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| Risk report
| At Netcare, our
inspiration to excel
in providing medical
innovation and
quality care is to be
found in our values.
We continue to focus
on living our core
value of care, and the
associated values of
dignity, participation,
truth and passion,
through every
action, decision and
intervention we have
with our patients,
their families, the
wider communities
we serve, fellow
colleagues and all
other stakeholders.
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Introduction
We recognise that business involves
undertaking risk for reward, and that
engaging in risk is inherent in all our
activities as we strive to achieve our
objectives and increase stakeholder
value. Consequently, risk management
within the Group does not attempt to
eliminate risk completely, but rather
provides a structure to continuously
identify, assess, evaluate and
manage risk.
The Board is ultimately responsible
for the governance of risk within the
Group and has appointed the Risk
Committee to assist in discharging its
responsibility. The Board, through the
Risk Committee, sets the strategic
direction for the process and system
of risk management by authorising the
risk management policy and plan.
Management is responsible for executing
the Board's strategy in accordance with
the risk management policy and plan.
Management is also accountable to the
Board for designing, implementing and
monitoring the process and system of
risk management and ensuring it is
integrated into the day-to-day activities of
the Group. Risk management is
embedded in overall Group governance
as part of the policy framework.
The Group Risk Management function is
the custodian of the risk management
policy and plan, and coordinates the
risk management activities throughout
Netcare. It ensures that risks are properly
managed and consistent with the
agreed risk appetite.
At Netcare, we recognise that risk
management is a systematic and
formalised process to identify, assess,
evaluate and manage risks, and we have
adopted a comprehensive approach to
achieve this. The process of identifying
risks is driven by an assessment of
the impact that they may have on
the Group achieving its objectives.
Risk management is embedded into
business activities, functions and
processes to ensure our response
remains current and dynamic.
Netcare openly discloses its risk
management processes, both internally
and externally, to create awareness and
understanding of the Group's risk
management culture and ensure that
stakeholders view the Group as a
responsible corporate citizen. We aspire
to establish a culture in which the
management of risk is the responsibility
of every employee.
The Board defines the risk appetite for
the Group in terms of the level of risk it
is willing to accept in pursuit of the
Group's vision and commitment to
creating stakeholder value. Our risk
appetite is not one specific figure or
formula, but varies depending on the
specific category of risk.
Risk management responsibilities
Risk management process
The risk management process involves the
coordinated and efficient application of
activities and resources to minimise the
negative impacts of risks to levels which
can be tolerated by stakeholders, as well
as to optimise the opportunities or positive
impacts of all risks.
The Group Risk Management function
engages with key stakeholders from the
major divisions and business units in
South Africa (SA) to identify key risks,
and monitors the plans and processes
to manage these risks. With these
internal stakeholders, it also
consolidates key risks, and ranks
and assesses the top business risks
affecting the Group. The top business
risks are formally reported to the Risk
Committee which meets bi-annually.
During 2011 the Group Risk
Management function reviewed and
updated the Risk Management Policy,
based on input from:
- Enterprise Risk Management
– Integrated Framework published
by the Committee of Sponsoring
Organisations of the Treadway
Commission (COSO);
- Principles and recommendations
of the King Report on Corporate
Governance for South Africa
(King III);
- South African National Standard on
Risk Management (ISO 31000); and
- Best practice in risk management
among major listed companies.
The process and system of risk
management considers:
- Strategic direction and objectives
of the Group;
- Nature and extent of risks facing
the Group;
- Extent and categories of risk
regarded as acceptable for the
Group;
- Likelihood and impact of identified
risks materialising;
- Ability of the Group to reduce the
incidence and impact to the business
if identified risks materialise;
- Cost of risk response plans and
processes relative to the benefit
obtained; and
- Effectiveness of the implemented
risk response plans.
Risk management process
Effectiveness of
risk management
The Audit Committee is an independent
committee responsible for internal
control, governance and risk
management within the Group. It is an
integral component of the risk
management process and provides an
independent and objective view of the
effectiveness of the Group's risk
management activities. Netcare's
internal control environment comprises
the policies and control procedures
adopted and implemented by
management to provide reasonable
assurance that risks are mitigated in
pursuit of the Group's objectives.
The Group Internal Audit function
provides independent and objective
assurance to the Board, through the
Audit Committee, on the effectiveness
of the entire process and system of
risk management, and provides
recommendations for improvement
where necessary. The Group Internal
Audit function monitors implementation
of internal control improvements via
follow-up reports and a follow-up
database.
The Board is satisfied that the Group's
risk funding strategy and existing cover
are adequate and appropriate in relation
to the exposures identified. The Board,
through the Audit Committee, has
also considered the effectiveness and
efficiency of the process and system
of risk management, and found it to be
effective. This determination has been
corroborated by relevant compliance
reports. Furthermore, in the event
of a disastrous incident there is a
documented and tested major
incident plan and disaster recovery
programme to support continuity of
critical business processes.
