Healthcare Market Inquiry Report: briefing by Competition Commissioner

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11 March 2020
Chairperson: Dr S Dhlomo (ANC)
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Meeting Summary

The Competition Commission released the Healthcare Market Inquiry (HMI) Final Findings and Recommendations Report on 30 September 2019. It looked at the level of competition in private healthcare in South Africa to diagnose the factors that prevent, distort or restrict competition. It considered incentives that drive market behaviours, the rewards causing certain outcomes and whether the behaviour was compatible with the principles set out by the Competition Commission. The broad inquiry was undertaken when former Minister of Health raised concerns over a decision that the Commission took that would abolish collective bargaining by private hospitals. The HMI found that the private healthcare market is currently characterised by high and rising costs. Patients in South Africa are being treated excessively which amounts to supply-induced demand and found that there are certain regulations which are the root causes of challenges such as decisions which have been taken at a national and provincial level on licensing. It concluded that the private healthcare market is subject to distortions which adversely affect competition. The facilities market is highly concentrated, and there is a lack of competition or innovation amongst the largest facility groups. Competition in the funder market, to the extent that it exists, does not place the consumer at the forefront. The practitioner market is characterised by both unilateral and coordinated conduct which does not necessarily benefit the patient.

During the inquiry certain challenges about schemes and the conduct of private practitioners became evident. The Inquiry commenced in January 2014; however, it took a while to finalise it as it faced litigation from some private hospitals who objected to the inquiry. The inquiry found that the three largest hospital groups are Netcare, Medi-Clinic and Life who jointly hold 83% of beds in private practice and 87% of admissions in the private sector. The HMI found that big hospital groups do not compete for patients, but rather compete to attract doctors and there is no measure of quality in the industry at all as private hospitals still lack a standardised measure of quality.

The HMI found that private healthcare is characterised by high and rising costs and over-utilisation. There has been inadequate stewardship of the private sector. Failures include the Department of Health not using existing legislated powers to provide oversight on the private healthcare market; failing to ensure regulator reviews, as required by law; and falling to hold regulators sufficiently accountable. As a consequence, the private sector is neither efficient nor competitive.

The recommendations address pricing of services; licensing in provinces; health services monitoring in the form of a supply side regulator and economic value assessments. The fee-for-service system is dominant in the market and it has been determined globally to be the single most influential driver of healthcare services. It recommended setting up a multilateral negotiating forum for all practitioners to set a maximum price for prescribed minimum benefits. The Health Professions Council (HPCSA) rules inhibit the innovation that needs to take place for creating value-based services. It recommended that the HPCSA should assist in updating the learning curriculum so graduates understand the cost implications of their decisions. The HMI highlighted that in South Africa a unique feature in the funders market is that medical schemes are not for profit, but their administrators are for profit and this phenomenon was poorly understood by medical schemes. In South African there is a split between open and restricted medical schemes. There has been no meaningful entry of medical schemes or administrators in the market who challenge the bigger players and the shareholding in the industry. It found that Remgro and Afrocentric have cross ownerships both in the supply and demand side of the market which could limit competition – if a company on the demand side has a relationship with a company on the supply side, they may not innovate robustly. No illegal conduct was found in the cross shareholding.

The HMI recommended that the funders market needs a single comprehensive benefits-based package together with a mechanism of equalizing risk between the medical schemes so that schemes are incentivised to compete on the basis of value and prices and not on the basis of risk. It recommended that the prescribed minimum benefits package should be reviewed and aligned with the base package and this should include conditions that can be treated out of hospital plus the inclusion of a preventative care component.

Committee Members raised concerns about obtaining medicines and services at a reduced cost in order for the NHI to work; collusion, cross shareholding, price fixing, regulation, licensing, over-servicing and how the HMI recommendations would impact on the NHI. A workshop was suggested with the Department of Trade and Industry to scrutinise the recommendations. The HMI panel noted that the earliest start of the NHI is 2026 and the private sector will likely continue to operate in the interim as the NHI is still being conceptualised.


Meeting report

Healthcare Market Inquiry (HMI) Report
Mr Hardin Ratshisusu, Deputy Competition Commissioner, introduced the delegation and stated that HMI panel members, Dr Bhengu and Dr Nkonki, would present the findings and recommendations. The Competition Commission started the healthcare inquiry but as it did not have medical doctors, doctors needed to be appointed as panel members. The panel consisted of five members chaired by former Chief Justice Sandile Ncgobo. This market inquiry looked broadly at the state of competition in the healthcare market and this market inquiry power is bestowed by the Competition Act. It considered incentives that drive market behaviours, the rewards causing certain outcomes and whether the behaviour was compatible with the principles set out by the Competition Commission. This broad inquiry was undertaken when former Minister of Health, Dr Motsoaledi, raised concerns about the 2004 decision by the Competition Commission around reference pricing and collective bargaining by private hospitals which has caused mayhem in the private sector with an increase in pricing.

