Wrap Text
Discovery"s SA health model embraced by leading US healthcare companies
Discovery Holdings Limited
(Registration number 1999/007789/06)
Share code: DSY ISIN code: ZAE000022331
www.discovery.co.za
Discovery
Our purpose is clear: to make people healthier and protect and enhance their
lifestyles
Discovery"s SA health model embraced by leading US healthcare companies
Discovery today announced two strategic joint ventures that give its US
subsidiary, Destiny Health, mainstream access to the world"s largest healthcare
market. The ventures will see Discovery"s unique consumer-driven healthcare
model gain widespread exposure in the US market and are projected to create over
300 new jobs in South Africa within the next three years.
The joint ventures are in two categories: a nationwide joint venture giving
Destiny reach and credibility with the highly rated Guardian Life, America"s
fourth-largest mutual insurance company and a regional joint venture giving
Destiny specific healthcare expertise and access to a large captive local market
with Tufts Health Plan, which operates in the state of Massachusetts and has
consistently been rated as one of America"s leading health plans.
The agreements with both companies flow from opportunities created by the
current trend towards consumerism in the US healthcare market combined with
Discovery"s unique and proven competency in delivering consumer-driven
healthcare solutions. The joint ventures created through these agreements
provide Destiny with immediate brand and financial credibility, a national
distribution footprint and access to US health management expertise.
Why the US market and why Discovery'
There is a strong shift in the US market toward a more consumer-centric
environment
Healthcare funding is managed through either:
1. Supply-side control - the basis for managed care product designs during the
1980s and 1990s; or
2. Demand-side control elements - the basis for consumer-driven plan designs,
which empower members to make informed healthcare purchasing decisions.
The divergence between consumer inflation, running at less than 3%, and medical
inflation, which currently exceeds 14%, has created a trend away from tightly
managed health products towards the consumer-driven model. Demand-driven medical
inflation has rapidly increased in recent years as consumers call for more
healthcare and is projected to continue due to factors such as direct-to-
consumer advertising). The trend is being intensified by an increasing awareness
among consumers of personal health and wellness, the impact of enhanced access
to information in patient decision-making and recent US government support for
consumer-driven products through the creation of a tax-efficient funding
structure. The combined impact of these trends is the emergence of several
"first generation" consumer-driven products.
"First-generation" consumer-driven products are subject to common criticisms
While the benefits of increased consumer involvement in the healthcare funding
environment are acknowledged, the "first-generation" consumer-driven products
introduced to harness these are not without their problems. They are often
accused of catering for the healthy only, of reducing patients" participation in
preventive care and of creating the risk that patients will forego care to save
in the short term - which may result in larger claims down the line.
Discovery has a ten-year lead in consumer-driven healthcare through its
Comprehensive Consumer Driven Healthcare TM model
Discovery has developed a unique competency for managing consumer-driven
products over the past ten years. Discovery"s Comprehensive Consumer Driven
Healthcare TM model, based on six principles, provides a sustainable antidote to
medical inflation while avoiding the pitfalls of "first-generation" consumer-
driven products and without constraining member choice or coverage:
* Empower members when care is affordable and more controllable
* Provide comprehensive coverage for less controllable events
* Provide coverage that is good not only for the sick, but also the healthy
* Enhance wellness and promote healthier lifestyles
* Equip members with relevant, real-time information
* Offer flexibility and choice.
The Destiny Health product is a manifestation of these principles, empowering
members through the Personal Medical Fund (known locally as the Medical Savings
Account), giving members access to comprehensive insured benefits and enhancing
wellness through the Vitality wellness programme.
Destiny is the US manifestation of Discovery"s unique consumer-driven capability
and technology
Destiny has confirmed proof of concept for Discovery"s model in the US through
both market acceptance and performance of the plan. Destiny"s experience shows
that premium increases for renewals are consistently lower than the national
averages, which for small and mid-size companies are running between 14 and 40
percent. In addition, clear evidence shows that participants change their
behaviour in positive and cost-effective ways - without foregoing necessary
treatment.
Details of the joint ventures
The Guardian and Destiny joint venture will offer the first mainstream consumer-
driven health plan
With several smaller consumer-driven start-ups entering the market and large
health insurance carriers piloting consumer-driven first-generation models, a
window of opportunity exists for Destiny to capitalise on its product leadership
position.
The Guardian Life Insurance Company of America is a leading life and health
insurer with an admirable record of product and service excellence. It too has
recognised the opportunity presented by the shift towards consumer-driven
healthcare. Guardian provides an immediate distribution and infrastructure
footprint, local market actuarial and underwriting expertise, a trusted and
recognised brand and financial credibility.
The joint venture between Guardian and Destiny will therefore bring together
complementary assets that will facilitate the deployment of Destiny"s
Comprehensive Consumer Driven Healthcare TM model and infrastructure together
with Guardian"s scale and credibility. We view this as the first mainstream
consumer-driven offering in the US.
