Private Health Indaba

1. Private Health Indaba 21 September 2007 Council for Medical Schemes

2. Public versus private per capita monthly health expenditure (excl out of pocket) ** If South Africa spent R669.90 per capita per month on its entire population, health expenditure would account for 24.7% of our GDP – far in excess of any other country

3. Areas of significant cost escalation • Private Hospitals • Specialists • Non-health expenditure in certain specific areas ** Relative significance of health to non-health costs as proportion of total contributions is expressed as claims ratio

4. Risk claims ratio for all schemes (2006 prices)

5. Total benefits paid (2006 prices)

6. Hospitals

7. Hospital cost trends from 1990 to 2005, Rands per beneficiary per annum (Constant 2005 prices)

8. Comparison of international real per capita cost trends, selected OECD countries, with South African private hospital costs (1990-2004)

9. Producer Price Index 1997 to 2006

10. Trend in hospital ownership of the existing three large hospital groups from 1996 to 2006 (acute beds)

11. Specialists

12. Specialist cost trends from 2000 to 2006 (2006 prices)

13. Hospital and specialist costs Key issues from a regulatory perspective

14. Hospital oligopoly, market concentration and non-price competition • Oversupply of private hospital beds • Conflicts of interest in supply chain: • Doctor shares in private hospitals • Inducements provided by hospitals to specialists • Kickbacks from supply companies

15. Hospital group ownership of emergency medical transport • Hospital control over pharmacies • Resistance by providers to entering into alternative (non-FFS) contracting models • Ethical rules constraining staff model hospital arrangements

16. Non-health expenditure

17. Gross non-health expenditure pbpa2006 prices

18. Gross administration and managed care expenditure

19. Non-health costs Key issues from a regulatory perspective

20. Governance concerns: • Association of higher administration and other non-health costs with instances of lack of independence of trustees from third party administrators and other contracting parties • Shift of members from restricted to open membership schemes (facing higher non-health costs) • Trend however reversed through GEMS • Broker commission market does not provide for discount where a member chooses not to use a broker

21. Solution Areas

22. Central bargaining arrangement is necessary for negotiation of general fee-for-service tariffs • NHRPL to provide research basis for review of negotiated prices, with possibility for Ministerial intervention in the case of market failure • Review of hospital licensing framework • National norms and standards on diversity of ownership • Conditionalities regarding undesirable and unethical business practices

23. Statutory prohibitions against: • doctor ownership of shares in hospitals • direct / indirect hospital ownership / control of emergency transport services and pharmacies • kickback arrangements for medical supplies • Consideration given to establishment of a public interest investor in non-profit private hospitals • Improvement of funding of general public hospitals and removal of means test, to make public sector a viable alternative to private sector services

24. Revisions to the medical scheme benefit framework, to ensure benefit offerings between schemes can be compared to increase competitiveness • Modification of broker market to become fee-based, as is under consideration in relation to other financial services • Medical scheme governance reforms to strengthen operational independence of schemes from 3rd party contractors