National Health Laboratory Services & Council for Medical Schemes Annual Reports 2006/07: briefing

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19 February 2008
Chairperson: Mr L Ngculu (ANC)
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Meeting Summary

The National Health Laboratory Service received its first unqualified audit opinion. The presentation explained their “Fee for Service” system, the improvements in old labs and the number of new labs, the emphasis of matters in the audit report, the NHLS’s income and expenditure, tariffs, demographics and a new system to deal with turn around times for diagnosis results.


The Council for Medical Schemes presentation included information about its strategic objectives, the Medical Schemes Amendment Bill, risk equalisation, governance and the improvements in transparency and efficiency of medical schemes benefits. The report also looked at monitoring the impact of the Medical Schemes Act. In respect to financial information, the CMS received an unqualified report from the Auditor-General.

Meeting report

National Health Laboratory Service (NHLS) presentation

Mr John Robertson (CEO: NHLS) presented the Annual Report to the Committee. The NHLS was equipped with 268 laboratories across nine provinces. NHLS services included primary healthcare clinics, district hospitals, regional hospitals, tertiary hospitals that are linked to medical schools, the National Institute for Communicable Diseases and the National Institute for Occupational Health. The NHLS service model is based on Fee for Service. The NHLS was a monopoly, which could be contentious at times, but the organisation was aware of the situation and wary of abusing their status as the preferred provider. They were responsible for training all of the pathologists in the country and had a strong research mandate.


The NHLS received an unqualified audit opinion from the Auditor-General. This was regarded as a highlight as it was the first unqualified report they had achieved since the NHLS’s existence. The Kwazulu-Natal integration was also successfully achieved.


Emphasis of matter within the Audit Report dealt with title deeds, completeness of the External Research Grant Program and Tender Regulations. On the matter of title deeds, the NHLS was in the process of transferring properties from Public Works to the organisation.


For the first 18 months of their existence (October 2001-March 2003), the NHLS experienced a loss but they slowly moved to making a profit in 2007. The organisation did not receive direct funding and profits that were generated were used to fund working capital and expenditure. The bulk of the NHLS’s income was derived from fees but there were contributions from teaching, research grants and Government grants. Expenditure was incurred from teaching and research, occupational health, surveillance and epidemiology, laboratory services and administration. 


In calculating tariffs, the NHLS looked at its 2006/07 performance, volume and prices. In effect, tariffs would only increase by 2.2% from the previous year.


A new laboratory information service was being developed. If successful, the service would be rolled out to the rest of the NHLS.


In respect of Human Resources, 999 employees were successfully transferred from Kwazulu-Natal. The NHLS was in the final phase of developing its broadband, remuneration and career management systems. There was a successful recruitment drive with visits to the majority of the universities in South Africa.


The workforce profile showed lots of skewing, as there were difficulties in changing demographics. Processes were in place to remedy the problem. The NHLS was affiliated to 11 Universities of Technology. They found that there was a high failure rate (55%) in health sciences at the Board Exam level.


With regard to skills development, the NHLS increased the number of conferences, bursaries, student medical technicians and technologists, intern medical scientists and registrars. Fifteen labs were accredited in 2007, which brought the total to 51 accredited NHLS labs.


Mr Barry Schoub (Director: National Institute for Communicable Diseases) spoke about its functions as the surveillance department of the NHLS which monitored communicable diseases, outbreak response and management. The South African Field Epidemiology and Laboratory Training Program (SA FELTP) aimed to promote a healthier Africa through quality laboratory practices that support efforts to combat major infectious diseases. It provided training courses to help expand laboratory capacity for diagnosis and monitoring of major infectious diseases.


The NHLS planned to extend services to all communities in the country by deploying transport logistics to service primary health care facilities and extending consultation and outreach programmes to rural provinces.


One of the NHLS’s provincial programs focussed on the disease TB. The NHLS had created a way to provide TB results to hospitals more efficiently. The results would be sent as an SMS, which essentially would mean that the hospital would receive the results on a slip of paper as an auto fax.



