What you need to know about the proposed changes to the medical industry

Since the Competition Commission’s investigation into price collusion in the medical industry, medical schemes and members have had to live with rampant and irregular pricing, which has had a significant impact on both parties.

This impasse has seemingly come to an end with the recently announced Proposed Amendments to Regulation 8 of the Medical Schemes Act. This will hopefully return the industry to some level of normality and will benefit the sector which needs the most protection; medical scheme members.

Bring on the changes

According to a press release by the Board of Healthcare Funders (BHF), Dr Humphrey Zokufa, BHF Managing Director, said that the changes will not only benefit medical schemes, but also medical scheme members.

“If the amendments get the go ahead from government, medical schemes will be obliged to pay in full a regulated fee and therefore no longer be forced to be reckless with their members’ money and healthcare providers will no longer have a blank cheque,” says Zokufa.

Medical Scheme members will not be faced with co-payments as the medical schemes must pay the regulated fee in full. This is the case even when the fees are negotiated outside the 2006 National Health Reference Price List model.

The amendments relate to Prescribed Minimum Benefits (PMBs). Currently, the fees healthcare providers charge for PMBs are unregulated, meaning that healthcare providers registered with the Health Professions Council of South Africa (HSPCA) can charge medical schemes whatever they like for these services. This significantly contributes to the high cost of private healthcare.

The ring fence and beyond

While the amendment looks pretty straight forward, the reality is that the possible implications on the industry and medical scheme members are far from simple. Reflecting on these implications Jonathan Broomberg, CEO of Discovery Health, tries to paint the future picture.

As pointed out by the BHF, medical schemes may establish designated service provider (DSP) networks to supply services in order to pay for these services at a pre-agreed rate. “Where members use non-DSPs on a voluntary basis, members may be faced with co-payments. However, where use of a non-DSP is involuntary - due to life threatening emergency or lack of access - the scheme is currently obliged to fund PMB treatments in full, regardless of the amounts charged by the practitioner. This obligation presents an unpredictable situation for schemes as there was no limit to what a provider could charge,” says Broomberg.

The importance of the ring fence

The need for medical schemes to establish a network of preferred suppliers is important as it allows them to contain their cost and possibly diminishes the need for medical schemes to make a concerted push towards increasing rates. For medical schemes who don’t have these arrangements in place, Broomberg points out that the road could be very long.

He adds that for schemes with well-established contracted payment arrangements, these obligations have had relatively limited impacts, since the vast majority of provider claims are paid in terms of the contracted rates.

“If the regulations are implemented as proposed, those schemes which have not implemented contracted payment arrangements will now have to decide whether to increase their tariff costs by introducing payment arrangements, in order to avoid their members experiencing PMB co-payments. It may also encourage those providers who have not entered into such contracts to join contracted payment arrangements, since they may otherwise face an increase in bad debts and collection costs as they will have to collect co-payments much more frequently,” says Broomberg.

Be aware

However, these amendments do not mean that members are completely in the clear. John Cranke, National Manager of Employee Benefits at PSG, points out that someone has to bear the costs of these amendments.

“Bear in mind that in a community rating environment, members ultimately bear the burden of increased costs anyway by way of higher than inflationary medical scheme increases,” says Cranke. 

He adds that the industry can now assume that with the protection now potentially afforded to medical schemes, members would derive some benefit from lower medical scheme increases. “However, this would in all likelihood be offset by the cost of insurance they would have to seek to indemnify themselves against tariff shortfalls,” says Cranke. 

He adds that what will become increasingly important is for medical scheme members to understand the cover they have, and what they require to insure themselves for the potential gaps. “Healthcare advisers will have an absolutely critical role to play in this regard, both with the selection of suitable medical scheme/s and options, and the selection of appropriate gap cover. Therefore, somewhat ironically, an unintended consequence of the proposed amendment to Regulation 8 is that gap products will become increasingly important,” says Cranke.

Editor’s Thoughts:
This all comes back to the intention of the Financial Services Board to improve the relationships between members and medical schemes. It is also a strong indication that government has possibly had enough of rampant price increases in the industry and that these amendments are the first positive steps towards reintroducing a tariff system in the industry. How much do you feel the amendments would affect your clients? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].

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