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Is it too late to rein in soaring healthcare costs?

Why private healthcare fees are soaring and how medical aid members can cut costs.

Private healthcare costs are accelerating, with doctors’ and specialists’ fees often blamed. But does the fault lie more with inflation, medical schemes skimping on payouts or a legal vacuum in which regulators are deaf to industry’s concerns and battling consumers?

It seems a combination.

The 2015 OECD Health Working Paper compared private hospital price levels of several countries. Despite South Africa having the lowest GDP per capita in the sample, its private hospital prices were on par with countries with much higher GDPs (e.g. UK, Germany). Surgical services accounted for the majority of total claims.

“Payments to specialists appear to be driving this increase. Hospital costs, however, are the main component of both surgical and medical cases studied.”

(Note: The OECD and WHO submitted this document to the Competition Commission’s (CompCom) health market inquiry (HMI) for consideration, although the panel hadn’t requested it. The HMI tried unsuccessfully to get access to the underlying data and information used for the paper, and without it the HMI has stated it can’t place any significant weight on its findings.)

Various concerns were raised about the functioning of private healthcare markets in South Africa, as healthcare expenditure and prices are rising above headline inflation, says Sama senior legal advisor Julian Botha here. These price and expenditure increases frame the CompCom’s HMI. The inquiry will evaluate various explanations for cost, price and expenditure increases in the sector and identify competitive dynamics. 

Doctors’ fees

Doctors and specialists set their fees independently; currently there aren’t regulations guiding or enforcing this, says Dr Rajesh Patel, BHF head of benefit and risk. Currently the only regulated healthcare fees are the single-exit-price and dispensing fees for medicine.

There’s currently no upper limit to charges doctors may lodge, says Jill Larkan, GTC healthcare consulting head.

Moneyweb surveyed 15 different GPs, gynaecologists, counselling psychologists and oncologists from around SA, on their consultation fees. See the range of fees charged below, some vary significantly. 

Consultation fees

 

GP

Gynaecologist

Counselling psychologist (1hr)

Oncologist

First consultation

R406 to R600

R600 to R2 100 depending on scans

R790 to R997

R600 to R2 800 *

Follow-up

Same

If pregnant: R600 to R2 000

Same

R550 to R877

* Highly variable depending on diagnosis   

The shortage of doctors adds fat to the fire. Hasa says there are 60 doctors per 100 000 people in SA. Larkan says if population growth keeps outstripping the rate at which doctors are produced, this will only get worse. “Therefore they may charge at whatever rate they wish, without any obvious end in sight.”

Tariffs and costs in local healthcare are also governed by public sector conditions and demographic distribution. “…using extrapolated data doesn’t take into consideration the conditions under which doctors in township and rural areas practice,” says Sama.

Private healthcare acceleration may be due to utilisation, disease type, benefit design, and regulatory environment/sector interaction, says Botha.

Sama publishes a non-binding coding/tariff schedule. It advises doctors to consider experience level, procedure complexity, medical legal insurance, practice overheads and costs in setting fees, says chair Mzukisi Grootboom. 

Also, the Health Professions Act alludes to tariffs representing fair value, ie not below costs to deliver the service or charging exorbitant mark-ups.

Medical scheme rates

Schemes approached wouldn’t reveal their rates, saying rates are variable as they’re negotiated with service providers; doctors on networks have different fees; with others citing regulatory and competition concerns.

Ann Streak, Alexander Forbes Health senior consultant, says previously there was an industry-negotiated scheme tariff and a Sama tariff. Schemes could define their benefits based on either of them. Schemes often paid in-hospital benefits at Sama rates and out-of-hospital benefits at a percentage of the medical scheme tariff (this was a gazetted tariff). The CompCom outlawed these practices deeming them collusive.

“Currently … schemes are required to negotiate with providers on an individual basis to set their own tariff structures, thus enhancing competition between schemes. The concern for smaller schemes is that they have become price-takers while larger schemes are able to negotiate better rates with providers based on volume,” she adds.

