPOINTS/ OUTSOURCES ACCREDITS TO PRINCIPAL OFFICER OVERSEES Administrator and Scheme Office M
Slide 33: Presentation by the CEO of Discovery Health (Pty) Ltd
2019 PRESENTATION BY THE CEO OF DISCOVERY HEALTH (PTY) LTD LIMITED, THE ADMINISTRATOR OF DISCOVERY HEALTH MEDICAL SCHEME 20 June 2019
Slide 34: Agenda
Agenda 01 02 03 Review of 2018 Key trends impacting DH and 2019 Strategic performance DHMS in 2019 and beyond objectives 34
Slide 35: Sustained strong performance in 2018 despite challenging environment
Discovery Health Medical Scheme | Sustained strong performance in 2018 despite challenging environment Membership growth Sustained high cover ratios Financial strength >41 000 56.6% 96.4% -R352m R17.6bn Net new lives Market share In-hospital claims payout ratio Net healthcare result Reserves (-R2m a
Slide 36: DHMS performed strongly relative to key competitors in 2018
DHMS performed strongly relative to key competitors in 2018 DHMS net healthcare result vs competitors (2018) Rand per average beneficiary 600 444 400 200 0 -200 -126 -400 -309 -600 -491 -800 -637 -1000 -1200 -1201 -1400 Scheme A Discovery Health Scheme B Scheme C Scheme D Scheme E Medical Scheme Sou
Slide 37: DHMS continues to grow, while industry membership growth is under pressure
DHMS continues to grow, while membership growth across the industry is under pressure Open medical scheme membership has DHMS has achieved strong growth over this period, remained largely static since 2015 in contrast to competitors Number of beneficiaries (million) (2012 - 2018 Q3) Market share (20
Slide 38: Members are choosing DHMS as their preferred healthcare partner
Members are choosing DHMS as their preferred healthcare partner Net growth in beneficiaries (2018) Open schemes market share (2018 Q3) 41,193 56.6% 5,379 5,131 Market Share 1,826 1,610 -2,869 -18,590 DHMS Scheme Scheme Scheme Scheme Scheme Scheme DHMS Other A B C D E F Notes: Comparison amongst the
Slide 39: Four major macro trends shaping the future of healthcare
Four major macro trends shaping the future of healthcare in SA and global markets Regulatory Trends 01 02 Economic Trends • National Health Insurance and Medical Schemes • Low GDP growth Amendment Bills • Increasing unemployment • Health Market Inquiry • Increasing cost of living • Slowing growth in
Slide 40: The regulatory environment is increasingly complex
The regulatory environment is increasingly complex Council of Medical Health National Health Schemes Market Inquiry Insurance Bill Managing a complex and Comprehensive Phased roll-out evolving policy environment and insightful Complex politics Will recommendations Financial constraints be implemente
Slide 41: Consumers are facing affordability pressure
Consumers are facing affordability pressure with medical scheme contributions representing an increasing share of wallet 2012 2017 R647,223 R753,346 Median household income for top decile of South African population: Contribution (P + A + C) as a proportion of household income (2012 vs 2017) 15.4% 2
Slide 42: Clear evidence of substantial adverse selection
Clear evidence of substantial adverse selection New cancer cases per 100 000 lives Distribution of births on KeyCare Plus by (2012 age-standardised incidence rates) months on DHMS 15.1% 237 +27% 11.9% 187 182 9.4% 8.0% 7.2% 6.5% 5.6% 5.0% 4.3% 3.9% 3.8% 3.1% 2.8% 2.7% DHMS South Africa Global 0-9 9-
Slide 43: Executive and Comprehensive plan options display a selective membership profile
Executive and Comprehensive plan options display a particularly selective membership profile Chronic prevalence Oncology claimants per 1,000 lives Admission Rate 45% 45% 43% 2.72 x more 43% 1.75 x more cancer 55% chronic lives patients 1.43 x more 35% admissions 24% 24% 25% Executive Plan Classic DH
Slide 44: Top end plan performance is consistent across the industry
The performance of the top end plans is consistent across the industry and not unique to DHMS Consistently negative net Declining membership growth Increasing average age healthcare result 2013 2014 2015 2016 2017 501,946 54.2 475,195 53.1 50.4 51.7 444,433 47.8 411,337 376,174 41.9 40.3 39.6 37.7 3
Slide 45: Supply induced demand and new technologies drive high medical inflation
Supply induced demand and new technologies continue to drive high medical inflation Increasing bed supply New technology Growth between 2010 and 2016 Shift to robotic prostatectomy procedures has led to an 87% cost increase over 4 years Medical Scheme Lives +87% 7.4% R855m R60 m Total spend since 32
Slide 46: Discovery Health's strategy for DHMS
Discovery Health’s strategy for DHMS 01 Lowering healthcare costs 02 Superior quality of care for scheme members 03 Using digital technology to transform healthcare and member servicing 04 Making members healthier 46
Slide 47: Discovery Health's social mandate: curbing medical inflation
