South Africa’s healthcare inflation is far higher than that of industrialised countries, and excessive pricing is rife in the private healthcare industry, according to a new report released this week that says in just five years, private hospital costs have risen more than 45%.
This is according to a report by the Council for Medical Schemes, authored by Alex van den Heever, which was recently submitted to the Competition Commission. Per medical scheme beneficiary, private healthcare costs rose 45,5% between 2001 and 2005 in real terms.
According to Van den Heever, the historical cost trend for private hospitals over the period 1990 to 1998, if continued, would be 65,1% of the 2005 cost. Even this lower trend exceeds the trend for almost all Organisation for Economic Cooperation and Development (OECD) countries between 1990 and 2004, he said. This is because of the increasing consolidation of a few private hospital groups.
The report says:
Private hospital costs have increased steadily since 1990, and at a steeper rate since 1999. This could be from less competition between hospitals as the number of companies operating in the private healthcare sector has become more concentrated since 1999.
The single exit price for medicines helped to flatten costs in 2005, as private hospitals were no longer receiving ‘rebates†from pharmaceutical companies. The real cost of medicines was dampened, but other, underlying costs continued to rise.
Out-of-hospital costs show a similar rising trend until 1998, flatten in real terms and then increase sharply from 2005.
The real reduction in medical costs is outweighed by an increase in doctors’ fees, especially on the part of specialists.
Doctors routinely charge up to 300% of the government-set National Health Reference Price. This happened after the Board of Healthcare Funders, which represents several medical schemes, was forced to withdraw its scale of benefits by the competition authorities.
Visits to general practitioners cost R442 for each medical scheme beneficiary in 2004, but the following year they rose to R539. This is an increase of 21,8%. The cost of specialists per beneficiary rose from R1Â 263 in 2004 to R1Â 389 in 2005, a 10% change. While the cost of dentists per beneficiary decreased from R257 to R255, or 1% over the same period, the cost of dental specialists increased 16,3% from R47 to R55 per beneficiary.
Medical schemes typically push the cost of visits to general practitioners, dentists and optometrists on to their members, but pay for costs incurred through hospitalisation and serious illness.
Medi-Clinic’s financial director, Gerhard Swiegers, last year told the Competition Tribunal that there were five main reasons for
- hospital cost increases:
- an increase in the number of older patients admitted;
- changes in medical technology;
- the HIV/Aids pandemic;
- changes in input costs;
- changes in staff costs; and
- an international trend of hospital inflation exceeding general inflation.
Private hospitals also argue that medical schemes are able to negotiate hospital tariffs to eliminate price abuse by hospitals.
Why costs have gone up
Ageing
Between 2001 and 2005, when weighted for cost, only 3,6% of changes in hospital costs can be explained by a growing ageing popu-lation, says the report. This means that the 41,9% increase in the real hospital cost increase per beneficiary must be explained by other reasons.
International cost trends
The international tendency for health costs is often used as a reason for increases in South Africa healthcare costs. But not a single OECD country shows a real per capita cost increase greater than those of private hospitals in South Africa, says the report. ‘For instance, if the cost trend of the United States was followed, by 2004 private hospital costs in South Africa would be only 44,5% of their current per capita value — Even when hospital costs were lower [as for 1990-1998], they exceeded the increases experienced in the rest of the OECD.â€
New technology
Medical schemes exclude or limit the use of new technologies to bring down costs, but increased availability of expensive technology leads to an increase in health-service costs because of supply-induced demand. Key high-technology items, such as magnetic resonance imaging units (MRIs) and computerised tomography scanners (CT scanners), are in over-supply. Private hospitals in South Africa have 10,1 MRIs and 18,2 CT scanners per million people. This is more MRIs and CT scanners per million people than Canada, France, Germany, The Netherlands, Sweden, and the United Kingdom.
MRIs and CT scanners are hospital-based, so these numbers indicate that market inefficiency, over-pricing and over-servicing are not penalised by the market, says the report. Where healthcare funders have market power — such as the UK, France or Germany — excess capacity is eliminated.
‘New technology often increases costs, where hospitals purchase new equipment in excess of need and then drive up utilisation to achieve the required return on investment,†says the report. But, in South Africa, hospitals appear to have over-invested in expensive, but not necessarily new, technology. MRI and CT scanners are part of radiology practices, and medical schemes are poorly placed to control ‘self-referrals†by radiologists with close financial relationships to hospital groups.
‘It therefore appears highly probable that the inappropriate investment in and use of technology is driving costs up within the South African private hospital market. The excessive concentration of MRI and CT scanners are a proxy for what is happening more generally in all areas,†says the report.
The HIV/Aids pandemic
According to the report, less than 1% of private medical scheme beneficiaries are at the symptomatic stage of HIV/Aids. They tend to be on antiretroviral therapy and so will not experience opportunistic infections typically associated with untreated Aids. Consequently, hospitalisation from Aids is reduced.
Increased staff costs
Private hospitals, including Netcare, say that they have been hard hit by a shortage of nursing staff and the need to train additional nurses. Because of this, they have had to increase nursing salaries. There is no information publicly available on nurse cost increases, so the report has used an estimate. ‘Nurse cost increases could realistically have caused an increase of only 3,8% over an entire 5-year period from 2001 to 2005. Aside from 2005, all annual real increases caused by nurse costs are below 1%,†says the report.
The power of medical schemes
Private hospitals argue that medical scheme administrators have enough market power to negotiate beneficial tariffs. But Discovery Health, the largest medical scheme administrator by far, was unable to negotiate a preferred provider agreement for any of its schemes except KeyCare, which targets low-income groups.