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22 February 2013 00:14

PODCAST: Why do medical aid contributions outdo inflation every year?

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Adrian Gore, CEO of Discovery, discusses the cost of healthcare.

HILTON TARRANT: Adrian Gore is chief executive of Discovery, the group out with results for the six months to the end of December this morning. Adrian, I want to start off with what you said at this morning’s results presentation – Discovery’s core purpose is to make people healthier and enhance and protect lives – fascinating insights you shared this morning around this notion of 3-4-50, take us through that?

ADRIAN GORE: It’s actually a very simple concept that the world is kind of getting it in increased doses, the idea is actually very simple, we’re learning more and more [about] the disease of lifestyle, three lifestyle choices, smoking, poor nutrition, poor physical activity lead to four conditions that drive 50% of mortality. So half of all mortality can be avoided through lifestyle change and I think the opportunities once you grasp that from a policy level, from a company level like ours it becomes quite clear that the idea of making people healthier is not just a fleeting soft idea, it has massive, massive implications at every level. 

HILTON TARRANT: Are people grasping that increasingly?

ADRIAN GORE: There’s no doubt about it, if you look at some of the discussions at the World Economic Forum, the United Nations last year, there’s a wave of policy, of regulation of how food companies think about their foods, of how people are informed on the stuff, there’s really a huge movement all over around trying to make people make better lifestyle choices. I think it’s going to manifest in a whole lot of ways, so I think it’s here to stay, it’s not a trend, it’s kind of a reality.

HILTON TARRANT: Adrian, an emotive issue, the cost of healthcare, it’s one that seems to confuse a lot of people when they see consumer price inflation in a market like South Africa increasing at say 5%, 5.5%, 6% year on year and healthcare inflation is increasing at a multiple of that, maybe two times that, three times that. Take us through some of the reasons behind that and some of the trends you’re seeing.

ADRIAN GORE: Well, I think at the most basic level, which is often hard to accept, that healthcare is a function of skilled people like doctors in limited supply, whereas other industries do well with technology and drive efficiencies, healthcare doesn’t get those kinds of efficiencies. So it tends to escalate, that rate of inflation, above other industries and because CPI is an average healthcare tends to be above the average. But that is the battle, people find it unaffordable, its starting price is unaffordable and our role with every fibre of our organisation is to fight that trend to make sure we make it affordable but healthcare inflation is not an easy enemy to beat because people’s demands for healthcare legitimately [UNCLEAR 2:43] can be provided. So meeting these requirements is not an easy thing to do but I think what we’re trying to get across is there’s nothing wrong in the system per se, it’s about how to fight these inflationary forces.

HILTON TARRANT: What about the broader market, you said this morning that a better healthcare sector overall in South Africa is good for everyone obviously but also good for Discovery. Why would it be good for Discovery?

ADRIAN GORE: Well, firstly I don’t think a business can thrive at the expense of society, I think that’s very important and I think at the same time there’s absolute acknowledgement I think everywhere that having a proper national system that’s coordinated that provides quality care for people who can’t afford any access in any way is a prerequisite of any acceptable state. But having said that, I think the reality is we as a country don’t have the resources to provide comprehensive care for everyone and therefore those who can afford to pay should and probably will be encouraged to buy up and out of it. So I don’t think realistically you’re going a diminishing dramatically of private healthcare, hopefully what we can do is coordinate and help and assist and build, and I think you will get a coordinated system, I think that’s a good thing but I think it’s going to take time to be realistic.

HILTON TARRANT: One of the other things that is at the core, I guess, of almost everything you do, Vitality, the success of this programme has really just been phenomenal. Your members are using their rewards more and more and more, I think of things like gym memberships, that’s the obvious one. You mentioned that your members are flying a lot more with the discounted flights, are you seeing that across the board?

