GEMS Presentation Health Market Inquiry

1 March 2016

Structure

About GEMS o Background o Mandate, Mission, Vision and Values o Role of a Medical Scheme (Operating Framework) o Products (Plans) and Enrolment Criteria (Income Bands) o Governance and Service Structure o Scheme Statistics o Strategy and Approach

Impact of GEMS o Industry Growth o Access (No Underwriting) o Decrease in non-healthcare Spend

Our Challenges o PMBs o Absence of Tariff and Pricing Structure

Considerations

ABOUT GEMS

(Who We Are)

Background

The public service is the country's largest employer with approximately 1.3 million employees

In fulfilment of its obligation as an employer, the public service provides its employees with a remunerative package structured to include and cover:

o Retirement/Pensions (GEPF/GPAA)

o Housing Benefits (Allowance)

o Medical Benefits (Subsidy)

Prior to 2005, one of the challenges faced by the Employer was that a significant and growing number of its employees were unable to gain entry into existing medical schemes due to the high cost structure

o To address this challenge it was resolved to establish a single restricted membership medical scheme to cover public service employees

Mandates

Vision

Mission

Our Mandate, Mission, Vision and Values

An excellent, sustainable and

effective medical scheme for all

public service employees.

To provide all public service

employees with equitable access to

affordable and comprehensive

healthcare benefits.

Values

To ensure that there is adequate provisioning

of healthcare coverage to public service

employees that is efficient, cost-effective and

equitable; and to provide further options for

those who wish to purchase more extensive

cover.

Excellence

Member-centricity

Integrity

Value for money

Innovation

Evolution of the GEMS Mandate

and Role

Since 1999: Equitable Access to Medical Assistance

Cabinet approved the registration of GEMS in 2004

Registered in 2005 and commenced enrolment in 2006

July 2006 a new medical subsidy policy was introduced

GEMS like all medical schemes operates within the legal framework provided by the Medical Schemes Act

The Role of a Medical Scheme

“Business of a medical scheme” means the business of undertaking liability in return for a premium or contribution:

a) To make provision for the obtaining of any relevant health service; b) To grant assistance in defraying expenditure incurred in connection with the rendering of any relevant

health service; and c) Where applicable, to render a relevant health service, either by the medical scheme itself, or by any

supplier or group of suppliers of a relevant health service or by any person, in association with or in terms of an agreement with a medical scheme

“restricted membership scheme” means a medical scheme, the rules of which restrict the eligibility for membership by reference to:

a) Employment or former employment or both employment or former employment in a profession, trade, industry or calling;

b) Employment or former employment or both employment or former employment by a particular employer, or by an employer included in a particular class of employers;

c) Membership or former membership or both membership or former membership of a particular profession, professional association or union; or

d) Any other prescribed matter

“rules” means the rules of a medical scheme and include: a) The provisions of the law, charter, deed of settlement, memorandum of association or other

document by which the medical scheme is constituted; b) The articles of association or other rules for the conduct of the business of the medical scheme; and c) The provisions relating to the benefits which may be granted by and the contributions which may

become payable to the medical scheme

Scheme

Bank account Advisors

Actuaries

Auditors

Investment

Benefit options

Contributions

Managed care

Administrators

Members

Claims

Critical Aspect s for GEMS as a Medical Scheme

oScheme rules

oRegistrar and

Council

oMedical Schemes

Act

Support Services

Advisory,

Actuaries,

Auditors

Investment

Members

Board of Trustees Committees

Principal Officer

Executive & Head Office

Employer

Employees

Administration

o Enrolment and Registration

o Benefit Management and

Claims Payment

o Member servicing (Contact

Centre Support).

Governance , Direction & Oversight

Execution of Strategy & determination of Operational deliverables

Performance of Operational Functions

Governance & Operational Structure

Managed Care

o Authorization Management

o Disease Management

o Claims Adjudication

OUTSOURCED SERVICES

Conceptualisation and establishment

Cabinet Mandate (2004)

Registration (2005)

Funding R28 Billion (2015)

“The state as an employer seeks to ensure that there is adequate provisioning of healthcare coverage to public service employees that is efficient, cost-effective and equitable”

GEMS’ Strategy and Plan

Affordability Making healthcare spending a progressively smaller portion of

household income, while minimising member out-of-pocket spending on healthcare for government employees from all income groups

Understanding Members

Understanding member profiles and needs, promoting healthy behaviours through well incentivised loyalty programmes that

encourage members to lead healthier lives, minimising their risk of developing lifestyle-related diseases

Healthier Members Promoting effective disease management of members and improving

the clinical outcomes so that they remain healthy and productive members of the public service

Partner to Organs of the State

Working together with government bodies and leading industry players, both local and international, to bring about innovative

methods and leading practices in healthcare for the ultimate benefit of society

The Scheme’s Strategy is based on a Three Year Planning Cycle (Currently 2014 – 2016)

The GEMS Strategy is underpinned by four key pillars of:

Prioritising healthcare

GEMS has realised significant savings on non-healthcare costs.

