Shake-up on the cards in the healthcare sector

The “stagnant” private healthcare industry is facing a radical disruption.

Within five years, the sector could see major structural and regulatory changes in how medical aid schemes and their administrators work for the most important player in the equation – the consumer.

A damning report from the Competition Commission’s Health Market Inquiry, which was released this week, cited how the industry was characterised by rising costs of healthcare and medical scheme cover, highly concentrated funders and facilities markets, disempowered and uninformed consumers, and a general absence of value-based purchasing.

Private healthcare sector slammed

The private healthcare sector was criticised by the inquiry for its consistently rising medical scheme premiums, accompanied by increasing out-of-pocket payments for the insured, almost stagnant growth in covered lives; and the progressively decreasing range and depth of services covered by medical scheme options.

Supply-side regulator

Arguably the most significant among the recommendations proposed by the inquiry, released by the chairperson, former Chief Justice Sandile Ngcobo, was the setting up of a supply-side regulator for healthcare to regulate medical practitioners and determine tariffs within five years of the release of the final report in November.

Part of the reason a supply-side regulator is needed is that overservicing by medical practitioners was one of the factors that had driven up private healthcare expenditure.

This overservicing and overutilisation included increased admissions to hospitals, longer hospital stays, higher levels of care, greater intensity of care and the use of more expensive forms of care than necessary.

Ngcobo criticised how the supply side had generally been left to operate within a “fragmented, poorly enforced regulatory system” that had “weak oversight”.

The inquiry then evaluated the effect of increased utilisation and the possible presence of supplier-induced demand in the private sector, and the investigation showed strong evidence that supplier-induced demand was indeed a cost driver.

“In perfect conditions, the doctor would only prescribe treatment that is absolutely medically necessary,” Ngcobo said.

“If this relationship breaks down and the doctor recommends or encourages a patient to consume more care than is required for their medical problem, this is supplier-induced demand.

“This happens, for example, if a doctor orders more tests than are absolutely necessary, conducts a Caesarean section when it is not absolutely necessary to do so, or admits patients to hospitals when their condition can be treated out of hospital,” Ngcobo explained.

Discovery's response

Discovery Health CEO Jonathan Broomberg said: “We support the recommendation to address the fragmentation of regulation on the supply side, and the recommendation that there be more careful evaluation of need and evidence to be applied in the licensing of hospitals and other facilities.

“We also support the proposals to allow for maximum fee-for-service tariffs that professionals charge for prescribed minimum benefits to be determined through an organised tariff determination process, although it will be critical that this process is carefully designed to ensure full participation by all relevant stakeholders.”

The SA Medical Association also welcomed the introduction of a new independent regulatory body, saying it couldn’t have come at a better time as the trust deficit between medical schemes and its members was at its lowest.

The chairperson of the association, Dr Mzukisi Grootboom, said: “If you look at supply-side issues, in terms of the hospitals, there is a large amount of profiteering by the groups. There is a large admission rate and too many procedures are done in intensive care units, and the inquiry is basically saying there are some procedures that are cost drivers that we can explain and others that we can’t explain.”

The inquiry found that, although there were 22 open schemes, two medical schemes constitute 70% of the total open scheme market. Discovery Health Medical Scheme comprises 55% of the open scheme market.

The Government Employees’ Medical Scheme is the second largest restricted scheme.

There are 16 medical scheme administrators, and Discovery Health and Medscheme account for 76% of the market based on gross contribution income. The inquiry collected claims data for the period of 2010 to 2014.

Over this period, the average expenditure per 10 private medical scheme members increased by 9.2% a year.

“After adjusting for factors such as inflation, age, members’ plan type, gender, disease profile and membership movement, the unexplained increase in spending per member was still greater than 2% a year in real terms,” Ngcobo said.

“To put this in context, 2% of spending amounts to about R3 billion in 2014 terms – that is R330 per beneficiary a year that could not be explained by factors rationally expected to drive expenditure,” he said.

The inquiry also recommended the introduction of a stand-alone, standardised, obligatory “base” benefit package that all schemes must offer. This would include cover for prescribed minimum benefits that would include primary and preventive care.