ADRIAN GORE: There’s no doubt, the levels of engagement in every aspect, the actual input measures, preventive screening of people, physical activity, the amount of HealthyFood people are buying is going up dramatically. We’re trying to quantify the effect on the population we cover, the effect on life expectancy and healthcare but I think it’s quite dramatic. If you look at our life insurance business that is linked to Vitality, life expectancy levels and our mortality rates are very, very long now. There’s some selection there obviously, healthy people buy life insurance, you get a bit of a…the causality is not clear but the effect of Vitality I think is tremendous and the potential effect of it as we learn more is even more powerful.

HILTON TARRANT: HealthyFood is one of the newer innovations in the Vitality stable, it’s been underway very successfully with Pick n Pay, that also rolling out to Woolworths.

ADRIAN GORE: Ja that has been one of the most…it’s actually quite a simple idea, you get 25% off HealthyFood, it’s part of the experience of going there, from the till slip. The learnings from that we’re extending into Woolworths in a structure we’ve done with Woolworths for part of our client base and it will be out hopefully next month, there is a lot of work being done on it. But for both Pick n Pay and Woolworths I think it’s been for us a fantastic experience. We’ve also done the same thing with Walmart in the US together with Humana, so I think Walmart obviously given their reach in the US offers great potential. I think those are the kinds of programmes we’re learning about how to get right and how to use them in the right ways to change people’s behaviours. Again, I think what can be achieved with it is significant.

HILTON TARRANT: Adrian, technology plays an increasing role in the kind of innovation that Discovery is delivering to the market, your HealthID app for doctors that’s been in the market for a fair amount of time. I was privileged to see the app for members before its launch, Dr Broomberg at Discovery Health showed that to me a couple of months ago, what’s the strategy there around this app for your Discovery Health members?

ADRIAN GORE: I think the opportunity to make healthcare more efficient, as I said before, that’s one of the challenges but the opportunity to drive the quality of healthcare up is so glaringly obvious and our ability to digitalise the system, so people see their doctors, they have on hand electronic patient records, they have all the information, they can script medicine, they can access tests. If you can do that you have to do it. I think in countries like the US that are much bigger and disjointed no one company has that potential but I think given our scale here and given a much more, in a sense, a smaller healthcare system we can do it. So we’ve made the investment in a range of technologies at member level, at doctor level. We effectively…I believe as we get it right the quality of care will go up and people should be healthier from it. We’ve already got 15% of the doctors in the target that we have now linked up to HealthID, we have member apps, we have pilots about using the technology to reach out to diabetic patients at home. So this stuff is really immensely powerful now but I think it’s a pathway that as we invest and drive down it we’ll make a – how can I say – step change in healthcare.

HILTON TARRANT: You’re also using technology extensively in the Discovery Insure business, the changing behavior of drivers I think is well documented and we have spoken about that before but really the potential there is almost limitless given that you are tracking the way people drive, you have other information, traffic information, this morning you pointed to weather information.

ADRIAN GORE: Ja, once you have that contact on a real time basis you have the ability, for example, to merge weather data with where people are driving, you can warn them proactively when bad weather systems are coming, hail is coming. It’s important for us but I think it’s important for them [UNCLEAR 1:42] our customers, they don’t want a hail damaged car, there’s danger in it. The other issues that we’re finding is that we can through statistical analysis of their driving habits ascertain when an accident has happened and reach out to them, before calling us we can dispatch an ambulance, etc. So there’s a lot of potential with that kind of data and I think what we’re doing is using incentives, we’re using positive initiatives to reach out to people and I think that, again, is a pathway we’re just opening up.

HILTON TARRANT: Adrian, you spoke a lot about scale and repeatability at this morning’s presentation, I guess then it wouldn’t be a stretch in the medium to long term to take the portfolio of businesses that you’ve built here in South Africa and that you continue to build here in South Africa and perhaps see one or two more of those being launched in territories that you already operate in?

