The Hospital Association of South Africa (HASA), the National Department of Health, the Council for Medical Schemes (CMS) and the Board of Healthcare Funders briefed the Committee on tariff structures in the private hospital sector. The general perception and belief was that private hospital costs were too high. HASA was at pains to explain or break down the costs structures charged by private hospitals, to correct what it thought was a misconception. One of the points made was that no private hospitals employed medical specialists. Specialists were independent and charged their own fees. Pharmaceutical products at private hospitals had to be sold at the Single Exit Price which was set by the Minister of Health, so no profit was made by private hospitals on these products. Another point was that medical aids negotiated with hospital groups on tariffs. The private hospital industry trained more nurses than the public sector, and this too added to its cost pressure. HASA maintained that it was necessary to ask whether the prices were too high in relation to the input costs.
The Department of Health acknowledged the importance of the private sector to the health system in
The Council for Medical Schemes (CMS) had a specific interest in the cost of healthcare to protect the members of medical schemes. CMS had to look at cost containment, the governance of medical schemes and member access to benefits. The gist of the presentation was to explore cost trends, cost drivers and to explain them by considering competition dynamics, private hospital behaviour and ownership. After sharp increases from 2000 to 2005, real claim costs had remained stable from 2005. This stability was attributed to interventions by the Committee and the Department. In 2009 there was another spike in real claim costs by private hospitals. The CMS believed that if there was no intervention, then private hospitals’ costs would continue to increase. The healthcare market did not meet the requirements for normal competition, as “customer sovereignty” was not an overriding concept. It was not so simple or easy to ascertain costs and benefits of treatment. Asymmetry of information caused increased prices for health services, rendering the consumer powerless to negotiate on price. Private hospitals derived market power from market concentration, but medical schemes and administrators were weak by comparison. Hospitals competed for and attracted specialists through high-tech medical facilities and service offerings. Necessary interventions in the private healthcare environment would include central bargaining, removing vertical relationships between hospital groups and their supply chain, taking care of market concentration by improving the hospital licensing system and eradicating conflicts of interest through ownership links, shares and other inducements.
The Board of Healthcare Funders of Southern Africa (BHF) was concerned that there was a gap in the healthcare system, in relation to hospitals, although there was generally transparency on the funding side. Intervention was therefore needed to protect vulnerable members of medical schemes. Statutory powers were needed in order to intervene, to close the gap, since CMS could not deal with the situation, given its current powers, to prevent a most difficult situation. A legal framework was needed to regulate prices in the private healthcare sector. If that was done, prices would come down.
Members were unanimous in their support for prices at private hospitals to come down, and for regulation where necessary. However, they had no illusions about the bottom line in business being to make a profit, but noted that in the health sector, it was people’s lives that were involved. The Chairperson repeatedly stated that the poor should be protected. The state of the public healthcare sector was a side issue to the seemingly high tariffs charged by private hospitals. The Chairperson also openly asked HASA if it would have any objection to the private hospital industry being regulated. HASA was open to regulation, provided that three important price determination principles were taken into consideration – namely, that the process must be transparent and fair, that tariffs were determined using scientific methodology, taking into account the true costs of operating a hospital, and that the pricing process was overseen by an independent regulator. The Department of Health, the CMS and the BHF not only supported the regulation of the private hospital sector but insisted that it be done. Members discussed, but could not reach a conclusion on the apparently conflicting information on the breakdown of costs at private hospitals, since HASA said that this information was available, but the other parties disagreed that this information was made available, and that this was the reason for the breakdown in negotiations and court action. Members also discussed issues around the training of nurses, incentives for doctors in admitting patients to certain private hospitals and the profit motives, with the Committee expressing scepticism about the relationship between doctors and the private hospitals where the worked. HASA maintained that the profits obtained must be compared to the running costs, and noted that private hospitals were in fact performing below their counterparts in other sectors. It was agreed that another meeting must be held to clarify issues further.
