Performance review: Poland

Chief Executive Officer: Scanmed overview

Poland’s macroeconomics remain strong with GDP growth of circa 3.9% forecasted for 2017. The country has an unemployment rate below 7%, which is expected to drop further. Strong macroeconomics and consistently growing demand for high quality healthcare services provides a positive outlook for the private operators in Poland.

The most significant challenge was the Narodowy Fundusz Zdrowia’s (NFZ) substantial reduction in tariffs for publicly funded procedures, which significantly affected our cardiology segment, which makes up 45% of Scanmed’s NFZ revenues. Scanmed is undergoing an optimisation process in order to minimise the negative impact of tariff reductions. Cardiology was expected to contribute more than 60% of consolidated EBITDA, but only contributed 13.5%. Two reductions in tariffs (occurred on 1 July 2016 and 1 January 2017) negatively impacted our EBITDA by PLN30 million.

The public healthcare system underwent major reform in 2017, raising concerns about the availability of NFZ financing for Scanmed and in turn, the long-term sustainability of some of our operations. The outcome of this reform is positive for the Group as Scanmed is one of the biggest private operators to benefit from public financing. Both multi-disciplinary hospitals (St. Raphael and Blachownia hospitals with five cathlabs) joined the government’s Countrywide Hospital Network and were granted public financing contracts for the following four years. As at 30 September 2017, 85% of the budgeted Group NFZ revenues were secured.

NFZ tenders for the provision and funding of ambulatory (outpatient) procedures will be held in the first quarter of 2018. Taking into consideration that public financing is stable and secured; our main focus area is to grow commercial revenues substantially. Currently, the split is approximately 75% public compared to 25% private funding; however, we are taking measures to rebalance this by leveraging Scanmed’s core healthcare competences and grow our market share with organic and acquisition initiatives.

Several turnaround activities are taking place in our business, including major cost savings, integration and increase of operational efficiency. Completion of the integration with Life Healthcare is planned for mid-2018.

Hubert Bojdo
Chief Executive Officer: Scanmed S.A.

Performance review

Growth

Beds, units and facilities

Category 2017 2016 2015
       
Beds 624 624 334
Cardiac units 12 12 7
Medical facilities 40 40 36

Scanmed has added no additional beds, cardiac units or facilities in the year, favouring operational improvements and rationalisation over physical growth. This cautious approach was adopted so that the business could effectively review the outcome of contracting and tariff changes being implemented by the NFZ during the year.

Revenue diversification

quick facts

Acquisition timeline

FY2014

  • April 2014: 80.7% of Scanmed (including Webolit)
  • June 2014: 100% of Gastromed

FY2015

  • October 2014: Increased investment in Scanmed to 100%
  • October 2014: 100% of Sport Klinika
  • November 2014: 100% of Kliniki Kardioligii Allenort (KKA)
  • June 2015: 49.93% of Carint Scanmed

FY2016

  • October 2015: 100% of Gastromed REM
  • October 2015 and January 2016: 100% of Polska Grupa Medyczne (PGM) and Raciborskie Centrum Medyczne (RCM)
  • November 2015: 100% of Multimedycyna
  • April 2016: Remaining 50.07% of Carint Scanmed

Scanmed’s revenue increased by 2.5% on a constant currency basis, however, due to the weakening Polish Zloty Scanmed’s revenue on a Group basis decreased by 6.7%, when translated to the Group’s reporting currency. Through our high quality medical services and reporting, we have secured a majority of public contracts to sustain revenue for the next four years.

Bearing in mind that public funding is limited, our main focus area is to increase commercial services. Dynamic growth of private healthcare creates opportunities for further development which Scanmed intends to benefit from.

Quality: Clinical governance and quality

The business’s quality management system (QMS) is certified according to the requirements of the following international standards:

  • ISO 9001:2008, Quality Management System
  • ISO 27001:2014 Information Security Management System
  • ISO 31000:2009 Risk Management

Due to a focus on accreditation standard improvement at two hospitals and compliance with new data protection laws, the business chose to waive further certification for the requirements of the following international standards:

  • ISO 14001:2004 Environmental Management Systems
  • ISO 22000:2006 Food Safety Management Systems
  • EN 18001:2004 Health and Safety Management Systems

The business continues to operate within the legal requirements of the aforementioned areas.

