PROVIDENCE Independent Newspapers Press Release - 2006/02/28

FOCUSING ON THE WHOLE SCORECARD, NOT JUST EQUITY

“ It is interesting to observe the healthcare industry’s approach towards BEE in which most of the focus is apparently on direct empowerment, especially ownership, with the usual big black empowered names”, PROVIDENCE’s Donald Alexander comments.

The healthcare risk managers’ chairman says, “Often the ownership is heavily encumbered. One just wonders the extent to which this is driven by a business imperative as opposed to the original BEE objectives. Having said that, it is not always easy to achieve a balance between these objectives and ensuring one’s business has sufficient presence in the market.

The challenge, for us, is to balance the implementation of BEE in a meaningful and effective way, within government’s objectives, with the diversity of our business and the markets we serve.”

He adds that the temptation is to simply get in a single big-name black empowered group to take a stake in the holding company and have done with it. “In the long term, however, this would not serve us or the government’s objectives.”

PROVIDENCE has four separate subsidiaries which cover consulting and actuarial, medical scheme administration and managed care, capitated IPA administration and health and safety. It was recently rated top in the 2005 PMR survey of the best large managed healthcare companies in SA.

Alexander says, “The empowerment partners we are seeking vary from one business to another. For example, the biggest stakeholders in our capitated IPA management business are the black doctors. In our administration and managed care business it would be the unions representing the majority of the members we serve and in both these examples securing appropriate partners would have a very broad-based empowerment effect.

“While we seek out appropriate partners, our principal objective is to focus on the other key areas of our score card. Much of this is ongoing work in progress, particularly in the areas of employment equity and skills development, where we have made significant progress. This clearly has a positive broad-based effect.”

The other key areas of focus are in preferential procurement and corporate social investment.

“With preferential procurement we have found that it is a process of finding those black empowered suppliers with whom we can develop solid long term relationships. The opportunities within corporate social investment are particularly exciting for us in that we can feed back directly to the communities in which we have a significant presence. This is particularly so in the mining and motor industries where we can apply our funding and disease management intellectual property in these communities.

“In summary, therefore, our objective is to optimise the non-direct aspects of our score card across all our businesses to get us into the Good Contributor range and then to hand-pick black empowered partners for each of the businesses to take them up to the Excellent Contributor level.”

Alexander concedes that the difficulty in the short term is that many purchasers of healthcare services are currently more interested in the equity aspect of BEE rather than the scorecard as a whole which is really what empowerment is all about.

“When one looks in detail at the Black Economic Empowerment legislation, strategy and codes of good practice, the objectives are awesome and, if properly applied, will have a hugely positive impact on the fabric of SA’s socio-economic environment.”

PROVIDENCE Blue Chip Press Release - 2006/06

UNIQUE AND SUSTAINABLE MANAGED CARE MODEL IN THE MINING INDUSTRY

Blue Chip (June 2006) speaks to Donald Alexander, Chairman of PROVIDENCE Healthcare Risk Managers, recent joint winners of the PMR Diamond Arrow award for the best large managed care company in SA, and winner of the best managed radiology programme.

Blue Chip: You must be pleased with the PMR Diamond Arrow Awards?

Donald Alexander: We certainly are, although we were caught a little by surprise when PMR contacted us in December last year. We have always been a low profile operator, so it has been quite rewarding to receive this recognition which arises out of feedback from our clients.

Blue Chip: What do you think sets PROVIDENCE apart?

Donald Alexander: By focusing on niche markets, principally in the mining industry and the Eastern Cape, we have developed unique customised models that are sustainable.

With the unbundling of the Mines Benefit Society at the end of 1996, we set up a model for Harmony Gold (when it was still part of Randgold) which was unique then and still is today. By force of circumstances we had to run an ultra-affordable model for the scheme to survive.

It was quite unrefined in the early days but has evolved over the years into a finely tuned, fully integrated model.

Blue Chip: What are the key components to this model?

Donald Alexander: Essentially, delivery is built around mine hospital facilities in the mining areas. The key element is an effective gatekeeping mechanism which we manage through multi-disciplinary primary healthcare medical centres in close proximity to the hospitals. The clinical staff are all employed there, so there is no incentive to over service and, in fact, a large component of their performance appraisals revolve around cost-effectiveness and quality.

Also by working with the mine hospitals as the first tier of preferred providers we have been able to substantially contain the hospital costs.

Similarly, we have developed an effective formulary which is actively managed with both acute and chronic medicines and, where possible, in the hospitals. This hands-on Pharmacy Benefit Management has achieved huge savings.

Another important element has been to develop a tight network of specialists in each of the main disciplines. This has given us the opportunity to work closely with these specialists to our mutual advantage.

Blue Chip: How different is this model to a typical medical scheme?

Donald Alexander: Substantially different in that it is a hybrid of a number of different models including staff model HMO, Preferred Provider Networks, capitation and discounted fee-for-service. Coordinating all of this through IT has been a long hard struggle but we are now getting excellent data with relative ease. One of the advantages of this struggle is that the model is not easy to replicate. This not only increases barriers to entry but also sets us apart in terms of running similar models in areas that are well suited to unique delivery arrangements.

Blue Chip: How successful has the model been?

Donald Alexander: Aside from providing rich benefits to a poor risk profile at very low rates, relative to the commercial scheme market, we were approached by Gold Fields in 2004 to look at implementing a similar model with their medical scheme, which we did from 1 January 2005. They had previously been making use of a typical new-generation product structure.

Managing their scheme has been particularly gratifying. Not only did we provide many more benefits, but we also cut the contributions on the main option by 14% and still added 25% to their reserves at the end of the year. This year benefits were increased and rates reduced by another 3%.This was despite the annual increase in tariffs.

The most gratifying thing is that we were so focused on making the model work that we were unaware of how successful it had become.

Blue Chip: With Harmony and Gold Fields both being in the mining industry, have there been any opportunities for synergies with their healthcare arrangements?

Donald Alexander: Absolutely. This has been consistent with our core belief and strategy that, in the same way that the mining industry is consolidating, the delivery of their healthcare also needs to consolidate. The industry is well positioned to centralise certain core functions such as healthcare delivery (hospitals and medical centres), purchasing, formularies (and pharmacies), administration and actuarial services which would allow each of the mining companies’ to plug into these centralised services.

PROVIDENCE has done this for Harmony and Gold Fields on a smaller scale by sharing medical centre facilities and using each others mine hospitals. Aside from cost savings, there are a number of other synergies, not least of which has been the expansion of the delivery footprint, making access that much easier.

Blue Chip: And what about the future?

Donald Alexander: We will continue to focus on developing unique customised delivery models in niche markets, particularly in areas where there are high volumes of members in relatively small geographic areas.

Blue Chip: Thank you.