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Private healthcare distorting competition, driving up costs – HMI

The Competition Commission unveils the long-awaited provisional findings of its Health Market Inquiry.
The HMI has recommended wholesale changes to ways that medical scheme options are structured. Picture: Moneyweb

The Competition Commission’s Health Market Inquiry (HMI), which probed the dynamics in the private healthcare market to determine whether there are barriers to competition and patient access, has blamed medical schemes and hospital groups for driving up costs and distorting competition.

The HMI has recommended wholesale changes to ways that medical scheme options are structured to increase comparability between schemes and transparency on value-for-money for patients. 

During submissions from the public and private healthcare professionals since the inquiry’s start in August 2014, the panel, led by Judge Sandile Ngcobo, heard complaints that patients are not being informed by medical schemes about the quality of service in relation to costs.

“There are too many plan options [approximately 270 plans on offer], very little understanding of what they cover, how the plans compare, and no measure of the value that consumers are receiving. In the absence of such information, consumers may simply chose what they can afford,” the inquiry’s provisional report reads. 

Essentially, the inquiry has recommended that SA’s private healthcare environment should allow patients to measure and compare the quality of service, healthcare specialists, costs and health outcomes – and for this information to be offered by medical schemes.

This recommendation was contained in the inquiry’s long-awaited provisional report, which was unveiled on Thursday.

The inquiry has found that SA’s medical scheme market is concentrated, thus restricting competition in the private healthcare sector.

“The market displays consistently rising medical scheme premiums accompanied by increasing out of pocket payments for the insured, almost stagnant growth in covered lives and progressively decreasing range and depth of services covered by medical scheme options, which there are numerous, all of which are difficult to understand,” its provisional report reads.

The report concluded that out of 22 open medical schemes, two schemes hold about 70% of the market in terms of the number of beneficiaries. The market was dominated by Discovery Health Medical Scheme, which holds 55% of the open medical scheme in terms of the number of beneficiaries. There are 16 medical scheme administrators, but Discovery Health and Medscheme accounted for 76% of the market based on gross contribution income.

Hospital groups

Medical schemes aside, private hospital groups have been blamed for a big portion of above-inflation increases in expenditure reported by medical schemes for their members. “The hospital group market is highly concentrated. The big three hospital groups have 90% market share in terms of hospital admissions and 80% in terms of hospital beds offered,” says Ngcobo.

The three hospital groups are Netcare, Mediclinic SA, and Life Healthcare.

Ngcobo says that although in recent years there has been the entrance of day clinic specialists, the market still “lacks dynamism with few entrants”. And this creates an environment in which costs increase due to lack of competition.

In practicing their dominance, Ngcobo says Netcare, Mediclinic SA, and Life Healthcare compete for medical practitioners, who then refer patients to the three hospital groups, resulting in an increase in their hospital admission rates.

Although the provisional report has not made adverse findings against the public healthcare sector, it has found that the poor services offered are driving patients to the private sector, thus driving admission rates for private hospital groups.

The inquiry has reiterated its extensive analysis of medical scheme claims data, which was released in December 2017. The inquiry revealed that the average private medical scheme spend per member increased by 9.2% per annum for a five-year period from 2010 to 2014. This was nearly four percentage points higher than average consumer price inflation over the five-year period of 5.6%.

It has been slow-going for the inquiry since its start nearly four years ago. It has been marred by numerous delays in publishing its provisional findings and attracted objection from major health players – Discovery Health, Netcare, Life Healthcare and Mediclinic – in disclosing “confidential information” by the inquiry panel.

After the release of the provisional report, the industry and public will have an opportunity to comment on it. The deadline to comment on the provisional report has been set for September 7. After the comment period, the inquiry will produce a final report on November 30, which will contain final recommendations to the minister of economic development, Ebrahim Patel.

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If one looks at the monstrosity of Discovery’s Head Office in Sandton, you can understand where their obscene profits go!?

The building is rented and not owned by Discovery – The amount paid for administrating the Scheme has nothing to do with the hospital admissions.Discovery charges a flat percentage for administrating the member’s RISK fund where claims are paid from.Remember too- Its Discovery Holdings – Insure,Invest,Life and soon to be Bank are for profit organizations- unlike Discovery Health Medical Scheme which is a not for profit organization – and are also headquartered here, meaning they help pay for the rent.