Mr Ratshisusu said that in a broad sense, the HMI found that private healthcare market is currently characterised by high and rising costs. Outside of the 2004 decision of the Competition Commission, there is significant over-utilisation as the HMI found that patients in South Africa are being treated excessively which amounts to supply induced demand. The Commission found that there are certain regulations which are the root causes of these challenges such as decisions which have been taken at a national and provincial level on licensing. We are also faced with concentration where hospitals in South Africa are concentrated in rich metropolitan areas and the reason for this outcome is that this tends to be where the private investor prefers to invest, however the provincial government has a huge role to play here in dictating where hospitals can be located in the country. There are also many issues around schemes and the conduct of private practitioners. The process of the inquiry began in 2014, however it took a while to finalise as it faced litigation from some private hospitals who objected to the inquiry. Public hearings were conducted throughout the country following which the final report was developed. It must be noted that certain developments have taken place since the advent of the National Health Insurance concept.

Findings of inquiry
Dr Ntuthuko Bhengu, Healthcare Market Inquiry panel member and Alchemy Health Technologies founder and executive chairman, stated that facilities such as private hospitals, clinics and day clinics were considered. Consolidation and market power was important to understand, because research has shown that where a few powers have the means to dominate, it is likely that prices will be higher or the quality of service will be poorer as not much needs to be done to win a customer base. He gave the example of the data market inquiry where due to the power of Vodacom and MTN, they did not need to respond to Cell C's significantly lower prices, as the two were already so secure. With health establishments, we found that the three largest hospital groups are Netcare, Medi-Clinic and Life who jointly hold 83% of beds in private practice and 87% of admissions in the private sector at a national level. Even when we considered the local markets, there is a 60% concentration which means that they are still the three dominant players. We also looked at the National Health Network (NHN) which could best be described as a collaboration of small independent players who have been granted an exemption by the Competition Commission to assist in negotiating territory service providers, but they do not share a common strategy and do not have common buying powers. Even though they are growing in the number of beds, they still cannot be regarded as an equal partner to the other three dominating groups. We found that big hospital groups do not compete for patients, but rather compete to attract doctors with a reputation of being the best and this means these hospitals need to have expensive equipment, however obtaining this equipment requires hospitals ensure a return on their investment. There is no measure of quality in the industry at all and private hospitals still do not have a standardised measure of quality. The Commission recommended that Parliament and the Department of Health adopt a long-term view and employ the supply side regulator for assistance. The supply side of the industry which actually provides services is rarely regulated beyond being given a licence to operate.

Four key concerns were: 1. There is no pricing of services; 2. Licensing as the provinces are guided by different legislation and the challenge is that many provinces have issued licences, but were unable to keep track of how many licences they had issued. It is important to consider if the entity is competent to receive the licence and establish if there is a need for the facility when issuing licences. 3. Health services monitoring to consider if a facility is actually providing the correct services and operating in safe way that does not endanger the lives of its patients and 4. Economic value assessments to consider if a new medicine or equipment brings additional benefits to the market in addition to it being safe for use. He noted that waiting periods could be long on the side of the supply side regulator and the recommendation is that the pricing and licensing concerns which are urgent be immediately implemented. Large players have consistently bought out smaller players in the market and the Department of Health should regulate if licensing a particular facility would be in the interest of competition.

In relation to health practitioners, the fee-for-service system is dominant in the market and it has been determined globally that it is possibly the single most influential driver of healthcare services. With fee-for-service the doctor will be paid for every unit it gives and another driver is the frequency where the practitioner can maximise income by charging as much as possible in an environment where there is no set price. This is a problem as it is not linked to any outcome that would ensure that the practitioner actually makes a difference. The HMI found that this was the way most payments occurred despite the introduction of other value based models. There is no reliable database of practitioners. The Board of Healthcare Funders issues practice code numbers, however that is also not reliable. The HMI found that the Health Professions Council rules inhibit the innovation that needs to take place in creating value-based services. The price vacuum is also an issue where in South Africa there are more than 10 000 practitioners thus it is impossible for every medical scheme to agree on prices with each individual practitioner. Another issue is the system runs on quotes and the HMI found that this ultimately affects the price of services and will continue to do so until the price environment has been stabilised. Where there are more practitioners in a particular area, there would be more admissions to hospitals and where there are more beds, those beds will be filled. The HMI found that the current market incentives promote over-utilisation which provides more services than needed and this is in the form of fee-for-service.

In terms of supply-induced demand, we compared South Africa to 17 OECD member countries. Since 2010 our admissions to hospital are constantly increasing. The recommendation about practitioners is that we make use of the multilateral negotiation forum as they cannot continue at the expense of principles that promote competition. Thus we place the multilateral negotiation forum under the umbrella of a regulator which will primarily deal with practitioner pricing and there will be a range of prices that practitioners can charge. In the event that a client does not agree to a particular pricing there could be an arbitration process to ensure the pricing is not out of the range which the client can afford. The HMI has made recommendations on the practitioner associations as it is concerned about some associations who have a recognised role in providing training and on-going support for practitioners and are organising conferences which cross the line and become forums that start dealing with pricing. The Health Professions Council should assist in updating the learning curriculum, because as it stands there is no link with the understanding of cost and this needs to come through in training.

