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Massive problems with South Africa’s private hospitals and medical aids – here’s what you need to know

The Competition Commission has published the findings of its national health market inquiry, uncovering several major problems with South Africa’s private medical aid schemes and hospitals.

In a presentation published on Monday (30 September), the commission’s researchers said that they had identified features that, alone or in combination, prevent, restrict or distort competition in South Africa’s private healthcare sector.

“The market is characterised by highly concentrated funders and facilities markets, disempowered and uninformed consumers, a general absence of value-based purchasing, practitioners who are subject to little regulation and failures of accountability at many levels,” the commission said.

While the report recognised that much of this system is set to be replaced by the National Health Insurance (NHI) within the next 10 years, private healthcare would continue to operate in the interim and beyond the NHI’s implementation.

Thus, the commission recommended that a number of changes be made to provide a better environment in which a fully implemented NHI can function.

You can find some of the major findings highlighted below.

Private hospitals 

  • Dominance – Three hospital groups – Netcare, Mediclinic and Life – dominate the facilities market. In 2016, their market shares based on beds (and admissions) were 31% (33%); 26.8% (28.6%); and 25.3% (28.5%) respectively.
  • New entrants – These hospital groups make it very hard for newcomers and fringe players to grow and to compete on merit.
  • Distorting prices  – The three groups are also able to distort and prevent competition by binding the best medical specialists to their hospitals with lucrative inducement programs.  The report added that they ‘all but dictate’ year-on-year price and costs increases for funders (medical schemes).
  • Checks and balances –  These facilities operate without any scrutiny of the quality of their services and the clinical outcomes that they deliver because there are no standardised publicly shared measures of quality and healthcare outcomes to compare one against the other.

Doctors/practitioners 

  • The concentration of doctors –  There are 1.75 private practitioners per 1,000 insured population. General practitioners (GPs) are distributed relatively evenly across the insured population at just under one per thousand. Specialists are more concentrated in provincial capitals and metropolitan areas, and in some areas, there are no specialists at all.
  • Encouraging hospital stays – Utilisation rates (that is hospital admission rates, level of care, admissions to ICU, and length of stay) were higher than can be explained by the burden of disease of the population being cared for. “Over servicing, or using higher levels of care than required, is not necessarily better care. It leads to a waste of resources and may even be disadvantageous to patients’ health. It pushes up the cost of care and, if it is high enough, it will make it unaffordable and threaten the sustainability of the healthcare market,” the Commission said.
  • Incentivised to over-provide – Incentives in the market promote over-utilisation. In particular, fee-for-service means that the more services practitioners provide, the greater their income, which creates a perverse incentive for profit maximising individuals or groups.
  • Mandatory cover causes issues – Mandatory cover of prescribed minimum benefits, payable at cost, creates an opportunity for practitioners to determine their own degree of intervention and rates which must be paid for in full by funders.

Medical schemes/funders

  • Can’t easily compare – Consumers can’t easily compare options across funders, which means that consumers do not readily switch schemes in response to better offers from rivals.
  • Prescribed minimum benefits (PMBs) – While having had a positive impact in ensuring a minimum level of coverage for members, PMBs have had unintended effects on competition. The Medical Schemes Act specifies that PMBs must be paid in full without deductibles or co-payments which has shifted market power towards practitioners who are able unilaterally to set prices for PMBs which funders must then reimburse in full.
  • Hospital plans – In the face of rising costs and declining membership growth, funders have attempted to offer the lowest-cost, lowest-benefit plans possible.  Instead of saving money, this approach has had the unintended consequence of raising costs as members are hospitalised unnecessarily to have treatments paid for.
  • Information advantage – Consumers have an information advantage over funders concerning expected health expenses (e.g. when deciding to become pregnant or being diagnosed with a chronic illness). Using this advantage consumers may opt to forego joining a medical scheme until it becomes necessary or they may adjust their level of coverage in response to their anticipated need. This behaviour can result in an individual member’s claims outweighing their contribution, necessitating higher premiums for all members.
  • No new entrants – The high barriers to entry in the administrator market has meant there has been little-to-no entry for several years, despite some incumbent administrators earning very high profits while assuming limited risk relative to either the funders or providers.

