The real road to hell

Afrox Healthcare CEO Michael Flemming minced no words in telling shareholders how the company derived its growing profits in the year to end-September. Medical inflation, he told Moneyweb, was responsible: the company charged about 10% more than the year before, while 5% was organic growth.

Most of the money will have been paid through medical schemes.
Hospitals account for about one third of the benefits paid.

Naturally, hospital groups have not cited large profits in pitching their needs for next year’s medical scheme payouts. Rumour has it that they want a 12% increase, which they may believe the public will cough up. Unfortunately for them, the medical schemes are likely to pay closer to 6%.

In the same interview Afrox revealed mild discomfort over the fact that the Council for Medical Schemes was compiling a reference price list for the health-care industry. Others have been more vigorous in their response. The hospital industry would probably have liked a total free-for-all, in which it could muscle the next few years of record profits from schemes.

This reference price list will replace the two rates that scheme members and providers used to work with.

One was known as the “BHF” tariff, a reference to the industry body, the Board of Healthcare Funders, and its role in setting tariffs. Then the South African Medical Association set a different tariff for its members. In earlier years the public got to know these tariff rates as “medical-aid rates” and “contracted-out” rates respectively.

From mid-November the council will publish its price list as a benchmark against which schemes can decide how to reimburse. Health- care providers will either use the benchmark or set different tariffs in terms of contracts with schemes.

This task of drawing up the list fell to the council after the Competition Commission expressed a belief that past methods used in tariff- setting may have contravened competition law.

The journalist who interviewed Flemming on air remarked that the “road to hell is paved with good intentions” — suggesting that while it might, in theory, be a good thing to have the registrar of medical schemes interfere in tariffs, it would displace a better system (presumably the free market) and cause unintended damage.

If he could only have heard the calls to the council by thousands of medical scheme members, anxious because they had been led to believe their medical scheme fees were about to rocket by 20%.

Having landed the task of compiling the reference list, the council must balance the interests of members with those of the health-care industry. If the industry’s pleadings are anything to go by, Afrox, Netcare, Medi-Clinic and a host of smaller groups had a terrible 2003 and need to recoup the shortfall next year — at members’ expense. (Listed health- care companies present a very different view to their shareholders, of course.)

Some groups have undoubtedly had it worse than others — generally, the groups at the bottom end of the professional pay scales. General practitioners, physiotherapists, occupational therapists and other badly rewarded health-care professionals naturally want more than the current inflation rate.

GPs want about 15% to redress what they see as past imbalances. Others have asked for figures closer to the inflation rate. Ambulance services are among those badly done by; chiropractors want the same as physiotherapists; psychologists want parity with psychiatrists.

Dentists fall into an interesting, separate category. Over the years medical schemes have reduced what they pay them so that they get virtually nothing (4,3%) from this source, while their costs, pegged by statutory bodies and some heavy equipment, continue to climb. They set their own fees, and are hoping they can get back into the medical-aid picture. No doubt the public would like this, too.

Some specialists have been hit by kickback scandals in recent years, so the public is likely to view their special pleadings with a slightly jaundiced eye. Specialists already get a large slice — some 20% of the risk pool — but would like more. Where it can, the council’s team has to verify such demands.

There is nothing simple about drawing up a price list. Apart from balancing interests, it involves various coding systems and the copyright for these — owned by groups like the South African Medical Association (Sama), which need to make money out of them. Sama is the licence-holder of the CPT-4 system, which is owned by the American Medical Association. The coding system helps ensure that medical schemes pay out accurately.

A decision must be made on whether or not to use the Consumer Price Index or the CPIX — CPI minus mortgages.

What is clear is that the reference price list will be closely related to the inflation rate, and the knee-jerk assumption that medical inflation is always higher than the general rate will not wash easily this year.

The real “road to hell” would surely be one in which these interest groups were allowed to go for broke. Without “good intentions”, the system would surely falter or fail altogether.

Pat Sidley is head of communications and education at the Council for Medical Schemes

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