Council for Medical Schemes joins the fray
Earlier this year FAnews Online reported on government’s intention to regulate prices set by private hospital groups. Since then the Council for Medical Schemes (CMS) has released a detailed report on cost increases in the medical schemes industry. Titled Evaluation of Medical Schemes Cost Increases: Findings and Recommendations the report suggests a number of interventions to remedy soaring costs.
Registrar of Medical Schemes Patrick Masobe’s executive summary concludes that “the most important contributors to medical scheme costs are hospitals (excluding specialists and general practitioners) at 29.4%, medicines at 18.3% and specialists at 18.0%.” The balance of medical scheme expenditure is split between administration costs of 9.6%, managed care (non health) of 5.1% and broker fees at 2.2%. He concludes that cost increases since 2000 have largely been confined to the first three items on this list. “Non-healthcare cost increases were significant during the 1990s, but flattened from 2001,” says Masobe.
The shocking statistic is that between 2000 and 2006 “hospital costs per average beneficiary per month have increased in real terms at an average annual rate of 8.3%.” Private hospitals are costing medical schemes (after allowing for inflation) 65% more in 2006 than they were in 2000.
Does collective bargaining make sense?
The problem facing the medical schemes industry is where to cut costs. And right now it seems the CMS is hell-bent on squeezing savings from the private hospital sector. Their main proposal is to implement a collective bargaining vehicle to facilitate price negotiations between medical schemes and healthcare service providers. The result will be to replace fee-for-service prices with those agreed through central bargaining. Such intervention is understandable given the above inflation increases charged by private hospitals.
But there are some concerns. The report seems to have been produced with a particular goal in mind. And that goal was to prove that private hospitals are the only culprit for rising healthcare costs. It’s interesting that the CMS and government don’t view the 9% lost to administration as excessive. Surely this charge should diminish over time with improvements in technology and economies of scale. They also ignore the 18.3% chunk of fund expenditure taken up by medicines. That’s where previous government intervention was supposed to lead to massive savings? And there’s 20% or so of expenditure that apparently doesn’t warrant a mention.
Netcare rejects the proposal
Last week Friday Netcare rejected the proposal out of hand. “We do not support price regulation in a sector with significant supply constraints and most certainly not when based on misinformation. This is not to the benefit of the greater healthcare industry or the healthcare consumer,” said Netcare chief executive Richard Friedland.
A bargaining council will do little to solve the country’s healthcare crisis. Friedland says the proposal “is not only in direct contravention of the competition law but will also not solve the problem of increased demand for healthcare, which is driven by lifestyle chronic diseases, obesity, aging and medical innovation.” He says the CMS decision ignores the “unintended consequences of Prescribed Minimum Benefits, which have led to medical schemes reducing primary medical cover!” PMBs are a major cause of additional expenditure by medical aid schemes, proving that such increases cannot only be attributed to private hospital price increases. Friedland also notes that private hospital inflation has been below CPIX inflation for the last four or five years.
We believe the wildly differing inflation assumptions stem from the costs being measured by each party. The CMS is comparing expenditure by medical schemes on an annual basis whereas the private hospitals are measuring actual price increase in hospital supplies and services. Thus the CMS is reporting on medical schemes expenditure inflation rather than private hospital cost inflation. And increases in medical scheme expenditure go about more than just hospital cost inflation.
The crux of the matter
Once again it appears the public versus private debate is at the heart of the matter. Unfortunately South African medical aid consumers are the last people who will be considered as the CMS, government and private hospitals thrash out a solution. The state appears intent on forcing the private sector (and therefore individual taxpayers) to shoulder an ever increasing portion of previously public healthcare costs.
Consider these comments from Prof William Pick, CMS chairperson: “Thus, whereas in the past medical scheme participation accounted for 20% of the population, it now only reaches 14%. This decline is a consequence of changes in the affordability of medical schemes. From a public policy perspective this outcome is of particular concern when consideration is given to the fact that the bulk of financial and human resources in the South African health system are concentrated in the private sector.” While a reduction in the number of lives covered by the healthcare sector is obviously a step backwards it does not require government intervention to fix.
The natural market forces of supply and demand should eventually restore the balance. If the country’s existing medical aid schemes cannot keep private hospital costs in check with around seven million members then they’ll obviously continue to shrink.
Editor’s thoughts:
Government recently railroaded its pharmacy regulations on the industry and now appears set to tackle the next culprit – private hospitals. Do you believe private hospitals are the root cause of problems in the medical aid industry? Add your comments below or send them to gareth@fanews.co.za
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