Medical schemes funders
Dr Lungiswa Nkonki, panellist for the Healthcare Market Inquiry and senior lecturer at Stellenbosch University Department of Global Health, said funders were defined as medical schemes and administrators of medical schemes. In South Africa, the HMI observed a unique feature in the funders market which is that medical schemes are not for profit, but their administrators are for profit and this phenomenon was poorly understood by medical schemes. In the South African context we have a split between open and restricted medical schemes. Restricted medical schemes only allow membership for individuals who belong to a particular profession or are employed in a certain field such as a medical scheme for government employees or parliamentarians. Governments tend to protect their population by preventing medical schemes from performing a risk rating which means that the government attempts to prevent the schemes from seeking to recruit only those who are young, healthy and less likely to claim. In South Africa there is the Medical Schemes Act which also seeks to do the same. In South Africa if a client has funds to belong to a medical scheme they cannot be turned down if they have a particular illness and their premium cannot be based on how sick the person is and this is known as open enrolment. Funders compete on the basis of risk which is precisely what the medical schemes seek to avoid. Funders manage this in a way where benefit options are aimed at attracting younger and healthier members. In the open medical schemes market there are over 137 different options that are neither standardised nor comparable so if you do not belong to an employer that already has a medical scheme, it would be challenging to compare prices to see where one would get a better deal. Competition is not only seen in terms of prices, but also value where there is an absence in measurement of outcomes. Consumers thus cannot discipline the market. The HMI also found that the scheme and the administrators market are highly concentrated which for instance means that only 2% of medical schemes account for over 70% of the market.

There has been no meaningful entry of medical schemes or administrators coming in the market who challenge the bigger players. The HMI observed shareholding across the industry and found that Remgro and Afrocentric have cross ownerships both on the supply and demand side of the market and this could potentially limit competition because if a company on the demand side has a relationship with a company on the supply side, they may not innovate robustly to a level where they could severely compromise their sister company on the supply side. She emphasised that no illegal conduct was found in cross shareholding, but this was an area for attention by the Competition Commission. It should consider how to monitor this and find solutions to minimise the limitations on a competitive environment. The HMI found open enrolment and community rating create an enabling environment for anti-selection which is entrenched in the premiums charged to consumers. Anti-selection occurs when individuals are not obliged to belong to a medical scheme such as those who are young and healthy who think they are less likely to need healthcare and will opt not to belong to a medical scheme. Dr Nkonki pointed out that the Medical Schemes Act has an intervention which mitigates this such as late joiner penalties for those who join when they are older than 35 as well as waiting periods but it was found that a level of anti-selection exists in the market.

Dr Nkonki stated that the funder market needs a single comprehensive benefits-based package and this should be implemented together with a mechanism of equalizing risk between the medical schemes so that schemes are incentivised to compete on the basis of value and prices and not on the basis of risk. The HMI recommended that the prescribed minimum benefits package should be reviewed and aligned with the base package and that this should include conditions that can be treated out of hospital as well as the inclusion of a component for preventative care. It was challenging for a consumer to negotiate with a practitioner on what the correct pricing would be and if they need a particular intervention or not, thus when a consumer hands over their finances to a medical scheme they are asking them to act as an agent to negotiate with facilities and providers on their behalf. Principal officers and trustees are there to ensure that this takes place and bridge the gap and a broker is meant to assist the client in selecting an appropriate medical scheme and assist the client on an on-going basis. During the inquiry we found that many medical scheme members were not aware who their broker was and if they experienced any problems they did not approach the broker. We have proposed that if a medical scheme member does not choose a broker, they should not be charged for this. We have also proposed that principal officer and trustee remuneration should be linked to performance as their salaries continue to increase even if the scheme is doing badly. Adequate training should be provided to them and administrators should have a clear fiduciary duty. She pointed out that administrators are not directly accountable to medical scheme members as they have been contracted by the schemes to perform a service on its behalf.

Dr Bhengu said that when large hospital groups were aware that they were competing to be on a network, the HMI saw signs that competition was possible. In a confidential submission one of the players stated that even after offering a 25% discount on tariffs it still did not make the network.

Dr Bhengu said that the HMI was not proposing a regulator, but rather a platform that would facilitate doctors reporting on their outcomes and this should be mainly practitioner driven, however ultimately the Department of Health must come in to start this process which must be linked to practitioners obtaining their licences provided that they submit the necessary information pertaining to outcomes.