The Board is confident that:
- The system and process of risk
management in place is appropriate
for the Group's model and strategy;
- The risk appetite inherent in the
business model is appropriate;
- An appropriate risk culture has been
embedded in the Group's operations;
and
- The system and process of risk
management operates effectively
to inform the Board of major risks
facing the Group.
An ongoing process for identifying,
evaluating and managing the key risks
faced by the Group has been in place
for the year under review and up to
the date of approval of the annual
integrated report.
Key risks – South Africa
The major risks identified as being business critical for the sustainability of the South African operations, together with the plans
and processes to mitigate these risks, are listed in the table below.
| Risks |
Risk mitigation |
| Failure to provide the best and safest patient care
adversely affects Netcare's operations, brand
and reputation. |
The Group has instituted various clinical governance systems and
processes to ensure that only the highest standards of clinical
governance and patient outcomes are achieved.
The Group appointed the Director: Quality Leadership on 1 January
2011, to drive the development and implementation of an overall Quality
Management System to maintain excellent quality outcomes, improve
clinical effectiveness, enhance patient safety and provide a better
patient experience.
The Group commenced various quality improvement initiatives to ensure
we continuously improve the quality of care provided to our patients.
Examples of quality improvement initiatives include:
- The rollout of "the Netcare Way", which seeks to provide every
employee, permanent and temporary, with a basis from which to
enhance the level of care they provide;
- A strategic review of Netcare Education;
- A project to analyse and improve the process of managing,
monitoring and resolving feedback received from patients and other
stakeholders; and
- Revised clinical governance structures and processes to enhance
the effectiveness of clinical governance within the Group.
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| The healthcare industry is experiencing a shortage
of skilled professionals including nurses,
pharmacists, paramedics, emergency services
doctors, doctors and specialists. |
The Group has implemented various attraction and retention strategies.
Netcare Education provides nursing training and education to students
and qualified nurses.
The Netcare 911 School of Emergency and Critical Care provides
training in Basic, Intermediate and Advanced Life Support to
paramedics in the Group and externally.
The Group sponsors academic chairs at tertiary institutions, and grants
scholarships and fellowships for doctors. |
| A pandemic or widespread infection breakout,
affecting the public as well as healthcare
professionals, could challenge the current clinical
protocols designed to ensure business continuity
and to maintain quality patient care. |
The major incident plan contains detailed procedures to be adhered to
in response to a major incident. All Hospital Executive Committees have
received training on the major incident plan.
Netcare has also developed the Pandemic Preparedness Plan which
outlines the responsibilities, authorities and mechanisms to prevent and
manage a potential pandemic breakout.
There is continuous training to raise awareness and increase knowledge
of any breakouts that may occur. |
| Changes in healthcare industry regulation and
legislation impact the industry landscape and
competitive environment, the most significant
being:
National Health Insurance (NHI)
Government released the NHI green paper on
10 August 2011. The document is an expression
of intent to increase access to quality healthcare
through the NHI.
Price regulation/collective bargaining
The Minister of Health re-opened the possibility of
private healthcare tariffs being determined through
multilateral negotiations involving all stakeholders.
Designated service providers (DSPs)
Medical schemes who select DSPs have a greater
ability to negotiate lower prices with healthcare
providers in return for higher volumes.
Prescribed minimum benefits (PMBs)
The North Gauteng High Court issued a declaratory
order to clarify that medical schemes are responsible
to pay for PMBs at the full price charged by the
healthcare provider.
Office for Health Standards Compliance
The National Health Amendment Bill provides for the
establishment of an independent entity, the Office
of Health Standards Compliance, to:
- Assist in developing minimum quality standards
for health facilities;
- Monitor compliance of health facilities to the
minimum quality standards; and
- Ensure that complaints are appropriately and
independently investigated.
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The Group continuously monitors the regulatory and legislative
environment and engages with regulators regarding policy decisions.
This enables proactive amendments to the Group's strategy and
business model.
The Group supports initiatives that broaden access to quality
healthcare for all South Africans. We look forward to embracing the
challenges and opportunities of achieving a sustainable, integrated
healthcare system. |
| The appropriate operation of fire safety measures
incorporated in Netcare's facilities, including the
safety of electrical installations, are essential to
maintain business continuity and ensure the safety
of patients and employees. |
The Group continues to be proactive in ensuring that facilities provide a
safe and secure environment for patients, employees and members of
the public.
The Group has a documented and tested its major incident
management plan and disaster recovery programme.
