Consumers reacted with shock to recent announcements that medical schemes would be raising their contributions for January 2004 by as much as 20%. Each year, medical inflation outstrips general price inflation by several percentage points and each year members pay more but many receive fewer benefits in return. Clearly, the situation is not sustainable.
The question is how can these runaway increases be justified, who is to blame, and how can costs be contained into the future?
The Council for Medical Schemes (CMS) has done well tackling administration fees, managed-care costs, reinsurance abuse and broker commissions.
But these non-healthcare costs account for only 15% of medical scheme expenditure. Tackling medical-claims costs will have a bigger effect. The big cost drivers are private hospitals, specialists and drug prices. But tackling these items is much more difficult than non-healthcare expenditure and essentially beyond the control of the CMS. What is to be done?
Earlier this month, managed-care company Mx Health convened a panel of experts to debate the issue, a function it holds every quarter on various topics of industry concern.
Panellist Louise Allen, a director at Jacques Malan Healthcare, argues that current legislative focus on non-healthcare costs fails to address the primary concern of members, employers and the economy - the increasing cost of medical cover.
"Far-reaching changes have been introduced into medical schemes, but without addressing the system as a whole, further legislation within medical schemes may have little effect on health-care inflation," she warns.
This is because health-care inflation is driven by the increase in the cost of providing benefits, she explains. This accounts for about 85% of average scheme expenditure. Non-healthcare costs make up only about 15% of total costs. Moreover, though the council's interventions on this 15% component may reduce costs on a one-off basis, they are not likely to have any significant effect in the longer term.
Taking a hypothetical scheme, she illustrates that even if non-healthcare costs stay constant over the next five years, contribution increases will reduce by only 1,2%/year, making medical aid 5,3% cheaper in five years' time. However, if in addition to this, claims costs are reduced by 2%/year, medical aid will be about 20% cheaper in five years' time.
The real question, therefore, should be how to reduce actual claims inflation. According to the Registrar's Annual Report for 2002, three areas - hospitalisation (32%), medicines (24%) and specialists (20%) - collectively account for 75% of total claims costs.
The focus should be on these areas, says Allen. The problem is that providers such as private hospitals and specialists have little incentive to change the status quo as it has rewarded them well until now.
To drive change, Allen feels there is greater scope for both consumers and government to play a more constructive role. Government should be creating a legislative framework that rewards efforts to lower inflation (and vice versa), while consumers should be demanding better value for money.
She suggests that one solution to the high cost of cover could be found in government's plan to make medical aid membership mandatory for all in formal employment, as this would galvanise employers to demand low-cost cover and the industry would have to reduce prices to meet this demand.
Board of Healthcare Funders (BHF) CEO Penny Tlhabi agrees that an informed consumer is an essential element in the war on medical inflation.
"Health-care consumers need to be educated. They need to know how their health-care cover works, what to ask upfront, and what to look out for that will indicate abuse," she says. "They are often forgotten about."
The biggest cost driver, according to Tlhabi, is in-hospital expenditure. There are many reasons for this, including the inflationary effect of new technology and drugs, as well as an ageing population that demands more care. However, she claims that SA's three main hospital groups effectively act as an oligopoly, using their dominance to maintain high prices, and that this may be an issue for the competition commission.
"BHF is also concerned about [the fees charged for] nontariff items in hospitals, there's no accountability and no controls. When you get an invoice from a hospital, there are pages and pages. It's costly for the schemes to spend the time identifying areas of abuse," Tlhabi says.
She also alleges that collusion between specialists and hospitals drives up costs, claiming some specialists get 20% of the amount they generate for the hospital and others are set targets by hospital management for the number of admissions they must achieve during the year in exchange for a reduction in room rental.
Though other panellists agreed that these practices were rife in the industry, the allegations were denied by Netcare director Reg Bush.
Tlhabi argues that legislative changes are also driving costs upwards, notably that some schemes are having to increase contributions by an additional 3%-5% next year to meet the 25% solvency requirement.