Tariffs structures in private hospitals
Chairperson’s opening remarks
The Chairperson stated that in
Hospital Association of
Dr Nkaki Matlala, Chairperson, Hospital Association of South Africa, stated that he wished to correct some of the misinformation that the Committee had received about the private hospital sector. He stressed that the Hospital Association of South Africa (HASA) was committed to addressing problems in the sector. Private hospitals constituted approximately 26% of the total hospital beds in
No private hospitals employed medical specialists. Instead, specialists were independent, as distinct from the rest of the world, where specialists were employed by private hospitals. Pharmaceutical products at private hospitals had to be sold at the Single Exit Price (SEP), which was set by the Minister of Health. Hence no profit was made by private hospitals on pharmaceutical products. Currently, it must be noted that medical aids negotiated with hospital groups on tariffs. Individual negotiations took place as different hospital groups had different unique pricing models.
Dr Matlala emphasised that only one question was of importance in the price reform debate – and that was whether private hospital prices were too high, given their input costs. He pointed out that between 60% and 70% of private hospitals’ operating costs were spent on wages. There was a severe global shortage of nurses. Developing countries like
There was an erroneous perception that the private hospital industry was unwilling to engage with regards to pricing and tariffs. HASA had consistently provided the Department with information and engaged in various processes initiated by the Department, which included the Reference Price List (RPL) process. HASA had welcomed the cost benchmarking or RPL regulation in 2007 as it would correct outdated benchmarking models and regulate the process for the first time. HASA had obtained approval from the Competition Commission to participate in the RPL process and had to get assistance with pricing determination. Auditing firms Deloitte and PriceWaterhouseCoopers (PWC) had developed hospital cost benchmarking and return-on-investment models, at a cost of approximately R20 million. At the time, the Department of Health published RPL tariffs without giving consideration to HASA’s input on the methodology to analyse hospital costs, or to actual hospital costs. Inputs by other service providers were also ignored by the Department. Consequently more than 20 provider groups took the Department to court. HASA chose to litigate because it wished the RPL to be determined scientifically, and not because it wished to remove the price determination framework. The court’s decision was that the RPL was invalid and it was set aside. Following the court’s ruling, the Department elected to not redraft the RPL regulations but instead to opt for a new process, which mooted centralised bargaining - the very same price negotiation process which led to stiff industry fines in 2004 arising from transgressions of the Competition Act. In early November 2010 the Department published a discussion document, which proposed central bargaining. HASA had submitted written responses to the document but as yet had not received feedback from the Department.
HASA believed cost benchmarking/RPL to be critical to collective bargaining. There were three important price determination principles: namely, that the process must be transparent and fair, that tariffs should be determined using scientific methodology which took into account the true costs of operating a hospital, and that the pricing process should be overseen by an independent regulator.
Dr Matlala felt it was incorrect to compare public and private hospital prices. Public hospitals were mainly funded by government, whereas private hospitals accessed capital from the open market. In public hospitals, medical professionals did not know the costs of a procedure, whereas in private hospitals they did, and it was vital to work from an informed knowledge of these costs. Private hospitals paid VAT, whereas public hospitals did not. Public hospitals obtained pharmaceuticals at state tender prices, mooted to be between 50% and 70% cheaper than private sector prices. He further stated that a simple reasonability check showed the flaw in focusing on prices whilst ignoring utilisation. Payments to private hospitals made up 33% of medical schemes’ gross contribution income of R84.8 billion for 2009. If private hospitals were to reduce prices to remove all profit, payments to private hospitals would decrease to about 27.9% of medical schemes’ gross contribution income. If there was a commensurate reduction in medical scheme contribution rates, the average medical scheme beneficiary who paid R890 per month in 2009 (according to the Council for Medical Schemes) would only pay R63, or 7%, less per month.
Dr Matlala concluded that HASA remained committed to engagement with the Department.