Dr Nkonki highlighted that the inquiry was concluded at the time when the NHI Bill was tabled and s the panel supports the objectives of the Bill in achieving a unified healthcare system for the country. She emphasised that the HMI was presenting findings only on the private healthcare sector which covers only a small portion of the South African healthcare population. Thus the HMI acknowledges that the healthcare market may not be typical in that it involves high stakes where it could not be determined whether an individual leaves or not. There could potentially be implications for the productivity of the population and there are many other failures that are involved in healthcare. The full implementation of the NHI is 2026 at the earliest and the private sector will likely continue to operate in the interim as the NHI is still being conceptualised. This might also help to relieve the burden on the public sector and the HMI believes that a more competitive private sector will have lower prices and greater value for money. Greater competition will also benefit the state as the purchaser of services. The NHI requires supply side providers that are properly regulated and the regulation of the South African sector is largely on the demand side and medical scheme side. The HMI found that both facilities and medical practitioners have very little regulation and licensing was not adequately monitored thus there is a huge gap in coordinating supply side regulation.

The Commission looked at other systems such as the UK National Health Service which includes both public and private providers being regulated by what is called the Monitor as an independent supply side regulator and is subject to competition authority regulation. The Health Market Inquiry in South Africa was the second globally to follow the UK model. The HMI believes it is critical that the NHI Fund be run under the auspices of the Competition Act. If this is not done it would undermine the core values of National Health which is to contract at the lowest cost. The single-based benefit package which the HMI has proposed is aligned with the objectives of the NHI as an NHI needs to have a core defined package that it will deliver to its population. The HMI believes that its proposal of creating a mechanism to adjust for risks will create a single pool which could be readily merged to the NHI and address the current risk fragmentation in the system. The HMI recommendation of outcomes monitoring will allow for value-based purchasing and the multilateral negotiating forum is a useful platform for price negotiation and determination which would be of value to the NHI. Licensing and accreditation of services affect the NHI Bill. The HMI has proposed that the supply side regulator must begin data collection and oversee information sharing. A NHI requires good information systems. The HMI believes Treasury is constrained and this would be the ideal opportunity to get the private sector involved in relieving the burden on the state.

Mr Ratshisusu said the Competition Commission has fully endorsed the panel report and no changes have been made. The Department of Health and the Minister of Trade and Industry, Ebrahim Patel, have also fully endorsed the report. The market inquiry recommendations complement the NHI. A competitive private sector works well with the NHI. He emphasised that reforms are necessary in the private health sector. A team has been put in place to begin the facilitation of the recommendations.

National Department of Health (NDOH) input on the report
Dr Anban Pillay, NDOH Acting Director General, said that in 2004 the Competition Commission came up with a ruling which prevented bilateral negotiations between funders and providers which lead to situation where everyone in the market set their own prices. Through the National Health Act we came up with the reference price list which proposes that instead of setting a price for a particular service, we will appreciate that the cost of delivering the service may differ between provinces thus any service has input costs and a return on investment. We came up with a list of processes and methods used by practitioners and we gave these input costs to the private healthcare sector and in hindsight the mistake we made was to say to associations that they should get a private consultant to gather the information and collate it into a single document so that the Department gets a sense of the costs involved in, for example, seeing a cardiologist. However, the consultants did not do what was expected of them and a private accounting firm was hired to verify these costs which is where the trouble began as these costs could not be verified, for example, the facility claimed to have a particular machine, but upon inspection this machine was not there. The Department then brought together clinician groups such as obstetricians in the public sector to report on the inputs involved in delivering a service and the reasonable cost for this. This number turned out to be much lower than expected and the private healthcare sector then opted to go to court if they did not get the amount of money they asked for. We then came up with a voluntary price negotiation system where funders can negotiate with the providers and we created a structure where information is shared. However, the private hospital groups refused to participate as they were concerned the Competition Commission would charge them for collusion.

Mr A Shaik Emam (NFP) thanked the Competition Commission for its comprehensive presentation. He referred to the monopoly currently in existence in South Africa which was not only in the health sector, but prevailed in many other sectors. The aim was to introduce universal health coverage for everyone through the NHI. It was common knowledge that the entire market such as hospitals, banks and pharmaceutical companies have interests and shareholders so they are basically conflicted. He asked if this would not have a major impact on NHI implementation. For the NHI to be implemented, medicines and services must be obtained at a reduced cost that is market related and not driven by profit as is currently the case. He referred to MedScheme which is both an administrator and insurance company. From his own research of the industry, administrators are the entities who make the most money as they dictate the prices to hospitals and practitioners due to conflict of interest. He asked the for the solution on how to deal with this. He was unsure to which level the HMI had done a comparison of the pricing. He understood what the Competition Commission was trying to do would not be well-received. He asked if it was not important that the Competition Commission collaborate with other departments such as Trade and Industry as it could not achieve this on its own. He agreed with the HMI on the quality of the private sector and said the quality was not as good as it was thought to be. One of the weaknesses was the HPCSA which faced many challenges in their accreditation and oversight processes and this needed to be scrutinised. He asked if it would not be in the interest of all South Africans that the public and private sector put together a joint healthcare system where the interests of the people are the number one priority.

Dr Bhengu replied about the private sector impact on the NHI saying that this was the one aspect that was not addressed by the HMI which looked at how the private healthcare sector could be made to work better.