Recommendations

To remedy these and other issues the Commission made the following recommendations:

  • New base benefit option – The Commission recommended a new standardised base benefit option, which must be offered by all schemes. It will enable consumers to compare products, reward those funders which are able to innovate to offer lower prices and/or higher quality, and, thereby, both discipline and reward the market.
  • Dedicated healthcare regulatory authority – The Commission has called for the establishment of a dedicated healthcare regulatory authority, referred to here as the Supply Side Regulator for Healthcare (SSRH). The role of the SSRH will include regulation of suppliers of healthcare services, which includes health facilities and practitioners.
  • Outcomes body – The report recommends the creation of an Outcomes Monitoring and Reporting Organisation (OMRO) as a platform for providers, patients and all other stakeholders to generate patient-centred and scientifically robust information on outcomes of healthcare.
  • Review competition  – The report recommends that the Competition Commission review their approach to creeping mergers to address high levels of concentration through effective merger review.
  • source MAMM clips | TAMAR KAHN | businesslive.co.za

No need to break up private hospital groups, says health market inquiry

The Competition Commission has backed down on its initial recommendation of divestiture for Netcare, Life Healthcare and Mediclinic

The Competition Commission’s health market inquiry (HMI) has backed down on its recommendation that SA’s biggest private hospital groups sell off some of their assets to enhance competition in the sector.

This development is likely to be met with relief by investors in JSE-listed Netcare, Life Healthcare and Mediclinic International.

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  • source MAMM clips |Bhekisisa Centre for Health Journalism | Laura Lopez Gonzalez

You're paying more for private healthcare and getting less, Competition Commission investigation reveals

Sep 30 2019 10:15 
Laura Lopez Gonzalez
hospital bed

According to Statistics South Africa, fewer than 1 in 5 South Africans were members of medical aids in 2018. (iStock) 

South Africans are paying more for private healthcare than ever before. But forking over more cash for more — and often unnecessary — care, isn't paying off for consumers,  a five-year investigation by the Competition Commission shows.  

The Competition Commission today released the final report on its health market inquiry in Johannesburg. The 256-page document is the outcome of half a decade of research by the body, which included public hearings, written submissions and meetings with key players in the private health industry. The report is also the most detailed picture of private healthcare in the country's history, revealing new details on everything from ownership and profit patterns to how health facilities contract doctors.

The report echoes the inquiry's previous 2018 findings that a lack of competition in the private healthcare industry is fuelling increasingly unaffordable healthcare costs. It's also incentivising doctors and private health facilities to over-treat patients, sending them to hospital more frequently and for longer without any real medical benefit. This is particularly true in areas like Gauteng and the Western Cape where there are more hospitals and doctors.

And with power concentrated in the hands of just a few major hospital groups, there is little motivation for hospitals and doctors to try to bring down costs and hardly any room for transformation.

Former Health Minister Aaron Motsoaledi pushed for the inquiry ahead of its 2013 launch. Motsoaledi wanted to understand just why private healthcare was so expensive before the government began buying services from the sector under the National Health Insurance (NHI).

The Commission's final recommendations have — in many ways — already begun shaping the country's NHI transition.

Three hospital groups have 90% of the market

South Africa’s population has grown by almost three million in the last decade, but the number of public hospital beds in the country has barely budged, the Commission found. 

In the private sector, the number of hospital beds, however, has nearly doubled.

According to Statistics South Africa, fewer than 1 in 5 South Africans were members of medical aids in 2018.

Just three hospital groups — Netcare, LifeHealthcare and Mediclinic — account for 90% of the private hospital market, based on 2016 hospital bed numbers. Independently-owned facilities make up the remaining 10% of the market. 