Ms S Kalyan (DA) referred to the system that would be used to send TB results. She questioned the confidentiality of the results. She asked for the reasons for the delays in the turn around times. The number of graduates in this field was of concern. With demographics, Ms Kalyan wanted to know the importance of highlighting the racial background. Also, given the demographics, why were there so few employed from the coloured community?


Mr Robertson replied that every clinic would have a unique cell number. The NHLS built cell phones into printers. This method allowed a turn around time of one minute whereas in the past, results would only be given once a week in remote areas. With regard to confidentiality, the printed slip would be put in to the patient’s file immediately.


Mr Robertson was confident that the number of graduates would increase, as there was always a lag between the period of being a student and being a graduate. The number of graduates would increase within the next 4 to 5 years. The staff demographic statistics allowed the NHLS to set up new targets. The ratios were an indication of the difficulty experienced in the medical arena.


In reply to Ms Kalyan asked for the current vacancy rate for pathologists and scientists, Mr Robertson stated that the NHLS was a ‘fee for service’ organisation and experienced constraints with the posts that were approved by the Health Professions Council. The second constraint was that there were two registrars per consultant. The Committee would only see the result of increasing the intake in two to three years. There was no restriction on the number of posts except that they could not all be filled in one year. Posts were to be filled over 3 to 4 years so that the ratio of consultants to registrars did not change.


Mr B Mashile (ANC) showed interest in the organisation’s funding. He noted that the NHLS relied on its own profit for CAPEX. He wanted to know if the organisation preferred its own funding system or if they would prefer having a government-funded institution. He noted that 0.3% of the income was derived from teaching but that it constituted 2.2% of total expenditure. Mr Mashile looked at tariff development and asked how the organisation’s tariffs were regulated. He asked if there were bursary schemes, as they would help to improve their staffing demographics.


Mr Robertson replied that the NHLS was set up without funding mechanisms. The NHLS was created through its Act without funding mechanisms to generate its own funding. The system of “fee for service” allowed them to set up infrastructure without having to look for funding. The CEO’s personal preference was to remain on “fee for service” as they received money directly from the provinces and NHLS was able to give the provincial department data on where the money was spent. The province would know which hospital, ward and doctor spent the money.


On the imbalance of the 0.3% income and 2.2% expenditure for teaching, the income is received from universities and was set to increase after an agreement between the two institutions was made. The NHLS had experienced trouble in the past, but they were now able to generate CAPEX. The Board and the Department of Health approved tariff increases. For the past three years, the NHLS was significantly below the inflation rate. From 2005, tariffs only increased by 3.6% and were projected to increase by 2.2% in April 2008. The NHLS was conscious of keeping tariffs below inflation. In terms of bursaries, medical personnel came on to the payroll as full-time employees so they did not have any studying costs. The NHLS was in the process of providing bursaries to 50 final year medical technology students and ten to second year medical technology students. In the coastal regions, the organisation provided ten bursaries for 2008 to matriculants from the rural areas that had good maths and science results. The aim was to attract the students back to the rural or coastal areas rather than the cities.


Mr Sipho Mahlati (Executive Manager: Coastal, NHLS) stated that there were areas identified as having serious problems in recruiting appropriately qualified staff. More areas would be identified. The NHLS did not expect people to work in rural or remote places for long periods of time so they were in the process of recruiting people to fill vacancies.


Ms N Nkabinde (UDM) asked to whom the information would go to as soon as the TB results were printed and how long it took for a diagnosis. She also approved of having recruitment at the high school level.


Mr M Walters (DA) focussed on mother-to-child transmission. He wanted to know why the infection from mother-to-child was so much lower in the Western Cape compared to other provinces. He asked why the organisation had not advertised tenders in the Government Gazette for twenty-one days.


There were still some gaps in the NHLS procurement and wondered what their risk management system was like.


