INTR IN TROD ODUC UCTION TION OF M OF MEDIC EDICLINIC LINIC - - PowerPoint PPT Presentation

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• Koert Pretorius Chief Executive Officer
• Braam Joubert Chief Financial Officer
• Roly Buys Strategy Development Executive
• Schalk Burger SC

IN INTR TROD ODUC UCTION TION OF M OF MEDIC EDICLINIC LINIC REPRES REPRESENT ENTATIVES TIVES

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• To inform the public
• To provide insight on the

interaction between Mediclinic and various stakeholders in the private healthcare sector

• To provide regulatory context

PURPOSE PURPOSE OF THE OF THE PRES PRESENT ENTATION TION

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• Provide a broad outline of

Mediclinic's business

• Setting the scene for further

engagements

• Await outcome of data,

information and profitability analyses SCOPE SCOPE OF THE OF THE PRES PRESENT ENTATION TION

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1. Introduction to Mediclinic 2. Regulatory Context 3. Mediclinic Business Model 4. Patients 5. Healthcare Professionals 6. Medical Schemes, Administrators, and Managed Care Organisations 7. Suppliers and Support Services 8. Expenditure on Private Hospital Services 9. Price and Input Cost Increases at Mediclinic’s Hospitals

• 10. Concluding Remarks

OU OUTL TLIN INE

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INTR INTRODUCTION ODUCTION TO M O MEDICLINIC EDICLINIC

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2014

Acquired Hirslanden Group (+13 Hospitals) Acquired Klinik Stephanshorn (+85 beds) Acquired Swissana Clinic Meggen (+22 Beds) Acquisition of controlling interest in Mediclinic Middle East Opening of flagship hospital, Mediclinic City Hospital in Dubai Acquisition of Al Noor Acquired 3 clinics with acquisition of Emaar clinics Acquired Clinique La Colline (+62 Beds)

SA CH

Mediclinic listed on JSE

1986

Acquired Medicor Group (+11 Hospitals)

1995

Acquired Hydromed Group (+4 Hospitals)

1996

Acquired Hospiplan Group (+12 Hospitals)

1998

Acquired Curamed Group (+6 Hospitals)

2002

Acquired the Protector Group (+4 Hospitals)

2006 UAE 2007 2010 2014 2007 2011 2015/16 2008 2012

Buyout of GE Healthcare and Varkey Group stake in Emirates Healthcare

HOSP SPITAL ALS

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CLINICS

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COUNTRIES

5

2015

FY2015

2015

Acquired land to build Mediclinic Parkview Hospital

NA

IN INTR TROD ODUC UCTION TION TO O MEDIC MEDICLINIC LINIC HI HIST STOR ORY

Source: Company information

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Notes 1. The National Hospital Network (NHN) is an association of 165 independent private hospitals, day clinics and other facilities 2. As of 31 March 2015 3. As of 30 September 2015

(1)

• The South African private hospital market has three

listed players; Netcare, Life Healthcare and Mediclinic

• Together they account for c. 73% of the private

hospital market

Mediclinic 22% Netcare 28% Life 23% NHN 11% Independent 16%

LISTED PRIVATE HOSPITALS MARKET SHARE

# OF BEDS SA REVENUES (ZAR MM)(2)

Source: Company information

7,885(2) 12,323 8,647(3) 13,749 9,444(2) 15,738

Source: Company information, National Hospital Network, Broker estimates

SOUTH AFRICA PRIVATE HOSPITAL BED MARKET SHARE

IN INTR TROD ODUC UCTION TION TO O MEDIC MEDICLINIC LINIC MEDIC MEDICLINIC LINIC SOUTHERN SOUTHERN A AFRICA FRICA

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IN INTR TROD ODUC UCTION TION TO O MEDIC MEDICLINIC LINIC GEOG GEOGRA RAPHIC PHIC FOO FOOTP TPRIN RINT

