Gearing Up For Change: Reflecting On Industry Changes Passed, And Those Ahead

“You can’t make intelligent investments within your organization unless you understand how your whole industry is changing.” In her 2004 Harvard Business Review article on How Industries Change Anita McGahan proposes stepping back from the pressures of immediate threats and assessing which contextual changes will endure. Sage advice, supported by Michael Porter in his studies of competitive strategy in the 1980s. And that is more or less when I ventured outside the confines of a well-established corporate and took my first steps into the entrepreneurial world.

In days gone by

There is no doubt that South Africa’s healthcare industry is one of the most dynamic sectors in the world. Since 1986, when I took my first step as an entrepreneur in the healthcare sector, I have witnessed many changes to the healthcare industry in South Africa:

• Privatization: In 1985, private health insurance was delivered utilizing a variety of prepayment programs, including those organized through parastatal corporations and government departments. Faced with deficit financing, a sluggish economy, complaints from its constituency about taxation levels, and pressure from private sector interest groups, the Nationalist government then endorsed the concept of privatization of health care.
• An era of regulation and legislative reform: 1998-2004 saw the promulgation of several major pieces of legislation, including the Medical Schemes Act (1998) and the National Health Act (2004). The Medical Schemes Act 131 of 1998 (the Medical Schemes Act) was enacted to consolidate the laws relating to registered medical schemes, to provide for the establishment of the Council for Medical Schemes (CMS) and the appointment of a Registrar of Medical Schemes, among other provisions such as benefit limits, rules for co-payments, and the introduction of EDOs (Efficiency Discounted Options) and PMBs (Prescribed Minimum Benefits). EDOs referred to options with the exact same benefits as its main option; however with reduced contributions due to restrictions placed on members to use only use certain healthcare providers or provider groups. With respect to PMBs, certain limitations could apply, such as the use of a Designated Service Provider and specified treatment standards.
• Global spotlight on governance in healthcare: Further regulation followed as the result of a Deferred Prosecution Agreement and the Foreign Corrupt Practices Act (FCPA) when several global device companies were found guilty of corrupt practices involving kickbacks to Healthcare Professionals (HCPs).
• The proliferation of supply-side rationing tools and managed care protocols: The introduction of mechanisms such as preferred provider network, alternative reimbursement models, treatment formularies and protocols, heightened the focus on “basis of evidence-based medicine, taking into account considerations of cost-effectiveness and affordability” (Council for Medical Schemes, 2014e:58).
• A local inquiry into competitive dynamics in the private sector: An inquiry into the South African private healthcare market found the market to be “characterized by high and rising costs of healthcare and medical scheme cover, and significant overutilization without stakeholders having been able to demonstrate associated improvements in health outcomes”.

How did we survive, and indeed often thrive, despite these changes? McGahan proposes that “if you understand the nature of change in your industry, you can determine which strategies are likely to succeed and which will backfire”. Sounds sensible, but in my view, the success of a business relies on far more than market knowledge: an entrepreneurial appetite for risk, a flexible organizational structure, responsible investment strategies, effective leadership. We focused on surgeon education and given the rapid development of new technology maintained a highly skilled and passionate team, committed to surgeon support and successful patient outcomes. Combined with a hands-on management team these have been most definitely, the key tenets of our success.

In the last 5 years, I have seen the profound impact of leadership throughout our organization: leadership that is forward-thinking and dispersed throughout the hierarchical structures. The phrase “Act like an owner” underpins our leadership team’s philosophy, and the question often posed in our corridors of “if it was your family member?” resonates with each of our team members – it’s this sense of responsibility towards our stakeholders which I believe has served us well, and has enabled us to build meaningful relationships throughout the value chain.

In days to come

In an environment that has seen the impact of a change no one could have predicted, and with still much remaining uncertain, how does one strategize for success and continue to create and capture value? While McGahan’s view holds true in days to come, it will be important that we can proactively anticipate how the market unfolds, and for this, we will need to focus on:

• Strategic agility: By identifying which strategic resources and capabilities can be adapted to endure, and by capitalizing on opportunities as they emerge.
• The delivery of real value, meaningful to the central stakeholders: it is clear that competitive success hinges on the firm’s ability to deliver a meaningful reduction in customer’s costs or risks, optimize its internal supply chain and develop the requisite capabilities to deliver effectively on dimensions of efficacy, affordability, efficiency, and cost-effectiveness.
• The ability to balance the quality-cost equation: The firms that will emerge triumphant in the contemporary private healthcare landscape will be those who learn to navigate a cost-conscious, price-sensitive market effectively without diminishing the quality or clinical efficacy of their offerings. It must do so whilst consciously advancing an operating model designed to emphasize efficiency and reliability.
• Advancing patient access at lower costs: It will be crucial to flex service delivery and develop offerings that meet patient demand where it lies. The acceleration towards low-cost benefit options (LCBOs), rapid discharge care pathways and surgical procedures in non-traditional settings may spur a marketplace place forced to adapt rapid digitization, robust data analytics, and lean supply chains.

Most importantly, the recognition that value is no longer a single-party imperative, but a shared responsibility amongst all industry stakeholders is a survival imperative. The prospect of a new age of healthcare post-pandemic will drive competition based on efficiencies, value, and innovation – none of which can be delivered by a single player. In short, to succeed in the years following 2020, a combination of strategic agility, prudent innovation, knowledge retention, and collaborative value creation may be key to the survival of the industry and indeed the creation of enduring and sustainable value for the primary stakeholder at the centre of it all: the patient.