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Sparks fly at Board of Health Care Funders conference

25 July 2007 Gareth Stokes

The Board of Healthcare Funders (BHF) conference took place earlier this week at Sun City in the North West province. The conference was titled "Squaring the Circle" and aimed to address various challenges facing the medical schemes industry.

While there has been a trickle of news from the event, the big story surfaced on Tuesday, 24 July, and involved allegations of flagrant pricing abuses by South Africa's largest private hospitals. If the allegations turn out to be true, these private hospitals could be squeezing as much as R2 billion a year in 'excess' profits from the medical schemes industry, and of course the private health care consumer.

The accusation

Dr Rajesh Patel, Head of BHF Benefits and Risk department, alleges that hospitals consistently inflates the amounts paid for various devices and materials and then recovers these inflated amounts from patient's medical schemes. The practice takes place with the full knowledge of the suppliers of such devices and materials, who simply inflate invoices and pass savings back to the private hospitals by way of "off-invoice discounts" or other creative rebate schemes.

The practice is not believed to be illegal but is certainly not ethical. The impact on medical costs to the medical aid schemes (and thus the consumer) is significant. Estimates place the total 'inflated' costs associated with this practice at nearly R2 billion per year.

Patel provided a simple scenario to illustrate how the practice works. First, a vendor obtains a medical device at R12. They then put their mark-up on the item, and re-sell it to the hospital at R15. At this stage, the private hospital insists on the vendor marking the product up to (say) R80 and supplying an invoice to reflect this inflated price. This invoice is typically used by the hospital when submitting costs to the medical aid scheme.

The difference would subsequently be refunded to the hospital by the vendor by way of a rebate or discount recorded separately from the invoice.

A R300 million surcharge on anaesthesia gases

There are three major hospital groups operating in South African at the moment. These include Netcare, LifeCare and Medi-Clinic. Together these hospitals account for a huge chunk of annual medical scheme expenditure. In 2005 some 35.3% of the total of R45.6 billion paid out by medical aid schemes on behalf of members was paid to hospitals. This means the claimed overcharge of R2 billion per year by private hospitals amounts to more than 10% of the total hospital expenditure paid by the medical aid schemes.

No surprise then that private hospitals could charge as much as R300 million this year for anaesthesia gases not even supplied to patients. Patel pointed out that various technological improvements introduced in the late 1990s should have resulted in changes to how hospitals billed for anaesthesia. The introduction of so-called low-flow anaesthesia meant that patients were given less than 20 percent of the anaesthetic gases used in the past.

Despite this, hospitals continue to charge medical schemes and private patients a per-minute rate for the gases used. This practice is in direct contravention of the medicine pricing regulations.

Some unanswered questions

The allegations discussed in today's newsletter raise a few important questions. The first is simply: "If medical aid schemes knew about this practice, why on earth did they continue to authorise and pay inflated invoices?" As much as Netcare, Medi-Clinic and Life-Care should be taken to task for their unethical practices, the medical aid schemes should be lambasted for not acting against the price inflation practices.

We don't believe that it is unfair for private hospitals to apply mark-ups to the medical devices they use in treating patients. It is a normal part of almost any business. However, the profit margins on these medical devices should be kept within an acceptable range. To apply mark-ups of 200% or 300% to common-use medical devices seems highly inappropriate.

As for the medical aids, perhaps it is time for them to realise that the end user is not the person trying to take them for a ride. Patients simply expect the best possible medical care at affordable prices. How many patients are footing the bill because medical aids cannot provide full cover at hospital rates? Given today's revelations it seems the consumer is not only footing the bill for genuine inflation linked increases, but for private corporate greed as well!

Editor's thoughts:
The allegations levelled at private hospitals during this year's BHF conference make frightening reading. If true, and considering the abuse has been taking place over a number of years, the total amount involved could be massive. Do you believe the abuse is as widespread as claimed? And if so, why have the medical aid administrators not spotted the practices and refused to pay the inflated claims? Send your comments to
gareth@fanews.co.za

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