Source: Company information

Namibia Northern Cape Western Cape Eastern Cape Upington Mediclinic Upington Kimberly Mediclinic Kimberly Gariep Mediclinic Gariep Bloemfontein Mediclinic Bloemfontein Welkom Mediclinic Welkom North West South Africa Mediclinic Victoria Pietermartizburg Mediclinic Pietermartizburg Mediclinic Howick Kwazulu-Natal Newcastle Mediclinic Newcastle Barberton Mediclinic Barberton Nelspruit Mediclinic Nelspruit Limpopo Tzaneen Mediclinic Tzaneen Polokwane Mediclinic Limpopo Mediclinic Lephalale Pretoria Gauteng Mediclinic Hoogland Mediclinic Emfuleni Free State Mediclinic Vereeniging Mediclinic Legae Brits Mediclinic Brits Potchefstroom Mediclinic Potchefstroom Mediclinic Secunda Mediclinic Ermelo Mediclinic Highveld Mpumalanga Mediclinic Thabazimbi Plettenberg Bay Mediclinic Plettenberg Bay Oudtshoorn Mediclinic Klein Karoo George Mediclinic George Mediclinic Geneva Hermanus Mediclinic Hermanus Worcester Mediclinic Worcester Stellenbosch Mediclinic Stellenbosch Strand Mediclinic Strand Vergelegen Mediclinic Vergelegen Paarl Mediclinic Paarl Peninsula Hospitals

• Mediclinic Cape Gate
• Mediclinic Cape Town
• Mediclinic Constantiaberg
• Mediclinic Durbanville
• Mediclinic Louis Leipoldt
• Mediclinic Milnerton
• Mediclinic Panorama

Otjiwarongo Mediclinic Otjiwarongo Swakopmund Mediclinic Swakopmund Windhoek Mediclinic Windhoek Johannesburg Hospitals

• Mediclinic Morningside
• Mediclinic Sandton
• Wits University Donald

Gordon Medical Centre Pretoria Hospitals

• Mediclinic Gynaecological

Hospital

• Mediclinic Heart Hospital
• Mediclinic Kloof
• Mediclinic Medforum
• Mediclinic Midstream
• Mediclinic Muelmed

Region Number of Hospitals

Western Cape 17 Northern Cape 2 Gauteng 12 Kwazulu-Natal 4 Limpopo 4 North West 2 Free State 3 Namibia 3 Total 52 Mpumalanga 5

SOUTHERN AFRICA GEOGRAPHIC OVERVIEW

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IN INTR TROD ODUC UCTION TION TO O MEDIC MEDICLINIC LINIC OPERA OPERATION TIONAL O AL OVER VERVIEW VIEW

Internal Medicine 26% General Surgery 17% Obstetrics and Gynaecology 15% Orthopaedics 13% Urogenital 7% ENT and Opthalmology 7% Cardiac and Vascular 7% Neurology 5% Oral and Maxillofacial 2% Other 1%

Source: Company information

SERVICE OFFERING

SPECTRUM OF SERVICES (2014)

SOUTHERN AFRICA OPERATIONAL OVERVIEW

HO HOSPI SPITALS

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ADMITTIN TTING DOCTO TORS

2,451

EM EMPL PLOY OYEES EES

16,576

BED EDS

7,983

DAY CLINI NICS

2

Source: Company information

IN INTR TROD ODUC UCTION TION TO O MEDIC MEDICLINIC LINIC WHA WHAT WE DO T WE DO

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• Acute care, specialist orientated, multi-

disciplinary hospital services and related service offerings

• ER24
• Medical Human Resources (MHR)
• Medical Innovations
• 6 higher education accredited nurse

training centres

Source: Company information

12

REGULA REGULATOR ORY Y CONTEXT CONTEXT

THE THE HEAL HEALTH M TH MAR ARKET KET IN INQU QUIR IRY REGU REGULA LATOR ORY Y CO CONTEXT NTEXT

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• The Constitution
• The National Health Act
• OHSC
• Competition Act
• Medical Schemes Act
• Regulatory Authorities
• HPCSA; SANC; SAPC; Competition

