National Health Act, 2003 (Act No. 61 of 2003)

Notices

National Health Insurance Policy towards Universal Health Coverage

Chapter 3 : Problem Statement

3.3 Structual problems in the health system

3.3.5 Health care financing challenges

3.3.5.1 Costly private health sector

Purchase

64.	Over the years the costs in the private health sector have been increasing. Legislation and other tools have not yet gone far enough to regulate the private health care sector. Consequently, medical scheme members are not well protected from the escalating costs of health care.

(a)	Escalating costs of medical schemes

65.

Private-sector medical scheme coverage has always been unaffordable for the majority of South Africans. This situation has worsened over time as a result of annual contribution rate increases since the 1980s that have exceeded inflation. These increases have been driven in part by the nature of purchasing arrangements between medical schemes and provider groups, non-healthcare related costs and relative lack of economies of scale for many schemes.

66.

The main cost drivers of medical schemes expenditure have been private hospitals, medical specialists, medicines, medical scheme administrators and brokers fees. There has also been an imbalance in the relationship between purchasers (medical schemes) and providers. This is particularly the case with private hospitals, where three large hospital groups own in excess of 80% of all private hospital beds in the country. Private hospitals fees in South Africa are expensive relative to the country’s wealth and they continuously increase above the rate of inflation. In addition, the private hospitals are the least affordable when compared to OECD countries even for individuals earning higher levels of income38.

(b)	Benefit Design of Medical Schemes

67.

Benefits covered by medical schemes are usually not comprehensive, resulting in medical scheme members having to make substantial out-of-pocket payments, such as where the medical scheme only covers part of the cost of services, where a service is not covered at all by the medical scheme (e.g. outside the scheme’s benefit package) and/or where scheme benefits have run out. Many members of schemes face significant problems with regard to selecting the most appropriate benefit option to match their individual and family’s health needs. The consequence of this is that inevitably many members and their families run out of the needed financial risk protection and find themselves either having to pay out-of-pocket for their healthcare or simply reverting to the State to meet their health needs.

(c)	Prescribed Minimum Benefits

68.

The current environment of Prescribed Minimum Benefits (PMBs) has contributed to rising costs in the private health sector. PMBs are aimed at providing medical scheme members with continuous care to improve their health and well-being and to promote access to needed healthcare services. The cost of PMBs is mainly driven by amongst others:

(a)	The beneficiary profile in which there are low levels of cross-subsidisation between young and old beneficiaries, the healthy and the sick;

(b)	The cost of treatment, which is strongly linked to contracting between schemes and providers in an environment where there is no price regulation mechanism in place;

(c)	The increased prevalence of chronic conditions where treatment is provider driven and where it is mandatory for schemes to reimburse; and

(d)	Lack of healthcare technology assessment resulting in uncontrolled introduction of new healthcare technology. This leads to cost increases without an improvement in the quality of care.

(d)	Fee-for-Service (FFS) Environment

69.

There is a range of reasons for the large increases in medical scheme expenditure over the more recent past, including the dominant fee-for-service reimbursement mechanism which encourages providers to supply more services than may strictly be necessary from a clinical perspective39. Fee-for-service (FFS) is a method of provider payment where there is a separate payment to a health care provider for each medical service rendered to a patient. Medical schemes reimburse for all services regardless of their impact on patient health. In a FFS environment, there is little countervailing pressure to discourage providers from delivering unnecessary services. This has been identified as one of the contributors to escalating costs in the health care system.

70.	The threat of medico-legal action has also propelled the over-servicing of patients to unprecedented levels. FFS is also a barrier to integrated care and traditional FFS payment model promotes fragmentation and higher spending.