Let's cauterise the real corruption

The never-ending spiral of health-care costs is one of the biggest problems facing South Africa and its people. It does not seem to matter what measures are taken, or by whom: the prices continue to go up.

With more and more South Africans getting sick, any intervention in the mechanisms that drive up prices should be welcomed — assuming they do curb inflation.

The latest offer to intervene comes from the Competition Commission, which recently announced that it would recommend prosecution of the price-setting practices of the Board of Healthcare Funders (BHF), at whose conference the bombshell was dropped, the Hospital Association and the Medical Association.
The commission also targeted certain newer methods of contracting between providers and medical schemes.

Over the years various commissions, inquiries and interventions in the medical schemes industry have failed to stop or even slow price inflation.

Some of the biggest price rises occurred in the years before the Medical Schemes Act of 1998. This was despite the fact that schemes could exclude and discriminate against people with expensive conditions (like age). The increases took place in the non-profit medical schemes industry, but served the “for-profit” administrators’ interests well.

As anyone with shares in Afrox Healthcare, Mediclinic or Netcare can attest, hospitals became very profitable. Although the population covered by medical schemes has not grown for several years, the three listed large hospital groups have continued to make healthy and growing profits.

Whenever they want to swallow a smaller hospital or hospital group, the competition authorities let them. The rationales given do not always show a deep understanding of how hospitals make money.

The medical scheme industry, however, does understand some of the cost-drivers in hospitals — though it does little about them. Evidence at the BHF’s industry conference showed that while room rates in hospitals have gone down, income from intensive care units has escalated sharply.

The additional costs took their usual toll on medical schemes, as reflected in the last annual report of the Council for Medical Schemes (CMS).

Also problematic are the cosy relationships between hospital groups and pathologists, radiologists and now, one gathers, neurologists and other specialists.

Other seemingly unquestioned relationships are the vertical ones within groups. Each of the big hospital groups has its own pathology group. One has its own “managed care” organisation which dispenses and delivers medicines and manages disease programmes for certain medical schemes. Another, according to the BHF conference, will soon announce moves to incorporate doctors in a “gate-keeping arrangement”.

Then there is everyone’s favourite whipping boy, a huge consumer of the competition authorities’ time and a large contributor to costs — the pharmaceutical industry. Are trends here — like the rocketing price of generics — being watched?

The CMS will introduce a new set of complexities next year when it compels schemes to pay for 25 chronic diseases with no ceilings on provision. The industry sees this as driving up costs. For the council, it is life-saving protection for tens of thousands of people with chronic conditions.

To facilitate the measure, the council has designed laws and regulations to encourage schemes to negotiate with providers to help them hold down costs. One obvious route is that of “preferred providers” — an arrangement with a group of clinics or doctors, or a hospital, at specified rates under specified conditions for a specified period.

In fact, hospital groups argue that this rather laissez-faire method is anti-competitive, as state hospitals can now compete with their private wards for medical scheme contracts.

The usual band of charlatans will cut corners on treatment and make a killing (perhaps literally), but some arrangements are likely to be innovative and cost-cutting. Most contracts will be reached with the aim of containing costs and in the knowledge that these are life-saving measures.

So when the Competition Commission tackles price-fixing it sees as illegal, or the arrangements between schemes and providers, it is an opportunity to open more anti-competitive cans. We need to look at how other snug arrangements may affect prices.

Health is an odd animal for competition authorities to aim at. Holding that competition has no role in health care, some argue for higher doses of control to stop market forces “interfering”.

In South Africa, we are somewhere between this rock and the hard place of free market anarchy. Moves in either direction could hinder, rather than help.

Pat Sidley is head of communications for the Council for Medical Schemes.

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