The Costing of Prescribed Minimum Benefits

1. The Costing ofPrescribed Minimum Benefits January 2003

2. PMB Study Data • Data from Medscheme Data Warehouse • Data covers 2001 calendar year, extracted in July 2002 • Data fully run-off, no adjustment for IBNR • 90 options • 31 schemes • 18.071 million beneficiary months of data • Average exposure of 1,505,917beneficiaries

3. Cluster Analysis and Applicability to the Industry

4. Cluster Analysis • Different clusters experience different benefit utilisation, costs and disease profiles. Provider behaviour differs by cluster, even within the same hospital facility. • Four distinct clusters: • High contains options with older, 'whiter' members with high utilisation; • Medium-older contains options with medium utilisation and older members; • Medium-younger contains options with medium utilisation and younger members; and • Low contains options with younger, 'blacker' members with low utilisation.

5. Cluster Analysis

6. Cluster Analysis • Study contains more Low cluster beneficiaries than the industry. • For industry comparisons, useWeighted industry price. • This uses 50% of the costs of the Low cluster and 100% of the other clusters. • Low clusteris more relevant to the emerging low-cost option environment. • High cluster is used to give an upper limit to the PMB price.Would only be applicable to a few high utilisation options.

7. Cost of PMBs

8. Centre for Actuarial Research Centre for Actuarial Research Claim Value by Status

9. Centre for Actuarial Research Centre for Actuarial Research Proportion of Total Cost of PMBs by Disease Chapter

10. Centre for Actuarial Research Average Cost of PMBs by Disease Chapter

11. Cost of PMBs by Age

12. 450 450 400 400 350 350 300 300 250 250 Incidence Incidence 200 200 150 150 100 100 50 50 0 0 1 1 4 4 9 9 14 14 24 24 29 29 34 34 39 39 44 44 49 49 54 54 59 59 64 64 69 69 74 74 19 19 - - 75+ 75+ - - - - 0 0 1 1 5 5 - - - - - - - - - - - - - - - - - - - - - - - - - - All ages All ages 10 10 20 20 25 25 30 30 35 35 40 40 45 45 50 50 55 55 60 60 65 65 70 70 15 15 Incidence of PMB Admissions by Age Incidence All Ages 97.6850

13. Centre for Actuarial Research Average Cost of PMBs by Age 18,000 16,000 14,000 12,000 10,000 Average Cost R9 127 8,000 6,000 4,000 Average Cost for All Ages 2,000 0 5-9 0-1 1-4 75+ 10-14 15-19 20-24 25-29 35-39 40-44 45-49 30-34 50-54 55-59 60-64 65-69 70-74 All ages

14. R 5,000 R 4,500 R 4,000 R 3,500 R 3,000 R 2,500 R 2,000 R 1,500 R 1,000 R 500 R 0 0-1 1-4 5-9 75+ 10-14 25-29 30-34 40-44 45-49 60-64 15-19 20-24 35-39 50-54 55-59 65-69 70-74 All ages Centre for Actuarial Research Raw PMB Price by Age (pbpa) Average Price for All Ages R 891.56 pbpa

15. Centre for Actuarial Research Raw PMB Price by Age and Cluster (pbpa)

16. Adjustments to the Raw Price of the PMB Package

17. Adjustments to Raw Price • Uncertainty in Definition of the PMB Package • Recoding the OUT Group • Recoding the NC Group • Costs of hospital management programme • Costs of hospital and related claims administration • Costs of chemotherapy and dialysis • Costs related to HIV/AIDS • Estimate of the cost of ambulatory care • Costs of ambulatory administration • Reduction for cost of delivery in the public sector

18. Full Price of PMB Package • Four components : • In-patient PMB package price based on full data in study (high degree of certainty) • Portion of price for which uncertainty exists in PMB definition (proportion to include of NC and OUT) • Margin added for ambulatory costs • Non-healthcare costs. • Note: Prices should not be used blindly in pricing work. Contact a professional for assistance.

19. Centre for Actuarial Research Full Price of PMBs (excl CDL) R2 432.41 R2 010.90 R1 956.01 R1 479.04  R1 489.49 R1 343.43 R1 100.08

20. Conclusions

21. Improvements to PMB Definition • All stakeholders need an unambiguous definition of the PMB package. • The Council for Medical Schemes is requested to reconsider the definition of PMBs in the Regulations and to include clear diagnosis and procedure codes in an amendment as soon as possible. • Tighter definition of PMBs would ensure more focussed attention on accurate coding from providers and administrators. • Attention should be given to the nature of the chapters and to bringing them in line with clinical practice or a particular coding standard.