Department of Health briefing
Dr Yogan Pillay, Chief Director: Strategic Planning, National Department of Health, acknowledged the importance of the private sector to the health system in
Dr Pillay then gave information on the private hospital sector, providing a breakdown of the distribution of beds across the country (see attached presentation). The number of registered beds were outlined as follows: in
Dr Pillay then gave the Committee a brief history of the RPL. In 2003 the Competition Commission had made a ruling that there had been collusion between funders and providers. A neutral body had to be responsible for tariff setting. The Council for Medical Schemes established the methodology for the National Health Reference Price List (NHRPL). The NHRPL was used as a guide to industry from 2004 to 2006. In 2007 the RPL schedules were published by the Department, based on the NHRPL, and regulations formalising the RPL were promulgated. HASA and others found the RPL methodology unsuitable, which led to court action. It was admitted that there were some challenges with the RPL, which led to the Department’s decision to move away from this method, including the fact that the Associations were required to submit information, which had a response bias, and that the “independent” consultants used by associations for technical work were paid by those very same associations. In addition, there was poor correlation between financial data supplied, as verification was difficult and the methodology was not suited to health establishments. International experience with price regulation offered two options – of which the first was administered pricing, and the second was price negotiation. Price negotiation was more successful. The Department believed transparency to be the key to the pricing issue. Providers needed to share their financial information. The financial information would then be analysed and a summary of statistics would be provided to funders and providers. Cost information should form the basis of the negotiations.
Council for Medical Schemes (CMS) briefing
Mr Monwabisi Gantsho, Registrar and Chief Executive Officer, Council for Medical Schemes, noted that the Council for Medical Schemes (CMS) had a specific interest in the cost of healthcare, to protect the members of medical schemes. It had to look at issues of cost containment, the governance of medical schemes and member access to benefits. He noted that his presentation would explore cost trends, cost drivers and explain them by considering competition dynamics, private hospital behaviour and ownership.
After sharp increases from 2000 to 2005, real claim costs had remained stable from 2005. This stability could be attributed to interventions by the Committee and the Department. In 2009 there was another spike in real claim costs by private hospitals. Dr Gantsho stressed that if there was no intervention, costs would continue to increase. The main cost drivers were hospitals and specialists. The situation was a difficult one for the CMS as a regulator. He made the point that there was only one health system in
Mr Thulani Matsebula, Health Economist, Council for Medical Schemes, continued with the presentation speaking to the economic considerations. He noted that the healthcare market did not meet the requirements for normal competition. In the healthcare environment the concept of “customer sovereignty” did not exist. It was not simple to ascertain the costs and benefits of treatment. Information about costs and effectiveness of hospital services provided often was not available in the public domain. Asymmetry of information caused increased prices for health services, because it gave market power to the holder of better information. This rendered the consumer powerless to negotiate on price.
Dr Roelof Botha, Economist, Council for Medical Schemes, pointed out that hospitals within the
Board of Healthcare Funders of
Dr Humphrey Zokufa, Managing Director. Board of Healthcare Funders of Southern Africa, noted his concern that although, generally speaking, the funding side, or medical aid schemes, showed more transparency, there was a gap in the system in regard to providers, or private hospitals, since the only aspect that was controlled on that side was medicine pricing. An intervention was needed to fill that gap. At present, members of medical schemes were vulnerable because they had to pay huge amounts, and it was becoming more difficult to cope financially. Within the next five to ten years, members of medical aid schemes would find themselves facing poverty. He was of the view that it was necessary to have statutory powers to intervene, as currently CMS could not take action, and recommended that government must urgently close this gap, before the situation would reach catastrophic proportions. A legal framework was needed to regulate prices in the private healthcare sector, so that prices would come down. The mere regulation of medicines alone was not good enough.
Dr Zokufa outlined the gaps in the
The Chairperson added that if health professionals were regulated, then it seemed anomalous that there was no control of hospitals, and agreed that this Committee had to ensure that communities in
Mr M Hoosen (ID) commented that the return on investments on healthcare was high. He asked why there was a gap in the system as Dr Zokufa had alleged, and whether this was linked to the poor quality of healthcare in
Mr Hoosen also asked whether the trajectory of the private healthcare sector was it on the incline or decline.
Mr Hoosen asked HASA for comment on the free for services versus alternative reimbursement models. He said that HASA had given the impression that it was denied the opportunity to make inputs, although the Department had stated the opposite. He also asked HASA to elaborate the vertical benefits for specialists and laboratories.
Dr Pillay stated that the Competition Commission had found there to be collusion between funders and providers. The RPL was a reference list of costs. It was not binding on anybody. The Department had not been arrogant on the RPL, and had regulated it. He confirmed that HASA and the Department negotiated on the reference price, but at the point where the Department had asked HASA for information that could be verified, the discussions started to break down, and eventually led to Court action, as HASA refused to allow Department the opportunity to verify the information that HASA had provided.