Ms S Gwarube (DA) thanked the Competition Commission for the report. If one looked holistically at the report by the Competition Commission, a few things become evident. The private health industry is not really an industry or a health system, but is essentially a group of people who are providing health services. It is deeply fragmented thus is highly likely to encounter issues such as these where different interests are pushing the funders and practitioners to advance their own interests. Part of the reason for the deep fragmentation is South Africa does not have a private health system. If one looks at the National Health Act of 2003, the reality is one of the key items picked up by the Competition Commission: the inconsistencies in licensing and quality assurance in the private health industry. The National Health Act gives powers to the minister to make regulations and look at licensing in the provinces even though they are the implementing agents. Ultimately the legislation empowers the minister to do so and also broadly empowers him to be responsible for healthcare as a whole. She understood the challenge of some of the private healthcare actors. The reality was that legislation predates all of this and gives the minister powers to essentially put together a private health system that does not exploit the users which is the outcome of the work that the Competition Commission has done.

Ms Gwarube said the system is still not governed properly by regulations that are standardised. For example, Western Cape licences private healthcare actors using a 1977 piece of legislation. Provinces were using different pieces of legislation. Standardisation of licensing that is demand-driven and not actor-driven is something that has to come from the minister and his team. She asked what the way forward would be as the report was very clear where the responsibility fell for regulating the system to make it far more patient-centred. On quality assurance, the reality was that the Office of Health Standards Compliance (OHSC) does not in any meaningful way look at the quality of the private health industry and she asked why this was the case. She again pointed to the minister who was responsible for ensuring quality both in the public and private health sector. In regulating actors, the state mandate has been neglected and she asked what the Competition Commissions findings were on what the state should have done and what has gone wrong, notwithstanding the core challenges hampering the process. She referred to medical schemes as funders and asked if consideration was given to where the role for the Council of Medical Schemes began and ended as it was meant to be the watchdog of exploitative practices in the sector.

Dr Bhengu referred to paragraph 5 in the Report Executive Summary and said that the issues Ms Gwarube raised were mentioned and the Competition Commission agreed with what she said. We recognise the Office of Health Standards Compliance (OHSC) as being a key supply side regulator.

Dr Nkonki said the Council of Medical Schemes (CMS) has the responsibility of regulating the demand side and the administrators. However it became clear early on in the inquiry that CMS admitted they had challenges with resourcing and capacity at times and its role of protecting the consumer was not as prominent as it should have been. It was important to note that CMS was an active participant in the inquiry. One of the recommendations was that many medical aid members do not know that the CMS is there to represent them and therefore the CMS and its contact details should be listed on medical scheme cards. If the broker and principal trustee fail the customer, they should approach CMS to lodge a complaint.

Mr Ratshisusu replied about standardisation. If we consider medical schemes across the board, there are over 200 products that an individual has to choose from and people usually buy the most expensive product as they believe it covers everything and only when they go to hospital they realise it does not. Thus we are suggesting that there must be a standardised benefit of care.

Dr Pillay replied about licensing and the National Health Act at present, that there is no provision which allows for the issuing of hospital licences as proposed in the report recommendations. What the National Health Act has is a Certificate of Need Provision and that certificate is structured in a way that raises a number of challenges in its implementation. The report recommendations do not include this approach and where it did, it had to be withdrawn, because it would lead to litigation against government. To summarise the problem, legislation as it currently stands means that individuals who are established in private practice in terms of the Certificate of Need will be rendered illegal in their practices unless there is an amendment to legislation. What has been proposed is that we draft legislation to deal with hospital licensing.

Dr Pillay replied about quality assurance that the Office of Health Standards Compliance is mandated to deal with quality in the public and private sector. When the OHSC began its work it came up with guidelines to assess health facilities. What the OHSC experienced was legal resistance from the private sector in that it would not comply since the guidelines were not law and it did not want to be inspected. The structure of the private sector needs to be transformed and the report recommendations made this clear. It was important to reflect how we got to the point we are at now. In the 2000s the approach to what the private sector would be and the way it is currently structured is different. At the time there was a view that the private sector would be part of a social health insurance system which is why there are gaps in the way the legislation is structured. We had wanted to get a database of all South Africans who are on a medical scheme to understand how to develop an NHI database, however the medical schemes refused to provide this information.

Ms N Chirwa (EFF) thanked the Competition Commission. She was concerned about the regulation of the integrity of pharmacies. She referred to a complaint received recently from a worker who said the pharmacy resells medication returned by customers and changed expiry dates on medicines. Integrity is a huge issue for the private sector. She asked how this could be managed or regulated. She asked about a punishment mechanism for such cases. Has the pricing determination process been made on the recommendations of major surgeries and if so, what are some of the examples. She asked what the Healthcare Market Inquiry flagging mechanism was to note malpractice in the medical schemes industry. She asked if it depended on the Department or grievances lodged by customers. She asked about the relationship between the Inquiry and the customer base in disseminating information for their protection in accessing facilities. She asked if this was not part of the Competition Commissions jurisdiction and if it was, how this was done.