Authorities

• Provincial Departments of Health

Licensing Regulations

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MEDICLINIC MEDICLINIC BUSIN USINESS ESS MODEL MODEL

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MEDIC MEDICLINIC LINIC BUSIN USINES ESS S MO MODEL DEL PR PROVID VIDER ER ENVIR ENVIRON ONMENT MENT

HOSPITAL:

• Infrastructure (Land, Buildings, Equipment)
• Clinical Services (Nursing, Pharmacy)
• Support Services (Technical, Admin, Other)
• Separate Account

DOCTORS:

• Admission of Patients
• Management of Clinical Process
• Separate Account

RADIOLOGISTS, PATHOLOGISTS, AND ALLIED HEALTHCARE PROFESSIONALS:

• Act on instruction from referring doctor
• Separate Account

Source: Company information

MEDIC MEDICLINIC LINIC BUSIN USINES ESS S MO MODEL DEL CO COMPOSITION MPOSITION OF HOSP OF HOSPIT ITAL AL ACC CCOU OUNT NT

Fee Income Accommodation (General Ward) tariff code(price) x quantity (volume) xxx Accommodation (ICU) tariff code(price) x quantity (volume) xxx Total Accommodation XXX Theatre tariff code(price) x quantity (volume) xxx Equipment tariff code(price) x quantity (volume) xxx Total Fee Income XXX Pharmaceutical Items Ethicals tariff code(price) x quantity (volume) xxx Surgicals tariff code(price) x quantity (volume) xxx Total Pharmacy XXX TOTAL ACCOUNT (INCL. VAT) XXX

ILLUSTRATIVE EXAMPLE: COMPOSITION OF A TYPICAL HOSPITAL ACCOUNT (INCL. VAT)

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MEDIC MEDICLINIC LINIC BUSIN USINES ESS S MO MODEL DEL CO COMPOSITION MPOSITION OF HOSP OF HOSPIT ITAL AL ACC CCOU OUNT NT

9% 18% 73%

Pharmacy 27%

Ethicals/Medicines Surgicals/Medical Devices Fee Income: Ward, Theatre and Equipment

Source: Company information

OVERVIEW OF A TYPICAL HOSPITAL ACCOUNT

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MEDIC MEDICLINIC LINIC BUSIN USINES ESS S MO MODEL DEL CO COMPOSITION MPOSITION OF HOSP OF HOSPIT ITAL AL ACC CCOU OUNT NT

Pharmacy Component

Ethicals/Medicines Regulated by SEP (No dispensing fee charged) Surgicals/Medical Devices SEP does not apply Billed at cost (Net Acquisition Price)

Source: Company information

OVERVIEW OF THE PHARMACEUTICAL COMPONENTS

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MEDIC MEDICLINIC LINIC BUSIN USINES ESS S MO MODEL DEL IN INPUT PUT CO COST STS

• Hospitals are highly labour and capital

intensive facilities

• Capital costs are not directly factored

into the tariff escalation calculations

• Tariffs should be sufficient for:
• the replacement of capital items

and;

• the opportunity cost of the

capital employed

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MEDIC MEDICLINIC LINIC BUSIN USINES ESS S MO MODEL DEL BR BREAKD EAKDOWN WN OF OF OPERA PERATIN TING CO COSTS STS

Input Weights Nursing Salaries Between 47% and 51% Other Salaries (Admin, Pharmacy, Technical) Between 14% and 18% Repairs and Maintenance Between 4% and 6% Electricity and Water Between 2% and 4% Rates and Taxes Between 1% and 2% Catering, Laundry and Cleaning Between 7% and 9% Other (ICT, Audit Fees, Insurance, etc) Between 16% and 20%

INPUT COST AS % OF OPERATING COST (EXCL. PHARMACY)

Source: Company information

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MEDIC MEDICLINIC LINIC BUSIN USINES ESS S MO MODEL DEL CA CAPIT PITAL C AL COSTS OSTS

• Specialised building according to

regulations

• Specialised medical equipment,

mainly imported and complying with European and American patient safety and quality standards

• Technology innovation

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PATIE TIENTS NTS

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• “Patients First @ Mediclinic”
• Value of care delivered through:
• Superior clinical quality;
• Maximising the patient experience;
• Managing cost efficiencies