The high concentration of power in this sector, the Commission notes, makes it vulnerable to collusion, both formally through the creation of cartels and informally. This is because — in theory — it would be easy for a small number of players to engage in price-fixing, setting the tone for the market.

Without much competition, the three major hospital groups “all but dictate year-on-year price and cost increases” for medical aids and administrators while reaping the benefits of over-treatment at their facilities. 

The Competition Commission’s report attributes overtreatment to two factors: Monetary incentives for doctors and facilities to admit more patients and a phenomenon called supplier-induced demand. The concept is premised on the more supply you have of beds, doctors, medicine, the more people use them regardless of whether they need them or not. 

In its 2018 report, the Commission analysed hospital claims and found that almost a third of claims costs couldn’t be explained by factors such as a patient’s age or disease. These mysterious charges were being passed onto consumers in the form of increased premiums, the Commission argued.

But hospital groups say that doctors also play a role in over-prescribing care. The Competition Commission inquiry, however, maintains that health facilities and doctors play complementary roles in the phenomena — something for which the body found evidence for when reviewing contracts between the two that encourage doctors to admit more patients. 

The costs of this pricey hospital care are passed largely onto medical aids — and consumers, the Commission found. 

The Competition Commission writes: “[Large hospital groups] facilitate and benefit from excessive utilisation of healthcare services, without the need to contain costs, and they continue to invest in new capacity beyond justifiable clinical need without being disciplined by competitive forces.” 

And with great market power, the ability to set your own prices is almost a given. 

“Hospital groups have the market power to threaten that the national price for all their hospitals would have to increase,” the report quotes Discovery Health as testifying, “if there was a threat that a hospital in their group might be excluded from a local network [of preferred providers].” 

The Commission’s report also found that Netcare, LifeHealthcare and Mediclinic have unfair advantages that keep them in the lead and prevents transformation in the sector because the practices make it hard for new players to enter. For instance, the three were able to cross-subsidise facilities across their vast networks, meaning they were able to use profits from well-performing hospitals to make up for poorer earning ones. And, the Commission says, the “big three” were able to lure the best doctors to their wards with lucrative benefits smaller hospitals just can’t afford.

The Competition Commission was able to gain access to some contracts between specialists and health facilities, although the report does not reveal which facilities or doctors the agreements refer to. In some instances, the Commission found that specialists who agreed to admit their patients into certain private health facilities over others were offered preferential financing in terms of loan servicing rates and repayment rates to buy shares from larger hospital groups. 

The report recommends that the Health Professions Council of South Africa investigates this practice. 

The Commission also unearthed evidence that some private health facilities encourage doctors to admit higher volumes of patients, “making full or maximum use of the facilities” or ensure that they “treat a minimum proportion” of their patients in the facility. This includes setting targets for admissions and penalising specialists who contract with them if they didn’t meet these goals. 

Meanwhile, hospital admissions rates have skyrocketed in the last 10 years among those with medical aid —  the Competition Commission found this increase could not be attributed to the overall health of the population.

Black entrepreneurs may get licenses to open new hospitals, but can’t get the cash

Major hospital groups are pushing back against the contention that they have a firm hold on the market, in part arguing that many new hospital licenses have been granted to smaller entities. 

The Commission has fired back, saying that although some would-be hospital owners — particularly black, coloured or Indian entrepreneurs — are able to secure licenses, they struggle to get financial backing. Those who can’t get this kind of capital are forced to sell their licenses to bigger hospital groups. 

Commission proposes mandatory basic benefit for all medical scheme members

Why did the private healthcare sector get so out of whack? Well, it’s in part because major sections of the National Health Act, that allow the national health department to regulate the private healthcare sector, were never enforced, the Competition Commission says. 

The national health department did manage to introduce a list of 270 largely hospital-based conditions and treatments — called prescribed minimum benefits —  in 1998 that medical aids must legally cover. But the list is woefully out of date.

