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Private hospitals step down

28 January 2008 Gareth Stokes

Earlier this year some private hospitals announced proposed increases of between 8% and 33% for certain ward and theatre tariffs. These price hikes were met by aggressive lobbying from the Department of Health which immediately called a series of meetings with the private sector to convince them to rescind their decision. The Council for Medical Schemes CMS) and Board of Health Care Funders (BHF) echoed government’s stance in claiming the increases were excessive.

And it seems the combined pressure from government and the two medical scheme representative bodies has paid off. Health minister Manto Tshabalala-Msimang announced on Friday that ‘most’ of South Africa’s private hospitals had reconsidered and would implement price hikes in line with inflation. This means consumers can expect hikes of 8% or less. According to the minister, two private hospitals had already lowered their tariffs.

A legal threat

Government and the CMS earlier indicated their intention to institute legal challenges to the proposed price hikes. So, late last week, when the BHF added their support to the legal route the private hospitals had little choice but to back down. BHF chairman André September was quick to point out: “Obviously court action is a last resort, but membership of medical schemes has been consistently stagnant for several years now, thanks in part to the ongoing increases in contributions which have put them out of reach of most consumers.”

We don’t believe that limiting private hospitals (or medical schemes) to inflation linked annual increases will boost medical scheme membership. If schemes were too expensive for the majority of South Africans before an inflation-linked increase – they will by all measures be too expensive after the increase too. There are two scenarios which could result in a boost to private medical scheme membership in South Africa. The first is to address the country’s ludicrous unemployment rate and the second is to significantly reduce medical scheme contributions.

All indications are that government will be unable to meet its 2014 target to reduce unemployment by half – so the first option is already dead in the water. And the problem with reducing medical scheme costs (and by default the entire spectrum of private medical costs) is simply that the level of benefit provided by the medical schemes will have to be severely curtailed. In this event, benefits on the private schemes will eventually tumble to a level where there is no clear distinction between public and private healthcare.

Medical schemes also under pressure

Aggressive intervention on the private sector’s pricing practices is not necessarily a good thing. It is particularly problematic when a company is prevented from passing on higher than inflation increases in its operating costs to the end consumer. We expect if private hospitals are forced to cap revenue increases (by limiting their price increases to CPIX) they will be forced to look at reducing costs as their only weapon to improve margins and boost profit.

For the time being government (with the BHF and CMS) has won a mini victory for South Africa’s seven million private healthcare beneficiaries. But in doing so, the medical scheme representative bodies have turned the spotlight on themselves. After all, it is difficult to find a local medical scheme that has passed an inflation or lower increase to its members.

Speaking after a meeting between government and the BHF, Tshabalala-Msimang revealed that “The medical schemes have also committed to an in-principle decision to review their tariff increases and align them with CPIX for those schemes whose 2008 increases are higher.” The health department will meet with the schemes in a fortnight for them to report back on the progress with these reviews. This was probably not the outcome the BHF and CMS had in mind when they went after private hospitals; but it is welcome news for medical aid consumers.

Editor’s thoughts:
Private hospitals came in for a great deal of criticism during 2007 when unethical pricing practices were uncovered and widely reported on. Unlike some commentators we doubt the attempted New Year price hikes have anything to do with ‘recovering’ from this debacle. What we do know it that private hospitals are in business to make money – and if they cannot boost revenues they will simply investigate other avenues to reduce costs. Is there a danger that price regulation will impact on the level of healthcare offered at private hospitals? Add your comments below, or send them to gareth@fanews.co.za

Comments

Added by SW, 28 Jan 2008
The iron law of economics is "you get what you pay for." If private hospitals cannot pay nurses and doctors competitive fees in a global context, those skills will leave South Africa. Medical aids are not for profit enterprises, so any reduction in tariffs will inevitably result in lesser benefits. Furthermore, as medical aid membership ages and technology advances the rates must also increase. Arbitrarily determining the prices of any commodity leads to less of it not more. An even worse alternative is providing medical benefits as a "social right" and funding it from general revenues. Not only will this approach reduce the quality of care, it will also result in the rationing of it. There is no entitlement to health care any more than there is entitlement to good health, electricity or anything else. If people acted more responsibly in their health habits (one out of three in SA, for example, has a drinking problem) there would be far fewer occupied hospital beds, less obesity, drug addiction, and general wastefulness. In other words, if more people who are chronologically adults acted appropriately for their age there would be a lot fewer forces driving up costs in general. It is the height of irresponsibility to expect the costs for one's irrational behaviour to be passed onto third parties.
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Added by TL, 28 Jan 2008
We must allow private enterprise to do whatever they seem necessary regarding their pricing or else there will be nothing left soon. The state should have thought about this before implementing GEMS state med aid scheme. We are funding it (GEMS) in anyway through the reduced tax benefits on med aid scheme contributions."
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