/ 4 October 2019

Collusion in private hospitals

Concentration: A heart surgeon performing an operation. Three hospital groups dominate private healthcare in SA.
A South African thought to be in his 60s, who is part of a group of elderly travellers stuck in Frankfurt, Germany, has been admitted to hospital there after testing positive for Covid-19. (Regis Duvignau/Reuters)

 

 

After five years of studying the private healthcare market, the Competition Commission this week released comprehensive findings that paint a bleak picture of the sector. This is particularly the case for the department of health, which the commission found had not used its existing legislative powers to manage the private healthcare market.

The Health Market Inquiry also criticises medical aids and practitioners, as well as private hospitals, saying that some practices contribute to the industry being “highly concentrated, with disempowered and uninformed consumers, a general absence of value-based purchasing, practitioners who are subject to little regulation and failures of accountability at many levels”.

The inquiry found that there is a lack of competition in the sector, as well as collusion, both of which are fuelling increasingly unaffordable healthcare costs. It said major hospital groups often prevent, restrict or distort competition, making barriers to entry too high for new hospitals.

The health department is legally mandated to develop national health policy, as well as norms and standards on health matters. The inquiry, however, found that the department has failed to use its “existing [legislative] powers to manage the private healthcare market, failing to ensure regular reviews as required by law and failing to hold regulators sufficiently accountable. As a consequence, the private sector is neither efficient nor competitive.”

The commission said competition between the private and public sector in healthcare is vital for the success of the implementation of National Health Insurance (NHI). The NHI envisages that the state will be the main purchaser of goods and services in both the public and private health sectors. This would ensure that the cost of services and goods are efficiently regulated.

Health Minister Zweli Mkhize said the NHI will contribute to the protection of the public and will also offer access to quality healthcare for all. “By introducing a large fund that strategically purchases goods and services, the NHI will encourage competition and price control.”

Last year, 27% of South African households opted to visit private healthcare facilities and more than 90% of them, as recorded by Statistics South Africa, were “very satisfied” with the service. The majority of these households, however,were most likely unaware that the quality of the service does not match the price paid, the commission found.

“They [hospitals] facilitate and benefit from excessive use of healthcare services, without the need to contain costs, and they continue to invest in new capacity beyond justifiable clinical need, without being disciplined by competitive forces,” the report said.

The inquiry found hospitals often encourage longer than required stays, leading to a waste of resources and disadvantaging patients. Much of the increase above consumer price inflation (CPI) in hospital costs can be linked to increases in admission, length of stay and level of care.

“It pushes up the cost of care and, if it is high enough, will make it unaffordable and threaten the sustainability of the healthcare market,” the commission said.

But although the findings are damning, one expert said there is little reason to expect an improvement. Governance expert at the University of the Witwatersrand Alex van den Heever said market failures identified by the commission are likely to persist because there are no incentives for the industry to improve the product consumers are buying.

The current regulatory framework does not incentivise practitioners, hospitals and medical aid schemes to be innovative on the basis of price and quality of product and quality of care, he said. “It’s costly and there is an element of risk to do it. There is no competitive pressure to improve and there are lots of conflicts of interests,” he said.

Despite the increasing cost of private healthcare, van den Heever says that consumers would rather use private facilities and be covered by medical insurance. “The public health system can’t really absorb people who are on a medical scheme. People who need to be properly covered would tend to stay on [medical insurance]. People may buy down to hospital plans if their incomes become constrained rather than completely drop out of coverage,” he said.

Section27 executive director Umunyana Rugege said the report is a welcome step in addressing the inefficiencies in private healthcare. She said the national health department will, hopefully, now have a clearer understanding of its legislative powers that allow it to manage the sector as envisaged in the National Health Act.

The commission found that the medical aid scheme sector in South Africa is dominated by three large players, with Discovery Health (40%) and Medscheme (39%), having the largest market shares. MMI Health is the third-largest administrator,

with 5% of the market. Fourteen other schemes have a combined 10% share.

“The existing administrators do not seem to impose a significant competitive constraint on Discovery Health,” the commission wrote.

Discovery, which was found by the commission to have earned profits that are much higher than those of its main competitors, has welcomed the inquiry’s findings, with chief executive Jonathan Broomberg saying that the group will work with all stakeholders to implement the proposals of the inquiry.

Lungi Nyathi, executive director for health management at the Medscheme-owned AfroCentric Group, said other factors, including the requirements of the regulator or administrators, IT, the cost and number of clinical skills and amount of experience required by contracting schemes, make it difficult for new entrants into the market.

The commission said medical aid schemes are too difficult for consumers to compare. To remedy this, the commission has recommended that a standardised base benefit option should be offered by all schemes. It has also called for a supply-side regulator, which is a body responsible for health outcomes for the industry and would also be responsible for establishing tariffs for health professionals, including doctors.

“We agree that the industry needs to address governance failures and the incomplete regulatory framework governing the medical aid sector. The recommendation for the establishment of a supply-side regulator, to look at the concentration, licensing and spread of facilities, coding and some of the unregulated suppliers, is a welcome move,” said Nyathi.

Three hospital groups — Netcare, Life Healthcare and Mediclinic — were found by the commission to dominate healthcare facilities, which include different types of hospitals, healthcare centres and clinics. In 2016 the three dominant groups accounted for about 90% of the market based on general acute hospital beds, from 56% in 1996.

The commission attributes the concentration of the facilities market to “creeping mergers”, which has seen the acquisition of smaller hospitals by the three big groups. Between 1995 and 1999, the three acquired 125 smaller hospitals. There is little proof of “pro-competitive” outcomes of these acquisitions in prices, costs and quality, the commission said.

To remedy further concentration, the inquiry has recommended that the commission reviews its approach to “creeping mergers”.

Netcare’s director of health policy, Melanie Da Costa, said that, despite the findings of the report, the hospital market has seen many new entrants, including new alternatives for funders and consumers. “There has been a significant introduction of independent hospitals — their market share has increased to just over 34% over the last few years. There are currently over 7 000 bed licences in issue to hospital investors outside of the listed groups,” she said.

Life Healthcare’s group chief executive Dr Shrey Viranna disputed that the group has an unfair advantage as one of the big three, saying its financial viability is linked to its “entrenchment of efficient and optimal processes”. This practice has resulted in the group being able to keep price increases below inflation for the last 10 years, he says.

Thando Maeko is an Adamela Trust business reporter at the Mail & Guardian