Guardian provides reach and credibility
The Guardian Life Insurance Company of America is the fourth largest mutual life
insurance company in the United States. As of December 31, 2002, Guardian and
its subsidiaries had $34,1 billion in assets. Founded in 1860, Guardian is
listed among Fortune magazine"s top 300 businesses - and in 2003 was ranked once
again as one of the top ten most admired life and health companies in Fortune"s
"America"s Most Admired Companies" list. With 5 500 employees, over 2 700
financial representatives and 100 agencies nationwide, Guardian and its
subsidiaries protect individuals, businesses and their employees with life,
disability, health and dental insurance products, and offer 401(k), mutual fund
and annuity investment products, and trust services.
Guardian provides the joint venture with immediate scale to expand the reach of
Destiny"s next generation consumer-driven product through:
* Brand credibility: Guardian is one of "America"s most admired health and
life insurers" and is widely recognised for its quality service and outstanding
reputation
* Turnkey nationwide distribution: Guardian"s national distribution footprint
provides immediate access to over 70 000 representatives
* A large existing medical presence: Guardian"s existing medical business
exceeds $1,7bn annual premium revenue, which will enable the joint venture to
reach critical mass quickly
* Nationwide infrastructure and insurance licences to facilitate expansion of
the joint venture
* Variable cost expansion: the established Guardian infrastructure and
footprint ensure that the cost of expansion is largely variable.
Guardian and Destiny will share the costs and profits of the joint venture
equally and while no dilution of Discovery"s shareholding in Destiny will take
place initially, Guardian will share in the goodwill created by the joint
venture over time. Destiny will supply operational and administration services
to the joint venture to complement Guardian"s distribution capability and A+
rated paper. Several of these services will be supported from South Africa,
lending Discovery"s size and scale to the joint venture.
Tufts Health Plan will provide access to health management expertise, act as a
further endorsement of Destiny"s model and provide a large regional market
To maximise the capability of Discovery"s Comprehensive Consumer Driven
Healthcare TM model it will capitalise on medical management and disease
management tools and expertise developed in the United States through a joint
venture with Tufts Health Plan.
Tufts Health Plan is recognised as the leading health plan in the influential
Massachusetts market, and has consistently been rated as one of the leading
health plans in the United States. The joint venture with Tufts Health Plan,
which is limited to the New England market, will give Destiny access to Tufts
Health Plan"s proven medical management, network construction and disease
management expertise, thereby complementing Destiny"s consumer-driven model with
state-of-the-art clinical management and bolstering the risk management
capability and quality of care delivered to all of Destiny"s members.
In addition, the focused joint venture with Tufts Health Plan will give Destiny
immediate access to Tufts Health Plan"s member base of over 900 000 members in
Massachusetts with the brand credibility afforded by Tufts Health Plan in this
market. The plan will carry the Tufts Health Plan brand, underpinned by the
"powered by Destiny" signature, and will be sold to new clients and offered to
existing clients on renewal.
As a leading managed care organisation, Tufts Health Plan"s selection of Destiny
as its consumer-driven healthcare partner provides a strong endorsement for
Destiny"s model, enhancing its intellectual credibility throughout the US.
Future prospects
The investment required for Destiny to reach this stage in its evolution has
been incurred over the last three years. The capital requirements for each
venture are therefore largely variable and will be shared equally with each
partner. Destiny"s requirement per market is expected to be $3 - $5m and each
market is expected to be profitable within 18 - 24 months. While the ventures
will not impact directly on Destiny"s existing business in Illinois, the
enhanced profile and credibility that they bring to Destiny are expected to
assist in meeting the stated goal of being cash flow positive by January 2004.
Further details regarding the capital-raising exercise detailed in Discovery"s
interim results announcement will be communicated in due course.
4 April 2003
Directors
L L Dippenaar (Chairman), A Gore (Chief Executive Officer), J M Robertson (Chief
Operating Officer), B Swartzberg*, J P Burger,
Dr N J Dlamini**,R B Gouws, M I Hilkowitz,
N S Koopowitz*, S R Maharaj, H P Mayers*,
S V Zilwa+, S D Whyte*
*Executive ** Appointed 5 December 2002 +Appointed 20 February 2003
Transfer secretaries
Computershare Services Limited
(Registration number 1958/003546/06)
70 Marshall Street, Johannesburg, 2000
PO Box 61051, Marshalltown, 2107
Secretary and registered office
M J Botha
155 West Street, Sandton, 2146
PO Box 786722, Sandton, 2146
Tel: (011) 529 2888
Fax: (011) 529 2958
Sponsor
Rand Merchant Bank
A division of FirstRand Bank Limited
Corporate Finance
Sharenet Sites 