OK, lets explain it another way……
….Medical scheme administrators are companies that operate separately from the medical schemes that they manage. An administrator invests in technology and services, and employs resources to manage medical scheme functions, for example, collecting contributions, paying claims, handling queries, and offering managed care services on behalf of the medical scheme. Receiving an agreed fee for managing these functions, ADMINISTRATORS GENERATE A PROFIT, differing from the non-profit model of a medical scheme.”
So Curious-me (I assume you work in the Discovery stable?), you FORGOT to include Discovery Health’s ADMINISTATORS which are profit organisations (as you put it).
Need I say more to support my initial comment??

Ah yes. BUT the money is made by the administrators – and an awful lot of money it is too. Discovery Holdings does the admin for Discovery Health. A Medical Aid cannot be a listed Company, the Holding Coy doing the admin can. It is inquitous. Members are screwed whichever way you look at it.

And Discovery are not the only ones guilty of this “legalised theft”.

who is the owner receiving all the rent…hopefully not a prop company owned by management

I went for my blood pressuremeds (covered/hospital plan) and there was not 1 Doctor in the large area encompassing Sandton, that is a Discovery allied doctor. When you have insurance they should pay. This is just another cartel BUT when N.H.I. hits they will lose.

I will believe it. One breast cancer specialist I know charges medical aid rates + 800%! I understand why the Minister is irritated with private healthcare (though I’m not in favour of the NHI).

I agree, medical costs are high but would rather give up all my policies, insurance etc. just to keep my medical aid…. and yes NHI can’t and will not work.

I agree, NHI is NOT the answer where a government cannot run a tuc shop without screwing it up. But the medical profession needs to come under proper scrutiny.

So ja!
Instead of focusing all efforts toward fixing the failed public health system in SA the socialists will focus on the systems that actually work!!! So very African ne!!

I guess you in the medical field hey

I know of quite a few people who went into private hospitals to be treated and ended dying from the so called SUPERBUG!!!

As yet have not heard of one case in public hospital eg Victoria/Groote Schuur!!!

Private healthcare in SA feed on people’s fears. The same happens in the education system that is why public schools think nothing of charging R40k plus p/a!!!

@Casper1 The “what aboutism” attitude is not helping here.

Fully believe this, I was quoted R700k as a base number for a valve replacement surgery on a relative. It was something like R60k a day in ICU before consumables etc which I find apalling. We know nurses are not paid that much so what could possibly cost R60k. Have also had a look and the medical GP margins are huge.

You obviously know nothing about how medical aids spend their money. I am a GP and I will give you facts.

For every R1 you pay a medical aid this is how is gets used
R0.30 for administration
R0.30 for private hospitals
R0.15 for specialists
R0.06 for GP
R0.03 for medications and pharmacies
R0.03 dentists and opticians
R0.02 allied health professionals

The rest gets put into either other expenses or left to build up the reserves. So yes medical aids by law are non for profit organizations and yes …ALL medical aids by law can not make a profit… but that’s where the administration companies come in…and thats how they make their money….

Also there are roughly 6-7 x more GPS than specialists yet they account for payments from medical aids 1,5 x do the basic maths on that.Also medical aids are going to start preventing memebers from seeing specialists directly for non emergency consultations without first consulting their GP to reduce costs as they see GPS as a cost saving mechanism not an expense.

Correct I am not in the medical profession and perhaps I am missing something but you seem to have missed the bulk of my post.

My comment is also not aimed at the non for profit medical scheme per say, it is however targeting the base cost of healthcare providers, including you I presume. This obviously feeds into the medical aid premium cost per your breakdown there.

On a side note, taking 30% of every rand spent on medical aid is quite hefty. I’d will have a look at their GP margin but 30% on a critical service seems very high again and points to a lack of meaningful competition or perhaps collusion.

I am talking about the Netcares, Medicross and Lifes of SA. That is where I was quoted R700k for a relative who was not part of a medical aid.

This peaked my interest and I found that some of the healthcare groups have a GP margin of 50%. The amount paid to the specialist in the R700 quoted was something like R30k. The cost of a day in ICU was around R60k, highcare was around R50k. Those numbers seem unreasonable to me. I had a knee operation where the surgeons cost was R21k, total bill was R150k because I spent a night in recovery. Again, does that seem reasonable?