Source: “The Strategy That Will Fix Health Care”, Michael E. Porter, Thomas H. Lee; Company information

VALUE = Clinical Quality X Patient Satisfaction Cost per Event

PATIE TIENTS NTS

THE VALUE EQUATION

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PATIE TIENTS NTS HO HOSP SPIT ITAL AL CO COMMU MMUNI NICA CATION TION

Source: Company information

• Website
• Pre-admission form
• Explanation of hospital billing
• Private tariff schedule
• Doctor/hospital search
• Nurse driven pre-admission clinic
• Provide information on medical scheme’s

benefits

• Communicate with medical scheme on

patient’s behalf

• Patient complaint and compliment system

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STRUCT CTURE RE PROCE CESS OUTCO COME

• COHSASA Accreditation
• Department of Health Inspections
• National Core Standards
• Organisational Structure
• CURA Clinical Risk Register & Audits
• Best Care…Always! Compliance
• Icnet Surveillance
• Clinical Key Performance Indicators
• Outcome Databases
• HEM System/Legal Reports

PATIE TIENTS NTS CLIN CLINICA ICAL L QU QUALITY INITIA ALITY INITIATIVES TIVES

Source: Company information

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PATIE TIENTS NTS CLIN CLINICA ICAL L QU QUALITY INITIA ALITY INITIATIVES TIVES

ANTIMICROBIAL UTILISATION INDICATORS – MEDICLINIC SOUTHERN AFRICA (2012- 2015 (YTD))

4,1 3,3 11,3 3,2 3,4 2,5 8,4 3,2 3,2 2,4 8,6 2,9 3,1 2,2 7,1 2,8 0,0 2,0 4,0 6,0 8,0 10,0 12,0

Catheter Associated Urinary Tract Infections Central Line-associated Bloodstream Infections Ventilator Associated Pneumonia Surgical Site Infections (per 1,000 Theatre Cases)

Rate per 1,000 Device Days

2012 2013 2014 2015 (YTD)

13% 10% 7% 6% 0% 2% 4% 6% 8% 10% 12% 14%

Undesirable Agents Utilised for Surgical Prophylaxis

Percentage Undesirable Prophylaxis (%)

3,2 3,0 2,7 2,6 0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 Days on Multi-cover (≥4 Antimicrobials) Antimicrobial Utilisation Indicators Rate per 1,000 Days(%) 6,7 6,8 7,2 7,2 6,4 6,5 6,6 6,7 6,8 6,9 7,0 7,1 7,2 7,3 Prolonged Treatment per 1,000 Exposures Rate per 1,000 Exposures

DEVICE ASSOCIATED INFECTIONS – MEDICLINIC SOUTHERN AFRICA (2012- 2015 (YTD))

Source: Company information

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PATIE TIENTS NTS PATIE TIENT NT EXPE EXPERIENC RIENCE

PRESS GANEY – MEDICLINIC SOUTHERN AFRICA (2014- 2016 (JAN))

Source: Company information

10 improvement opportunities for every hospital: to make the biggest impact on the patient’s experience, where it matters most 24 897 patient voices heard from the survey’s inception on 1 September 2014 – 25 January 2016 Average eSurvey response rate: 21% MCSA results bench- marked against more than 1 800 hospitals globally

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PATIE TIENTS NTS PATIE TIENT NT EXPE EXPERIENC RIENCE

Source: Press Ganey

PRESS GANEY INPATIENT Survey Section MCSA Average Mean Score Press Ganey Average Mean Score Overall 81.7 87.1 Admission 85.5 87.8 Room 77.2 84.3 Meals 77.5 82.5 Nurses 81.5 90.5 Tests and Treatments 82.7 88.1 Visitors and Family 82.0 89.0 Physician 85.5 87.8 Discharge 81.0 85.8 Personal Issues 80.0 87.2 Overall Assessment 84.7 90.4

MEDICLINIC SOUTHERN AFRICA PATIENT SATISFACTION SURVEY SECTION SCORES (2015)

