Expert says cost of delivering hospital services almost the same for public and private hospitals
29 October 2013
Shivani Ramjee, University of Cape Town
Delivering healthcare in public sector hospitals costs almost as much as in the private sector, delegates at the Hospital Association of South Africa’s (HASA) 2013 conference in Cape Town heard.
According to actuary and senior lecturer at the University of Cape Town, Shivani Ramjee, the cost of delivering care in public and private sector hospitals differed only by 5,8%.
"It’s important to compare apples with apples and make sure you consider all the costs involved in delivering healthcare in both sectors,” adds Ramjee. "Not only do they experience differences in the types of patients they treat, but also different taxation, cost of capital and staffing arrangements. As an example, a public sector hospital bill includes doctors’ fees .”
"Input costs are not the same across both sectors,” explains Ramjee. "Direct comparisons between the two sectors are misleading because public hospitals don’t pay tax, are able to access cheaper drugs and surgicals and don’t have to raise money on the open market to build infrastructure.”
Ramjee’s research showed that having adjusted for different costs specific to either the public or private hospital, that the average cost per admission in the public sector was 5.7% less than in the private sector. In arriving at this conclusion, VAT, the effects of preferential pricing on government tenders, doctors fees and a return on capital are included.
Ramjee said perceptions that private hospitals were inefficient, over-capitalised and over-servicing patients, while on the other hand, public hospitals were dilapidated, understaffed, and had shortages of basic supplies and long queues, were unhelpful.
"We need scientific comparisons,” she added. "This would require better data capturing and collection in the public sector and transparency in the private sector if we are really to understand the differences in costs and address these issues.”
Netcare’s Director Strategy and Health Policy, Melanie Da Costa said private hospitals could deliver hospitalisation for 20-25% less if government exempted private hospitals from VAT and introduced international benchmarking on drugs and surgicals.
"We have a unique situation where Netcare is able to procure drugs and surgicals more cheaply for its UK hospital business which is a fraction of the size of its SA hospital business,” she added.
She said private hospitals did not charge patients a mark up on drugs and surgicals, but patients see these items on their hospital bill and it makes up on average 30% of the hospital bill ,” says Da Costa.
Da Costa also emphasised that the private sector has a much higher nurse to patient ratio than the state hospitals, which unfortunately face high vacancy rates.
CEO of HASA, Dr Dumisani Bomela said the Competition Commission healthcare Inquiry will result in a better understanding of healthcare costs and hopefully it will dispell myths about the issue.
"There are key differences in both inputs and outputs between private and public sectors that the hearings should help clarify,” he added. ‘That should also help correct some of the misunderstandings around cost versus utilisation and CPI versus medical inflation.
Bomela said that Ramjee’s report was a useful exercise in exploring new ways of thinking about costs and pricing in both the public and private sector. "Ultimately, both need to work together to deliver sustainable, quality healthcare – accessible to all.”
Ramjee emphasised that her report did not take into account quality or health outcomes, but her research showed that more than 90% of patients in the private sector seemed happy with the treatment they received, compared to 61% in the public sector.
She added that an NHI system, with both public and private sector providers, would require a level playing field for the two sectors and would need to be based on differential pricing that took into account different inputs and outputs.
Said Ramjee: "That way you could incentivise efficiency and better patient outcomes.”