Risk and opportunities

Risk management process

Our board, supported by the risk committee, is ultimately responsible for the governance of risk. The committee ensures that an effective risk policy and plan for risk management are in place to enhance our ability to achieve strategic objectives. Line management and employees are responsible for implementing risk management policies and processes.

An enterprise risk management strategy and framework ensure that risks and opportunities are appropriately identified, assessed and managed. They take King IV into account and are aligned to ISO 31000 international standards on risk management. The risk management processes are integral components of business processes and align with our core values and strategic focus areas.

Embedding risk management processes in day-to-day operations ensures that the Group is better equipped to identify events affecting our objectives and to manage risks consistently in line with our strategy. The Group Risk Manager engages with key executives and senior management across all four territories to identify risks. Group, southern Africa, Alliance Medical and Scanmed risks are incorporated into the Group risk register. Max Healthcare’s risk report is submitted to the Group annually.

Enterprise risk management process

In line with our combined assurance process, the risk committee receives periodic, independent assurance on the effectiveness of risk management from internal audit. The board and risk committee confirm that they are satisfied that there are adequate, ongoing risk management processes in place to provide reasonable assurance that key risks and opportunities are identified, evaluated and managed.

2017 focus areas

The Group focused on the following related to risk:

  • The development of a compliance framework throughout the Group;
  • Finalising the enterprise risk management strategy and framework for the southern Africa business;
  • IT security strategy and cyber risk;
  • Development of risk reporting protocols to incorporate emerging risk reporting and a risk management dashboard with status indicators;
  • Understanding the risks relating to the Alliance Medical Group; and
  • Defining appropriate levels of risk appetite and tolerances within each risk across the Group.

2018 focus areas

Life Healthcare will apply focus to the following areas regarding risk management:

  • Further develop the enterprise risk management process to apply across the Group;
  • Align and integrate the risk management strategy and framework across the Group;
  • Improve our combined assurance approach; and
  • Monitor the rollout of the IT security strategy and the compliance framework throughout the Group.

Key risks analysis

The overall risk profile is summarised into the key risks that are outlined below. These risks are rigorously reviewed through internal operational mechanisms. This section should be read in conjunction with our material matters section. The table further highlights how assurance is leveraged through our combined assurance process.

Description of the risk, its context
and related material matters
A summary of the risk mitigation  
Pressure from medical healthcare funders on networks, pricing and activities (southern Africa and Alliance Medical specific)
Ranking: 1 (2016: 2)

In southern Africa, Life Healthcare is under continuous pricing pressure from medical healthcare funders seeking to manage the overall cost of healthcare. This is primarily driven by economic pressures that have led to a decrease in the number of medically insured lives. Individuals are buying down on health plans and are finding it difficult to fund copayments in current economic conditions.

The increase in restricted option networks and our ability to participate in the preferred network agreements remain risks. Competition for network allocations with other healthcare providers is increasing.

Alliance Medical operates across a number of markets which provide a portfolio of healthcare commissioners. As with all northern European health economies, funding challenges are prevalent. Alliance Medical also has a mix of public and private income streams.

An appropriate pricing strategy with a focus on input costs is in place. The Group focuses on maintaining good relations with medical healthcare funders, particularly top tier and network partners, and engages with them on their specific issues and concerns. Our extensive geographic footprint in southern Africa is an advantage. We have a model in place with certain medical healthcare funders to minimise costs and improve tariffs.

Another priority is the recruiting of doctors who service restricted network patients. We have focused interventions with doctors around clinical outcome data and efficiency. These interventions are material because additional patient volumes, at a decreased operational cost, with enhanced efficiency, will increase our competitiveness.

Related material matters
  • Cost of care
  • Quality of care standards
  • Medical healthcare funders
Combined assurance process
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Competition Commission’s Healthcare Market Inquiry (South Africa specific)
Ranking: 2 (2016: –)
The Competition Commission is conducting a market inquiry into the private healthcare sector. The investigation encompasses the state, nature and form of competition in the private healthcare sector. The outcome of the inquiry could result in adverse changes in legislation which could impact the Group’s performance or licence to operate.
We have a multi-disciplinary task team that formulates strategies and responses to effectively communicate our position on the various issues, which we believe should positively influence the potential outcomes of the HMI. Further engagements continue during the inquiry process, and doctors are kept informed of its status. Related material matter
  • Onerous and increasing regulations
Combined assurance process
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Regulatory compliance
Ranking: 3 (2016: 6)

The healthcare industry in South Africa is subject to a number of national and provincial regulations, including the Labour Relations Act, B-BBEE Act, PoPI, the National Health Act (including the amendment dealing with core standards) and a large number of environmental laws and regulations.

