Discovery Health’s statement regarding healthcare costs and the role of medical

23 October 2013 Discovery Health

This document is a response to the various tweets from Dr Young on a wide range of issues concerning Discovery Health and the Discovery Health Medical Scheme. While we fully welcome these debates, it is vital that our stakeholders and the public have accurate facts at their disposal. There are factual inaccuracies and misconceptions in some of Dr Young’s comments on Twitter that need to be corrected.

Here are the facts:

In terms of South African law, the Discovery Health Medical Scheme (DHMS) is a non-profit entity that uses its members’ contributions to cover their healthcare-related costs. Any funds remaining once these expenses have been met are kept in the bank account of DHMS as reserves for the future benefit of scheme members.

DHMS is South Africa’s largest open medical scheme, with 2.55 million members. A recent independent survey conducted by Deloitte (the Deloitte Review) rated DHMS as the top performing open medical scheme in the country. One of the key reasons for DHMS’ consistent success is that it provides richer cover and benefits than its competitors, at significantly lower premiums. The Deloitte Review concluded that DHMS members pay, on average, R158 per member per month less in premiums, than members of all other open schemes, adjusting for benefits. For a family of four, this amounts to approximately R630 per month less in premiums.
Discovery Health charges DHMS a fixed administration fee per member per month. This fee is to perform services that include claims processing and payment, and provision of client service touch points such as the website and call centre. Discovery Health’s fee has reduced from 13.3% of total premiums in 2005 to below 11% of total premiums in 2013, and is expected to drop further to 10% of total premiums in the near future. These reductions in administration fees are due to increasing discounts provided to DHMS to reflect the growing size of the scheme and the economies of scale that arise from this growth.

Over the past 5 years, the administration fees charged by Discovery Health to DHMS have fallen, while every other aspect of the medical scheme’s expenditure has increased significantly over the same period. In 2012, DHMS paid Discovery Health R4.9bn for administration and managed care services; in the same year, DHMS paid a total of R10.9bn to hospitals and R10.24bn to specialists and GPs. Over the past 4 years, the amount paid to hospitals increased by 16% and to health professionals by 20% on average after inflation, whereas administration fees fell by 5.5% over the same period.

The ongoing success of DHMS is also attributable to the superior technology and services as well as the ongoing product innovation provided by Discovery Health and Vitality to members of the scheme. On a daily basis, Discovery Health facilitates 1 494 new member applications, authorises over 1 500 hospital admissions, handles 93 600 calls and processes 184 500 claims.

All of these services require intensive investment in administration expertise, systems, and technology. To administer DHMS, Discovery Health employs approximately 4 000 people, including a senior management team which includes 170 doctors and other health professionals, as well as over 330 actuaries, analysts and statisticians.

The payment arrangements and designated service providers referred to in the petition are not at all coercive. They are offered to any willing doctor, and doctors are free to join and leave these arrangements at their option. These arrangements are implemented by all medical schemes to ensure that they are able to provide their members with full cover for Prescribed Minimum Benefits, which they are required to do by law. At present, approximately 90% of all DHMS members’ consultations and procedures with specialists and GPs take place with doctors who participate in these payment arrangements.

All of these issues will be examined in great detail by the forthcoming inquiry into private healthcare being convened by the competition commission, in which Discovery Health will be an active participant.

All of these issues were examined in depth by the Deloitte review of the governance and performance of the Discovery Health Medical Scheme, described above.

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