Time for radical overhaul of private health market
The provisional report of the inquiry into private health care suggests, among other things, that overservicing is driving up health-care costs. It recommends a radical overhaul of the system
Have you ever suspected that your extra day’s stay in hospital or costly medical procedure might not be necessary? Well, the Competition Commission’s inquiry into the private health market suggests this isn’t just paranoia.
In its provisional report, released last week, the inquiry found that "overservicing" by medical practitioners and medical facilities is one of the factors driving up costs. To remedy this, it proposes a radical overhaul of the private health market.
This includes creating a supply-side regulator to set tariffs for doctors and other practitioners, standardising medical aid scheme options and possibly limiting any new licences for the three big hospital groups — Mediclinic, Netcare and Life Healthcare.
Coming in the wake of equally radical proposals in the National Health Insurance Bill and the Medical Schemes Amendment Bill, the far-reaching proposals could upend the way in which the health sector has operated for decades. For one thing, they will help "disempowered and uninformed" consumers navigate their way through the myriad medical aid scheme options, and free them from handing over money they shouldn’t.
The provisional report will be made final after public comment is considered.
Perhaps most controversially, the inquiry, which was tasked with highlighting the constraints on competition in the private health-care sector in a context of rising costs, has come out in support of regulating pricing.
As it stands, hospitals and doctors charge on a fee-for-service basis. But the report says this stimulates oversupply, which "results in wasteful expenditure, and incentivises practitioners to provide more services than needed". And this is all made worse by the fact that prices aren’t regulated.
The upshot is more admissions to hospitals, increased length of hospital stays, higher levels of care, and the use of more expensive forms of care than is necessary.
Until 2004, this wasn’t the case. But then the competition authorities decided that putting in place tariffs amounted to collusion and infringed the Competition Act.
Now, one of the most frequent complaints made to the inquiry was that there is a "tariff vacuum" in the private health-care sector, which makes it difficult for medical aid members to compare the cost of care.
"Fee-for-service prices are now largely determined bilaterally between individual providers and funders (medical aids or their administrators) or between associations of providers and funders.
"Fee-for-service tariffs, regardless of how they are negotiated, are a reflection of market failure in the private health-care system. These prices do not consider quality of care, nor do they consider or try to reduce supply-induced demand."
The inquiry panel recommends that a "supply-side regulator" be created to oversee medical practitioners and determine tariffs.
It recommends that tariffs for prescribed medical benefits (which cover a group of diseases like asthma, heart attacks and cancer) should be binding, and tariffs for nonprescribed medical benefit conditions should be "reference tariffs" — more of a guideline, in other words.
The SA Medical Association (Sama), which represents doctors, has welcomed this proposal. But its support is premised on the condition that doctors should not get paid less than the cost of providing services, and that they get a reasonable return on their investment in their practices.
So two alternative methods of setting tariffs have been suggested by the panel: they could be determined through extensive consultation with stakeholders in a public forum; or through a price-setting mechanism in which stakeholders conduct tariff negotiations and reach agreement under a negotiation framework determined by the regulator.
Compulsory arbitration will follow if no agreement is reached.
But one potential problem is that the appointment of the regulator must be fair and untainted by politics — which hasn’t always been the case when government has had a say. One option mooted is for parliament to play a role in the nomination process.
Sama chair Mzukisi Grootboom says the regulator must be completely independent of the health department.
When releasing the report, the inquiry chair, former chief justice Sandile Ngcobo, said the supply-side regulator should also be responsible for health services, monitoring the performance of providers, and the quality of health care.
Brokers, who sell medical aids to people, also came in for flak. Those brokers earned R2.6bn in 2016. Ngcobo’s report recommends the broker system be changed to an "active opt-in system" — in other words, medical aid members would have to declare annually if they wanted to use the services of a broker. Those choosing not to do so should pay lower fees. Brokers who are marketers for a specific scheme should earn lower commissions than independent agents.
Another key recommendation — welcomed by the Council for Medical Schemes — is that medical aid schemes should change the way in which they structure their options so they can be compared more easily. This would increase competition in the market.
All schemes should be required to offer a standardised, "base" benefit package.
This isn’t how it is today. The report says medical schemes have "deliberately" bundled, packaged and priced their options in a way that allows them to weaken and even avoid outright competition.
Unsurprisingly, it found the medical aid market to not be transparent or easily understood. Because consumers are "disempowered and uninformed", this contributes to the lack of competitive pressure on medical aid schemes.
"While significant marketing takes place in the schemes market, consumers are not able to compare what schemes offer. With approximately 270 plans on offer, consumers cannot compare these, nor can they choose a scheme and plan options on the basis of value-for-money."
The report says medical aid schemes "compete at a cosmetic level, predominantly on choice of products available to consumers rather than on value for money. Other strategies funders employ to make products more affordable include the consistent reduction in the range of benefits covered over time."
In part to address the rising cost of medical aids, hospital plans have developed as an affordable alternative. But the panel warns that these plans have resulted in more care being shifted to hospitals. This has led to a spike in costs (which means contribution levels rise too), which ironically makes cover less affordable.
The inquiry concludes that competition in the medical aid scheme market could be improved "if transparency, accountability, supplier-induced oversupply of care and value-driven health care were to be priorities of scheme trustees and administrators".
There is also deep concentration in the market. Of the 22 open medical schemes, two cover about 70% of the market, with Discovery Health Medical Scheme accounting for 55% of beneficiaries.
There are 16 medical scheme administrators, but Discovery Health and Medscheme account for 76% of the market based on gross contribution income.
The inquiry also investigated concentration in the private hospital sector, which is dominated by Netcare, Life Healthcare and Mediclinic. Together, they have a market share of 83% of beds in national facilities and 90% of total hospital admissions.
So the panel is pinning its hope on a new national licensing system, which will replace the current system. "Certificates of need" should replace hospital licences.
It remains to be seen too whether the recommendation of a moratorium on issuing new licences to the three large hospital groups will stick.
This could be a blow to the companies’ plans, and they will surely fight that.
Looked at holistically, most of the findings from the inquiry stem from what the report says is the "overall incomplete regulatory regime, [which] can largely be attributed to a failure in implementation on the part of regulators and inadequate stewardship by the department of health over the years".
The report says: "Many of the recommendations we have considered are already provided for in current legislation but have not been implemented."
In other words, government has the power to fix it already — it just hasn’t. This is a critical part of the debate.
After all, why put in place dramatic new measures if the existing ones haven’t even been tried?