Broomberg said: “These are progressive and workable proposals, and we are looking forward to working with the regulators to ensure that these changes are implemented in a workable fashion that benefits medical schemes and their members.

“At the same time, we are mindful of affordability constraints and the need to ensure that prescribed minimum benefits are reviewed to ensure that we are not adding costs to the already hard-pressed medical scheme members.

“We also welcome the concept of risk equalisation on the basic benefits, and the acknowledgement that a key challenge for medical schemes has been the incomplete implementation of the social solidarity regulatory framework,” Broomberg added.

Medical plans too many, complex

With about 270 plans on offer, consumers cannot compare them, nor can they choose scheme and plan options on the basis of value for money, the report noted.

This, the inquiry criticised, was because of the deliberate manner in which the offerings were bundled, packaged and priced, which allowed medical schemes to weaken and even avoid outright price competition.

Bonitas principal officer Gerhard van Emmenis conceded that the plans were hard to choose from, and welcomed the recommendations around transparency and simplification for the consumers to make it easier for them to access information.

“One of our key focus areas is to drive education and awareness among our members and consumers in general, and this dovetails with this. In this regard, brokers are a critical part of the financial services sector as a whole,” Van Emmenis said.

“While consumers are becoming more savvy and educated about the inner workings of the medical scheme industry – especially in terms of selecting the right plan in an increasingly complex environment that is often rife with confusion – brokers help alleviate some of this confusion by providing an independent evaluation of a person’s specific circumstances [from a financial and healthcare perspective].”

Department of Health a poor regulator

The inquiry also raised the issue of an overall incomplete regulatory regime in the private healthcare sector, as medical facilities were not regulated beyond the requirement to have a licence to operate. Practitioners were licensed to practice by the Health Professions Council of SA, but little more.

The report stated: “This can be attributed to a failure in implementation on the part of regulators and inadequate stewardship by the department of health over the years. Many of the recommendations we have considered are already provided for in current legislation, but have not been implemented.”

Health Minister Aaron Motsoaledi defended government’s inability to successfully regulate the sector, saying its own stakeholders resisted regulation and the department had been met with threats of litigation when it tried to enforce regulation.

Hospital sector too concentrated

The inquiry also found that the three hospital groups, Netcare, Mediclinic and Life, had a combined market share of 83% of the national private facilities market in terms of the number of beds and 90% in terms of the total number of admissions.

One of the important consequences of the dominance of the three large hospital groups was that no funder could afford not to contract any of the three big facility groups, or to totally exclude one of these groups from any provider networks.

“If the market were less concentrated, for example with six providers instead of the current three large groups, a funder would have the option not to contract one of the groups, creating a completely different bargaining dynamic to the benefit of beneficiaries,” the inquiry’s report noted.

The CEO of Advanced Health, a network of 12 day hospitals around the country, Carl Grillenberger said that the group was confident the report would lay the foundations for a more equitable landscape in which to compete.

“As a smaller organisation, we, and other day hospital administrators, have felt the pressure of the larger hospital groups and the restriction of specialists who want to treat their patients in day hospitals. We fully support the inquiry’s investigation into anticompetitive behaviour and restricted competition,” he said.

Mediclinic said it was still studying the provisional findings and recommendations, as well as the underlying data, information and analyses and its potential impact on the private healthcare industry in detail, and would provide “considered feedback in due course”.

Licensing inconsistent

The facility licensing process was also found to be inconsistently applied by the provinces, with “bad consequences for all affected stakeholders”.

The inquiry found that, from 2010, the growth in registered beds in the private sector outstripped the growth in beneficiaries, implying an overall excess bed capacity within the private facilities market, yet new licences for hospitals were still being issued. The inquiry recommended that the National Health Act provisions dealing with the issuing of certificates of need be implemented.

The inquiry recommended that the licensing framework be based on a comprehensive national plan that took capacity in the private and public sectors into account, and that new licences for hospitals be issued in line with the national plan and take into account diversity in ownership of facilities. The national plan would be developed with the relevant stakeholders and facilitated by the department of health.


How do you feel about the report? Do you think it is forceful enough in its recommendations? Should private healthcare be more heavily regulated?

SMS us on 35697 using the keyword HEALTH and tell us what you think. Please include your name and province. SMSes cost R1.50

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