Dr Pillay said that the alternative reimbursement model not only benefited medical schemes but administrators as well. The Department had received reports that doctors often times received perverse incentives. He noted that doctors have already found ways to get around medical aid authorisations.
Mr M Waters (DA) stated that the private sector should perhaps be made more transparent but the quality of the public sector should also be raised. He directed a question to both HASA and the Department on the central bargaining system, asking if it would be acceptable, or feasible, for medical hospital groups to make their tariffs known. He also asked what the role and power of the Minister was if there was a deadlock on the central bargaining system.
Mr Waters then referred to the CMS’s presentation document, which stated that the public sector was responsible for the training of medical professionals, and pointed out that government did not allow anybody else to train doctors. He also pointed out that the private sector produced more nurses than government.
Mr Waters asked CMS what impact the certificate of need had on the concentration of markets. Referring to the CMS’s statement that the “arms race” for medical equipment acted as incentives to attract specialists, he asked whether it was not in fact the lack of human resources that was the driving force behind the attraction of specialists.
Mr Gantsho clarified that the CMS did interact with medical hospitals but could not regulate them. He noted that some critical data was not forthcoming from HASA. It was felt that regulations would assist in this regard. He noted that the ethical conduct of entities was covered by three codes. The health sector was covered by the Public Finance Management Act and the Medical Schemes Act. There was also a nursing council and the Council for Medical Aid Schemes. A regulatory framework was needed for private hospitals. Intervention was needed now.
Dr Pillay stated that there was no regulation on the certificate of need. He agreed that there was indeed a shortage of specialists. There were more specialists in the private sector than in the public sector. The Department did intend to increase the number of specialists in the public sector.
The Chairperson stated that there might be two systems of health but both fell under the Department. The two separate systems had evolved and had not been created by design. The aim was not to overcharge people and the question was whether the private sector could assist the public sector. The private sector had little involvement in primary health care.
Mr D Kganare (COPE) asked HASA why the private hospitals could not break down their charges, stating that the main aim of private hospitals was profit. He also asked how much was spent on producing nurses if the private sector produced more nurses than the public sector, and how many nurses had been produced. He asked if these nurses were trained for free and what they might contribute. He also asked in which way HASA was protecting the poor when they took government to court. Mr Kganare also asked HASA to comment on the statements made by the Department that prices were too high and transparency was lacking in the private sector.
Mr Kganare then asked the Department how the private health sector was to be made accessible to all, and what the Department’s human resource development strategy was. He commented that the public sector should start looking at ways to improve services in order to attract people back to it. He noted that it was a fact, in central bargaining, that persons often disagreed and asked what the solution if there was disagreement. He also noted the suggestion to have legislation to fill the gap, but said that the question remained whether it would be implemented.
Mr Kganare asked CMS how a contributor that was a member of a medical aid for 10 years could be treated the same as a member of 40 years, since the latter had made considerably more payments.
Dr Pillay stated that the private hospital sector was a lucrative market. The sector was very attractive in guaranteeing huge return on investments for its shareholders. He noted that central bargaining was price-list based. The pricing authority had to have the ability to oversee central bargaining. Discussion was needed on what powers the authority would have. He agreed that there could be instances where there was disagreement over price. He finally confirmed that the Department would present its Human Resource Development Strategy to the Committee when it was completed.
The Chairperson thought it best not to compare the private and the public sectors. The issue was about actual costs versus selling costs. The question was whether people should be charged randomly or on a certain tariff. He pointed out that different private hospitals charged different tariffs for the same procedures.
Mr G Lekgetho (ANC) stressed that something urgent needed to be done to close the gap. HASA claimed that no profits were being made, whereas the CMS showed that in 2009 there was a sharp increase in profits of private hospitals. It was necessary to reach a finding on this.