The QMS is verified and validated by the results of cyclical internal and external audits and monthly monitoring and measurement.

A new act on quality and patients’ safety is expected to be implemented in 2018. The act will presumably impose certain obligations on managerial employees for quality monitoring, but also provide for additional ways of obtaining extra funding if specific criteria are met. Scanmed continues to monitor developments for opportunities and compliance requirements.

In December 2016, Scanmed was subjected to a comprehensive external audit by the international certification bodies Bureau Veritas and IMQ Polska. The business received a positive recommendation and renewal of its ISO 9001:2008 certificate for another year. In May 2017, Scanmed’s St. Raphael Hospital received positive feedback from the Accreditation Board for the second consecutive year, with the accreditation period being extended for a further three years.

We will introduce an electronic process monitoring and measurement system that will act as a detection system to improve quality care. The business aims to complete implementation of corporate medical standards at units across the country to ensure a uniform approach and comprehensive supervision. Another key project is the design and effective implementation of consistent management standards within outpatient medical centres. The goal is to implement a comprehensive system for monitoring and measuring the effectiveness of outpatient procedures.

Scanmed is reviewing further integration prospects with Life Healthcare including its IT, quality, human resources and finance divisions. We established an integration committee in July 2017 to manage the integration process for the next 12 months.

Clinical indicators

Scanmed continues to set thresholds for individual measurement areas to ensure proper detection in case of unacceptable results in our quality of care. Our clinical indicators are aligned to the requirements set by the Polish Minister of Health and remain unchanged. This requires the periodic monitoring and analyses of the certain indicators of functioning in hospitals.

Indicator 2017
%
2016
%
Year-on-year
trend
     
Reoperations 0.54 0.40 arrow
Readmission 1.24 1.34 arrow
HAI 0.85 0.58 arrow
Bedsores 0.22 0.13 arrow

One of the main reasons for the year-on-year movements in the table above is the inclusion of the multi-specialist hospital in Blachownia in reporting, effective in 2017. Another reason is an increased level of awareness through improved reporting among medical employees.

Efficiency: Procurement

After tariff reductions in cardiology and orthopaedics implemented by NFZ, renegotiations of medical materials with key suppliers began. We targeted the direct costs associated with the procedures performed in various cathlabs including equipment and consumable costs. Expected annualised savings amount to PLN4 million.

We have optimal pricing levels and terms of trade with key suppliers, and the business’s procurement team continually monitors opportunities to generate savings and efficiencies to support positive revenue margin increase.

Sustainability: Human resources

Scanmed employs 3 345 (2016: 3 651) employees and contractors, 2 515 of whom are on permanent contracts. Scanmed employs 1 317 physicians.

Employee turnover rate for 2017 was approximately 2% due to the administrative reorganisation and optimisation of headcount cost processes.

quick fact

The main challenge for healthcare in Poland is a lack of key skills, especially among specialists. The number of doctors per 1 000 inhabitants in the European Union was 2.3 in 2016, compared to the European average of 3.3 (2015: 3.3 and 2014: 3.5).

Feedback on the 2017 focus areas:

Analysis of available and required resources in all Scanmed companies     Scanmed is implementing a new organisational structure with the optimum number of positions.
Assessment and implementation of best human resource practice     The business is integrating and implementing HR management standards used by Life Healthcare. Another focus is optimising work processes through the introduction of new IT tools to enhance work efficiency.
Review of employee remuneration and implementation of a salaries grid     Scanmed is using assessed position descriptions and market remuneration analyses to create a uniform remuneration system. Plans are being developed to introduce incentive schemes for physicians to enhance their performance.
Establishment and implementation of long-term development programmes and career paths     We intend to introduce career development paths as part of the integration of the Life Healthcare HR management standards. This was deferred to 2018.

A further priority is to improve operational accountability and management. This includes decentralisation of certain levels of decision-making and giving more responsibility to mid-level managers to aid efficiency. It is equally important that we improve the efficiency of the business by automating and streamlining internal processes and adapting employees’ competence profile to the current needs of Scanmed.