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SUB CATEGORIES General  |  HIV |  Medical Schemes | 

Worker-run Samwumed suggests different approach to healthcare pricing

08 August 2007 Samwumed Medical Scheme

Private healthcare, seemingly, doesn't operate like other markets, confounding the economic principles of supply and demand and economies of scale. 

This, according to Neil Nair, Principal Officer of the worker-run Samwumed Medical Scheme, suggests that a different approach is required if were to effectively address the issues of cost, quality and access to healthcare.

"The problem with pricing healthcare in a market economy is that it doesn't behave like a commodity whose value is arrived at through the process of supply and demand. In healthcare, demand does not fall when prices rise. This is because of a lack of consumer knowledge and information, and the very construct of health delivery: Doctor says you have this condition and you need this treatment."

As a result, Nair suggests that healthcare should be seen in the context of meeting a stated objective, which assists with resources allocation and facilitates a different approach to the issue of cost.

He points out that, worldwide, conventional approaches have led to high and rising costs, despite efforts to reduce them. Medical services remain restricted or rationed and many patients receive care that falls short of accepted standards.

There are wide and inexplicable differences in cost and quality among providers and across geographic areas within countries. These factors are hardly indicative of a well functioning market.

Where South African medical schemes are concerned, a fundamental tenet is that they operate on a not-for-profit basis. Regulated under the Medical Schemes Act and administered through the Council for Medical Schemes, they operate as mutual societies in the interests of their members. This includes ensuring adequate funding for members' current and future needs.

"However," says Nair, "big business has developed innovative ways of extracting profit from medical schemes in the form of non-healthcare expenditure incurred in managing the affairs of the scheme. Costs include administration, marketing and communication, reinsurance and other operational expenses. They amount to translating medical scheme costs into profit under the guise of operational expenditure.

"Unfortunately legislation does not prescribe a cap on these expenses or an indication of what they should amount to. This, together unquestioning consumers, means there are vast differences in the costs associated with running different medical schemes. 

"Which is surprising since all operate under the same legislation requiring the same minimum standards. Equally surprising is that administration costs have no relation to scheme size. So much for economies of scale."

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