22. Comprehensive Crosswalk • Provides a powerful tool for rapid application of PMB status to hospital admissions based on ICD-10 coding • Strongly recommend that this should be made freely available to other medical schemes and administrators, in order to improve their understanding and management of PMBs. • Recommend utilising this tool, or one developed from this work, to define and manage the PMB package in future.

23. The Costing of the Chronic Disease List January 2003

24. Registration of Beneficiaries for Chronic Medicine Other Chronic Conditions 22.9% CDL Conditions 77.1%

25. Centre for Actuarial Research Prevalence of CDL Registrations

26. Beneficiaries Registered for CDL Conditions

27. Cost of Each CDL Condition

28. Centre for Actuarial Research Centre for Actuarial Research Average Cost per Case Single diseases only

29. Centre for Actuarial Research Average Cost per Case Multiple diseases

30. Prevalence All Diseases

31. CDL Package by Age

32. Centre for Actuarial Research Age of Claiming Beneficiariesfor Selected Diseases

33. 600 500 400 300 Prevalence per 1000 beneficiaries 200 100 0 0-1 1-4 5-9 85+ 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 All ages CDL Prevalence by Age

34. 5,000 4,500 4,000 3,500 3,000 2,500 Average Cost per case pa 2,000 1,500 1,000 500 0 0 1-4 5-9 85+ 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 All Ages Average Cost of CDL by Age

35. 2,500 2,250 2,000 1,750 1,500 Price per beneficiary pa 1,250 1,000 750 500 250 0 0 1-4 5-9 85+ 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 All Ages Raw Price of CDL by Age

36. CDL Package by Cluster

37. Raw Price by Cluster

38. Centre for Actuarial Research Raw Price High vs. Low Cluster

39. Differences Between Clusters • Age profile differences explain roughly two-thirds of difference in raw cluster prices. • Other differences are probably due to a combination of “the four P’s”: • variation in Prevalence rates of important conditions; • Presentation or manifestation of conditions; • Provider choice (GP vs. specialist and the management or prescribing habits of each); and • benefits available within the health care Plan.

40. Adjustments to the Raw Price of the CDL Package

41. Adjustments to Raw Price • Haemophilia • Removal of three diseases from final Regulations • Cost of diagnosis and medical management • Adjustment for compliance • Adjustment for limits • Adjustment for co-payments • Costs of chronic medicine management programme • Costs of administration • Reduction for cost of delivery in the public sector

42. Full Price of the CDL Package

43. Full Price of CDL Package • Four components: • Medicine component, based on full data in study (high degree of certainty) • Portion of price for which uncertainty exists until package is fully defined and allowance for impact of package being mandatory • Amount added for medical management costs • Non-healthcare costs. • Note: Prices should not be used blindly in pricing work. Contact a professional for assistance.

44. Full Price CDL Package

45. Conclusions

46. Price in Mandatory Environment • Expect change in member and provider behaviour from existing environment. • Uncertainty exists in price until package is fully defined. • Have included an effective 30% margin on medicine component of CDL package. • Consortium opinion that collective margin of 30% on medicine component is sufficiently conservative to cover this uncertainty in the pricing.

47. Need for Mandatory Package Community rated price

48. Need for Mandatory Package • Real danger that open schemes will pursue more aggressive self-seeking behaviour and limit chronic medicine benefits to discourage older members and improve their community rate relative to their competitors. • Substantial broker activity and churning of members worsens this incentive. • A mandatory minimum package of chronic medicine and management benefits is essential for reducing opportunistic behaviour by some schemes.

49. Further Policy Issues • Membership of medical schemes needs to be compulsory, rather than voluntary, for medium to higher income groups to stabilise the system. • A risk equalisation system between medical schemes, based on the Prescribed Minimum Benefit package will reduce the opportunistic profiting from risk selection still further.

50. Composition of the CDL List • Brief did not extend to consider diseases outside of the draft list and whether any should have been included. • Need for a process of chronic disease prioritisation in medical schemes in order to inform the rationing process in future.