Is it too late to rein in soaring healthcare costs?

Private healthcare costs are accelerating, with doctors’ and specialists’ fees often blamed. But does the fault lie more with inflation, medical schemes skimping on payouts or a legal vacuum in which regulators are deaf to industry’s concerns and battling consumers?

It seems a combination.

In the 2015 OECD Health Working Paper, SA private hospital price levels were compared with those of other countries. Despite SA having the lowest GDP per capita in the sample, its private hospital prices were on par with countries with much higher GDP levels (e.g. UK, Germany). Surgical services accounted for the majority of total claims.

“Payments to specialists appear to be driving this increase. Hospital costs, however, are the main component of both surgical and medical cases studied,” it said. The Competition Commission’s (CompCom’s) health market inquiry (HMI) panel emphasises these are only preliminary results, not conducted at its request.

The 2015/2016 Health Professions Council of South Africa (HPCSA) report said most of the Office of the Ombudsman’s complaints related to fees (53%).

Turnberry CEO Tony Singleton says here medical aid providers will enforce sub-limits and co-payments for certain procedures. He says this sounds fair considering medical inflation generally runs at a higher rate than inflation.

“Medical inflation is made up of a number of drivers, like specialist fees, private hospital costs, the cost of imported equipment, and the exchange rate,” he said, adding that all have contributed to rising healthcare costs. 

Doctors’ fees

Doctors and specialists set their fees independently; currently there aren’t regulations guiding or enforcing this, says Dr Rajesh Patel, BHF head of benefit and risk. There is currently no upper limit to the charge that doctors may lodge, says Jill Larkan, GTC healthcare consulting head.

Currently the only regulated healthcare fees are the single-exit-price and dispensing fees for medicine, says Patel.

Moneyweb surveyed 15 different GPs, gynaecologists, counselling psychologists and oncologists from around SA, on their consultation fees. See the range of fees charged. Some fees vary significantly. 

* Highly variable depending on diagnosis

The shortage of doctors adds fat to the fire. Hasa says there are 60 doctors per 100 000 people in SA. Larkan says if population growth keeps outstripping the rate at which doctors are produced, this will only get worse. “Therefore they may charge at whatever rate they wish, without any obvious end in sight.”* Highly variable depending on diagnosis

Tariffs and costs in local healthcare are also governed by public sector conditions and demographic distribution. “…using extrapolated data doesn’t take into consideration the conditions under which doctors in township and rural areas practice (stress, support lacking, patient numbers),” says Sama.

Private healthcare acceleration may be due to utilisation, disease type, benefit design, and regulatory environment/sector interaction, says Sama senior legal advisor Julian Botha here.

Sama publishes a non-binding coding/tariff schedule, says Patel. It advises doctors to consider experience level, procedure complexity, medical legal insurance, practice overheads and costs in setting fees, says chair Mzukisi Grootboom.

The Health Professions Act alludes to tariffs representing fair value, ie not below costs to deliver the service or charging exorbitant mark-ups.

Medical scheme rates

Medical schemes approached would not reveal their rates, saying rates are variable as they’re negotiated with service providers; doctors on networks have different fees; with others citing regulatory and competition concerns.

Ann Streak, Alexander Forbes Health senior consultant says previously there was an industry-negotiated scheme tariff and a Sama tariff. Schemes could define their benefits based on either of them. Schemes often paid in-hospital benefits at Sama rates and out-of-hospital benefits at a percentage of the medical scheme tariff (this was a gazetted tariff).  The CompCom outlawed these practices deeming them collusive.

“Currently … schemes are required to negotiate with providers on an individual basis to set their own tariff structures, thus enhancing competition between schemes. The concern for smaller schemes is that they have become price-takers while larger schemes are able to negotiate better rates with providers based on volume,” she adds.

Medical schemes base their rates on various factors, e.g. membership profile (age), claims in the previous year, trends in types of diseases linked to claims, among others, says Council for Medical Schemes (CMS) spokesperson, Dr Elsabé Conradie.

Some schemes follow the 2006 CMS reference price list (RPL), adjusting for inflation. Schemes generally don’t liaise with Sama or medical associations but directly with providers or provider groups, Patel adds.

Medihelp says healthcare service providers’ costs of service are predominantly determined by the Medical Schemes Act and regulations to the Act.