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MEDIC MEDICLINIC LINIC IN INITIA ITIATIVES TIVES CO COST ST PER PER EVENT EVENT

0,7 0,9 1,1 1,3 1,5 2013 2014 2015 Observed/Expected (OE) Ratio OE Bed Days OE Pharmacy OE Prosthesis OE Theatre Minutes EXAMPLE: HOSPITAL ENGAGEMENT WITH A DOCTOR ON COST PER EVENT (INITIAL KNEE REPLACEMENT)

Source: Company information

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HEAL HEALTHCARE THCARE PR PROFESS OFESSION IONALS ALS

773,34 591,24 436,37 403 326,44 213,06 174,86 111,47 100 200 300 400 500 600 700 800 900 OECD countries Developing Europe and Central Asia Developing Latin America and Caribbean South Africa (2013) adjusted World Developing Middle East and North Africa Developing East Asia and Pacific Developing Sub-Saharan Africa

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HEAL HEALTHCA THCARE RE PR PROFES OFESSION SIONALS ALS SHOR SHORTAGE GE OF HE OF HEAL ALTHCA THCARE P RE PROFES OFESSION SIONALS ALS

Source: Econex Presentation, HASA conference 2014

272,06 260,82 197,47 154,42 152,19 142,17 77,60 19,95 50 100 150 200 250 300 OECD countries Developing Europe and Central Asia Developing Latin America and Caribbean Developing East Asia and Pacific World Developing Middle East and North Africa South Africa (2013) Developing Sub-Saharan Africa

DOCTORS (GPS AND SPECIALISTS) PER 100,000 PEOPLE NUMBER OF TOTAL NURSES PER 100,000 PEOPLE (2010 OR LATEST YEAR AVAILABLE)

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• Clinical and business independence
• Admit and discharge patients
• Recruitment
• Admission privileges
• Consulting rooms
• Shareholding

HEAL HEALTHCA THCARE RE PR PROFES OFESSION SIONALS ALS RELA RELATION TIONSHIP SHIP WITH WITH SUPP SUPPOR ORTING TING DO DOCT CTOR ORS

Source: Company information

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MEDICAL SCHEME MEDICAL SCHEMES, S, ADM ADMINIS INISTRA TRATORS AND ORS AND MA MANAGED CAR GED CARE E OR ORGANISA GANISATION TIONS

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• National tariff negotiations
• Robust negotiation process
• Countervailing power through:
• Scheme size
• Comprehensive data
• Network arrangements
• No distinction between PMB and non-PMB
• Information sharing

MEDIC MEDICAL AL SCHEMES SCHEMES, , AD ADMIN MINIST ISTRA RATOR ORS S & M & MAN ANAGED GED CA CARE RE OR ORGA GANI NISA SATION TIONS

Source: Company information

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SUP SUPPLIE PLIERS RS AND SUP AND SUPPOR PORT SER T SERVICES VICES

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SUPP SUPPLIERS LIERS AN AND D SUPP SUPPORT T SE SERVI VICES CES

• Pharmaceutical and medical

equipment suppliers (mainly imported goods)

• Catering, laundry, cleaning,

security, medical waste management, etc

Source: Company information

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EXPENDIT EXPENDITURE ON PRIV URE ON PRIVATE TE HOSP HOSPIT ITAL AL SER SERVICES VICES

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• Increases in healthcare

expenditure a function of:

• 1. Price of:
• hospital services
• pharmaceuticals
• 2. Quantity of medical

services

• 3. Intensity of the medical

services used EXPE EXPEND NDITURE ITURE ON ON P PRIV RIVATE TE HOSP HOSPIT ITAL AL SE SERVIC VICES ES DR DRIVERS IVERS OF EXPENDITUR OF EXPENDITURE

Source: Company information

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2,8%

• 0,3%

0,9% 0,2% 0,3% 3,0% 4,1% 3,3% 7,7% 6,2% 5,8% 6,0%

• 2,0%

0,0% 2,0% 4,0% 6,0% 8,0% 10,0% 12,0% 2010 2011 2012 2013 PERCENTAGE INCREASE IN REVENUE (%) Intensity Price Quantity BREAKDOWN OF MEDICLINIC’S INCREASE IN REVENUE BY SOURCE (2010 - 2013)