The healthcare industry worldwide is subject to a number of regulations. The Group is required to comply with applicable laws and regulations in the four territories in which we operate.

The NHI White Paper was gazetted on 28 June 2017. The next phase extends from 2017 to 2022, which will focus on the development of the National Health legislation and amendments to other legislation.

The Group proactively monitors and, where possible, provides input for any new proposed legislation, in the interest of all stakeholders. This includes Group and industry research and analysis to support any debate regarding proposed legislative initiatives. Legislative requirements are addressed through training at an appropriate level. For example, occupational health and safety training in compliance with the Occupational Health and Safety Act, 85 of 1993, (OHSA).

The Group supports the fundamental objectives of universal healthcare through the NHI, which is to extend appropriate, affordable healthcare to all South Africans. Further opportunities will be created to expand our service offering to people not currently catered for by the private healthcare sector.

Related material matters
  • Cost of care
  • Onerous and increasing regulations
  • Quality of care standards
Combined assurance process
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Skilled personnel shortages
Ranking: 4 (2016: 7)

South Africa has a general shortage of pharmacists, specialised and registered nurses, ICU nurses and other healthcare professionals. This impacts the Group’s service delivery and ability to grow. There is also a scarcity of skilled information management resources. Alliance Medical works proactively across its markets to attract a limited supply of qualified clinical staff, while Poland’s shortage of qualified personnel is expected to increase.

Employee share schemes exist and improved remuneration and maternity benefits are in place to attract and retain employees.

Various indicators, such as employee turnover, are monitored. Response strategies are formulated to correct any unacceptable trends that emerge.

Nurse training for southern Africa (through the Life College of Learning) and training of ICU nurses are in place. Scanmed trains residents and medical academy students (doctors and nurses), provides financing for specialised nurse courses and creates favourable working conditions.

Employees in all levels of management are developed. We have a standard approach to graduate recruitment which includes attending career fares at universities and promoting awareness about nursing as a career.

Related material matters
  • Specialised skills shortages
  • Labour relations and employee retention
Combined assurance process
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Management succession planning
Ranking: 5 (2016: –)

Due to the highly specialised nature of the healthcare industry, certain management employees and executives have a significant impact on the Group’s performance as a result of their years of experience within the Group.

Losing these key employees over a short time frame could hamper performance until a suitable successor is placed and obtains the necessary experience.

We have performed a Group executive assessment gap analysis which was presented to the remuneration and human resources committee in July 2017. This formed the basis for the executive succession plan that was reviewed at the remuneration and human resources committee in September 2017.

In southern Africa a national talent review identified successors, who demonstrate the strongest potential (assessed through an external party), for 11% of senior management.

Related material matter
  • Labour relations and employee retention
Combined assurance process
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Doctor shortages
Ranking: 6 (2016: 1)

There is a general shortage of specialist doctors in the South African healthcare market, which may impact the Group’s growth prospects. The following disciplines are particularly challenging:

  • Neurosurgeons
  • Cardiologists
  • Obstetricians
  • Neurologists

Poland is also experiencing a growing shortage of doctors.

We have a recruitment and retention strategy in place which includes:

  • bursaries and sponsorship programmes and facilitation of continuous professional development training to specialists;
  • a doctor partnership model and support policy;
  • engaging with doctors through different media platforms, medical conferences and open days for doctors in their final year of training (this is also done in Poland);
  • regional clinical managers appointed to enhance doctor relationships and implement quality improvement initiatives;
  • improving infrastructure and equipment at facilities; and
  • enabling reduced professional indemnity premiums through enhanced clinical measures which improve patient safety and result in reduced medical malpractice claims – an example is the BetterObs programme.
Related material matters
  • Specialised skills shortages
Combined assurance process
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B-BBEE (southern Africa specific)
Ranking: 7 (2016: 61)

The Group’s current B-BBEE status is Level 7, based on internal assessments which is currently being verified externally. This has an adverse impact on the South African healthcare services division which is driven by tenders, particularly in the mining sector.

It may also impact the Group’s ability to secure future operating licences for new facilities in South Africa.

1 B-BBEE formed part of the regulatory compliance risk in 2016.

We established a transformation forum to monitor the Group’s B-BBEE status with oversight by the social, ethics and transformation committee.

The Life Healthcare Nursing Education Trust was registered in June 2017, following which, a new verification certificate will be obtained.

Related material matter
  • Government relationships
  • Onerous and increasing regulations
Combined assurance process
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Information security and cybercrime
Ranking: 8 (2016: 8)

Due to the widespread use of computers and network-enabled medical devices, and the increase of cybersecurity threats globally, there is a privacy and cybersecurity risk for the Group. This includes the threat of Group data and information being compromised.