For low-cost schemes, another factor putting upward pressure on contributions is the expansion of the prescribed minimum benefits (PMB) package, as many were not providing these benefits in the past.
BHF is monitoring the effect on low-cost schemes and will lobby government to amend the PMB if it sees that it is proving inflationary.
Mx Health medical director Dr Mark Ferreira takes a broader view, arguing that the main reason for the increase in costs is that the system rewards the sort of behaviour it doesn't want.
"We pay for the highest-cost options - the radiologist and the pathologist, for instance - but we pay virtually nothing for preventative measures such as a wellness clinic," he says. "We pay for the technology rather than the skill and yet the skill could save us money, even if we rewarded it adequately."
For example, he says schemes pay a general practitioner (GP) about R100 for a consultation. This forces the GP to limit the time he spends with a patient (since GPs are unable to make a decent living if they spend 20 minutes with each patient) but "he covers his butt" by ordering tests that the scheme pays for, though they may cost R2 000 or more.
"If schemes were structured to recompense doctors for longer consultations, we could pay R200 for a 20-minute visit, in which the doctor could use diagnostic skills effectively without referring to specialists, calling for tests, or admitting patients, and schemes would save money," he argues.
The way schemes remunerate doctors has also driven the increased use of expensive technologies, he claims. This is the reason why there are, for example, more magnetic resonance imaging (MRI) scanners in Johannesburg than in the whole of the south of England - they make money for their owners.
Netcare executive director Norman Weltman defends the high cost of private-hospital care, saying it is misleading to compare medical with general inflation.
"CPIX looks at a static basket of products over time; health care is a fluid industry that changes with the introduction of new treatments, new technology, new techniques, new expectations about quality of life and expected longevity. It is a worldwide phenomenon that health-care costs do not rise in tandem with CPIX," he says.
Funders and providers have started to address the problem by moving from the traditional fee-for-service model, where the provider bore no risk and was not cognisant of the costs, to a new paradigm, where risk has been transferred to the provider who contracts to perform a service at a fixed figure. This makes him aware of costs (and encourages him to practice judicious medicine).
Weltman was the only panellist to cite the brain drain as another factor driving up health-care costs, saying: "The nursing profession is in an even more catastrophic state than other health-care professions because so many nurses have left. At Netcare, we pay nurses well and train 3 000/year - next year it will be 5 000 - but even so, the attrition is significant. It all has an effect on costs, of course, because the nurses are aware that there is a demand and supply imbalance, which is used as leverage come wage negotiation season."
SPNx Doctor Network chairman Dr Sam Tshabangu feels that two key players have been sidelined - the doctor and the patient - and that if they were given their rightful prominence, the system would change for the better.
Schemes may claim that doctors act as gatekeepers (preventing the patient from unnecessarily accessing higher levels of care), but he says it has become exceedingly difficult for the GP to play a critical role.
He calls for schemes to involve doctors in designing products, pointing out that often efforts to achieve savings are undermined by doctors because of this. For instance, Tshabangu says: "If the scheme says we're not going to cover cough mixtures because there's scientific evidence to show they don't work, how will the doctor react when he has a patient who expects, indeed demands, a cough mixture? Chances are he'll write a script for a cough mixture, but call it something else for the benefit of the claim."
The solution to the high cost of cover, he says, is to encourage good practice and empower the GP. Instead, new legislation that curbs dispensing by doctors and restricts where doctors may practise is creating so much instability in the sector that many doctors are thinking of leaving SA . Over the past year, three Soweto doctors have emigrated to Canada - a new phenomenon among black GPs.
The Medicines Control Council's (MCC) Dr Morgan Chetty argues for the hospital reimbursement system to be overhauled.
He suggests that SA develop reimbursement models based on diagnostic-related groups (DRGs), as was done successfully in the US.