Work to redefine prescribed minimum benefits is already underway. In line with the inquiry's previous recommendations, the health department is hoping to make it more comprehensive and allow it to cover day-to-day needs like contraception. 

The Council for Medical Schemes is also busy designing a standard medical aid package that will one day be offered by all schemes, something the Commission proposed in its 2018 report. The offering will have to spell out exactly what it does and doesn’t cover and the Council for Medical Schemes will review it every two years.

With each of the country’s medical aids offering the same standard package, consumers will be better able to compare value for money between medical schemes. Medical schemes, in turn, will have to work harder to make care better and more affordable to woo new clients. 

But today’s report adds a new twist: The Commission has proposed this standard package be mandatory for all medical aid members. Those who want expanded cover will then “top-up” by buying additional cover. Gap cover, the body says, will become a thing of the past. 

Does this sound familiar? This is a similar structure to what the NHI proposes: One mandatory basic package of care provided by the state with medical aids selling additional cover.  

The Commission has also put forward sweeping changes to improve, for instance, the issuing of hospital licenses, the monitoring of possibly anti-competitive mergers and centralising health data from both private and public facilities to improve accountability. None of these, it cautions, should be implemented as standalone measures. Perhaps one of the investigation’s most important recommendations is the creation of a body that will one day reduce supplier-induced demand, or the private healthcare system’s tendency to provide more care in areas with d higher numbers of doctors and facilities. 

The proposed independent “supply-side healthcare regulatory authority” would be independently funded by the government. The body would take over what are currently opaque provincial processes for issuing new licenses for healthcare facilities. It will also handle the issuing of practice numbers in consultation with the Office of Health Standards Compliance to help facilitate the contracting and payment of healthcare providers under the NHI. 

The new authority would coordinate a forum to decide the price of services under the NHI. This may be a tall order when historic distrust remains between members of the public and private health sectors and when private healthcare members, the Commission notes, are loath to even discuss billing codes for fear of divulging sensitive information. 

The United Kingdom’s National Health Services has a similar regulator. 

“All healthcare purchasers, including the NHI, will require providers to be properly regulated in order to achieve affordable access to quality care,” the Commission warns.  “Any single buyer system, like the NHI Fund, on its own, that is without complementary supply-side regulation, cannot succeed.

  • source MAMM clips | Sep 30 2019 Lameez Omarjee Fin 24

REVEALED: These are the firms dominating private healthcare

South Africa's private healthcare sector is not competitive enough, with only a few dominant players, the Healthcare Market Inquiry has found. 

The inquiry, led by former Chief Justice Sandile Ngcobo, on Monday released its final findings and recommendations at a media briefing attended by the Competition Commissioner Tembinkosi Bonakele and Minister of Trade and Industry Ebrahim Patel.

The probe, which looked into the state of competition in the private healthcare market, has taken five years to complete and cost the state millions, Fin24 previously reported. Provisional findings were first released in 2018

On Monday, the final document, more than 250 pages long, was handed to the minister of trade and industry.

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  • Health Funders Association

HEALTH MARKET INQUIRY September 2019 (complete pdf)

Executive Summary:

In our review of the South African private healthcare market we found that it is characterised by high and rising costs of healthcare and medical scheme cover, and significant overutilization without stakeholders having been able to demonstrate associated improvements in health outcomes.

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  • Tamar Kahn, BusinessDay
Health minister Zweli Mkhize. Picture: JAIRUS MMUTLE / GCIS
Health minister Zweli Mkhize. Picture: JAIRUS MMUTLE / GCIS

Business Unity SA (Busa) is to set up a formal mechanism for engaging with the health department on its plans for universal health coverage, it announced on Wednesday.

The ANC government is driving through extensive health reforms aimed at achieving universal health coverage, which it calls National Health Insurance (NHI). The first piece of enabling legislation for NHI was tabled in parliament on August 8, triggering such negative investor sentiment that key health stocks shed R14bn of their value within the space of three days.

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