Cybercrime has received increased attention, reflected in the expanded terms of reference for the board.

We have an information management security strategy in place to improve security, manage residual risk and implement further measures to protect the intellectual property of the Group from hacking and other illegal electronic activities. This includes advanced email protection, firewalls, end-point protection, cybersecurity enhancements and protection of personal information. The Group increased expenditure on IT to support adequate security improvements.

We perform annual internal and external security assessments, to determine and prioritise the implementation of the required security controls and countermeasures.

Related material matters
  • Cost of care
  • Onerous and increasing regulations
Combined assurance process
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Managed admission initiatives from medical healthcare funders (southern Africa specific)
Ranking: 9 (2016: –)

Medical healthcare funders are clamping down on inappropriate admissions and multireferrals, and have initiatives in place to reduce admissions into hospital facilities. These include applying additional admission protocols which result in limited admission and claim rejections.

The Group focuses on maintaining good relations with medical healthcare funders, and engages with them on their specific issues and concerns. We have focused interventions with doctors around inappropriate admissions. The Group is also working closely with prominent medical healthcare funders on various initiatives in this regard.

Phase one of the doctor quality and efficiency reporting programme concluded towards the middle of the year and a range of hospitals and doctors participated. The second phase is underway and provides reports to 1 200 clinicians.

Related material matter
  • Medical healthcare funders
Combined assurance process
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Medical malpractice, legal disputes and reputational risk (southern Africa specific)
Ranking: 10 (2016: 9)

Adverse events in performance of nursing services and/or doctor services could affect patients. These events or legal disputes arising out of medical malpractice claims could affect the Group’s reputation and relationships with key stakeholders.

A Quality Management System (QMS) is employed to ensure quality healthcare is provided and that a culture of error prevention and continuous improvement is maintained. Insurance is in place for medical malpractice claims, and doctors are required to obtain doctor medical malpractice insurance.

An analysis detailing trends in clinical risks is performed and clinical interventions are developed to mitigate the clinical risk going forward. A medical legal forum was introduced where trends of incidents and adverse events are analysed. National quality review meetings are held quarterly where new initiatives and the progress of existing initiatives are discussed.

A media strategy is in place for dealing with complaints raised through the media.

Related material matters
  • Quality of care standards
Combined assurance process
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IT disaster recovery and IT implementation projects
Ranking: 11 (2016: 8)

There is a risk of failure to maintain reliable information systems for business operations in the event of an IT disaster.

There is an implementation risk on information management projects (Impilo e-billing project, SAP, SUN, etc.)

The IT departments regularly perform risk assessments and carries out disaster recovery tests annually. Logical and physical IT security controls are in place, and a cybersecurity governance framework is being implemented. We maintain full disaster recovery capability aligned to business agreed tolerances. We perform simulated recovery tests annually to ensure recovery targets are met.

Risk registers are kept for all projects and a response plan is in place for each project risk identified. Rigorous project management methodology is followed with strong business sponsor leadership.

Related material matter
  • Cost of care
Combined assurance process
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Key year-on-year movements in key risks

The following 2016 key risks are not included in the top risks:

  • International growth (2016: rank 3): As an internationally diversified healthcare provider, the acquisition of Alliance Medical has adequately addressed this risk.
  • Local growth (2016: rank 4): The Group continues to grow its complementary services in line with growth in oncology, mental health, renal dialysis, acute rehabilitation and occupational health services.
  • Government licence approvals (2016: rank 5): Life Healthcare experienced reduced difficulty in the licensing approval process.

Opportunities register

Identifying and managing opportunities is part of the risk management process. The Group identifies opportunities from each risk and creates value from utilising them.

Our opportunities are classified under the following six key themes:

  • Business focus on sustainable development: Leverage stakeholder relationships to positively position the Group in the industry and create a pipeline of skilled expertise from which to draw
  • Supportive regulatory environment: Become a preferred provider for NHI and leverage positive aspects of HMI exposure
  • Quality: Increase the overall quality of care at all points in the Life Healthcare value creation chain to improve patient outcomes and provide an opportunity to reduce malpractice claims
  • Efficiency: Minimise costs and improve efficiencies by streamlining processes and removing activities that do not improve quality or add value for patients, doctors or employees
  • Effective relationships: Partner with universities and colleges to develop skilled prospective employees, promote ethical behaviour and engage with medical healthcare funders to accommodate their needs where possible
  • Compelling response to macro themes: Leverage HMI exposure to enhance the image of the Group and become a preferred provider for the NHI

The opportunities heatmap below indicates how these identified opportunities may impact on our creation of value, and their likelihood of occurrence.