It does not to me.

These guys are running a state protected mafia and they exploit some of the the most vulnerable people in the country just when they are really desperate.
I personally have a few horror stories to tell.
Just try to report anything to the health ombudsman or medical aid counsel, and you will see how they work together to give you the runaround.

They are despicable.

Quickest way to bring down medical costs is to improve public health. If one had the choice of going to a public health care facility at a 10th of the price and the medical outcomes were as good one would obviously choose the public facility. Private health care can charge anything they like because people are petrified of ending up and dying in a government hospital.

in my industry I have to explain all fees upfront..but not the docters. After reveiving a massive bill for a kidney stone he tells me it is what Discovery allows…and I think that Discovery is allowing this rip off with the hope that most people move to their fund…lets see if the Discovery model survives

If you think healthcare is expensive now, just wait till it’s “free”.

” Gothic100 6 hours ago

You obviously know nothing about how medical aids spend their money. I am a GP and I will give you facts.

For every R1 you pay a medical aid this is how is gets used
R0.30 for administration
R0.30 for private hospitals
R0.15 for specialists
R0.06 for GP
R0.03 for medications and pharmacies”
R0.03 dentists and opticians
R0.02 allied health professionals

The rest gets put into either other expenses or left to build up the reserves. So yes medical aids by law are non for profit organizations and yes …ALL medical aids by law can not make a profit… but that’s where the administration companies come in…and thats how they make their money….”

Yes the Health Rand!
You forgot to add:
if you are a consulting doctor , your practice admin fees will be between 40 and 60 % depending on the type of practice , no of patients etc.This is due to vast array of different MAs , complex “rules” which is obstructive which is to say the least, waiting for your money , declined claims that need to be re-submitted , motivations… .Your doctor have to motivate why this and that need to be given… takes 20 min eg , add another 15 minutes plus immense amount of frustration dealing with obstructive nincompoops of the Medical Aid (and discovery is the worst)
deduct about 50 % from the doctors fee to get an idea of where your health rand goes , add the other half to the obstructive medical aids portion
Dont forget the hospitals , even though partially in cahoots with MAs, also have to deal with this vast admin system….
Cahoots? Dont forget there is often cross-shareholding by big players eg Rand Merchant bank may hold 3 % discovery and 5 % netcare .So certain money flows may be adjusted to suit them by increasing or decreasing share % ( and I dont want to say it , influencing the companies boards itself)
Netcares sudden disinvestment in the UK is interesting:
eveybody thinks it is because of UK troubles .The reverse may be true : fear of the creeping socialism in South Africa , I am pretty sure Friedland et al did not sell their GHG UK shares….and now it is nicely ringfenced, not having to report earnings in SA .Clever move

Thank you Dr. for putting it in perspective. Yes it takes more time and energy just to get authorization for procedures not to mention the FRUSTRATION to explain to px’s the reason for co payments.

I personally happen to think we, the middle class, are on a proper hiding with medical schemes and then again with NHI. As noted above, scheme admin gobbles up prodigious amounts of after tax money; as do non-claimable expenses. But the administrators may see NHI as needing admin and big business is standing by; as per CPS and Grindrod Bank et al. Note what happened to small pharmacies.

The way costs have gone up in the last few years, it has become virtually unfordable for average person. Secondly when the GP refers one to a specialist the shortfalls are horrific. When I explained that the only breast specialist who knew anything about Demodex in the breast charged above medical aid rates, there was complete disinterest.
The other problem is that some specialists refuse to treat private patients. Others insist on payment upfront and if there is a problem afterwards due to their lack of care or judgement one has to incur further expenses. Patients have no recourse unless they have money to sue. I have Medical Aid and recently was sadly neglected for a minor procedure. This has resulted in serious complications involving a lot of pain. I would like some justice, but have been told to not even attempt it.

An orderly and functioning industry is reviewed while the violent, lawless, killing-machine taxi-industry, that kills thousands of innocents slips through the cracks to slaughter more citizens. If it wasn’t so tragic it would be one of the greatest jokes ever. Government obsessing about lawful industries yet totalling ignoring a lawless, unregulated, violent industry that routinely disrupts normal society.

End of comments.





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