Schemes base their rates on various factors, e.g. membership profile (age), claims in the previous year, trends in types of diseases linked to claims, among others, says Council for Medical Schemes (CMS) spokesperson, Dr Elsabé Conradie.

Some schemes follow the 2006 CMS reference price list (RPL), adjusting for inflation. Schemes generally don’t liaise with Sama or medical associations but directly with providers or provider groups, Patel adds.

Turnberry CEO Tony Singleton says here medical aid providers will enforce sub-limits and co-payments for certain procedures. He says this sounds fair considering medical inflation generally runs at a higher rate than inflation.

“Medical inflation is made up of a number of drivers, like specialist fees, private hospital costs, the cost of imported equipment, and the exchange rate,” he said, adding that all have contributed to rising healthcare costs. 

In its report on claims data analysis, the CompCom’s HMI says per [medical scheme] beneficiary claims costs have increased by around 4% above CPI on a consistent basis in South Africa. “Half of this change can be explained by changes in risk profile of members and their choice of plan and movement between plans.”

Medihelp says healthcare service providers’ costs of service are predominantly determined by the Medical Schemes Act and regulations to the Act.

Sama’s website states: “The medical scheme tariff model represents an application of the RBRVS model, where medical schemes have assessed their claims risk profile based on number of claims processed during prior periods, the risk of the re-occurrence of the number of claims during current periods as well as available funds

“This resulted in medical schemes offering healthcare professionals tariffs that schemes could afford, without healthcare professionals being able to assess whether they could deliver sustainable healthcare services at the offered prices.”

Informed Healthcare Solutions’ David Narun, says medical aids try to keep rates down by entering into service agreements with as many service providers as possible, but it’s a difficult process and providers – already busy – don’t see the point of entering into these arrangements and continue to charge their higher rates.

“It is a very sensitive issue in the industry and whilst medical aids and service providers battle it out in a never-ending battle, the consumers unfortunately are the ones that suffer through high doctor’s rates and higher medical aid premium increases.”

Are medical rates high enough?

Rising medical indemnity insurance costs are also having an impact on doctors’ and hospitals’ costs.

Writing to the South African Medical Journal, South African Private Practitioners Forum CEO Chris Archer says hospital groups are under pressure to ensure adequate insurance for negligent acts involving them or their staff jointly with the doctor against whom a claim is raised. This “…will, by some margin, trump the hospital income earned through admissions by an individual practitioner.”

In October 2016, eNCA reported medical malpractice indemnity fees cost each practicing gynaecologist up to R65 000 a month. Most obstetricians pay R650 000 a year.

“Many in the [medical scheme] industry continue to peg their professional fee maternity benefit at about R3 500, seemingly oblivious of the impact that the rising cost of funding malpractice insurance is having on obstetricians. This is forcing doctors to charge a hefty co-payment for their services,” writes Archer.

Carte Blanche here says by 2020, “there may not be enough obstetricians in private practice because expensive medical indemnity insurance is driving them away from the profession.”

To regulate, or not?

Conradie says having no pricing guideline is not benefitting the industry.

The CMS 2015-16 annual report is vocal on this: “The vacuum left because of no price regulation within the private healthcare sector where providers are charging above medical scheme rates, places an onerous burden on the already hard-pressed South African healthcare consumer….”

Grootboom says SA needs competition law changes to enable a bargaining council, where government is aware of all costs to be considered in doctors’ fees, before it decides on setting them.

In the current context… provider fees will need to be capped in future, says Patel. “The Department of Health needs to step in to protect consumers and to provide clear guidelines for alternative reimbursement models for providers.”

The BHF hopes the HMI will recommend a regulated maximum pricing framework. The HMI’s findings are expected in December 2017.

But not everyone agrees.