Source: Company information

EXPE EXPEND NDITURE ITURE ON ON P PRIV RIVATE TE HOSP HOSPIT ITAL AL SE SERVIC VICES ES DR DRIVERS IVERS OF EXPENDITUR OF EXPENDITURE

0% 20% 40% 60% 80% 100% 120% 140% Percentage Increase in number of admissions INCREASE IN THE NUMBER OF MEDICLINIC ADMISSIONS BY AGE BAND 2002 TO 2013

Source: Company information

EXPE EXPEND NDITURE ITURE ON ON P PRIV RIVATE TE HOSP HOSPIT ITAL AL SE SERVIC VICES ES DR DRIVERS IVERS OF EXPENDITUR OF EXPENDITURE

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R - R 5 000 R 10 000 R 15 000 R 20 000 R 25 000 R 30 000 R 35 000 R 40 000 COST OF INPATIENT ADMISSION THE COST OF A MEDICLINIC INPATIENT ADMISSION BY AGE (2013)

Source: Company information

EXPE EXPEND NDITURE ITURE ON ON P PRIV RIVATE TE HOSP HOSPIT ITAL AL SE SERVIC VICES ES DR DRIVERS IVERS OF EXPENDITUR OF EXPENDITURE

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7,9% 8,7% 9,4% 9,8% 17,7% 20,1% 21,4% 22,3% 4,9% 5,9% 6,7% 7,3% 0,0% 5,0% 10,0% 15,0% 20,0% 25,0% 2010 2011 2012 2013 Percentage of Inpatient Admissions (%) Diabetes Hypertension Hyperlipidemia PERCENTAGE OF INPATIENT ADMISSIONS ADMITTED TO MEDICLINIC WITH DIABETES, HYPERTENSION OR HYPERLIPIDAEMIA (2010-2013)

Source: Company information

EXPE EXPEND NDITURE ITURE ON ON P PRIV RIVATE TE HOSP HOSPIT ITAL AL SE SERVIC VICES ES DR DRIVERS IVERS OF EXPENDITUR OF EXPENDITURE

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7% 7% 8% 8% 5% 5% 6% 6% 3% 4% 4% 5% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 2010 2011 2012 2013 Percentage Increase (%) 2CDL 3 CDL 4 CDL PERCENTAGE OF MEDICLINIC INPATIENT ADMISSIONS WITH MULTIPLE CHRONIC CONDITIONS (CDL) (2010-2013)

Source: Company information

EXPE EXPEND NDITURE ITURE ON ON P PRIV RIVATE TE HOSP HOSPIT ITAL AL SE SERVIC VICES ES DR DRIVERS IVERS OF EXPENDITUR OF EXPENDITURE

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R 21 196 R 33 368 R 35 370 R 42 385 R - R 5 000 R 10 000 R 15 000 R 20 000 R 25 000 R 30 000 R 35 000 R 40 000 R 45 000 No CDL or One CDL Two CDLs Three CDLs Four CDLs Cost per Inpatient Admission (Rand) THE COST PER INPATIENT ADMISSION BY THE NUMBER OF CHRONIC CONDITIONS PREVALENT (2013)

Source: Company information

EXPE EXPEND NDITURE ITURE ON ON P PRIV RIVATE TE HOSP HOSPIT ITAL AL SE SERVIC VICES ES DR DRIVERS IVERS OF EXPENDITUR OF EXPENDITURE

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Patient A:

• 50 year old patient
• Normal body mass index

(BMI)

• No underlying chronic

conditions

Expected Account (Excluding Prosthesis) Base Cost

Patient B:

• 72 year old patient
• Severely obese
• Diabetes Mellitus

Expected Account (Excluding Prosthesis) Additional R7,600

Patient C:

• 85 year old patient
• Morbidly obese
• Diabetes Mellitus
• Hypertension

Expected Account (Excluding Prosthesis) Additional R28,941

HIP REPLACEMENT PROCEDURE (2014)

