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State of private healthcare in South Africa

28 March 2007 Neville Koopowitz, Discovery Health

Every week newspaper readers are confronted with stories about the medical schemes industry - be it a letter to the editor from a member complaining that their medical scheme will not pay for a specific treatment or an article focused on rising healthcare

These stories typically centre around finger-pointing - blaming the problems on everyone from hospitals, to the medical profession to private funders of care. The fact is that private healthcare in South Africa, and the medical scheme environment in particular, is changing because of a myriad of regulatory changes, medical advances and inflationary challenges - all which have a direct impact on you, the health care consumer. Discovery Healths Neville Koopowitz unpacks some of the trends to help you make sense of it all.

South Africa has a world-class private health care delivery system, benchmarked against international standards in terms of cost and quality of care. However, the funding of private healthcare in South Africa continues to be a complex and ever-changing world. As the largest private health care funder in South Africa, we are acutely aware of the challenges faced by all who interact in this sector, and are uniquely positioned as the only aggregator of detailed data from all sectors and providers to provide consumers with insights into the drivers of the private healthcare industry.

As an overview, we can identify four broad challenges that medical scheme funders are faced with, namely:

* Members have access to a more extensive, better quality health care system - the challenge is how to keep it affordable
While Discovery was able to achieve an average increase for 2007 of 7,9%, many schemes are still experiencing double digit contribution increases roughly double consumer price inflation. Thanks to ongoing developments in healthcare, patients are getting a far better product than before, yet their expectation is to pay the same amount for access to it. Unless schemes find solutions to rein in costs, they could find their healthier members downgrading or even surrendering cover, leaving the sick behind to cover their ever-increasing costs.

*  Increasing co-payments as more healthcare providers "contract out"
Since the abolition of the medical aid rate in 2004, practitioners are increasingly opting to "contract out" of the rates that schemes pay, or to charge members a co-payment over and above the medical scheme rate. Medical schemes must find a solution that meets member needs and protects members from shortfalls in cover.

* Exciting new medical technologies - at a price
Advances in medical science are bringing to market a host of exciting new drugs, diagnostic tools and treatments. It is our desire to cover these.  However, unlike other industries where new technologies serve to lower costs, in the healthcare industry, these technologies tend to increase costs. Practitioners and members understandably want access to these new technologies - unfortunately the price tag on these technologies is often prohibitive. Medical schemes must find ways to fund these while keeping the cost of cover affordable. Their role is to balance the needs of the individuals who stand to benefit from these technologies with the interests of the private healthcare system as a whole and the population that will have to bear the cost of funding these advances.

* The continued challenge of open enrolment and guaranteed access to care
The advent of guaranteed access to cover - without risk-rating of individuals - in 2000 has proven to be a double-edged sword. This egalitarian approach is more socially desirable in that it has increased access to cover for the sick and elderly. However, at the same time the risk profile of medical schemes has continued to deteriorate as there is less incentive for the young to join a medial scheme while they are still in good health. This has meant higher contributions for all, driving healthier people out of the system and pushing up the costs for everyone.

What can medical schemes do to address these challenges?

At Discovery Health we have identified a number of key areas, and acted in ways that are bold and perhaps controversial to some roleplayers - but which we believe will ultimately be beneficial to all, especially our members.

Firstly, medical scheme administrators must achieve a sensible balance between benefit changes and contribution increases, while keeping administration fees low. This balance is a tricky one and wont necessarily suit all stakeholders in the short term, but is vital for all concerned. At Discovery, we believe we are making good progress towards finding and maintaining a fair balance by focusing on finding solutions to cover new technologies by stripping out unnecessary, wasteful expenditure.

Equally, lower administrative costs give medical schemes greater leeway to remunerate providers and give greater benefits. For Discovery, our size and scale allows for greater efficiencies and hence lower costs. International and local benchmarking shows our efficiencies are anywhere between 8% and 12% greater than that of other healthcare funders.

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