Hospital sector ‘too concentrated’

2011-07-27 12:43

The private hospital sector is too concentrated, denying those needing medical care a choice, the Council for Medical Schemes (CMS) warned today.

“There is a concentration in this market – people have very little choice in selecting a hospital,” CMC strategic projects specialist Dr Boshoff Steenekamp told members of Parliament’s health portfolio committee.

Steenekamp said that in 1996, almost half the private hospitals in metropolitan areas had been in independent hands.

“But by 1998-2000, the market became concentrated, meaning that there were only basically three main players remaining – Netcare, Life and Medi-Clinic.

“By 2006, only 12% of hospital beds were in the hands of independent operators, the others [belonged] to one of the three big hospitals.

“This clearly had a negative impact on competition because it could effectively start operating like an oligopoly, or like a monopoly.”

In 2000, the degree of concentration of hospitals in South Africa had breached the economic “danger line” of the Herfindahl-Hirschman Index, an internationally accepted measure of market concentration.

“We think that the massive increase [in costs] we saw from 1998 to 2004, it’s too coincidental that it’s aligned with the concentration of these markets,” Steenekamp told MPs.

Also briefing the committee, health department financial planning manager, Anban Pillay, said that while medical claims costs had remained relatively stable over the period 2005 to 2008, from 2009 they had started to rise again.

According to figures contained in a document distributed to members at the briefing, claim costs in 2009 were just under R800 per person per month.

Pillay said hospital costs made up 37% of health spending, specialists 22% and medicines 17%.
“Those are the three cost drivers within the private health sector,” he said.

Steenekamp warned of an international medical “arms race”, which was also affecting South Africa and pushing up costs.

“Hospitals, in order to have people in their beds, have to have specialists there. The easiest way to attract specialists... is by having the latest and the best technology available, making sure there’s excess capacity.

“So if I’m a doctor, and I have a sick patient in front of me, I can get a bed now. If I want to do an MRI [magnetic resonance imaging], or a CAT [computed tomography], or a PET [positron emission tomography] scan, I can do it now. That is what one has to do to attract patients.

“We have more MRI, CAT and PET scanners per patient than countries [such as] the United Kingdom, Germany and Switzerland.

“We are very, very, very high-technology driven in our healthcare environment. We have excess capacity. Obviously, the more capacity you have, the higher the unit cost.”

He further warned of “detrimental relationships” in private hospital supply chains.

“There are detrimental relationships ... in the vertical supply chain ... between the hospitals and specialists and laboratories and radiologists and pathologists and [other] professionals.

“Specialists, typically, in this type of relationship get a free, subsidised or below-market-cost rental for rooms close to the hospital. They have various privileges if they use that hospital.”

He said it worked on a “we’ll give it all to you, but then you make sure that you operate in our hospitals and we fill the beds and can make a profit on those beds” basis.

He also said laboratories at private hospitals were frequently not free to move.

“There’s co-ownership relationship between ... hospitals and the different pathology groups. The fact is, once you’re in that hospital, you [the patient] simply have no choice.”

Steenekamp said the CMS wanted to see collective bargaining and an independent authority to correct such market imbalances.

“We’re suggesting ... an independent authority ... you can call it a commission ... that could deal with medical costs.”

This could deal with the vertical relationships within [the] supply chain, and with “conflict of interest through linked shares and other inducements”.

It should also look at market concentration, he said.

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