The Group has comprehensive insurance cover to mitigate
financial impact. |
The increasing pace of technological advancement
requires a considered IT strategy and substantial
investment to ensure Netcare is positioned to identify
and implement the new technologies (that will define
the future landscape of the healthcare industry) in
good time. |
The Group continuously monitors and evaluates new technologies to
enable proactive amendments to the IT strategy and business model. |
| Netcare is dependent on the IT environment to
enable critical business processes. |
The Group has appointed employees with the appropriate level of skill
to maintain the stability and integrity of the current IT environment. |
The rollout of the SAP Enterprise Resource Planning
(SAP ERP) application to replace current legacy
systems is a large and complex project that requires
appropriate management for successful
implementation. |
The SAP ERP Rollout Steering Committee, a sub-committee of the
IT Steering Committee, manages the SAP ERP rollout. Netcare performs
a post implementation review of every rollout and the lessons learnt
are incorporated into the rollout plan. |
| Improperly maintained healthcare facilities and
equipment pose a risk to the safety of patients and
employees, and impact the quality of patient care. |
Netcare continues to invest in state-of-the-art facilities and the latest
technology. We spent in excess of R900 million during 2011 to expand,
replace and refurbish our facilities and equipment. |
| Along with the numerous benefits afforded by
Netcare's international investments, they also expose
Netcare to various risks, the most significant being: |
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Public Private Partnership (PPP) in Lesotho
The success of the Lesotho PPP is critical to
Netcare's brand and reputation, and may create
future growth and expansion opportunities to support
and improve public healthcare infrastructure and
delivery, while redressing existing health inequalities.
The Lesotho PPP represents a first for the Group in
that we are responsible for providing clinical services
to the primary care clinics and hospital in Maseru.
The provision of clinical services exposes the Group
to the associated clinical risk involved in providing
quality clinical services. |
The Group provided training to Lesotho nationals in South African
facilities prior to commencing operations in Lesotho. We are supplying
senior nursing employees from SA to provide guidance and in-service
training to Lesotho nationals during the opening phase.
Netcare will continue to second senior employees to manage the
Lesotho PPP in its initial stages. |
| General Healthcare Group (GHG) in the
United Kingdom (UK)
The challenging economic environment characterised
by severe recessionary pressures in the UK
continues to impact on GHG's operations.
The macroeconomic environment in the UK may
affect the refinancing of the £1.5 billion PropCo debt
during October 2013. |
During the 2011 financial year GHG implemented a major rationalisation
programme to significantly reduce the cost base of the business.
GHG continues to invest in strategic projects that will yield future growth
and maintain its market-leading hospital infrastructure and facilities.
The OpCo and PropCo debt facilities are separate and distinct from
each other, without cross default or recourse across this structure.
Furthermore, the GHG debt facilities are ringfenced and without
recourse to the South African operations. |
Key risks – United Kingdom
The risks pertaining to the UK operations
have been prepared by the executive
management of GHG and have been
formally reported to the Group Risk
Committee. The major risks identified
as being business critical for the
sustainability of the UK operations,
together with the plans and processes
to mitigate these risks, are listed in the
table on the left.
| Risks |
Risk mitigation |
| Failure to meet the requirements of debt covenants
requires GHG to refinance or restructure existing
debt, which is subject to the cost and availability
of capital that has been affected by the prevailing
capital market conditions. |
GHG continues to monitor, analyse and forecast compliance with the
requirements of debt covenants. |
| Failure to provide the best and safest patient care
adversely affects GHG's operations, brand and
reputation. |
GHG operates within a robust clinical governance framework and
has instituted various clinical governance processes to ensure that
only the highest standards of clinical governance and patient outcomes
are achieved. |
The ability to attract and retain the appropriate
quality and number of healthcare consultants and
other staff are critical to the continued success
of GHG. |
GHG has various attraction and retention strategies in place. |
| The downturn in the economy and business
environment adversely affects the demand for
private healthcare services procured through
private medical insurance and direct patient
payment (self-pay). |
GHG continues to monitor, analyse and forecast the impact of the
economic downturn, to enable proactive amendments to GHG's strategy
and business model. |
| A decline in insured lives and self-pay, and lower
margins from NHS work, are being driven by the
continuing economic downturn. |
GHG continues to focus on ensuring that its operating framework and
patient pathways are as efficient as possible, while delivering clinical
excellence. It also ensures that administrative support and discretionary
costs are adequately controlled and appropriate. |
| Changes in healthcare industry regulation and
legislation impacts the industry landscape and
competitive environment. |
GHG continuously monitors the regulatory and legislative environment,
and regularly engages with stakeholders, to enable proactive
amendments to GHG's strategy and business model. |
| A pandemic or widespread infection breakout
affecting the public and healthcare professionals,
would challenge the current clinical protocols
designed to ensure business continuity and
maintain quality patient care. |
GHG monitors all communication from the World Health Organisation,
UK Department of Health and the UK Health Protection Agency to
ensure that GHG is aware of current risks. In addition, intelligence
is obtained through local surveillance in hospitals. The risks and
any outbreak are managed through established Infection Prevention
and Control programmes and a comprehensive Business Continuity
Management Plan. |
| GHG is dependent on the IT environment to
enable critical business processes. |
GHG has contracted an external service provider to maintain the stability
and integrity of the current IT environment. |
 Financial risk management
Details on the Group's financial risk
management are included in note 34 to the Group annual financial statements.
Looking ahead
The Group Risk Management function
will continue to enhance the risk
management strategy and framework to
ensure Netcare maintains its strategic
advantage and continues to increase
stakeholder value.
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