Ms C Dube (ANC) referred to HASA’s comments that the patient had the right to negotiate prices. She asked how this negotiation was done. She stated that when she was recently admitted to a private hospital, the nurses had not been employed by the hospital itself but by employment agencies. She asked HASA to clarify this issue. She was concerned that information from the private sector was not forthcoming. Individuals in most instances did not have a choice as to which private hospital was used, as the specialist would simply admit the patient to the hospital where s/he worked. In regard to incentives for specialists, she noted that there were rumours that specialists often had ownership shares in the private hospitals where they worked.
Mr Matlala stated that because the patients did not know the prognosis of a disease they could not negotiate on price. It would be unfair if a patient could negotiate, as a body of knowledge was needed to make an informed decision.
The Chairperson stated that doctors and nurses had to take an oath to help people. He was not sure whether private hospitals were helping people.
Mr Matlala stated that HASA was concerned about the ethical behaviour of health practitioners. HASA took action against health practitioners who not adhere to ethics. Private hospitals had gotten rid of such individuals. Ethics was engrained in professionals.
Ms B Ngcobo (ANC) suggested that the Committee should arrange for further meetings with the presenters as the issues were too complex to discuss it in one sitting. She asked at what cost HASA might be training nurses, and how this addressed the human resource pipeline. She asked whether HASA was listed on the Johannesburg Stock Exchange (JSE). Members had received the impression that health was a commodity, and there was some question as to whether the interests of patients or shareholders came first.
Ms Ngcobo then asked what the private sector felt about price negotiation. Furthermore, she noted that soon a standards compliance office would be opened, and the issue of primary healthcare would be dealt with, and she asked also what the private sector’s view was on this.
The Chairperson agreed that further meetings would be a good idea.
Mr Matlala appreciated that the issues at hand were complex and welcomed further meetings. He stated that many of the questions that had been asked could be answered in the booklet that HASA had handed out to members. He would try to answer those questions pertinent to him. His colleagues would try to answer the rest of the questions.
Mr Matlala answered Ms Ngcobo that there were many agencies and nursing schools that were not part of HASA, and although there were many fly by night training colleges, HASA was accredited.
He responded that HASA did not deal with primary healthcare, as the licence held by HASA held was an acute licence. It was, however, felt that primary health care should be re-engineered.
Dr Keith Shongwe, Deputy Chairperson, HASA, speaking to the issue of office of standards, noted that one of the issues was about implementation. There was no formal relationship between doctors and hospital groups. All hospital groups had norms and standards to which doctors had to adhere.
Dr Pillay stated that the office of standards must look at both public and private hospital standards.
The Chairperson asked why the same procedures cost different prices at different private hospitals.
Mr Hoosen stated that HASA alleged that there were no benefits for doctors from private hospitals but the Department had stated that there were. He asked where the confusion emanated.
Mr Roly Buys, Representative from HASA, responded that ownership of radiology and pathology laboratories were independent. He stated that doctors paid market-determined rentals for consulting rooms. In metropolitan areas it was found that doctors often worked in more than one private hospital. Doctors were independent practitioners, and HASA had no say in the fees that they charged.
He added that a detailed presentation was needed to shed light on the issue of profitability. Two years previously, the auditing firm PriceWaterhouseCoopers had done such a presentation. The point was emphasised that HASA had under-performed when compared against the average JSE-listed company by 7%.
He emphasised that it was also necessary to look at the alternative reimbursement model. HASA had no control over the utilisation levels of patients, and the question must be asked why this was overlooked. He said that the value element needed to be analysed. Each hospital group had its own utilisation figures. Services provided needed to be categorised. Many of the extra admissions in private hospitals were linked to the tuberculosis and HIV value, which the Minister of Health spoke about. In relation to technological advances in surgical products, he noted that this was considered part of progress. Ten years ago, for instance, techniques to insert heart stents did not exist. The issue was not only about price but also about utilisation and value.
Ms E More (DA) asked the BHF what was meant by robust quality assurance. If the assertion by BHF was correct that there was inadequate regulatory control, then she wondered how greater regulation would solve the problem.
Ms More noted HASA’s statement that it had supplied the Department with information, but the Department had stated that HASA lacked transparency and was inaccessible. She noted her own experiences, when admitted to a private hospital, that there had only been one professional nurse per ward. Even public hospitals could be seen to be overcharging patients. Time wasted waiting, and bad service, could also be seen as a form of overcharging, although she noted that it was necessary then to define what “overcharging” meant.
