The Competition Commission has published the findings of its national health market inquiry, uncovering several major problems with South Africa’s private medical aid schemes and hospitals.
In a presentation published on Monday (30 September), the commission’s researchers said that they had identified features that, alone or in combination, prevent, restrict or distort competition in South Africa’s private healthcare sector.
“The market is characterised by highly concentrated funders and facilities markets, 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 commission said.
While the report recognised that much of this system is set to be replaced by the National Health Insurance (NHI) within the next 10 years, private healthcare would continue to operate in the interim and beyond the NHI’s implementation.
Thus, the commission recommended that a number of changes be made to provide a better environment in which a fully implemented NHI can function.
You can find some of the major findings highlighted below.
Private hospitals
- Dominance – Three hospital groups – Netcare, Mediclinic and Life – dominate the facilities market. In 2016, their market shares based on beds (and admissions) were 31% (33%); 26.8% (28.6%); and 25.3% (28.5%) respectively.
- New entrants – These hospital groups make it very hard for newcomers and fringe players to grow and to compete on merit.
- Distorting prices – The three groups are also able to distort and prevent competition by binding the best medical specialists to their hospitals with lucrative inducement programs. The report added that they ‘all but dictate’ year-on-year price and costs increases for funders (medical schemes).
- Checks and balances – These facilities operate without any scrutiny of the quality of their services and the clinical outcomes that they deliver because there are no standardised publicly shared measures of quality and healthcare outcomes to compare one against the other.
Doctors/practitioners
- The concentration of doctors – There are 1.75 private practitioners per 1,000 insured population. General practitioners (GPs) are distributed relatively evenly across the insured population at just under one per thousand. Specialists are more concentrated in provincial capitals and metropolitan areas, and in some areas, there are no specialists at all.
- Encouraging hospital stays – Utilisation rates (that is hospital admission rates, level of care, admissions to ICU, and length of stay) were higher than can be explained by the burden of disease of the population being cared for. “Over servicing, or using higher levels of care than required, is not necessarily better care. It leads to a waste of resources and may even be disadvantageous to patients’ health. It pushes up the cost of care and, if it is high enough, it will make it unaffordable and threaten the sustainability of the healthcare market,” the Commission said.
- Incentivised to over-provide – Incentives in the market promote over-utilisation. In particular, fee-for-service means that the more services practitioners provide, the greater their income, which creates a perverse incentive for profit maximising individuals or groups.
- Mandatory cover causes issues – Mandatory cover of prescribed minimum benefits, payable at cost, creates an opportunity for practitioners to determine their own degree of intervention and rates which must be paid for in full by funders.
Medical schemes/funders
- Can’t easily compare – Consumers can’t easily compare options across funders, which means that consumers do not readily switch schemes in response to better offers from rivals.
- Prescribed minimum benefits (PMBs) – While having had a positive impact in ensuring a minimum level of coverage for members, PMBs have had unintended effects on competition. The Medical Schemes Act specifies that PMBs must be paid in full without deductibles or co-payments which has shifted market power towards practitioners who are able unilaterally to set prices for PMBs which funders must then reimburse in full.
- Hospital plans – In the face of rising costs and declining membership growth, funders have attempted to offer the lowest-cost, lowest-benefit plans possible. Instead of saving money, this approach has had the unintended consequence of raising costs as members are hospitalised unnecessarily to have treatments paid for.
- Information advantage – Consumers have an information advantage over funders concerning expected health expenses (e.g. when deciding to become pregnant or being diagnosed with a chronic illness). Using this advantage consumers may opt to forego joining a medical scheme until it becomes necessary or they may adjust their level of coverage in response to their anticipated need. This behaviour can result in an individual member’s claims outweighing their contribution, necessitating higher premiums for all members.
- No new entrants – The high barriers to entry in the administrator market has meant there has been little-to-no entry for several years, despite some incumbent administrators earning very high profits while assuming limited risk relative to either the funders or providers.
Recommendations
To remedy these and other issues the Commission made the following recommendations:
- New base benefit option – The Commission recommended a new standardised base benefit option, which must be offered by all schemes. It will enable consumers to compare products, reward those funders which are able to innovate to offer lower prices and/or higher quality, and, thereby, both discipline and reward the market.
- Dedicated healthcare regulatory authority – The Commission has called for the establishment of a dedicated healthcare regulatory authority, referred to here as the Supply Side Regulator for Healthcare (SSRH). The role of the SSRH will include regulation of suppliers of healthcare services, which includes health facilities and practitioners.
- Outcomes body – The report recommends the creation of an Outcomes Monitoring and Reporting Organisation (OMRO) as a platform for providers, patients and all other stakeholders to generate patient-centred and scientifically robust information on outcomes of healthcare.
- Review competition – The report recommends that the Competition Commission review their approach to creeping mergers to address high levels of concentration through effective merger review.