13,0%

8,7%

7,4%

11,8%

0%

3%

6%

9%

12%

15%

Open Schemes Closed Schemes(excluding GEMS)

GEMS Total(excluding GEMS)

Non-healthcare costs Cost savings

R1 200 000,000 per year

Prioritising healthcare

The R1,2 billion saved on non-healthcare expenditure allows for more healthcare services to be funded.

3 million consultations with family practitioners

500 000 radiology investigations

12 000 hospital admissions

Or the total healthcare costs of 70 000 beneficiaries per year

Scheme Statistics

2015 Principal Members 674,936 Beneficiaries 1,781,770 Eligible Members on GEMS 55% Average Age 30.78 Level 1-5 46% Average Family Size 2.64 Pensioner Ratio 13.70% Claims Ratio 92.63% • Hospital Spend 38.22%

Gross Contributions 28,139,221,000 Claims 25,539 ,196,000 Non Healthcare Cost 2,043,505,000

Major Utilisation Cost Drivers

Private Hospital and Medical Specialists comprises of more than 45% of

the total

Scheme paid R1.8 billion above Scheme rates as PMB

Practice Type Cost Paid (R)

Medical Specialists 2 824 183 078

General Practitioners 1 925 785 906

Optometrist 529 751 877

Pathologists 1 488 219 231

Radiologist 975 135 470

Dentist 534 044 298

Supplementary & Allied Health Services 2 823 406 633

Emergency Medical Services (EMS) 287 282 331

Private Hospitals 9 606 324 013

Provincial hospitals 101 395 668

Medicines 4 346 497 705

Utilisations Statistics

0

2 000 000 000

4 000 000 000

6 000 000 000

8 000 000 000

10 000 000 000

12 000 000 000

14 000 000 000

0%

- 5

%

5%

- 1

0%

10

% -

15

%

15

% -

20

%

20

% -

25

%

25

% -

30

%

30

% -

35

%

35

% -

40

%

40

% -

45

%

45

% -

50

%

50

% -

55

%

55

% -

60

%

60

% -

65

%

65

% -

70

%

70

% -

75

%

75

% -

80

%

80

% -

85

%

85

% -

90

%

90

% -

95

%

95

% -

10

0%

Ben

efit

am

ou

nt

pai

d

Band of beneficiaries

5 : 51

5% of beneficiaries incur 51% of costs in any given year

2014 Beneficiaries vs. Claims

Claims Ratio

0%

200%

400%

600%

800%

1000%

1200%

1400%

1600%

1800%

79%

79% of beneficiaries pay more than is claimed back in any given year

2014 Claims ratio per family

Medical Plans/Options

Enrolment Criteria (Income Bands)

Sapphire and Beryl

Income Bands 2016 Contribution per Member

2015 2016 Sapphire Beryl

R0 - R6 860 R0 - R7 340 R776 R895

R6 861 - R9 625 R7 340.01 - R10 299 R813 R971

R9 626 - R16 490 R10 299.01 - R17 644 R864 R1 059

R16 491+ R17 644+ R961 R1270

Ruby and Emerald

Income Bands 2016 Contribution per Member

2015 2016 Ruby Emerald

R0 - R10 330 R0 – R11 053 R1 796 R1 996

R10 331 - R17 840 R11 053.01- R19 089 R2 000 R2 210

R17 841+ R19 089+ R2 224 R2 477

Onyx

Income Bands

2016 Contribution per Member 2015 2016

R0 - R10 330 R0 - R11 053 R3 193

R10 331 - R22 010 R11 053.01 – R23 551 R3 322

R22 011+ R23 551.01+ R3 587

Impact of no change in Subsidy

Member portion of contributions increased from 35% to 48%

Impact of New Subsidy

Family structure

2011

Monthly

medical aid

subsidy

2015

Monthly

Medical Aid

Subsidy

2016

Monthly

Medical Aid

Subsidy

Principal Member without

dependants 720.00 925.00 1,008.00

Principal Member with one

dependant 1,440.00 1,850.00 2,017.00

Principal Member with two

dependants 1,880.00 2,415.00 2,633.00

Principal Member with three

dependants 2,320.00 2,980.00 3,249.00

Principal Member with four or

more dependants 2,760.00 3,545.00 3,865.00

2015 Subsidy increase of 28.5% in line with the PSCBC Resolution

2016 Subsidy increase of 9% linked to Medical Price Index (MPI)

Affordability

On average, GEMS’ contributions represent 8% of income after allowing for employer subsidies (and 20% of income before allowing for subsidies).