Mr Robertson stated again that each of the machines that gave the TB results would have their own cell number. It was impossible to reprint a report. The result would be printed on a slip and would be put directly in to the patient’s record. The method was formulated because reports tended to back-up in the clinics. The intention was not to use it for HIV results.


Ms Nontombi Mbelle (Executive Manager: NHLS) explained that to diagnose active TB, one needed clinical input, as it was a difficult and timely process. One could rely on clinical inputs and direct smear results. Alternatively, a culture could be done and most of the time, results could be given in two weeks.


With regard to mother-to-child transmissions in the Western Cape, Mr Robertson did not want to comment without scientific proof. Also, the NHLS had not published any tenders with the tender board in the past, but then started recently in September last year.


Risk management systems were set up two and a half years ago. At the moment, the NHLS was performing a full review of the system to find priority risks and was being monitored by the Audit Committee. Business Managers submit a report on a monthly basis. This report is consolidated and risk is measured.


The Chair thanked the NHLS for the report and the successful integration of Kwazulu-Natal.


Council for Medical Schemes (CMS) presentation

Ms Fikile De Buck (COO/CFO) spoke about the CMS’s strategic objectives. The Medical Schemes Amendment Bill was waiting for its introduction in to National Assembly after consideration by the Minister. The Bill would create the legislative framework for three key regulatory changes, which included risk equalisation in order to provide for the submission of beneficiary information needed to calculate the transfers to schemes. The CMS wanted to strengthen the capacity to manage the required data and to put in place the infrastructure necessary for the implementation of risk equalisation.


The second part of the Act included Governance of Schemes. The organisation worked closely with the Department of Health to draft legislative amendments to improve governance. The third aim of the Act was to improve transparency and efficiency of medical scheme’s benefits. Within the regulatory framework, the CMS looked at cost escalation of private health care.


The CMS’s Benefits Management division had continued to effect improvements in its capacity to assess and approve medical scheme’s rules on benefits and contributions. Some benefit options were rejected due to unfair contribution increases, inadequate provisions made for prescribed minimum benefits, financial unsustainability and inadequate motivations being provided for rule changes.


Compliance with Regulation 29 on solvency required medical schemes that fell below the required solvency level for three months to submit a report to the Registrar explaining the deviation and an action plan to remedy the situation. The CMS had engaged with a number of schemes to reach compliance with this regulation.


The CMS aimed to complete risk assessment frameworks and risk mitigation plans for high impact schemes and assess the financial performance of medical schemes in 2006.


In monitoring the impact of the Act and making recommendations to improve the regulatory scheme, the CMS looked at medical schemes’ expenditure on private hospitals, the International Statistical Classification of Diseases (ICD 10) coding systems, capital adequacy standards for managed-care entities, the practice code numbering system, consumer protection, research in to governance practices, the National Health Reference Price List and trustee training and consumer education.


The CMS aimed to be fully compliant with the provisions of the Public Finance Management Act (PFMA) and strived to ensure that their expenditure was in line with the budget and approved operational plan. The Council obtained an unqualified Audit Report from the Auditor-General.



Dr R Rabinowitz stated that the only comforting point made in the Report was that the organisation received a clean audit. The goals of the CMS were the same as the goals set out by Government when they introduced the legislation. This suggested a radical rethink was necessary of the way medical schemes are operated. The figures presented in the Report were clearly not sustainable. This pointed towards failure. She wanted to know why the Discovery Medical Scheme seemed above other schemes. A part of Discovery’s administrative costs seemed to benefit the shareholders. If this were the case, something would have to be done about it. Managed care costs were increasing yet costs of medical care were increasing as well. There was also an issue regarding payments to broker fees.


Ms De Buck spoke about payments to broker fees. Members were moving from one scheme to another. The process of protecting the risk pool was being challenged. This was an issue that needed to be looked at. The legislation may have to be changed to address the matter of broker fees.


Discovery was one of the organisation’s high impact schemes. The CMS and Discovery met regularly to discuss issues within the scheme. They discussed non-health care costs, administration fees within Discovery and contribution increases. Even though it was not noticeable to the Committee, Discovery had improved quite a bit.