Source: Company information

EXPE EXPEND NDITURE ITURE ON ON P PRIV RIVATE TE HOSP HOSPIT ITAL AL SE SERVIC VICES ES DR DRIVERS IVERS OF EXPENDITUR OF EXPENDITURE

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PRICE AND INPUT PRICE AND INPUT C COST OST INCREASES A INCREASES AT MEDICLINIC’S HOSPITALS

Source: MCSA; “other” refers to For example, security costs, computer costs, insurance and audit fees. 47

• Hospital input cost increases

above CPI

• Nursing salaries are the

largest operating input costs with high inflation due to the critical shortage of nurses and competition for nurses with the public sector

• Electricity and food show

increases consistently above CPI

FACT CTOR ORS DR S DRIVI IVING NG PRIC PRICE IN E INCR CREASE EASES HO HOSP SPIT ITAL AL TAR ARIFF IFF IN INCR CREASE EASES

Input Weights

Nursing Salaries Between 47% and 51% Other Salaries (Admin, Pharmacy, Technical) Between 14% and 18% Repairs and Maintenance Between 4% and 6% Electricity and Water Between 2% and 4% Rates and Taxes Between 1% and 2% Catering, Laundry and Cleaning Between 7% and 9% Other (ICT, Audit Fees, Insurance, etc.) Between 16% and 20% INPUT COST AS % OF OPERATING COST (EXCL. PHARMACY)

48 Source: Company Information

FACT CTOR ORS DR S DRIVI IVING NG PRIC PRICE IN E INCR CREASE EASES HO HOSP SPIT ITAL AL TAR ARIFF IFF IN INCR CREASE EASES

1,00 1,20 1,40 1,60 1,80 2,00 2,20 2,40 2,60 2,80 2006 2007 2008 2009 2010 2011 2012 2013 Indexed Percentage Increase CPI Food Electricity Weighted nurse basic salary increases Mediclinic Tariff

INDEXED INCREASE IN MEDICLINIC’S LARGEST OPERATING INPUT COSTS COMPARED TO THE MEDICLINIC TARIFF INCREASE AND CPI

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FACT CTOR ORS DR S DRIVI IVING NG PRIC PRICE IN E INCR CREASE EASES CA CAPIT PITAL EXPENDITUR AL EXPENDITURE E

Date BER BCI (annual rate) Rand / Euro exchange rate (closing rate) September 2009

• 2.86%

10.81 September 2010

• 0.28%

9.48 September 2011 6.10% 10.78 September 2012 7.80% 10.69 September 2013 5.00% 13.65 September 2014 8.60% 14.29 Cumulative growth rate (2009 - 2014) 30.06% 32.15%

• Provision for future capital expenditure
• Development cost for new hospitals (R2.5 – R3.5 million per bed)
• Replacement of equipment (2.5% of revenue per annum)

GROWTH IN THE BER BCI AND DEPRECIATION OF THE RAND AGAINST THE EURO OVER A FIVE YEAR PERIOD

Source: Company Information

50

FACT CTOR ORS DR S DRIVI IVING NG PRIC PRICE IN E INCR CREASE EASES HO HOSP SPIT ITAL AL TAR ARIFF IFF IN INCR CREASE EASES

60% 61% 62% 63% 64% 65% 66% 67% 68% 69% 70% 2008 2009 2010 2011 2012 2013 0% 3% 6% 9% 12% 15% 18% 21% 24% Occupancy Rate EBITDAR/Revenue Occupancy rate (left axis) EBITDAR/Revenue (right axis) FIXED COST EFFICIENCY PASSED ON TO MEDICAL SCHEME MEMBERS FROM OPERATIONAL EFFICIENCIES (INCREASING OCCUPANCY)

Source: Company information

51

FACT CTOR ORS DR S DRIVI IVING NG PRIC PRICE IN E INCR CREASE EASES PHAR PHARMA MACEUTIC CEUTICAL AL CO COST ST

• Surgicals/medical devices:
• Prices not regulated
• Prices negotiated with suppliers
• Sold at Net Acquisition Price (at

cost)