\

Before subsidy After subsidy

Sapphire 19% 1%

Beryl 16% 4%

Ruby 20% 7%

Emerald 21% 9%

Onyx 17% 11%

Total 20% 8%

Affordability

On average, GEMS’ is 19% more affordable than comparable plan options \

Less expensive than

comparative Schemes

Sapphire 26%

Beryl 15%

Ruby 1%

Emerald 27%

Onyx 25%

Total 19%

Understanding members

Understanding member profiles and needs, promoting healthy behaviours through incentives that encourage members to lead healthier lives.

GEMS will offer industry leading preventative care and screening test benefits in 2016.

Mammograms (annual)

Pap smears (annual)

PSA tests (annual)

Bone density scans

Glaucoma screening

Occult blood screening

Influenza vaccinations

Pneumococcal vaccinations

GEMS is now participating in the Health Quality Assessment (HQA) – this is further indication of the Scheme’s commitment to improving healthcare outcomes.

Disease Management Programmes

Chronic Disease Management Programme

Numbers (2015)

Diabetes 90 634

Hypertension 210 825

HIV 119 894

Mental Health 48 446

Oncology 11 133

Number of

More than 20% of beneficiaries have Chronic Diseases

The Funding Challenge

Hypothyroidism

HIV

Hypertension

Chronic Renal Disease

27

3

3

3

For every beneficiary with hypertension, GEMS requires 3 healthy members to cross-

subsidise

2014 Cost ratio examples

Hospital-centric Care is Dominant

Nearly 60% of expenditure pertains to hospital or hospital-related costs

Only 10% of spend pertains to family practitioners (which is higher than the industry

average of 7,0%)

38%

19%

43%

In- and out-of-hospital spend

Hospital spend Hospital related spend Out of hospital spend

10%

13%

38%

39%

Spend by discipline

Family Practitioners Specialists Hospitals Other

Healthier members

• Disease specific programmes aimed at improving clinical outcomes

Disease management programmes

• Holistic wellness and prevention of avoidable hospitalisations

HIV programmes

• Early detection and treatment of comorbidities and complications

Maternity programmes

• Promotion of conservative treatment where clinically appropriate

Back management programmes

• Holistic wellness and prevention of avoidable hospitalisation

Diabetes management programmes

2015 Healthcare Indicators

Q1 Q2 Q3 Q4 FY

Target

Disease Outcome Measures:

- HIV/AIDS

Enrolment on HIV DMP as a %

of Scheme prevalence rate 76% 79% 82% 83% 79% 77%

Viral Load <1000 as a % of

those on first line regime of

ARVs for more than 6 months

82% 85% 89% 90% 87% 85 %

% of those on ARVs >6

months who show an

improvement in CD4 count

83% 88% 84% 90% 86% 85%

2015 Clinical Statistics

HIV/AIDS

Q1 Q2 Q3 Q4 FY Target

Health Outcomes

Pneumonia hospital

admissions

13 110 16 974 14 760 12 121 56 965

TB hospital admissions 2 299 1 763 1 957 1 913 7932

% increase/decrease

over previous year -

Pneumonia hospital

admissions

-11% 4% -19%

5%

-5% Reduce by 5%

per year

% increase/decrease

over previous year - TB

hospital admissions

-22% -25% -20%

-4%

-17% Reduce by 5%

per year

Partner to organs of state

Working together with government bodies and leading industry players to bring about innovative methods and leading practices in healthcare to the ultimate

benefit of society.

Data sharing and support of strategic initiatives

Benchmarking SA private hospital costs

Supporting NHI pilot site in Eastern Cape

Data sharing on male medical circumcisions

GEMS Model

Family practitioner networks

(already well established)

Specialist networks (obstetricians and paediatricians)

Hospital networks

(Currently in Development)

Efficient practitioner networks Comprehensive disease management programmes

Maternity HIV

Diabetes Back pain

And more …

Impact of GEMS

Growth

GEMS has realised significant and sustained growth and is now the second largest medical scheme in South Africa

Over 1,7 million beneficiaries 1 in 5 beneficiaries 1 in R10 spent on healthcare

2007 2009 2011 2013 2014

Impact of GEMS Growth on Industry

Medical scheme membership is flat in 2014 (CMS)

Prioritising healthcare

GEMS has realised significant savings on non-healthcare costs.

