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Scrapping escalating healthcare costs

03 November 2014 Graham Anderson, Profmed

The South African private healthcare industry is currently facing a number of challenges, not least the escalating cost of healthcare. However, there is a rare opportunity to tackle this problem head on with the launch of an inquiry by the South African Competition Commission into the healthcare industry.

It is hoped that the investigation into the private healthcare industry will deal with the impact of the abolishment in recent years of benchmark tariffs on prices charged by private medical specialists, which has led to a consequent increase in the cost of healthcare as there is no longer a cap on the prices being charged.

A string of broken chains

In the past, the Board of Healthcare Funders (BHF) published a private scale of benefits which set out the prices that could be charged to medical schemes. However, in 2003 this was prohibited in line with the Competition Act, meaning the BHF could no longer negotiate with providers on behalf of schemes. By stopping medical schemes from being able to negotiate collectively, it left the industry in a significantly weaker position.

At the same time, the Health Professions Council of South Africa (HPCSA) also abolished the South African Medical Association (SAMA) ceiling tariff, which was essentially the ethical cap for providers, meaning doctors no longer had a ceiling tariff above which they should not charge.

This was further exacerbated by the introduction of Prescribed Minimum Benefits (PMBs) in the Medical Schemes Act, with approximately 62.5% of total medical benefit pay-outs and 76.6% of benefits paid to hospitals attributed to PMBs. Medical schemes are forced to pay these amounts in full, in terms of the Council for Medical Schemes’ (CMS) interpretation of PMB regulations.

Alongside this, an oligopoly of major hospital groups control the private hospital industry in the country, which coupled with the shortage of specialists who are able to charge any fee, means these parties are obviously reluctant to enter into any agreement to lower rates.

Negotiable matters

We hope that the Competition Commission’s inquiry will investigate these anomalies thoroughly and will ideally permit funders to negotiate benchmark tariffs on an industry level. This will not only enhance medical schemes’ negotiation capabilities but also stimulate a greater sense of competition in the private healthcare marketplace, with the result that cost increases will be limited.

The medical scheme industry is also keen to see the introduction of a number of other important amendments to the Medical Schemes Act, such as the implementation of a Risk Equalisation Fund (REF) that will ultimately provide better protection for the entire medical scheme industry by sharing the risk amongst all schemes.

Finally, the introduction of some form of universal coverage would also mean that everyone in the labour market will join a medical scheme, making the risk pool much larger, and importantly, younger. It is critical for the sustainability of the medical scheme industry that we attract younger members to schemes to balance the risk of an older generation of members who are likely to claim more frequently.

The healthcare industry in South Africa is facing some tough times ahead but we are confident that the outcome of this inquiry will be to the positive long-term benefit of the medical scheme industry and ultimately, consumers, by limiting the rising costs of healthcare.

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