Current healthcare system ‘does not allow you to choose on price and quality’

Medical schemes form a substantial part of the country’s social security system, making a major contribution to covering healthcare costs, but they operate in an inefficient market, Professor Alex van den Heever says.

Van den Heever, who holds the Chair in Social Security Systems, Administration and Management at the University of the Witwatersrand, addressed the recent Board of Healthcare Funders conference for medical schemes and administrators in Cape Town.

If the healthcare market worked efficiently, medical schemes would have more of an incentive to compete, not only on price, but also on their healthcare providers’ geographical reach and level of service, he says.

The obstacles in the market have resulted in a lack of competition among healthcare providers, and in healthcare services being provided largely on a fee-forservice basis, Van den Heever says. The most notable of these obstacles are a concentration of ownership among providers, perverse incentives among providers, and a lack of information about the quality of the services they provide, he says.

When a scheme pays for services on a fee-for-service basis, this is generally more expensive than when a scheme contracts with a provider to render services to its members on the basis of a capped fee per month.

If the system was operating rationally, Van den Heever says, medical schemes would have moved towards providing you with networks of specific providers who charge the best prices and offer goodquality service. You would then select a scheme that offers access to the best networks at the best price.

Instead, scheme members have no information about the cost and quality of the services their schemes obtain on their behalf, and many networks are open to any provider that agrees to be reimbursed at the rates paid by a scheme. Therefore, providers do not compete to become part of a network on criteria that are of interest to consumers.

COMMISSION ENQUIRY

Van den Heever says he hopes that the Competition Commission’s inquiry into the private healthcare sector, which starts next month, will identify the obstacles that are preventing the adoption of more rational and cost-effective practices.

The commission should identify “the rules of the game” that need to be put in place, and one of these should govern how hospital groups negotiate rates for their services with medical schemes, he says.

There has been a concentration of ownership in the private hospital sector since it was deregulated in 1994 and this has coincided with the cost of hospital services increasing at a rate that is higher than the producer price index, Van den Heever says.

The concentration of ownership has also coincided with an increase in the profit margins of hospital groups. A report by Genesis Analytics shows that, in the case of two major hospital groups, their return on capital increased from an average of about 15 percent in the five years before 2002 to an average of about 22 percent from that year to 2011.

The report also shows that the profit margins of hospital groups in South Africa are higher than international benchmarks, Van den Heever says.

In order to stimulate competition, the market must not be so concentrated that hospitals do not have to work to attract patients, he says. Currently, hospitals compete to attract specialists, who then refer their patients to these hospitals.

Medical schemes are paying high fees to hospital groups while cutting their benefits, such as those for day-to-day healthcare services, Van den Heever says. Rationally, schemes should not want to limit the comprehensiveness of their cover in this way, and this suggests they are unable to change the trends in the market, he says.

A hospital group negotiates with medical schemes on behalf of all the hospitals it owns, which means that individual hospitals within the group do not have to compete with each other on the basis of quality and costs, Van den Heever says.

LACK OF ACTION

Van den Heever points out that schemes have not changed how they manage their members’ use of specialist and hospital services and are still not using general practitioners as gatekeepers, who would refer members to higher-cost specialist and hospital services only if necessary.

He also says that schemes have made virtually no attempt to manage the conflicts of interest in the system and the prevalence of kickbacks – for example, when specialists own shares in private hospital groups.

“We have cost increases because someone is prepared to pay – the configuration of the healthcare system does not allow the purchaser to choose on price and quality,” he says.

Van den Heever says he hopes that the Competition Commission will deal with these systemic problems rather than simply identify malpractices by “bad apples”.

Although all kinds of bad behaviour is taking place, identifying each individual case will not help; instead, “the rules of the game” must be changed to prevent the bad behaviour from occurring, he says.