Private healthcare is meant to support public health, but it must be kept in check.
Usually there is only one healthcare system in a country, made up of a number of role players, but the South African healthcare system is unlike those of most other countries.
Here, it is a mixture of a robust private sector, a struggling public sector and some ad-hoc nongovernmental not-for-profit organisations. Both the public and the private sectors rely on the same pool of human resources to serve the population’s healthcare needs, although the public sector is mostly responsible for training medical professionals and maintaining standards and ethical conduct.
The scarcity of healthcare professionals has allowed private providers to dominate the market, and the absence of local competition in certain parts of the country has led some service providers to charge exorbitant fees.
The private sector serves an important role in that it improves access to healthcare and reduces the burden on the public sector. The private sector is also concerned with the business of making a profit, specifically in the case of medical scheme administrators, managed care organisations and private hospitals. Equity and improvement in health status is critical for the public sector. The public sector, however, is not geared towards making a profit.
Private health sector
Of the total South African population of about 53-million, only 8.7-million people are beneficiaries of private healthcare, which is generally delivered through medical schemes. Membership of a medical scheme is mostly voluntary.
Medical schemes are the main way of financing private healthcare, although they covered only 16% of the population in 2012. Medical schemes are regulated by the Council for Medical Schemes as stipulated in the Medical Schemes Act 131 of 1998, with the purpose of protecting beneficiaries, maximising access to coverage and protecting the public interest. Without proper regulation, only private interests would prevail, reducing access and accountability.
The private health sector in South Africa, therefore, is in need of urgent reform so that both the supply and demand sides of the market enable it to maximise its contribution to the country’s overall health system.
It is imperative that action be taken to contain price escalation, including the stimulation of competition (based on quality and price); to encourage innovation in products and services offered, which could support the drive to improve primary care; and to address perverse incentives.
A statutory pricing authority should be established to regulate price-setting by private hospitals and other healthcare centres and address the adverse impact of vertical relationships between specialists and private hospitals. It should be set up in collaboration with the Health Professions Council of South Africa, the Office of Health Standards Compliance, the medical schemes council and other relevant affected stakeholders.
Failure to regulate the supply side of the market will erode social solidarity and financial protection within the private healthcare industry.
Membership in medical schemes for people in formal employment and increasing income cross-subsidisation among members will contribute to accessibility of private healthcare. Income cross-subsidies are needed to ensure that medical scheme membership is affordable for lower-income households.
Currently, wealthier households spend a far lower proportion of their income on medical scheme contributions than poorer families. Restricted schemes (to which only the employees of a specific company can belong) use income cross-subsidisation effectively to ensure that low-income earners can afford the contributions, but open schemes (of which anyone can be a member) tend to differentiate contributions by income band only for their low-cost options.
Unaddressed, the absence of a risk adjustment mechanism within the funding environment will continue to result in a skewed market structure in which some schemes benefit from their risk profiles whereas others experience worsening demographic profiles. Hence, the consolidation within the industry will increase.
Serious consideration should be given to making scheme membership compulsory for people in formal employment. This would prevent anti-selection (when individuals join schemes only when they need healthcare and leave thereafter) and reduce contributions. Mandatory membership would also reduce the average age of those covered by medical schemes and has the potential to improve the risk profiles of medical schemes.
Unfortunately, healthcare consumers are sometimes misled and exploited. They are persuaded to purchase products not suited to their specific needs. This and other types of problems associated with unequal access to information need to be resolved through a collaborative effort between different government entities, industry stakeholders and medical scheme members’ representatives. The simplification of benefits to improve product transparency and value-for-money comparisons, which members of medical schemes can understand, has to be considered.
Some medical schemes have contracts with healthcare service providers that have been identified as providing services cost-effectively. Such schemes have achieved a significant saving on claims payouts. More schemes should negotiate with service providers for better rates.
Alternative reimbursement methods
Where possible, schemes could make greater use of alternative reimbursement methods such as risk transfer arrangements by which, instead of a fee for service, a scheme enters into a contract with service providers that requires the service provider to take some of the financial risk of providing services to members. Currently, providers charge for each service, which can result in the over-servicing of members.
In addition, some healthcare service providers are abusing the definition of “payment in full at cost”, resulting in excessively expensive healthcare services. Some providers, for instance, charge higher fees for prescribed minimum benefit (PMB) conditions when patients are medical scheme members. By law medical schemes have to pay for PMBs. There have also been instances where related non-PMB conditions are coded as PMB conditions and are remunerated at higher-than-average levels.
Furthermore, there is a need to create awareness among members to improve their understanding of the meaning of “payment at cost” because it relates to the contracted designated service providers by the medical schemes. Within this context, the level of supplier-induced demand persists within a market that is highly concentrated.
Prescribed minimum benefits and price regulation
An important contributor to the current difficulties experienced with PMBs is the fact that the PMB package was not designed to operate in a market with no price regulation.
The estimated cost of the PMB package per beneficiary per month per scheme for 2012 varied between R240.60 and R925.32 a month (see graphic). Medical schemes face different risks – based on differences in the risk profiles of medical schemes, it is clear that they do not compete on equal grounds. A system of risk adjustment is required to adjust the risk so that all medical schemes compete on equal grounds. This would force medical schemes to be more efficient.
In an environment of open enrolment and community rating without mandatory membership of medical schemes the healthy will opt out and the sick will opt in. By implication, the prevalence of the PMB conditions will increase. This in turn will drive up the average cost of benefits, of which PMBs will represent a large proportion. If this fundamental structural problem is not fixed, there could be a cutback on the PMB benefits, which does not really solve the root of the problem.
The current PMB package is mostly curative and limited to hospital treatments. Therefore, the PMB package should be supported by incorporating a more preventative component of care, including the chronic disease lists.
Although initially it will result in an increase in cost, in the long term there will be benefits because cost interventions will result in fewer hospital admissions. Managed care programmes could further assist in keeping patients out of hospital.
An environment of stability is therefore urgently required, as well as certainty and transparency within which the medical scheme industry can thrive while promoting good healthcare for all South Africans.
Dr Elsabé Conradie is the head of stakeholder relations at the Council for Medical Schemes.
• This article is the fifth and final in a series of opinion pieces Bhekisisa has run on how to curb private healthcare costs. Bhekisisa does not necessarily endorse the views represented