Dr Nkonki replied about the flagging mechanism saying that this was an interesting question. The core benefit package which exists in the private sector is the prescribed minimum benefits. Ideally this should be paid from the risk pool. During the inquiry, we found that medical schemes and their administrators did not have a reliable mechanism for identifying prescribed minimum benefits and they were at times paying the prescribed minimum benefits from savings which was incorrect as it should have been paid from the risk pool. There were no reliable systems within the medical schemes for identifying such concerns.

Dr Pillay said changing dates on medicines was not allowed and such pharmacies and pharmacists must be reported to the Pharmacy Council as this contravened both the Medicines and Pharmacy Acts and the pharmacist would be subject to a disciplinary process by the Pharmacy Council and the pharmacy inspected.

Mr P Van Staden (FF+) asked for clarity on lack of quality measures and the need for standardised measures on quality and health outcomes. He referred to medical scheme members who did not know who their brokers were and asked how many schemes and members were consulted on this matter. He referred to a point made during the presentation about "limited evidence" and asked for clarity on this.

Dr Nkonki replied that she was glad the question about brokers was asked as it gave the Competition Commission the opportunity to say what a mammoth task it was to conduct an inquiry into this. For instance, on the data presented on supply induced demand and expenditure on claims, we looked at about 43 million claims data and there is no other study in South Africa that has been that comprehensive. For brokers in particular, we conducted a consumer survey and about 56% of individuals who said that they knew they had a broker, or used a broker to join, but admitted that they did not continue to use that broker or used it inconsistently. And of this population, about 16% did not know who their broker was.

Dr P Dyantyi (ANC) thanked the Competition Commission and asked about pricing standardisation and why it has been so challenging to perform oversight particularly with the Acts in place. She referred to the point about the Competition Commission not having found anything illegal between the funders and administrators collaborating. She asked for clarity why there was not a reliable practitioner database since practitioners have practice numbers issued to them.

Dr Bhengu said that the Health Professions Council has a database of everyone who is registered and this is certainly not reliable, because there are many practitioners who were trained here and are not in the country, but have retained their registration here and this amounted to 200 000 practitioners over the years. The Board of Healthcare Funders now compiles a database of about 60 000 active practitioners in the market today who submit claims. The reason used to explain why the database is not that reliable, is precisely due to the technological advances as communication now happens via email. If you were still working on the old verification system, you would not get the cheque if the physical address is not correct. However this reasoning also seems questionable.

Ms A Gela (ANC) noted that the HMI was due to begin in January 2014 and end on 30 November 2015, but was extended to 30 September 2019 due to a variety of reasons including limited availability of technical resources. The HMI had provided just one reason for this delay and she asked for more on this. She referred to the report findings and asked how far the Competition Commission was in addressing these.

Mr Ratshisusu replied that the inquiry began in 2013 and it took a bit of time as the Competition Commission appointed the panel, it also appointed service providers. There was a specific service provider which a particular hospital did not like. We spent a significant time trying to defend the service provider and went to court. Former Chief Justice Ngcobo ran this inquiry and he prescribed the process of transparency. He would not publish anything that had not been tested with the stakeholders including releasing the data which needed to be accessed by hospitals and medical schemes. The Chief Justice said he did not want an instance where he made a finding and it was challenged. This process took time. The space of time between publishing the provisional and final report was a year. This also came at a cost as the Commission spent a handsome amount each year up until the report was finalised. The good thing is that the law has since changed as Parliament passed amendments to the Competition Act and now the Commission has 18 months to conduct an inquiry.

Mr Ratshisusu said he thought a speedier turnaround time would be seen on addressing the findings. There is no push-back from the private sector and it was waiting for the Competition Commission. The only challenge is that there were dependencies as the private sector needs to be regulated in a certain way and government should design those regulations.

Dr K Jacobs (ANC) said that had been an issue which prompted an inquiry which brought about recommendations. It seemed as if the private sector had withdrawn even more as the recommendations would influence how things would be done particularly the private health sector. When the National Health Insurance Bill was introduced, there was further distancing. One needed to consider how to get everyone to engage on this in a meaningful way that will effect the change needed.

Dr Jacobs said initially private doctors were providing services. Then funders were allowed to be the third party. The funder then became an entity overpowering the service providers which resulted in the current situation. He was concerned about promoting competitive contracting, as this may seem as though the Commission was trying to move away from a people service. There should be a system where there is a bilateral agreement between the practitioner and the funder. He asked if this was not giving the funders even power than they had previously. The Committee and the Department of Trade and Industry needed to have a workshop to scrutinise the recommendations to ensure that it is not to the benefit of the funders. He referred to the NHI and making use of general practitioners. The biggest challenge to the proposed recommendations was specifically the proposed regulatory framework. He asked how it would be negotiated to make these regulatory framework applicable within the system and the private health system.