ADRIAN GORE:  I think that is possible if you look at the UK we’re trying to build a replica of the Discovery Health, Discovery Life on top of Vitality model and I think the period we just went through now illustrated the potential success of it. Other markets, every market has certain things that are definitely scalable and repeatable but certain things are very local that you have to be careful when you’re thinking about other territories. For example healthcare, healthcare is a very local issue, whereas I think something like life insurance is much more repeatable and scalable. Vitality we’re finding is completely repeatable, we’re doing it in China, we’re doing it in the UK, we’re doing it in the US. So I think you’re right but I think each of these steps is complex and cannot be in any way simplified.

HILTON TARRANT: The financial results in those six months to December, excellent numbers, as you described them this morning, and really strong across almost every business. 

ADRIAN GORE: Ja, I think so, I think what was gratifying is, again, going back to the model, we’ve been quite meticulous at following a very unified model, innovating in certain ways and I think that has to an extent driven the quality of the result. But we’ve also got a model whereby we incubate new businesses that come on stream, they merge and then they become established. That’s been the model that we’ve done and to an extent I think that’s the highlight for me in that we’re seeing established businesses grow strongly but the emerging businesses like the UK businesses had fantastic growth and we’ve got a whole bunch of incubation businesses in China, in Discovery Insure here. So I think the numbers are pleasing but I think the methodology and the kind of virtuous cycle we’re creating I think has greater potential.

HILTON TARRANT: Also when you look at where Discovery commits capital, even though you have these growing businesses in the UK, in the US, in China, as you mentioned, you’re still very careful in where you commit and apply your capital, the majority of that capital still being invested here.

ADRIAN GORE: I think that we are quite risk averse, I think we have great confidence, frankly, in our local market, we think it’s got great potential so we keep investing in it. In the international context I’m a great believer in the partnership model and therefore we have had the ability to attract some of the best partners, whether it’s Ping An in China or Humana in the US or the Prudential. So we’ve kind of developed a model where we have the ability to create structures without capital offshore using our IPN capability and that’s not always the case, we made an acquisition in the UK. But I think that that model, if we continue to get it right, offers great upside internationally without the capital risk, I think we’re very careful with capital.

HILTON TARRANT: With regard to China and Ping An you spoke of being at first base with that business, what is first base?

ADRIAN GORE: First base to my mind is having a business that has all the system structures, its products are aligned properly; the distribution channels are largely built in a market that’s starting to emerge. I think that’s first base. I think that China offers an unbelievable opportunity in healthcare but I do believe it’s going to take time and therefore we’re being very careful in investing in the business in making sure the business has all the capabilities but not being – how can I say – overly zealous in the idea that this is a massive market you’re going to take it by storm. I think it requires careful execution and we have spent time getting it to this point with Ping An and the team there and I think the progress has been really good.

HILTON TARRANT: You own 20% of the Ping An Health business and you are increasing that to 24.99%, is that imminent?

ADRIAN GORE: Yes that’s in fact been agreed, we’re just waiting for regulatory approval. We at the outset wanted to buy 25%, for a number of reasons we couldn’t and in good faith we agreed that if the opportunity came about to up the shareholding to 25% or 24.99% we would do so and that’s exactly what’s happened. I must say we’re very excited about it.

HILTON TARRANT: Adrian, just to close off with, I think I asked you this six months ago, you’ve got operations obviously here in South Africa and those keep growing, in the UK, in the US and China, is that still enough to occupy yourselves with for now?

ADRIAN GORE: Oh ja, look, we’ve got three massive businesses, as you say, China, Discovery Insure here, in the US and we’re growing really rapidly in the UK despite the challenges. So there’s a lot on our plate. I believe baked into our plan is considerable growth if we’re successful in executing along that plan. But there are more opportunities and I think that given the uniqueness of the approach and the model and what we’ve built up those opportunities may become viable. So I think we have a lot to do but great expectation and potential.

HILTON TARRANT: Adrian Gore is the group chief executive officer of Discovery. 

Topics: Adrian Gore, Discovery, cost of healthcare



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