Discovery Health’s social mandate | curbing medical inflation Discovery Health average annualised inflation rates (2008 – 2018) VAT 11.3% 1% 1.9% 2.8% 6.1% 0.5% CPI Tariffs Demand side Supply side utilisation Claims inflation utilisation April 2018: VAT increase from 14% to 15% for the first time in
Slide 48: Hospital benefit managers impact on admission rate
Hospital benefit managers having a significant impact on admission rate Number of DHMS on-site case Year-on-year change in admission rate (2015 – 2018) managers (2016 - 2019) 52 3.21% 2.63% 2.51% 2.42% 39 1.69% 1.66% 1.54% 1.48% 0.98%0.90% 19 0.58% 0.70% 0.49% 0.39% 4 2015 2016 2017 YTD YTD YTD YTD
Slide 49: Fraud, waste and abuse recognized as an industry imperative
Fraud, waste and abuse has been recognized as an industry imperative by the Council for Medical Schemes In 2017, 15% of all claims paid by medical schemes were rejected due to Fraud, Waste and Abuse R22 - 28 bn [15%] Total claims paid out by Fraudulent claims medical schemes 49
Slide 50: Sophisticated processes for fraud detection and recovery
Sophisticated processes for fraud detection and recovery 90% 31 500 healthcare professionals claim’s processed automatically and paid in good faith to healthcare professionals within 4-5 days 3 500 Claims received from 35 000 Healthcare professionals healthcare professionals claim’s identified as po
Slide 51: Identifying fraud using network analytics models
Identifying fraud using network analytics models Flower shaped clusters identify large volumes of patients Eye-ball shaped clusters identify large volumes of being shared by more than one doctor patients being referred or admitted to one particular doctor 51
Slide 52: Fraud, waste and abuse investigations initiated by tip-offs
The majority of fraud, waste and abuse investigations are initiated as a result of tip-offs from members or other physicians 01 | Cardiologist’s fraudulent claims 02 | Irregular Radiologist Billing • A tip-off was received on a cardiologist for: • Tip-offs indicated irregular billing behaviour by a
Slide 53: Internal fraud measures have saved the Scheme over R1bn per annum
Discovery Health’s internal fraud measures have saved the Scheme over R1bn per annum Significant fraud savings and recoveries Cumulative Halo effect of R4.5 billion (2012-2018) 1 Fraud savings and recoveries (Rm) R472 R469 0.95 R333 0.9 R329 R323 R270 0.85 0.8 0.75 2013 2014 2015 2016 2017 2018 T0 T
Slide 54: Managed care interventions generated a 316% ROI
Managed care interventions and provider contracting strategies generated a 316% ROI for DHMS Discovery Health managed care interventions in 2018 316% R6.8 bn Network Advanced Illness Surgical item Benefit, 1% ROI discounts & management, ARMS, 8% 1% Forensics & billing recoveries, 7% 2018 Medicines,
Slide 55: Discovery Health's strategy for DHMS
Discovery Health’s strategy for DHMS 01 Lowering healthcare costs 02 Superior quality of care for scheme members 03 Using digital technology to transform healthcare and member servicing 04 Making members healthier 55
Slide 56: High-quality, cost effective arthroplasty network
High-quality, cost effective arthroplasty network with defined pathways AIM: To provide access to a network of high quality hip and knee arthroplasty centres of excellence Surgeon(s) Pre & post surgery education Medication Physician Clinical outcome measures Single global fee for all services Hospit
Slide 57: Discovery Health's strategy for DHMS
Discovery Health’s strategy for DHMS 01 Lowering healthcare costs 02 Superior quality of care for scheme members Using digital technology and data science 03 to transform healthcare and member servicing 04 Making members healthier 57
Slide 58: Agent affinity matching to improve service experience
Agent affinity matching to improve service experience and sentiment Data sources / factors Age Member satisfaction score Clusters based on which 8.92 Most members have best Gender significant experience with each factors group of agents Health plan Compared to 8.81 for non- affinity routed members C
Slide 59: Sentiment analysis using natural language processing
Sentiment analysis using natural language processing Algorithm derives client sentiment from emails and agent notes Business Impact IN PRODUCTION SINCE NOV 2018 Emails scored and auto-routed in real time Analysed interactions increased from 4.5% to 43% (10-fold increase) Dedicated team of agents Ave
Slide 60: Machine learning model to predict new diabetes cases
Machine Learning model to predict new diabetes cases and progression 2015 2016 2,8m No evidence of diabetes ~0.37% incidence rate = 24k members Predictive target Members unregistered for management but for whom diabetes DEG has been opened or diabetes drug claims are being paid 19k Diabetics registe
Slide 61: Lower complaint levels improving member satisfaction
Our efforts are realised through lower levels of complaints improving member satisfaction Lower levels of CMS complaints Consistently high member satisfaction CMS complaints per 1,000 beneficiaries 0.6 0.55 Less than 610 complaints out Member 8.78 0.5 of 55.5 million Perception out of claims Score 1