• Ethicals/medicines:
• Regulated according to SEP
• No negotiations with suppliers
• SEP does not mean prices in

South Africa are sufficiently contained

52

FACT CTOR ORS DR S DRIVI IVING NG PRIC PRICE IN E INCR CREASE EASES CO COMP MPAR ARATIVE TIVE ST STUD UDY ON Y ON S SEP EP

Product category Weighted average price difference Anticoagulant

• 38%

Anaesthetic - parenteral

• 45%

Haemostatic

• 61%

IV solution - volume expander

• 59%

Parenteral nutrition

• 22%

Surfactant

• 92%

Product category Weighted average price difference Anticoagulant

• 44%

Bone Cement

• 27%

Cytostatic

• 48%

IV solution - volume expander

• 61%

Pain management

• 59%

Source: Company information

WEIGHTED AVERAGE PRICE DIFFERENTIAL BETWEEN DUBAI AND SOUTH AFRICA (2014)

WEIGHTED AVERAGE PRICE DIFFERENTIAL BETWEEN SWITZERLAND AND SOUTH AFRICA (2014)

Source: Ramjee S, Comparing the cost of hospitalisation across the public and private sectors in South Africa, October 2013 53

Public-sector average cost per admission 8,775 Private-sector average cost per admission 9,284 Ratio of average cost per admission 1.058

FACT CTOR ORS DR S DRIVI IVING NG PRIC PRICE IN E INCR CREASE EASES REASON REASONAB ABLE LENESS NESS OF P OF PRIC RICE

COMPARISON OF AVERAGE COST PER ADMISSION FOR PRIVATE HOSPITALS 2010 AND PUBLIC HOSPITALS 2010/11

Cost of admission in private hospital is

• nly 5.8% higher

than the cost in a public hospital

54

Private Hospitals 37,6% Other 62,5%

MEDICAL SCHEMES TOTAL BENEFITS PAID 2014

Source: CMS Annual Report 2014/2015; Company information

OVERVIEW OF A TYPICAL HOSPITAL ACCOUNT

15% Discount on Hospital Tariff Equates to: 50% Reduction in Hospital EBITDAR margin 4% Once-off reduction in the contribution rate (Less than R60 per beneficiary per month on an average premium of R1,410)

9% 18% 73% Medicines Medical Devices Fee Income: Ward, Theatre and Equipment

FACT CTOR ORS DR S DRIVI IVING NG PRIC PRICE IN E INCR CREASE EASES REASON REASONAB ABLE LENESS NESS OF P OF PRIC RICE

55

• Samples are not comparable
• PPP adjustments are insufficient
• Growth and demographic profile of

medical scheme beneficiaries not controlled for

• Patient profiles specific to the sample

not controlled for

• Conclusions unsubstantiated due to

flawed analysis

FACT CTOR ORS DR S DRIVI IVING NG PRIC PRICE IN E INCR CREASE EASES OECD OECD/WH /WHO O RESP RESPON ONSE SE

SOME INITIAL COMMENTS

56

CONCL CONCLUDING UDING REMAR REMARKS KS

Above CPI Increase

57

• Increases in expenditure by medical

schemes on private hospital services cannot be benchmarked with reference to CPI

• Increases in expenditure are driven by

increases in hospital price and utilisation

• Increases in hospital prices are

marginally above CPI due to above inflationary increases in significant input costs

• Increases in utilisation are driven by

amongst others the aging patient profile, burden of disease and anti- selection

CONC CONCLUDING UDING REMA REMARKS RKS

Expenditure by Medical Schemes CPI Hospital Price: Driven by Input Cost Utilisation

58

CONC CONCLUDING UDING REMA REMARKS RKS

In order to ensure a sustainable and more efficient private healthcare market, the focus must be on:

• Regulatory reform aimed at

ensuring the stability and viability

• f the medical scheme risk pool
• Removing barriers to develop

integrated delivery models

• Effective and accessible training

facilities for nurses and doctors

• A more effective public

healthcare sector

QUESTION QUESTIONS

59