Following a 2012 UK private healthcare competition investigation, the Competition and Markets Authority decided that, while private healthcare price controls may be effective in reducing prices, they’d be unlikely to encourage competition on quality or innovation in the market.

At an October 2014 Hasa conference, former UK CompCom deputy chair Peter Davis said price controls could create potentially-damaging distortions to the market; be costly to implement, monitor and enforce; and should be a last resort.

“The interconnected nature of the entire healthcare supply chain emphasises the need for a strategic approach that involves all role players to find a way to standardise benefits in a manner in which we can measure the quality and cost of care, and in turn use the outcomes data to better define the future healthcare model for the country,” says BHF chairperson Dr Ali Hamdulay in a statement.

Tips to reduce fees

  • Ask about cost implications before a hospital procedure, says Krisascha Crafford of Glopin Healthcare Consultants.
  • Negotiate. Doctors often reduce fees if you offer to pay cash (claim back from your scheme).
  • Use specialists/doctors on your scheme’s network.
  • Try to understand PMBs.
  • Use a GP as a primary care-giver to ensure coordination of care and prevent test duplication at specialist level, says Gerhard van Emmenis, Bonitas Medical Fund acting principal officer.
  • The Health Professions Act 56 of 1974 states patients may, within three months of receiving a healthcare professional’s account, ask the professional board to determine the amount which should’ve been charged.
  • According to HPCSA’s 2016 edition of ‘the Bulletin’ various legislations require practitioners to inform patients about service/treatment cost beforehand.
  • Patients should be told about alternative treatment or procedure costs. Primary practitioners should tell patients when procedures may include other practitioners’ fees e.g. anaesthetists, and who they are, where possible.
  • Council advises practitioners to discuss potential costs before ordering diagnostic tests or making treatment decisions. 
  • Investigate hospital insurance or gap cover.

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Johan Burger

Johan Burger

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I don’t understand malpractice insurance. Are they insuring against lawsuits or against actual bad work?

Also, I think that people are outsourcing their health to doctors – your lifestyle needs to be healthier, you cannot get a doctor to keep treating symptoms when the root cause is not addressed. I cannot imagine that doctors are aligned to fix lifestyle, since cynically 1. they’re trained to fix symptoms, 2. financially it is good to have sick people, although most doctors I know do believe the hippocratic oath. Maybe we need to improve our own wellness first?

1.There is a sense of unreality with the fees charged at some of the Private Hospitals. At our local private hospital, Specialists generally charge 300% of Discovery Rate. A friend recently showed me a bill for a knee arthroscopy R76 000 for the hour and a half procedure. R20000 for the orthopaedic surgeon alone, R10000 for the anaesthetist. As she pointed out, that is the monthly turnover of her small business.
2.Medical Insurance claims need to be capped. The current system drives the increasing cost of insurance, which is simply passed back onto the patients. The rich generally benefit more because they are more likely to successfully sue.
3.The (what should be)Non-profit medical aids should not be allowed to cosy up to their For-Profit Holding companies. This “Creaming the Non-Profits for admin fees” model is another driver of cost.

I take issue with the statement made by Eleanor Becker “The 2015 OECD Health Working Paper compared private hospital price levels of several countries. Despite South Africa having the lowest GDP per capita in the sample, its private hospital prices were on par with countries with much higher GDPs (e.g. UK, Germany).”
A more realistic calculation would use the GDP of those using private healthcare not the whole population. When calculated like that we have one of the cheapest systems.

And if you think that healthcare is expensive now, just wait till it’s free (that is if you believe the NHI will ever happen)

Hi Boomgloom. The statement was a summary of what the 2015 OECD working paper said, and was not made in my own capacity. Good point about using the GDP of private healthcare users though!

Adding to the cost of your monthly premium is the Admin few. Discovery Holdings does the Admin for Discovery Health – and this costs R Billions per annum. Discovery Holdings in turn pays a dividend to shareholders.
There is something wrong here – it will never work.

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