Ms More also asked the Department what was happening in regard to cost centres. The public sector hospitals were considered to be in a dismal state.
Mr Matlala stated that nurses were employed by private hospitals. Agency nurses were employed where there were shortages of nurses.
Mr Adam Pyle, representative of HASA, stated that when a person was admitted to a private hospital, the specialist must obtain permission and authorisation from the medical scheme that the person was covered for the level of care and length of stay. The interaction was between the specialist and the medical scheme. He did not quite understand what the issue was with transparency. Medical schemes knew exactly what the costs were. He agreed that the various aspects of cost needed to be looked at.
Mr Zokufa responded that the issue was that it was necessary to know what went into costs, and how they were comprised for each procedure, so a breakdown of costs was needed. In regard to the questions on regulation and the role of government, he said that government had an equal responsibility to look at the ills of both the private and public sector, and, whether or not the public sector was in a dismal state, government intervention was needed in the private sector. If government had intervened earlier the situation would not have reached its current critical state. Government had to step in and protect its people. He pointed out that during tariff negotiations bullying tactics take place, with the larger entities exerting power over the smaller. He then said that the lack or otherwise of robust quality assessment measures was an issue. It must also be asked whether there was a direct relationship between quality given and the cost, and whether this amounted to value for money, and he agreed that at present there was no system to check on this.
Dr Pillay stated that the Minister of Health had agreed that the public hospital sector had to improve. It did not, however, mean that the private sector could charge whatever it wished. Government did not have data on the performance of private hospitals on the clinical side, so it was not possible to know whether their performance was better than those in the public sector. He said that he could not consider “long waiting times” in the same category as overcharging people. The Department labelled this as inefficiency. Finally, he noted that public sector hospitals did not have a tariff list that was made public, but it was available if needed.
The Chairperson stated that the Health Practitioners Council of South Africa monitored health professionals. Neither public nor private hospitals were being monitored for quality or price. If prices were to increase continuously, the gap between those with and without the necessary means would widen. The main issue related to who would look after the interests of the poor. Nobody was saying that there was no place for private hospitals in the health sector.
Mr Zokufa stated that the monitoring would be by way of regulation, which must clearly be done in order to solve a problem. When a member of a medical scheme had treatment at a private hospital the medical scheme only agreed to pay a certain percentage of the private hospital bill, with the patient having to pay the rest. This would not happen when regulations were introduced. Currently, the bills were so huge that medical schemes refused to cover the total cost. Government had to step in now to protect the ordinary citizen.
Ms Dube added that the Committee was not here to protect the public sector. The idea was to clarify issues.
The Chairperson asked medical schemes present if they wished to make inputs.
Ms Penny Tlhabi, Representative, Discovery Health, said that since Discovery had been mentioned by the Department, she wished to make an input. Discovery Health agreed that prices should be transparent and scientific. She only cautioned that the focus should not only be on price, as certain reforms also needed to be addressed. Discovery Health believed the private sector to be a key strategic asset and thought that it added value to the value chain. She felt that Discovery’s costs were legitimate and noted that they were decreasing. It must, however, be remembered that medical schemes were complex and that administrative costs formed a huge portion of costs. Contrary to popular belief, the private sector was not only about profit but was also concerned with the quality of care. Individuals had different medical schemes to choose from, yet Discovery Health was one of the favourite choices.
The Chairperson stated that there was agreement that was business was about profit. Healthcare was a different type of business and business should bear this in mind. If a person needed healthcare, there was no choice, and the person should be assisted. There was a place for private health care in the health sector. The Committee and Government were concerned that people should not be taken advantage of, and the aim was to achieve convergence and to understand one another. He asked the private hospital industry if it was prepared to be monitored.
Mr Matlala stated that the private hospital industry was willing and prepared to be regulated. The evidence must be done on a scientific basis. The process must be led by an independent person and must be transparent. He welcomed further interactions with the Committee on this issue.
The Chairperson reiterated that the gap between the rich and the poor needed to be bridged. It would seem that everyone present was in agreement that regulation was needed.
The meeting was adjourned.
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