Dr Bhengu replied that in the MHI crafting of solutions on the multilateral negotiations, one cannot move away from the fact that in 2020 the private sector exists in the health sector and this has to be catered for. In the healthcare sector there is a lot of information that changes and the regulator needs to have a sense of what the country can afford going into the tariff negotiations and if they are way off, there are mechanisms in place deal with it.

Mr Pillay replied on how the private sector would respond. He thought it was important to look at the history. When the HMI was announced, there was no NHI Bill on the table. However, while the HMI was doing its work, the NHI Bill became the worse of the two evils as the HMI recommendations became something that people liked so the affinity to this is linked largely to the preference for the HMI versus the NHI. When we implement the recommendations now, fewer people will be content with this as practices will be affected by this as their income would change.

Mr T Munyai (ANC) agreed with Dr Jacobs that having a workshop would be instrumental. A key issue was the 83% dominance in the market by two or three companies. He thought government was anti-monopoly and anti-imperialism. With only two or three companies controlling South Africa’s healthcare system, consumers were so disempowered to where they cannot discipline the market. He asked if the state was not meant to play a regulatory role on behalf of its population as the minister is responsible for both private and public healthcare. South Africa has a very unequal healthcare system. He believed the state should be able to play a regulatory role or create control mechanisms through the Competition Commission, which is independent. He raised the multilateral tariff negotiation process between the monopoly companies and service providers. He disagreed with this and thought there should be an independent institution which regulates this. However, the Competition Commission could not be delegated this added responsibility. The state should be concerned about monopoly. He was concerned that the Competition Commission report was not independent and that the Department of Health and the Minister of Trade and Industry first looked at and approved these recommendations. If the Competition Commission projects itself as an independent institution, there should not be a process of approval by others as it would be the Competition Commission recommendations. The independence of the Competition Commission should not be compromised.

Dr Bhengu replied about market dominance by hospital groups that it is a given and that this has to be dealt with by the Department of Health as it allocates the licences.

The Chairperson said he would like to comment rather than ask questions. It had to be understood from the report that there are still certain challenges which need to be noted. South Africans needed to accept that there are challenges so that we can engage in creating solutions. The biggest portion of healthcare expenditure goes to the administrators and the second layer is private hospitals, then specialists and general practitioners receive almost nothing. Some would want to decrease their investments in mining as there was more money in the private health sector and this needed to be taken very seriously. He referred to visiting maternity wards at private hospitals and finding that 72% of births were caesarean sections. In public sector hospitals, only 35% of births are caesarean section.

The Chairperson said he did not understand why people who were in ICU were able to post on social media about their condition. If this was the case, they were able to be in a general ward and this was how individuals were overcharged. This was immoral. He gave other examples of over servicing and maximisation of profit. The Healthcare Market Inquiry Report concerned him as it spoke to the real core of humanity. He referred to a case where an individual came from Swaziland to receive treatment at a South African private hospital. The patient’s laparotomy cost the medical aid in Swaziland R500 000 and days later the patient had complications. The medical aid was contacted as the patient had to undergo an urgent operation, however the medical aid first needed to pay another R750 000 to the hospital. It was ridiculous that this treatment could cost over a million. The Swaziland government had even made contact with South Africa’s Minister of Health on this matter.

Mr Ratshisusu said the examples the Chairperson referred to were in the report and that a chapter contained in the report addressed this.

Dr Bhengu acknowledged that the Chairperson's comments and stressed that there was a need to show the public that there are challenges within the private sector.

Dr Nkonki said that the presentation showed admission rates and it also referred to caesarean sections. The report showed that ICU admission rates for South Africa were higher compared to the other 17 OECD member countries. During the public hearings, several facility groups as well as medical practitioners claimed that at times individuals who should not be placed in ICU are placed there due to poor nursing in the general ward. In the Competition Commission’s analysis, if those people admitted to ICU were in general wards, this could save R2.7 billion in the system. She agreed with the Chairperson that much was said about the ills of the public sector, but very little was known about the ills of the private sector. The findings of the inquiry provide an evidence-based diagnosis of the sector as well as remedies.

Ms Gwarube said the Chairperson raised a critical point about morality, but what the Competition Commission had raised in its report had little to do with morality and more to do with the Committee’s obligation to figure out a way forward in implementing those recommendations. One needed to ensure that the Department of Health implemented these recommendations through a regulatory framework that is accepted and implemented in the private health sector. One of the presenters spoke about the compatibility of the HMI recommendations with the NHI implementation and she asked for clarity on the recommendation that the NHI Fund should be subject to competition regulations. She asked why this was important.

Mr Shaik Emam suggested that based on the gaps the Competition Commission had identified, it ought to come back to Parliament to introduce a bill so the necessary changes could be made. The Commission has accepted that there is a lot of collusion and conflict of interest and there are many mechanisms to deal with this to avoid price fixing for one's own benefit. He asked what the Competition Commission has done about this. The Commission should provide the Committee with a comprehensive list of who is involved so that it can be dealt with. Noting the Chairperson’s comments, he said practitioners were becoming shareholders in hospitals driving them to admit patients unnecessarily to benefit from the profit the hospital makes.