Sama’s website states: “The medical scheme tariff model represents an application of the RBRVS model, where medical schemes have assessed their claims risk profile based on number of claims processed during prior periods, the risk of the re-occurrence of the number of claims during current periods as well as available funds

“This resulted in medical schemes offering healthcare professionals tariffs that schemes could afford, without healthcare professionals being able to assess whether they could deliver sustainable healthcare services at the offered prices.”

Informed Healthcare Solutions’ David Narun, says medical aids try to keep rates down by entering into service agreements with as many service providers as possible, but it’s a difficult process and providers – already busy – don’t see the point of entering into these arrangements and continue to charge their higher rates.

“It is a very sensitive issue in the industry and whilst medical aids and service providers battle it out in a never-ending battle, the consumers unfortunately are the ones that suffer through high doctor’s rates and higher medical aid premium increases.”

Are medical rates high enough?

Writing to the South African Medical Journal, South African Private Practitioners Forum CEO Chris Archer says hospital groups are under pressure to ensure adequate insurance for negligent acts involving them or their staff jointly with the doctor against whom a claim is raised. This “…will, by some margin, trump the hospital income earned through admissions by an individual practitioner.”

In October 2016, eNCA reported medical malpractice indemnity fees cost each practicing gynaecologist up to R65 000 a month. Most obstetricians pay R650 000 a year.

“Many in the [medical scheme] industry continue to peg their professional fee maternity benefit at about R3 500, seemingly oblivious of the impact that the rising cost of funding malpractice insurance is having on obstetricians. This is forcing doctors to charge a hefty co-payment for their services,” writes Archer.

To regulate, or not?

Conradie says having no pricing guideline is not benefitting the industry.

The CMS 2015-16 annual report is vocal on this: “The vacuum left because of no price regulation within the private healthcare sector where providers are charging above medical scheme rates, places an onerous burden on the already hard-pressed South African healthcare consumer….”

Grootboom says SA needs competition law changes to enable a bargaining council, where government is aware of all costs to be considered in doctors’ fees, before it decides on setting them.

In the current context… provider fees will need to be capped in future, says Patel. “The Department of Health needs to step in to protect consumers and to provide clear guidelines for alternative reimbursement models for providers.” Like fees for the likes of ports, petrol and legal fees are regulated, “we need to do the same for an essential service like healthcare.”

The BHF hopes the HMI will recommend a regulated maximum pricing framework. The HMI’s findings are expected in December 2017.

But not everyone agrees.

At am October 2014 Hasa conference, former UK CompCom deputy chair Peter Davis said introducing private healthcare price controls to improve competition should be a last resort.

Following a 2012 UK private healthcare competition investigation, the Competition and Markets Authority decided that, while price controls may be effective in reducing prices, they’d be unlikely to encourage competition on quality or innovation in the market.

Davis said price controls could create potentially damaging distortions to the market, and be costly to implement, monitor and enforce.

Tips to reduce fees

• Be informed. Ask about cost implications before a hospital procedure, says Krisascha Crafford, Glopin Healthcare Consultants marketing manager. 
• Negotiate pricing. Doctors often reduce fees if you offer to pay cash (you can claim back from your scheme). Some doctors contract with the scheme and agree not to charge above specified rates, Ross says.
• Use specialists/doctors on your scheme’s network.
• Try to understand PMBs.
• Use a GP as a primary care-giver to ensure coordination of care and prevent test duplication at specialist level, says Gerhard van Emmenis, Bonitas Medical Fund acting principal officer.
• The Health Professions Act 56 of 1974 states patients may, within three months of receiving a healthcare professional’s account, ask the professional board to determine the amount which should’ve been charged, in the board’s opinion.
• According to HPCSA’s 2016 edition of ‘the Bulletin’ various legislations require practitioners to inform patients about service/treatment cost beforehand.
• HPCSA says patients should be told about alternative treatment or procedure costs (e.g. hospital vs day clinic). Though not their responsibility, primary practitioners should tell patients when procedures may include other practitioners’ fees e.g. anaesthetists, and tell them who they are, where possible.
• Council advises practitioners to discuss potential costs before ordering diagnostic tests or making treatment decisions. 
• Investigate hospital insurance or gap cover.

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