DRGs involve grouping procedures (diagnoses) into broad resource categories. A fixed fee is paid per category, giving the hospital an incentive to find the most efficient way of providing the care. If surgical complications arise, the diagnosis changes and a higher fixed fee is levied.
Chetty also suggests that more use be made of day theatre and step-down facilities, where patients can be cared for postoperatively by fewer staff and using fewer resources without compromising the quality of care. Better ways could also be found to utilise spare hospital capacity (average occupancy is only 60%).
"Most work is done in the morning," he says. "If they could create a lower bed rate for procedures done in the afternoon, they could use all their resources more effectively."
Chetty feels SA registers to many branded drugs for a Third-World environment, and too many drugs in the same therapeutic class.
SA's use of generics is also too low, at about 20%-25% compared with about 52% in the US. Moreover, generics enter the SA market too highly priced. SA is out of line with other countries here too.
Drug costs would come down if doctors were taught health economics before qualifying, he argues. With so many drugs doing the same thing, doctors are not choosing the most appropriate, cost-effective drugs.
Chetty also contends that there are too many drug formularies in use and that most are primarily cost-based rather than focused on the quality of care.
He believes further savings could be achieved if there was a change in the way GPs and specialists related to one another. "GPs must accept they are capable and must stop abdicating care to the specialists," he argues.
"They tend to refer a patient to a specialist for management of a condition rather than for an opinion. The specialists, in turn, seldom refer a patient back to the GP, with the result that the patient is treated at a much higher cost."
There is also not enough sharing of information between GPs and specialists, resulting in the duplication of tests and procedures.
Chetty has strong words for government, saying: "Government has not listened to the private sector, it has employed people who have their own agendas, their own ideologies and who are either pure economists or pure academics with absolutely no experience at the coal-face. The result is often solutions that are impractical and cannot be implemented day to day."
AECI Medical Scheme chairman Jacques Pienaar warns that medical aid is pricing itself out of the market and that a crisis is in the making. He says "unless something drastic happens within the next two years, this whole industry will implode".
He agrees with most of the other panellists that too many members go to specialists too often. This drives up medication and hospitalisation costs as specialists invariably order tests, perhaps a procedure, and costly drugs.
He too argues that the industry needs to get back to where it was 10-15 years ago when the GP was the first port of call, a real gatekeeper. He suggests that perhaps schemes should levy larger co-payments on members who see specialists, to make them question the need for seeing a specialist as opposed to a GP.
Pienaar shares Tlhabi's concerns that some specialists attached to private hospitals may be receiving inducements for filling hospital beds and feels that the Health Professions Council of SA (HPCSA) should conduct an investigation similar to that done into pathologists.
He has little doubt that schemes are being ripped-off by private hospitals that continue to make resounding profits while bed nights are falling.
But he also believes part of the solution is to educate members.
"It's a cultural thing, a habit of patients never questioning doctors. We need to educate our medical scheme members, first of all to find out exactly what their diagnosis is and then to ask pertinent questions: are these tests necessary? Is there any other way this could be treated? What is the cost?"
A common thread running through the debate was the need to shift from the current fee-for-service system that encourages overserving, to one that aligns the interests of all the parties - funders, providers and members - to ensure patients receive only cost-effective, necessary care.
As is typical with health-care industry debates, there was the usual finger-pointing between providers and administrators, with each group blaming the other for contributing to the high cost of cover.
In summation, Mx Health CEO Neels Barendrecht said health-care executives, like himself, were "fat cats" who were "missing the plot and needed to get out of their comfort zones.
"There are millions of people who can't even access a GP, let alone a primary-care nurse," he said. "In SA, 25% of the health-care cake goes on medicine in the private sector, but only 12% goes on medicine in the public sector.
"And SA accounts for 1% of all medicine dispensed in the world but 2% of medicine turnover. As individual funders and providers we've had some successes, but as an industry it's a mess. We need to think hard about the moral standard of health care."
