The Importance of Healthcare in the Economy

1. Healthcare: its importance in the economyMelanie Da CostaOutgoing Chairman

2. Private sector operates in a constraining legislative framework Medical Scheme Membership: 80% of people in households earning >250K p.a. 1. Council for Medical Schemes

3. 1. Insight Actuaries

4. R180bn spent on private health per annum Private sector operates in a constraining legislative framework • Hospitals comprise 30-35% of spend • Result of listed hospital group’s spendthroughout the economy = R55.5 billion to GDP • Employment = 248 504 • Economy-wide contribution of the private hospital sector EconexMulitplier Study: conomiccontribution of the sector is calculated on the basis of the three corporate hospital groups which comprise approximately two thirds of the sector. This is calculated on the basis of the Social Accounting Matrix compiled by StatsSA

5. Healthcare plays a much larger role in our economy….it serves to ensure a productive workforce

6. Policy uncertainty and investment outlook

7. Uncertainty a function of declining 5 year capex forecasts Rbn Excludes forecasts for +/-8000 bed licences in issue to independent groups Source: Econex

8. Uncertainty will at best lead to a stagnant investment and employment outlook Policy uncertainty Lack of clarity on the future role of the private sector leads to uncertain return on investment in the sector Contribution to GDP if “baseline” level of investment continues Contribution to GDP under lower levels of investment Regulatory requirements under NHI: Benefits, pricing and funding arrangements for private facilitiesand the services they will be required to provide under NHI are unclear • HMI recommendations to address “perceived” concentration in private hospital sector: Divestiture and moratoriums have severe consequences for investment sentiment Jobs supported in “baseline” level of investment continues Jobs supported under lower levels of investment Source: Econex

9. Policy developments in healthcare = uncertainty • Legislative and policy changes have important ramifications for planning and investment Publication of the NHI Billon 21 June 2018 Publication of the Medical Schemes Amendment Bill (MSAB)on 21 June 2018 Health Market Inquiry’s (HMI) Provisional Findings and Recommendations Reporton 5 July 2018 The Bills are inconsistent or contradictory Uncertainty arises from multiple sources: • Medical schemes and the private hospitals – never the twain shall meet • MSAB: Medical schemes cannot offer benefits offered by NHI (assume its Prescribed Minimum Benefits) • NHI Bill: NHI Fund will not contract private hospitals but rather these will be provided EXCLUSIVELY by the public hospital sector • HMI’s recommendation to remedy levels of concentration amongst private hospitals, which have not raised any competitive concerns, is a 20% on market share (divestiture and licence moratoriums).

10. Policy uncertainty and investment outlook • In the absence of clarity around the role and compositionof the private hospital sector, investment and capital expenditure are forecast to decline • 2scenarios illustrate the economy-wide macroeconomic impact of different policy paths: • These scenarios are illustrative and depict high-level macroeconomic outcomes associated with different policy scenarios. Extensive macroeconomic modelling will be requiredto assess the full economic impact of any healthcare policy change

11. Economy-wide multiplier effect on private sector Scenario 1: Complementary (“top-up”) medical scheme cover • This scenario depicts the high-level impact of combining the provisions of the NHI Bill with those of the MSAB. • The NHI fund in this scenario can only purchase from public hospitals. • We use CMS¹ estimates of PMB² expenditure proportion to estimate the proportion of expenditure that will shift from private to public sector Economic impact of Scenario 1 1. Council for Medical Schemes 2. Prescribed Minimum Benefits : 2017 expenditure of R79.2 billion / total healthcare expenditure of R160.8 billion = 49.3%)

12. Economy-wide multiplier effect on private sector Scenario 1: Complementary (“top-up”) medical scheme cover • This scenario depicts the high-level impact of combining the provisions of the NHI Bill with those of the MSAB. • The NHI fund in this scenario can only purchase from public hospitals. • We use CMS¹ estimates of PMB² expenditure proportion to estimate the proportion of expenditure that will shift from private to public sector Economic impact of Scenario 1 99 600 jobs lost (28%) (40%) (55%) • Overall impact: • Decrease in income: R24.6 billion • Reduced impact on GDP: R31 billion • 99 600 fewer jobs in private sector 1. Council for Medical Schemes 2. Prescribed Minimum Benefits : 2017 expenditure of R79.2 billion / total healthcare expenditure of R160.8 billion = 49.3%)

13. Economy-wide multiplier effect on private sector Scenario 2: Unrestricted medical schemes but NHI benefits at regulated prices • This scenario depicts the impact of allowing medical schemes to provide the same benefits are those covered by the NHI Fund plus, but at regulated prices • NHI Fund does not purchase from private hospital sector • It assumes regulated prices capped at 23%¹below current prices Economic impact of Scenario 2 1. Based on Deliotte exercise in 2010 on DOH Reference Price list vs market related priced

14. Economy-wide multiplier effect on private sector Scenario 2: Unrestricted medical schemes but NHI benefits at regulated prices • This scenario depicts the impact of allowing medical schemes to provide the same benefits are those covered by the NHI Fund plus, but at regulated prices • NHI Fund does not purchase from private hospital sector • It assumes regulated prices capped at 23%¹below current prices Economic impact of Scenario 2 132 000 jobs lost (46.6%) (46.9%) (43.0%) • Overall macroeconomic impact: • Contribution to production decreases by 46.6% • Contribution to GDP decreases by 43% • Contribution to employment decreases by 46.9% 1. Based on Deliotte exercise in 2010 on DOH Reference Price list vs market related priced

15. Thoughts on improving health access Civilservantsand dependents Formal sectoremployedand dependents(large business) Formal sectoremployedand dependents (SMME) Informalsector anddependents Individualsin householdswith no income 5.5 million 12 million 6 million 6 million 24 million • Domestic workers • Hawkers • Taxi industry • Casual labourers • Elderly • Children • School kids (12m) • Unemployed “The central philosophy of NHI is to bring‘into fold’ those people who are not insured” Only 8.8 million out of 23.5m have private medical aid Source: DoH CEO Public Health Enhancement Fund meeting July 2017

16. How many more people can the private sector cater for? Overall weekdayoccupancy is 70%on average,while weekendoccupancy is 52% Based on public sector admissions ratesand 85% occupancycurrent capacitycan cater for amaximum 7.7 millionadditional people¹ With an additional8 000 beds comingon stream, mainly independent hospitals, potential for private sector to cater for another14 million population 1. Insight Actuaries, October 2018. Private hospital occupancy analysis

17. Thoughts on improving health access Medical Scheme risk equalisation and mandatory health cover for formally employed Low cost medical schemes (basic benefit design) Private medical school or Include private hospitals Dr education Lift limits on private nurse training Lift restriction on corporate ownership of pathology and radiology practices Allow flexibility in Dr contracting by private facility

18. Melanie Da Costa