Private healthcare, which consumes the lion’s share of the health spend in South Africa but serves only a small minority of the population, is at a crossroad. The minister of economic development, Ebrahim Patel, last week announced that it would become the subject of a sector-wide investigation by the Competition Commission (CC). There has been concern about the health of the sector for some time now.
As far back as 1998, the Centre for Health Policy published a research paper, which stated that private healthcare consumes over 50% of total healthcare spending in South Africa, but is inaccessible to most of the population. In many cases, it is also highly inefficient. The paper found that medical schemes are the main means of financing private healthcare, although they covered only 18% of the population in 1995.
In the face of the extremely high costs of specialist medical services and private hospitals, medical schemes have been under mounting pressure. As a result, a shift in responsibility for footing the bill by individual members has been taking place. The plight of members was highlighted in a recent Leadership Intelligence Bulletin article under the headline “Medical treatment means being blacklisted.”
In March this year, Lord Nigel Crisp, a member of the UK House of Lords and a board member of the South African Department of Health’s Academy for Leadership in Management of Health Care, described South Africa’s private healthcare sector as wasteful. He said its excessive pricing could lead to further shrinking of benefits if costs continued to escalate.
He also pointed out that South Africa spends a higher proportion of gross domestic product (GDP) on healthcare than most of its Brics counterparts of Brazil, Russia, India and China. Only Brazil spends more.
In 2011, total spent on health was about 8.3% of GDP, way above the 5% recommended by the World Health Organization. However, South Africa scores worse on indicators such as its maternal mortality rate and tuberculosis.
In an article in December last year by Agility Global Health Solutions, its chairman Neels Barendrecht stated that in 2013 medical schemes will face increasing costs and competition. Those that survive will need to come up with innovative ways to service their members even better.
Advanced technology such as biological medicines, an increased disease burden, shortage of skills, as well as a lack of competition in the private hospital and specialist sector combined with Prescribed Minimum Benefits (PMB) coverage will continue to drive up the cost of medical cover over the next year.
Barendrecht said that in response to high costs, South African medical schemes are likely to follow the global trend where health insurance covers major costs such as hospitalisation, but not day-to-day treatments such as physiotherapy or psychology.
“Although it makes sense from a cost point of view, this can impact negatively on the system because these disciplines often offer preventive benefits. A member who goes for regular physiotherapy for example may be able to avoid having to go for expensive knee surgery later on.”
In recent times, most schemes have moved towards savings accounts that shift much of the responsibility for day-to-day medical care onto the member. Members then avoid using these services, which leads to a sicker population overall.
"It’s the medical scheme industry’s regulatory model that focuses on curative care that assists with driving up secondary and tertiary healthcare costs and costs in the industry generally,” Barendrecht said.
While the CC’s investigation – which is expected to start within the next few months – would probably focus on increasing competition in the sector, Barendrecht, foresees a “consolidation” in the medical scheme industry.
There are likely to be even fewer medical schemes for members to choose from at the end of 2013 as cost pressures and economies of scale drive consolidation in the industry.
“While it may be better to have fewer medical schemes with better risk pools that are in a stronger position to negotiate prices on behalf of their members, it is important that members still have a good choice of schemes and products to suit their needs. We have witnessed too many ‘bigger not better’ case studies and it is important that different niche markets are serviced according to their specific needs,” he said.
He also foresees that PMBs will continue to come under review as they have become a major cost driver for medical schemes. By law, medical schemes must cover the treatment of 270 medical conditions in hospital and 26 chronic diseases defined in the Chronic Disease List (CDL), as well as emergency conditions.
“PMBs mean the cheapest package a medical scheme covers is able to provide is between R400 and R570 per month, putting private healthcare out of reach for many South Africans,” Barendrecht said.
He also argued that a shortage of all healthcare professionals, from nurses, to doctors and specialists will continue to impact the quality and cost of healthcare provision in both the public and private sectors in 2013.
"Apart from long-term training policies at government level that focus on increasing the numbers of those trained in healthcare, medical schemes will have to continue to strike the difficult balance of remunerating medical service providers fairly, while protecting their members’ wallets", Barendrecht said.
At a media briefing before he announced the CC investigation, minister Patel said government took its cue from some commentators who were concerned that the health markets "contain a massive asymmetry of power".
"When you go to a shop to buy a television set, if you don't like the price you decline to buy. If you have a cardiac arrest and you are rushed to hospital and you don't like the cost, you still have to get them to treat you."
The inquiry would allow industry players and consumers to provide evidence of what was happening in health markets.
"What are the pressures that are leading to cost rises? The inquiry – having regard to all the facts – can then make the appropriate recommendations," he said.
While it is clear that the private healthcare industry is set for very close scrutiny and probably some fundamental structural changes, quick results should not be expected. It is anticipated that the CC investigation could last at least two years.