Mr Ratshisusu said the Healthcare Market Inquiry is not an institution, but rather a panel constituted by a judge and that it has completed its work. The Healthcare Market Inquiry made recommendations to the minister and it does so in consultation with the relevant stakeholders and the Department of Health with which it has had extensive consultations during the inquiry. It would be dishonest if what the panel presented to Parliament did not include dissenting views. The approval of recommendations squarely lies with the Competition Commission, but by law it needs the recommendation of the executive which in turn tables the report to Parliament. Context in this case was very important. There are also issues of history on how we got to the current point and the report details that. From the Competition Commission’s view, we would rather present this as a package which will contribute to the future. The panel proposes the regulatory framework and the regulator who is under the full control of government can address pricing. However, the only challenge here is that prices are being set by practitioners and here a choice needs to be made. As a regulator, the Competition Commission is not able to introduce bills, but simply makes recommendations to the Department of Health. If what we say to them makes sense, the Department will act upon it. On cases such as collusion arising from the challenges we face, the law defines collusion in a very narrow way such as direct price fixing and direct division of markets. What is happening here is a lot of cross shareholding thus it may not necessarily be collusion, but rather this points to the structure being problematic. To find solutions requires engagement and sometimes this engagement should be with the shareholder in question. For example Remgro would defend itself in court and win if it says its own stakes in companies is not colluding – thus we would not sustain a case. There are a lot of private equity companies in South Africa and that is why it would not amount to collusion. We are engaging with the Department of Health at present and we have to spend a bit more time on these matters for there to be a proposal from the Department on how to move forward.

Dr Bhengu said the panel worked based on the terms of reference published under the auspices of the Department of Trade and Industry and the Competition Commission – and this was a private sector inquiry. We had to look at the public sector only to the extent that it interacts with the private sector. After publishing the provisional report, we were confronted with the question of whether we need to look at the NHI, but the HMI accepts the NHI and is not questioning whether it is relevant or not. The HMI viewed its role as having to assist the process by identifying within our scope, what would and would not work well and the big take away point is that if the NHI comes into the unregulated, imperfect private sector, this will be a red flag for the NHI. We needed to make this point and we stand by it as we have identified that that it would not help to introduce the NHI into a sector that is still experiencing these issues.

Dr Nkonki said that the Deputy Commissioner had already touched on collusion and she would like to explain how a healthcare market inquiry is different from investigating a particular case. The HMI had to look at the structure and the potential problems that could arise from the current structure as well as to highlight areas that require further attention which could be problematic in the future. In its view, it is not illegal for Remgro to own 42% of Medi-Clinic and in turn have shareholding of about 29.9% and then have another relationship with Discovery which is an administrator. Medical schemes can own hospitals and we are of the view that this could be a problem in the future, so the HMI applies its mind as to how preventative measures could be put in place. On conflict of interest in the funder market, there are open medical schemes which have administrators which are aligned to them. The HMI had gone to great lengths to explain this in the provisional findings report to the point where medical scheme members could not clearly distinguish between the administrator and the medical scheme. There are medical schemes which self-administer and do not actually have administrators. There are also medical schemes who contract with multiple administrators to perform various tasks and negotiate on their behalf, process claims and provide management services. Mr Shaik Emam is indeed correct that the administrators are paid a fee per beneficiary who belongs to a medical scheme it does administration for. Even though open medical schemes delegate a huge amount of responsibility to the administrators, they are not directly accountable to the members which is why the HMI has recommended that there should be a fiduciary responsibility of the administrator to be accountable to medical scheme members.

On fee-for-service and if the recommendation would not have a negative effect on service providers, Dr Nkonki replied that the fee-for-service payment is known globally to promote over-servicing. In addition, it leaves the risk on the side of the consumer. The previous Minister often made an example of when an individual went to a hospital and the first needle was used to try and draw blood and if this was not done well, a second needle would be used and while the patient paid for the second needle, this was actually not the patient's fault as it was not done correctly the first time. However, there are alternative reimbursement methods that allow one to share the risk so that the risk is not only on the side of the consumer, but also on the side of the provider and the funder. Those methods include capitation, pay for performance and various other reimbursement methods. We would like the system to move away from a fee-for-service and instead move toward an environment where there is a sharing of risk.

Dr Pillay referred to what the cross linkage was between this report and the NHI and said there were two linkages. The first linkage is evident when one looks at the rationale for the NHI. It was important to understand the public and private health systems in South Africa and now appreciating the challenges contributes to the solutions we will come up with to solve those problems. It was thus important to appreciate the report findings so that the tools needed to respond could be identified.

The Commission and stakeholders were thanked for attending the meeting. The proposed workshop would be coordinated by the committee secretary and the Commission would be notified.

Meeting adjourned.

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