How SA's 'collusive' private healthcare sector can be fixed

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HealthcareSouth Africa's private healthcare sector, dominated by a few players, allows  non-competitive behaviour such as collusion and excessive pricing tends to thrive, writes Professor Frederik Booysen of the University of the Witwatersrand, in The Conversation.

A Health Market Inquiry into South Africa’s private healthcare sector has established that the market is dominated by a few players. Frederik Booysen, professor of economics at the School of Economic and Business Sciences at the University of the Witwatersrand writes that in such an environment, non-competitive behaviour such as collusion and excessive pricing tends to thrive and that these dominant firms withhold key information which leaves consumers disempowered and at the mercy of monopolistic enterprises.

Booysen writes: “South Africa’s medical schemes market reflects acute domination by a few players. A few examples illustrate this. Among a total of 22 medical schemes open to the public, one scheme, Discovery Health Medical Scheme, is home to 55% of all medical scheme beneficiaries. Among the administrators contracted by medical schemes to manage and administer medical insurance, two companies – Discovery Health and Medscheme – account for 76% of total gross contribution income. And as much as 83% of private hospital beds are owned by the three large hospital groups: Netcare, Mediclinic and Life.

“On top of this a handful of big corporations have controlling stakes in the few players that dominate the private health care industry, with some individuals serving as directors on the boards of multiple companies.

“The report argues that the lack of competitive pressure feeds high prices for medical goods and services. The situation is made worse by information asymmetry – customers know much less than the companies offering the services – which makes for uninformed consumers.

“The report makes recommendations to close this information gap under five broad themes:

“Standard benefit packages: Medical schemes should be required to offer a similar standard benefit package. This will allow those purchasing medical insurance to make better informed choices based on value-for-money. This should cover prescribed minimum benefits as well as cost-effective out-of-hospital care and primary and preventive health care. In this way, consumers can easily compare the prices of the basic option offered by different schemes and make decisions based on value-for-money. The coverage offered under this package will be exempt from co-payments to medical schemes or additional billing by providers.

“Reimbursement and pay for performance: Doctors and specialists are currently paid for every individual service provided to the patient on a reimbursement basis, called fee-for-service payment. This often results in overuse and over-prescription, known as supply-induced demand. The problem of supply-induced demand is worsened by the fact that the prices of medical services are unregulated. This needs to change and alternative ways to reimburse doctors and specialists needs to be found that links the service they offer to how they perform.

“Medical brokers: The position and role of brokers in the South African medical aid industry has been precarious. For one, it’s not clear whose side they’re on as they are often paid by and working for only one specific scheme which dilutes their objectivity.

And the fact that the majority of consumers are allocated a broker by default, through a practice called opt out, is highly problematic. The report recommends that the opt out practice should be changed to one that allows people to opt in. Scheme members will be able to exercise their choice of making use of the services of a medical broker – or not – on an annual basis. Clients without brokers will pay proportionally lower scheme membership fees. They will also be able to directly engage with medical schemes rather than through brokers, including applying for membership.

“Disclosure of information: The report recommends that customers must be given far more information than is currently the case. This should include, for example, details on the costs of particular care. And, as a matter of course, service providers should declare their interests in facilities being used. For example, a service provider should provide the patient with information on their shareholding in the facility where the service is being provided. They must also declare their financial interest in any product they use, dispense or prescribe. Another recommendation is that all fee-for-service tariffs should be published and displayed at each place where patients make contact with the health care system. This includes the consulting rooms of doctors and specialists as well as hospital reception areas. Other information of interest and value to the clients of private medical schemes should also be put in the public domain. This could include information on the results and value of adopting alternative methods to pay health care providers. Information on administrative costs and income from broker fees should also be published by the Council for Medical Schemes on an annual basis.

“Voice and participation: The report calls for consumer activism. This includes attendance by scheme members of their insurer’s annual general meeting. The report also calls for activism by civil society organisations. These can make representations to the proposed forum responsible for setting fee-for-service tariffs.”

Booysen writes that a number of factors will determine how fast, and how far, change takes place.

Certainly, he says, “the legislative changes needed to make it possible for the inquiry’s recommendations to be implemented will take time. And the success of many of the initiatives will ultimately depend on buy-in from medical schemes, scheme administrators, and medical practitioners.

“Equally critical will be the capacity to effectively manage and to hold accountable new institutions – such as a Supply-Side Regulator – as proposed in the report.”

The Conversation report

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