Rising healthcare costs in South Africa

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The funding of healthcare in South Africa is a highly contentious issue, which involves a variety of stakeholders. While Government is planning their National Health Insurance (NHI) model, private healthcare providers and medical aid schemes are watching in anticipation to determine how it will affect them. In the interim, it is business as usual.

Royal Philips, a health and wellbeing organisation focussing on improving people’s health, released the South Africa results of the first edition of its Future Health Index (FHI) in July 2016. The FHI is an extensive international study which explores how countries around the world are positioned to meet long-term global health challenges through integration of health systems and adoption of connected care technologies. More than 2 600 HCPs and 25 000 patients were questioned in Australia, Brazil, China, France, Germany, Japan, The Netherlands, Singapore, South Africa, Sweden, UAE, UK. and US.

The report revealed that:

  • Cost is a significant barrier to healthcare in South Africa
  • (HCPs) and patients indicate improving access to healthcare services as a core priority for local Government

Overall, cost is a significant barrier to healthcare in South Africa – much more so than any other market surveyed.

  • Among patients who have not visited a HCPs when they needed to, about half (forty seven per cent) say that they did not visit because they could not afford it. This is significantly higher than any other market, including other emerging markets.

Ensuring quality healthcare 

Dr Bobby Ramasia, principal executive Officer of Bonitas Medical Fund says, ‘Private healthcare expenditure in South Africa was slightly more than R140 billion in 2014. South Africa’s level of spending is relatively high by international standards; it exceeds that in the majority of countries of a similar level of economic development and is on a par with some high income countries.’

However, health status indicators (such as infant mortality) in South Africa as a whole are far worse than that in other upper middle income countries. Privately insured people though have outcomes comparable to best in world. However, this comes at a high cost. People in South Africa who cannot afford private medical insurance have some of the worst outcomes in terms of healthcare.

“There is a strong basis for arguing that the key challenge facing the South African health sector is not one of a lack of resources, but rather a great need to use the existing resources more efficiently and equitably.” Approximately 40 per cent of total healthcare funds in South Africa flow via public sector financing intermediaries (primarily the national, provincial and local departments of health), while 60 per cent flow via private intermediaries.

The marked imbalance is one of the reasons why the FHI study reveals that South Africa’s healthcare system is one of the lowest-rated by its patients among the thirteen (13) countries surveyed.

Medical schemes are the largest financing intermediaries, accounting for nearly 46 per cent of healthcare expenditure. Households’ out-of-pocket payments directly to healthcare providers also account for a sizeable contribution of around 14 per cent.

Ramasia says, “Expenditure in the private sector has continued to increase on an annual basis since the 1980s, at rates far exceeding the inflation rate making membership of medical schemes increasingly unaffordable for South Africans. Medical inflation (unavoidable contribution increases on medical schemes) ranges between 5 per cent and 3 per cent higher than Consumer Price Index (CPI) over the past 13 years.”

He also believes that fragmented care costs are higher and is also concerned about over servicing. Studies show that an estimated 82 per cent of physicians order more tests and procedures than are medically necessary. He says, “Managed care initiatives aimed at actively managing disease, ensuring the coordination of care as well as strategic purchasing and wellness will go a long way in managing the increasing disease burden and contributing to the continued sustainability of the current healthcare funding model.”

This view is supported by Dr Humphrey Zokufa, MD of the Board of Healthcare Funders. The key challenge facing the industry is how to reverse the current trend, where there is no growth in the number of people that are joining medical schemes. “Those who are on medical schemes are getting sicker and older; they are faced with high contributions on a monthly basis and increases annually that are higher than the CPI. The benefit packages are decreasing, patients are consequently faced with co-payments and at times these benefits run out.”

Zokufa also blames Government and not the medical aid schemes. “There is enough evidence for Government to intervene by regulating the healthcare costs. While there is an argument that the runaway costs do not require an intervention of regulating, we as the BHF disagree. For example, when pharmaceutical products were regulated in 2001-2003, costs came down and even now the costs are more or less very much in line with the CPI. Whereas the other costs such as pathology, radiology, surgical interventions, bed rates, etc., are not regulated and their costs on an annual basis are higher than CPI. Therefore the argument that we do not need regulation to bring those costs down does not hold water.”

Ramasia believes that this is one of the reasons for the marginal growth in the number of South Africans covered by medical schemes. Total number of medical scheme beneficiaries has increased marginally to 9 million lives over 23 years, but the percentage of the overall population on private medical insurance is relatively constant at a very low 16 per cent.

Zokufa says, “One of the most important things that we can do to reverse this trend is to explore ways and means of decreasing the healthcare cost on the supplier side (more than 60 per cent goes to hospitals and specialists). To date we have not successfully done so. It therefore still remains a challenge.

We feel the control of hospital tariffs would significantly contribute to reducing the increases to medical scheme contributions thereby improving access to a greater proportion of the population.”

Impact of low growth economic environment on medical schemes

“Demand for healthcare increases in times when future job/ income/ family security are less certain. Recent trends in increases in unemployment correlate with increases in in-hospital claims,” says Zokufa.

A low growth rate is much more than just a number. Economists say that over time weak growth can have an insidious effect on a country’s prospects and options in ways not everyone appreciates.”

Ramasia says, “From a medical scheme industry perspective, which derives the majority of its members from employees in the private and public sector, this means fewer young people are joining medical schemes. And when medical aid costs rise younger, healthier and cash-strapped medical aid members often take a gamble and go off medical aid altogether.

This does little to offset the growing disease burden and the ageing medical aid scheme population, which tend to increase claims and worsening of the age profile of medical schemes. As companies struggle to maintain profits in a low growth economic environment, they may resort to retrenchments in order to maintain profit margins which may result in a decrease in membership for medical schemes.

“The demand for PMBs is also a factor. PMB costs for medical aids have doubled since 2011 for two reasons: Firstly the increased utilisation of these services and secondly the increased cost of the service by healthcare providers.”

What is the solution?

Zokufa also believes that regulation is the answer. “The biggest problem on the funding side is that the regulator does not have enough resources to carry out the regulations in the Act. And, in terms of the supply side, healthcare professionals and private healthcare facilities are not regulated but entrepreneurially driven.”

Bonitas believes there should be increased focus on prevention and utilisation of managed care protocols in disease management and co-ordination of care and wellness. “We see managed care as a vital tool in managing disease and ensuring that our members receive access to quality care. With regards to innovation, our administrator Medscheme developed an Emerging Risk Model which is an innovative tool that the Scheme will use to identify emerging risk members before they develop high risk conditions, thereby implementing managed care protocols on those members.”

“We have since established that high-risk members comprise a small proportion of the Scheme’s membership but account for the largest proportion of the Scheme’s costs. Early detection and proactively managing the diseases associated with these members enables the Scheme to effectively manage costs associated with these members and improves treatment outcomes for those members hence improving their longevity.”

The elephant in the room – the NHI

Zokufa says, “The 83 medical schemes that we have in South Africa should become an integral part of the NHI. The skills, expertise and knowledge that we have collectively must be unleashed and made available to various elements and must be established from a position of saying there is already a system in place but must be re-engineered that the healthcare Rand has to pooled there should be no fragmentation, and then we should all be looking at delivering universal healthcare, not delivering healthcare in piece meals that are in PMBs and whatever is in the option that you have chosen.”

With thanks to Dr Humphrey Zokufa, MD of the Board of Healthcare Funders, Dr Bobby Ramasia, Principal Executive Officer of Bonitas Medical Fund, together with their actuarial team.

 

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