Material matters

The Group defines a matter as material if it has a direct or indirect impact on our ability to create, preserve or erode financial, economic, environmental and social value for the Group and its stakeholders. A range of internal and external influencers were taken into account when distilling these material matters. These included strategy, the board’s agenda, management reports, external operating environment, stakeholder expectations and the key risks analysis.

The Group no longer recognises the ‘growth through expansion’ material matter as it stood in our previous report.

The broad nature of this material matter was assessed, and the key elements of the definition were incorporated into other Group material matters. All relevant aspects and impacts of our relationships with medical healthcare funders were consolidated into a stand-alone material matter.

Life Healthcare regards the following matters as material in the short, medium and long term. We engage and respond to the material matters through our strategic focus areas as indicated for each.

1. Cost of care

The following factors impact on the cost of care:

  • Costs of input materials and services to operate efficiently and with a high level of quality (closely linked to the ‘quality of care standards’ material matter)
  • Exchange rate impacts on imported necessities such as surgical consumables and medical equipment
  • The volume of patients accessing healthcare
  • Patient attraction, as approximately 75% of patients on medical insurance in South Africa are not directed to particular hospitals
  • Affordability of southern African private medical insurance market and existing members buying down their medical insurance options or abstaining from using medical insurance
  • South African medical healthcare funders, which are a significant revenue source, and provide access to patients – refer to the ‘Medical healthcare funders’ material matter
  • Labour cost which accounts for about 44% of total Group overheads, including wage increases and scarce and critical skills such as specialised and registered nurses
  • Ability to adapt nursing staffing levels to align with occupancies and to meet the needs of the patients
  • Partnerships with doctors and other medical professionals
  • Increases in onerous regulations which are routinely accompanied by increased costs to achieve compliance
  • Governments’ continued drive to reduce healthcare costs
Strategic focus areas Affected stakeholder groups
Government; shareholders; investors and financiers; industry and regulatory bodies; patients; medical healthcare funders; government as a customer; doctors and consultants; suppliers
2. Specialised skills shortages

The following factors impact on skills shortages:

  • A highly competitive employment market with above-inflation wage increases provided by the South African government and other institutions
  • Training of nurses in South Africa through the Life College of Learning – a registered higher education institution
  • Skills development, training, bursaries and sponsorships
  • Leveraging skills and knowledge transfers from facilities in Alliance Medical, Poland and India to South Africa, specifically in areas such as oncology (India), and gynaecology and cardiology (Poland)
Strategic focus areas Affected stakeholder groups
Government; employees; doctors and consultants
3. Government relationships

The following factors impact on government relationships:

  • PPPs directly affect government policies and spending
  • Bed licences are required for brownfield and greenfield expansion in southern Africa
  • Revenue and profitability are impacted by any healthcare regulatory reforms and tariff changes
  • The public sector provides a significant portion of Alliance Medical’s revenue, making the reforms, contract awarding and reductions or delays in payments, highly significant to profitability. In addition, Alliance Medical operates across other European countries, although slightly less material from a revenue stance. Its revenue in these countries can also be impacted by regulation and policies
Strategic focus areas Affected stakeholder groups
Government; government as a customer
4. Onerous and increasing regulations

The following factors impact on onerous and increasing regulations:

  • Regulations relating to matters such as licences, conduct of operations, security of medical records, occupational health and safety, quality standards and certain categories of pricing
  • Life Healthcare’s rating relating to the new B-BBEE codes dropped significantly in the prior year, and the Group is now a Level 7 contributor based on internal assessments which are currently being verified externally
  • The possible impacts of the HMI and NHI in South Africa are currently unclear
  • Brexit is expected to have a minor impact on our in-country operations; however, the final impacts create a level of uncertainty
  • Austerity measures throughout Europe continue to drive increased regulation and monitoring, particularly in the capacity-constrained public heath markets
Strategic focus areas Affected stakeholder groups
Government; industry and regulatory bodies
5. Quality of care standards

Quality of care standards is closely linked to the ‘cost of care’ material matter as a balance between effective and profitable service provision. It is guided and impacted by a variety of factors, including the following:

  • Government and other regulators that require adherence to various standards and practices
  • The Group’s policies, procedures and standards
  • Environmental, health and safety requirements
  • Shortages in specialised doctors and skilled personnel such as pharmacists, nurses and radiographers
  • Innovation in information systems and security
Strategic focus areas Affected stakeholder groups
Government; patients; medical healthcare funders; employees; doctors and consultants
6. Labour relations and employee retention

The following factors impact on all our operations:

  • Competition for specialised and scarce skills and South African wage increases that are consistently higher than inflation
  • Industrial action could impair the delivery of healthcare
  • Talent management, succession planning, development and training
Strategic focus areas Affected stakeholder groups
Employees; doctors and consultants
7. Medical healthcare funders

The following factors impact on medical healthcare funders:

  • Preferred network agreements and funder-preferred products and services are significant, as medical healthcare funders reimburse 95% of the hospital division revenue in southern Africa
  • The Group has significant exposure to Discovery Health and GEMS that make up approximately 53% of the hospital division turnover in southern Africa
  • The consolidation activities of medical healthcare funders have resulted in increased bargaining power which could ultimately reduce the prices the Group can charge for services
Strategic focus areas Affected stakeholder groups
Shareholders, investors and financiers; patients; medical healthcare funders

Material matters prioritisation

All our material matters have the potential to impact our operations. The material matters were prioritised in terms of their likelihood and potential impact, and are plotted on the following heat map.