With the spectre of price controls on private hospitals looming, market leader Netcare has called for self-regulation by the industry to ward off moves by government to set prices.
Netcare found itself in the eye of a storm recently amid accusations that it benefited from non-transparent pricing and for not passing on rebates from suppliers to its customers.
This week the Mail & Guardian approached eight medical device suppliers. Three of Netcare’s suppliers agreed to talk anonymously. They explained how the hospital giant pressured medical device suppliers into inflating invoices and paying rebates.
One of the eight medical device suppliers claimed that it had never been approached to inflate invoices.
Medical devices comprise medical equipment ranging from gloves to gowns, masks, syringes, prosthetics and implants.
Netcare chief executive Richard Friedland adamantly denies the allegations made by the suppliers, telling the M&G this week that there is no evidence to support them.
The ruckus over rebates occurs at a time when government is beginning to ask questions about the cost of private healthcare in South Africa.
Health Minister Manto Tshabalala-Msimang met industry players this week to discuss private healthcare inflation, transparency and business practices in the sector.
Following the meeting, she announced that an indaba to discuss inflation and lack of transparency in the private healthcare industry will be convened next month.
The department of health’s director of pharmaceutical economic evaluation, Anban Pillay, told media last week that the government could regulate the prices of consumables in the same way it regulates medicine prices, but this would take time to implement.
The three medical device suppliers, which have conducted business with Netcare, say the hospital group requests two prices from suppliers when they tender for supply contracts. The first is a net price, the one Netcare actually pays per unit, and the second is the list price, the price at which the supplier invoices the hospital group.
The suppliers say the list price can be anywhere between 20% to 80% higher than the net price.
The suppliers confirm that unless they play ball by inflating invoices and paying rebates they do not win tenders to supply the hospital group.
“They have sent people away and said come up with higher prices,” says one of the suppliers. “Unless you comply they just tell you to go away. People are forced to play the game against their will.”
Another supplier says what it amounts to is that when you collect your cheque from Netcare, you deposit a cheque at the same time.
“The health sector is terribly sick,” says the supplier.
Friedland says the list price was set by Medi-Kredit and that allegations of inflating invoices did not make sense because Netcare’s surgical basket had increased only 3,9% in the past five years.
“I think what you’ve got is aggrieved suppliers,” says Friedland. “People who are not involved and will accuse you of all kinds of things.”
He says he was informed by a major funder that people were scared to come forward to talk about inflation of invoices and so he went on Radio 2000 and 702 to guarantee that whistleblowers will not be prejudiced.
Friedland says that, in hindsight, using the device rebates to cross-Âsubsidise the theatre and ward fees was not the right way to go because it created confusion over Netcare’s pricing model.
“Our customers deserve transparency,” says Friedland. “I have committed to remove that rebate structure in its entirety and I want to go one step further, I think there should be one single exit price for consumables.
“What I think is good about this is [that] we should be having transparency right across the industry,” says Friedland. “Let’s look at what pharmaceutical companies make, let’s look at what price device companies land their products in the country at, let’s look at the funders and the hospital groups, let’s see who is really ripping the ring here.
“I have had people phone me this week and say, ‘Richard, we understand that we are hiding in your coat tails and it’s laudable that you have come clear on this issue, but it is in no one’s interest to start talking about Âprofitability on this issue’,” says Friedland.
The spotlight on “off-invoice rebates” was raised three few weeks ago when Rajesh Patel from the board of healthcare funders’ (BHF) benefit and risk department told a BHF conference that private hospitals have been charging medical schemes inflated prices for medical devices and materials.
Patel said these practices have combined to cost billions of rands for at least the past seven years and that if the practice is not stopped, medical schemes will spend R2-billion this year on secret mark-ups or off-invoice rebates.
The statement by Patel immediately drew denials from Medi-Clinic Private Hospital Group and Life Healthcare, to which the BHF later apologised.
Discovery’s head of strategy and health policy, Johnny Broomberg, says “bloated” invoices have cost the medical aid group about R240-million a year.
Last week Friedland admitted that the hospital group did receive ”off-invoice” rebates from suppliers, which were used to cross-subsidise ward and theatre costs.
He claimed that although it was not a transparent cost system, everything was completely above board.
Friedland said Netcare will move to a simpler and more transparent system, which will not include rebates on surgical devices.
Patel told the M&G this week that the BHF is seeking legal advice over the off-invoice hospital rebates and that it will push for more transparent pricing systems.
“We don’t want to reduce their income,” said Patel. “We just want a more transparent Âsystem.”
Other industry players said a full independent investigation is required to get to the Âbottom of the rebate issue.
The health department failed to respond to requests for an interview and did not respond to questions put to it by the M&G at the time of going to press.