Welcome to the first Fanews Online newsletter for 2008. We would like to take this opportunity to wish you a happy and prosperous New Year as we continue to bring you the news and views that are relevant to all insurance, investment and healthcare professionals.
If December’s political developments are anything to go by we are in for an interesting 2008. While the ruling party beds down new alliances, South African consumers will face one of the toughest years in the new millennium. We will come under increasing pressure as interest rates remain high on the back of higher food and oil prices. And Eskom’s 14.2% electricity hike is likely to leave a bitter taste as business brace for frequent ‘load shedding’ in coming months.
But not all is doom and gloom. Medical aid subscribers received a boost from an unlikely quarter as the New Year got underway.
Ridiculous proposed tariff hikes
A mere two weeks into 2008 the battle lines have been drawn between the Department of Health and South Africa’s private hospital groups. This follows announcements that
Netcare and the National Hospital Network (NHN) were preparing to hike 2008 ward and theatre rates by between eight and 33%. Health Minister, Manto Tshabalala-Msimang responded to the proposed increases early in the New Year. “I appeal to private hospital groups not to implement the proposed pricing increases for 2008 until we have discussed this matter with them and reached an agreement of what will be in the national interest,” she said. The Department of Health has already held preliminary talks with the private hospital groups to avert these increases.
South African medical schemes have long argued that hospital increases are among the top drivers of private medical scheme increases. For this reason, the Council for Medical Schemes (CMS) welcomed Msimang’s appeal. CMS senior strategy adviser Steven Harrison notes that these increases would inevitably be passed on to medical aid members. “Between 2000 and 2006, medical costs have increased about 60 percent above inflation. This means that people cannot pay for it. Medical scheme membership has declined because of affordability,” said Harrison.
The proposed tariff hikes come at a time when South African private hospital groups are reporting record profits.
Netcare and Medi-Clinic reap massive rewards
In the full year to September 2007 Netcare posted an 89.5% surge in operating profit to R2.990 billion. Stripping out the income from the group’s offshore operations, South African medical consumers contributed R8.869 billion in revenue and approximately 50% (or R1.406 billion) to group operating profit.
Medi-Clinic is also making solid progress, recording a jump in group revenue of 24% for the six months to September 2007. Profit attributable to ordinary shareholders rose to R322 million for the half year. In the full year to March 2007 the group (which makes money from hospital fees levied) reported operating profit of R1 billion. Like Netcare, Medi-Clinic has also expanded significantly offshore and expects more than 50% of group revenue from overseas operations.
The group offered this gem in their latest results summary. “The South African private hospital industry is one of the most developed and mature in the world. It offers a great amount to the international world specifically in terms of cost effectiveness and quality of care.” We assume the ‘cost effectiveness’ referred to in this statement applies to international consumers only.
Private medical scheme membership remains stagnant
A major concern in the local healthcare industry is the lack of transparency in medical increases. Humphrey Zokufa from the Board of Healthcare Funders believes the Department of Health has to do more to address the matter. “There is a mystery because of the lack of transparency on how prices are increased. Seven million members are paying more for medical cover. This is not making medical cover accessible,” said Zokufa. The proposed increases are likely to put medical schemes under additional pressure.
Medical schemes have long been challenged for passing increases to their members well in excess of inflation. The average increases for 2008 are possibly the most reasonable in years, with average increases of 9% only slightly higher than the November 2007 CPI. The high cost of private medical scheme membership is mentioned as the major reason for the failure to increase the number of South African citizens with private medical aid coverage. The total has remained at just over 7 million members for some years now.
Editor’s thoughts:
Private healthcare companies have an obligation to their shareholders to maximise profit. The result is an expensive private healthcare system which is out of reach to the vast majority of South Africans. The Department of Health seems intent on harnessing the private sector to provide affordable healthcare for all. Is government too focussed on using private sector health infrastructure to prop up inefficiencies in the public sector? Add your comments below, or email gareth@fanews.co.za
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