Slide 62: Discovery Health's strategy for DHMS
Discovery Health’s strategy for DHMS 01 Lowering healthcare costs 02 Superior quality of care for scheme members 03 Using digital technology to transform healthcare and member servicing 04 Making members healthier 62
Slide 63: Largest behaviour change study on physical activity
The largest behaviour change study on physical activity based on verified data Three countries Longitudinal tracking Granular data 422 643 people, Demographic data, Before and after taking Biometric information, 91 000 Apple Watch users up Apple Watch Physical activity Proven behavior change +34% +4
Slide 64: In 2018, Vitality generating R1.8bn savings for DHMS
In 2018, Vitality generating R1.8bn savings for DHMS Annual Vitality savings (2016 – 2018) Cumulative Vitality savings (2008 – 2018) R billion R billion Savings increase can largely be attributed to behaviour change R1,789 R1,613 TOTAL R1,508 SAVINGS 638 499 R17.8bn 420 329 362 414 759 752 737 2008
Slide 65: Impact of Discovery Health and Vitality on DHMS risk claims in 2018
Impact of Discovery Health and Vitality on DHMS risk claims in 2018 Impact of Discovery Health and Vitality on DHMS risk claims in 2018 R6.8bn R45.1bn 11.9% R1.8bn 3.4% R36.4bn • Age selection • Positive behavior change • Engagement selection Potential risk claims Risk management savings Vitality im
Slide 66: 2019 Annual General Meeting Remuneration Presentation
2019 2019 ANNUAL GENERAL MEETING REMUNERATION PRESENTATION 20 June 2019
Slide 67: Agenda
Agenda 1. Remuneration Governance 2. Trustee Remuneration Policy • Remuneration Methodology • Remuneration of the Board of Trustees 3. Proposed 2019 Trustee Remuneration • Trustees • Chairpersons
Slide 68: Remuneration governance
Remuneration governance The Board of Trustees is responsible for the development and implementation of a Remuneration Policy for Scheme employees as well as Trustees and Board Committee members. The Board of Trustees has delegated the responsibility of Scheme remuneration oversight to the Remune
Slide 69: Remuneration governance
Remuneration governance Adoption and Approval of Remuneration Trustees remuneration – presented at this AGM for majority vote by members, after the approval thereof by the Board of Trustees, on recommendation of the REMCO. Approval of Trustee Remuneration Policy The Remuneration Policy for Trust
Slide 70: Remuneration methodology
Remuneration methodology The objective of the remuneration policy for the Board and Board Committees is to provide a legal and policy framework against which all remuneration decisions are made, validated, implemented, approved and reported by the Scheme. The DHMS REMCO engaged PwC’s Remuneratio
Slide 71: Remuneration methodology
Remuneration methodology The total annual fees payable to Trustees and Board Committee members is split into: – “Annual Base Fee” (70%) – “Fee per Meeting” (30%) – Additional amount for unplanned meetings The Annual Base Fees and Fees per Meeting payable to Board Committee members differ from th
Slide 72: Remuneration methodology
Remuneration methodology Attendance at a Board or Board Committee meeting as an observer – No remuneration is payable Attendance at an Annual General Meeting (“AGM”) or a Special General Meeting (“SGM”) – Trustees – AGM will receive remuneration at the hourly rate for preparation time, as agreed
Slide 73: Remuneration methodology
Remuneration methodology Attendance of an Independent Board Committee Chairperson at a Board meeting – Such an Independent Board Committee Chairperson will receive remuneration at the hourly rate for preparation time, as agreed to by the Chair of the Board, and the duration of their attendance A
Slide 74: Proposed 2019 trustee remuneration: Chair of board of trustees
Proposed 2019 trustee remuneration | Chair of board of trustees The table below provides an overview of the Proposed Board Chairman’s remuneration for 2019 and uses the methodology as discussed in the Remuneration Policy. Proposed fee build up for the Remuneration of the Chairman of the Board of Tru
Slide 75: Proposed 2019 trustee remuneration: Trustees
Proposed 2019 trustee remuneration | Trustees The table below provides an overview of the Proposed Board Chairman’s remuneration for 2019 and uses the methodology as discussed in the Remuneration Policy. Proposed fee build up for the Remuneration of Trustees Preparation for Board of Trustee Meetings
Slide 76: Proposed 2019 trustee remuneration: Chair of a board committee
Proposed 2019 trustee remuneration | Chair of a board committee The table below provides an overview of the Proposed Board Chairman’s remuneration for 2019 and uses the methodology as discussed in the Remuneration Policy. Proposed fee build up for the Chair of a Board Committee** Preparation for Boa
Slide 77: Thank you
2019 The Discovery Health Medical Scheme Annual General Meeting THANK YOU
Discovery Health Medical Scheme — Shareholder Meeting (June 2019) on 6ix