Regulation 8: An access guarantee or a blank cheque?

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It is time to curb excessive costs, before it kills both the private health sector and the country’s medical schemes, writes Susan Erasmus on Fin24. The nub of the problem is the original intention of the legislators in their wording of Regulation 8 of the Medical Schemes Act. Was it put in to protect scheme members by providing them guaranteed access to certain treatments, or was it to give the private health sector a blank cheque when it comes to treating scheme members for PMBs?

“In South Africa, the price of medical services in the public sector is predetermined, and/or based on the income of the patient. Not so in the private healthcare sector, where soaring prices charged for the services of doctors and specialists in and out of hospital have contributed to annual double-digit medical scheme contribution increases for many members over the last few years. Earlier in 2017 Minister of Health Dr Aaron Motsoaledi stated that the price of private healthcare has gone up by 300% in the preceding decade.”

Erasmus says in all fairness, it has to be said that not all private doctors overcharge, and equipment costs and the weak exchange rate can also shoulder a fair share of the blame for the spiralling costs of private healthcare. Many private doctors also donate a portion of their time to state patients at little or no remuneration.

She notes that, according to Alexander Forbes Health despite efforts to increase membership of medical schemes, membership numbers have remained largely static over the last decade, with just under 4m principal members of schemes in South Africa, and just under 9m lives covered. That means in a population of close on 55m people, 84% are dependent on state medical services, unless they are able to pay out of their own pocket for private healthcare.

The rapidly increasing cost of member contributions has been blamed for this state of affairs, putting not only private medical care, but also medical cover beyond the reach of the average South African.

Erasmus notes that there used to be something called the National Health Reference Price List (NHRPL), which replaced the old Representative Association of Medical Schemes (RAMS) tariff list in 1994. These were to be used as a guideline, and schemes were still expected to negotiate their own tariffs with respective healthcare providers; it came as no surprise that this proved impossible.

She says a scheme can still negotiate with larger hospital groups or networks of doctors, but certainly not with thousands of individual healthcare providers. The Board of Healthcare Funders (BHF), and the Hospital Association of South Africa (HASA) as well as the South African Medical Association (Sama) all produced their own (generally much higher) tariff schedules, rejecting the NHRPL tariffs and all of these are being scrutinised in the Competition Commission’s Health Market Inquiry to find out if these tariffs were set in a collusive manner.

Erasmus says in short, there have been no set tariffs to which everyone agrees for many years. Schemes, with the consent of the Council for Medical Schemes, base their medical fund tariffs on an amended form of the NHRPL, a price list soundly and consistently rejected over the years by SAMA, many of whose members charge 300% and more of medical fund rates for their services. Until now there has been nothing, not even market forces of supply and demand, that could put a stop to this, she says.

Over the years, Motsoaledi has consistently slammed what he calls “the exorbitant prices in private healthcare”, going so far as calling it a “sick situation” and accusing the private sector of over-servicing the rich, while there is general underservicing of the poor in the country as a whole. He has been quoted as saying at the Competition Commission’s Private Healthcare Market Inquiry that “Nowhere in the world does private healthcare cost as much as it does in South Africa”. The costs, he says, are comparable to the costs in many developed countries, where average incomes are much higher than they are in South Africa.

And yet, says Erasmus, it is the very wording of Regulation 8 of the Medical Schemes Act of 1998, which requires medical schemes to pay for 270 prescribed minimum benefits in full, that is one of the contributory factors to keeping private healthcare costs so high. While there are pricing guidelines, which the medical schemes follow to determine rates they will pay for certain procedures and medication, she writes that these are not enforceable when it comes to the treatment of PMBs.

Genesis Medical Scheme launched an application to the high court to have Regulation 8 struck down, in an effort to curb costs to the medical scheme, says Erasmus. Their argument was that they were in favour of paying a reasonable fee to a doctor for the treatment of one of their members for a PMB, but they asked the question whether that fee should be without limit. Erasmus writes that they cited the case of an anaesthetist who charged in excess of R1,000 per minute for his services in the theatre, which would amount to fees of R60,000 per hour.

Erasmus writes that they were instructed recently to pay in full, as this was a PMB that was being treated, and the specialist in question had informed the patient of his fees. Both the scheme and the doctor have lodged complaints with the Health Professions Council of South Africa. Technically, all doctors’ fees are negotiable – but, she writes, few patients have the wherewithal to enter into these negotiations.

Medical schemes have two streams of income: member contributions, and income from investing the funds in the reserve. The schemes are not run for profit, and the expenditure of any scheme is basically on two items: paying of members’ claims and the administration of the scheme. Erasmus writes that it stands to reason that the higher the medical claims that have to be paid out, the higher the member contributions have to be in order to make this possible in the long run. Even if a doctor discusses his fee with a patient, if they are being treated for a PMB it is the medical scheme who pays, and not the patient directly.

Not immediately anyway – but ultimately, when contribution increases are announced, it will be. Erasmus argues that the question arises as to the long-term sustainability of a system where schemes are forced to pay fees to which there is no cap. She says medical inflation is consistently higher than CPI inflation and over a period of time, this means that the average member’s medical scheme contribution makes up a larger and larger percentage of their disposable income every year.

The result of this, Erasmus writes, is static numbers of medical scheme members, buy-downs to cheaper options, and a reduction in the number of dependents principal members register on their schemes. Members who are hard-pressed financially can also resign completely from their schemes, placing further pressure on the already overburdened state healthcare services.

The question boils down to the original intention of the legislators in their wording of Regulation 8. Was it put in to protect scheme members by providing them guaranteed access to certain treatments, or was it to give the private health sector a blank cheque when it comes to treating scheme members for PMBs?

Erasmus writes that the ultimate question that should be asked is what is considered to be a reasonable fee, and who would all parties trust to determine that? Private doctors provide a necessary, if costly, service. Their practice costs are often high and their study costs were huge, as are their malpractice insurance costs. They do not work for the state, and can take their skills and knowledge elsewhere if legislation becomes too prescriptive and restrictive in one country.

Their fees are said to be determined by the normal economic forces of supply and demand. Or, asks Erasmus, are they? If the patients themselves were paying directly, then yes. But the majority of private patients in this country are medical scheme members – and according to the law, the schemes are forced to pay whatever the doctors charge for treating PMBs.

She writes that few private patients could pay a plastic surgeon R1,000 per minute, and if it weren’t for scheme members, presumably that specialist would be out of business soon.

In the end, overcharging is counterproductive and leads to nothing but crippling the system that is now keeping the R1 000-a-minute specialist afloat. Erasmus writes that it is time to curb excessive costs, before it kills both the private health sector and the country’s medical schemes.

Fin24 report

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