Ms De Buck stated that the CMS was aware of the changes in hospital costs but there was no Act in place that allowed them to control and regulate costs. One of the challenges that they faced was trying to change the idea that medical schemes were price takers. The CMS would have to get medical schemes involved in that process of negotiating prices.


Professor W Pick (Chairperson: CMS Board) explained that there were many challenges and imperfections within the industry. The CMS would approach the Committee at a later stage with amendments to the Act that would enable them to reshape legislation and allow them more powers to intervene in matters. With regard to Discovery, the medical scheme did not have shareholders. Schemes, in general, were not allowed to have shareholders and profits. The challenge with hospital costs was that medical schemes were not able to bargain as a collective. Schemes had to compete against one another.


Mr Walters focused on the risk equalisation fund. He stated that it was pointless to subsidise the wealthy. He asked the CMS to explain the need for risk equalisation. Looking at hospital costs and specialist costs, it was his opinion that scarce skills in the country drove up wages. Private hospitals were not allowed, as the Minister had put an end to them. If there were more competition, costs would decrease. Therefore, why not allow the building of more private hospitals and let the free market do its work? If one freed up the market there would be more medical schemes and more people would have access to health care. Also, the free market would determine the number of benefit schemes available. He asked if CMS had qualified actuaries. He asked for the number of legal matters they were involved in concerning medical schemes as well as the costs involved in the legal matters.


Ms De Buck said that the risk equalisation fund will either transfer money into a scheme or have a scheme transfer money into the fund depending on what happened in the process. Not every scheme would have money transferred to it. The risk equalisation fund was based on community rating which was the fundamental behind the policy, which imbedded the Medical Schemes Act. The challenges of risk pooling would be addressed via the risk equalisation fund where community ratings would be used to calculate how much funds would go into a scheme and how much a scheme would transfer into the pool to benefit other schemes.


The CMS employed qualified staff, chartered accountants and statisticians. If the budget were increased, then the organisation would be able to employ actuaries. Benefit options were looked at internally, considered and approved by the office, and then sent off to medical schemes. When options were not priced correctly then it impacted on what members could actually get out of that option and the benefits provided. The CMS needed to protect the interests of their members and to make sure that the benefit options were sustainable by being priced properly.


Mr Mashile commented on the format of the Report. He stated that the report regarding costs was important but that it did not enable members to make quick comparisons. He also added that he wanted to see an influx of medical schemes into the industry.


Ms R Mashigo (ANC) questioned the training of trustees. She wanted to know if the training program encouraged the trustees to go to the consumers in public hospitals.


Ms De Buck commented on Mr Walter’s question concerning legal fees. She said that R5 million was spent on legal costs in the 2006/07 financial year even though the budget was R2.9 million. The CMS recovered R1 million as costs awarded to the Council.


The CMS provided training to trustees and had public hospitals as designated service providers so consumers would be informed of the options available to them.


Ms Rabinowitz asked if the CMS was in possession of the figure that indicated the number of complaints that the organisation acted on and the number of people that they helped. She commented on the increase in solvency saying that it could be due to the increase in interest rates. It was worrying that the money was not going towards member benefits. She wanted to know why the money was staying in the medical scheme fund. It was said that more control over hospitals was needed to fix things but community ratings showed it helped administrative costs and medical costs to increase. Controlling the hospitals, certificates of need, medicine prices, and not regulating medical devices did not help the situation. The Committee and the CMS needed to look at Primary Health Care.


Ms Rabinowitz encouraged the CMS to look at health care plans that were used in other places. Massachusetts and Israel were examples of places with excellent health care systems.


The Chairperson suggested that the Committee needed more time to deal with the issues raised. There were too many complex challenges that could not be sorted out in the meeting. He suggested that the CMS note the questions posed so that it could meet with the Committee at a later date to discuss solutions to the problems that were encountered.


The meeting was adjourned.



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