13,0%

8,7%

7,4%

11,8%

0%

3%

6%

9%

12%

15%

Open Schemes Closed Schemes(excluding GEMS)

GEMS Total(excluding GEMS)

Non-healthcare costs Cost savings

R1 200 000,000 per year

Balancing Sustainability with Social Solidarity

GEMS has achieved solid financial results in the context of social solidarity.

Increasing reserves Stable loss ratio

2010 2011 2012 2013 2014 2010 2011 2012 2013 2014

No waiting periods

No late joiner penalties

Income-related contributions

Broad beneficiary definitions

Aligned to the Principles of Universal Healthcare Coverage

Our Challenges

Industry Dynamics

Healthcare is increasing in real terms (CMS)

The PMB Challenge

The regulation stipulates that PMBs must be paid at cost

When PMBs were introduced the “pay in full” provision wasn’t a risk for medical schemes

Healthcare tariffs were collectively negotiated by medical schemes and healthcare providers at the time

Tariffs were published in a “reference price list”

Professional healthcare organisations published “ethical” charging guidelines setting limits

o Claims that are not PMBs are subject to benefit limits, co-payments and being paid at scheme tariff

PMB claims may be limited to scheme tariff if the scheme has a DSP for that healthcare service and the member voluntarily used a provider who is not a DSP

o This creates an incentive for providers to change the way they apply clinical coding to claims in order to ensure that claims will be paid as PMBs

The PMB Challenge

Like all Schemes a significant challenge for GEMS is the issue of PMBs

In 2015 the cost of PMB benefits alone was in excess of R760 per life per month

PMB cost for GEMS have almost doubled over the past five years and accounts for more than 50% of claims

0

100

200

300

400

500

600

700

800

900

Jan MarMay Jul Sep Nov Jan MarMay Jul Sep Nov Jan MarMay Jul Sep Nov

2013 2014 2015

Non-PMB claim PMB claim

PMB and non-PMB claims PLPM

Incidence

61% 63% 66%

72% 72% 72%

39% 37% 34%

28% 28% 28%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014 2015

% o

f ex

pen

dit

ure

PMB Non-PMB

The proportion of claims classified as PMBs has increased significantly in recent years. In 2010, 60.7% of expenditure was classified as a PMB. By 2015, 72.3% of expenditure was classified as a PMB. This

amounts to an increase of 19.0%.

In this context, PMBs refer to claims flagged as PMBs as well as potential PMB claims on according to ICD 10 codes. Pharmacy claims are not considered given their limited impact on Prescribed Minimum Benefits.

Disaggregating Trends

Increases are evident across provider types. Whether such substantial and consistent

increases can simply be attributed to variances in the clinical characteristics of patients is

questionable

% P

MB

By discipline

2010 2011 2012 2013 2014 2015

Increases are evident across diagnosis categories. Whether such consistent increases across

diagnoses is a function of changes in the mix of diagnoses is questionable

% P

MB

By diagnosis

2010 2011 2012 2013 2014 2015

Cost

In 2011, payments in excess of tariff amounted to R839 million. This increased by 22.2% per year to

R1,869 billion in 2015.

In 2011, the amount paid in excess of tariff was 9.2% of the PMB expenditure. By 2015, this had

increased to 11.4%.

R 40

R 50

R 60

R 70

R 80

R 90

R 100

R 800 000 000

R 1 000 000 000

R 1 200 000 000

R 1 400 000 000

R 1 600 000 000

R 1 800 000 000

R 2 000 000 000

2011 2012 2013 2014 2015

Payments in excess of tariff

Payments in excess of tariff

Payments in excess of tariff PLPM8,0%

8,5%

9,0%

9,5%

10,0%

10,5%

11,0%

11,5%

12,0%

2011 2012 2013 2014 2015

Payments in excess of tariff, as a % of PMB expenditure

Considerations

Potential for Way Forward

There should be consideration of a pricing framework through a collective bargaining structure for fees and tariffs

Develop national PMB billing rate file that provides a ceiling or cap

o Regulation 8 to be amended to reflect billing and payment for PMBs to be at a national PMB billing rate

o Enforce uniform billing between PMB and non PMB services without a significant difference in the rates

o Opening up healthcare to competitive pricing below the cap

The current PMB framework is hospital centric and consideration should be given to revise PMB entitlements in the regulations with a shift to primary care

Thank You