Discovery Health Administrator
Today, 2 March 2016, Discovery Health Administrator (DHA), led by Dr Jonathan Broomberg, made its submissions to Health Inquiry. DHA is a for profit entity, unlike Discovery Health Medical Scheme (DHMS) – a non-profit entity – which will make submissions to the Panel tomorrow.
Cost-drivers in the private healthcare sector
From the outset DHA was emphatic that it was not fees for the administration of medical schemes that contributed majorly to cost increases in the private healthcare sector in South Africa, noting that “in an inflationary environment DHA admin fees are deflationary”. In an attempt to explain the above-inflation increases in the costs of private healthcare, Dr Broomberg said that the primary problem is not price inflation but “utilisation” which “increases by 4.6% every year”. He highlighted this, concluding “we think it is incontrovertible that high utilisation is the result of [increased costs]”. He said that this was confirmed in at least five other major submissions, including those of hospital groups and Econex, an independent economic consultancy.
DHA also highlighted various issues, beyond the control of medical schemes that may also be cost drivers. One example, cited was “adverse selection”, whereby “people join just as they’re planning to claim more than they contribute.”
Regulatory environment and PMBs
DHA suggested the Panel may have been “misled” about PMB compliance by some stakeholders. Dr Broomberg maintained that DHA is fully compliant with PMB legislation both the spirit and the letter and “makes every effort to pay in full” and is successful in doing so in the vast majority of cases. In the 9% cases in which DHA fails to pay PMBs (other than chronic illnesses) in full, the major explanations include members choosing to use non-designated service providers or not providing complete information on claims.
Overall, Dr Broomberg emphasised that most patients are extremely satisfied with the quality of services provided by DHA and DHMS. Last year, for example there were only 800 complaints to the Council for Medical Schemes about DHA out of over the 44 million claims made. He also commented that, contrary to what the Board of Healthcare Funders had submitted to the Panel, “on balance consumers of private healthcare enjoy very good quality of care”.
Nevertheless, the DHA did make submissions on problems with PMBs. Coming back to their earlier submissions about over-utilization DHA submitted that incentives must be changed from the present circumstances in which “doctors [are] choosing to do more to earn more”. Dr Broomberg also suggested that sometimes, in the patients’ interests, doctors currently have an incentive to diagnose them with conditions that are covered by the PMBs. This could explain “dramatic year-on-year increases in diagnosis of bipolar depression”, which is one of two mental health conditions fully covered as a PMB.
Absolute level of prices
Throughout, various members of the Panel questioned DHA about the absolute level of prices in the private healthcare sector. Dr Broomberg responded said that absolute prices in South Africa are “not out of line with global standards” and were in fact “very competitive with OECD countries”. Dr Broomberg noted that the WHO and OECD study presented to the Panel that concluded that South Africa was the “least affordable” private healthcare system compared to OECD countries suffered from “fatal flaws” and crucial methodological problems.
Later, when questioned about DHA’s power in preventing cost increases from hospitals and specialists, Dr Broomberg conceded that the DHA has “not been successful in cutting the base that was inherited in 2005” and welcomed a relook at base prices from 2005.
Brokers and Vitality
Throughout the public hearings, the Panel has asked about the role of brokers in the medical scheme environment. DHA’s submissions indicated that brokers play a crucial role in the choice of medical schemes. In addition, according to DHA, brokers advise prospective members about packages and inform members of medical schemes about their rights and the benefits in relation to medical schemes and packages. Finally, in the context of DHA, brokers may not only assist in selection of medical schemes but may also sell prospective DHA members complementary services such as those offered to DHA members by Vitality.
DHA did not mention its Vitality programme until prompted by a Panel member. DHA emphasised that it is a “completely separate business” and is “entirely voluntary” for Discovery members. The purpose of Vitality is to get young members to join the medical scheme in order to remedy the adverse selection problem.
In relation to the conduct and business practices of brokers Judge Ngcobo asked “whether DHA knows whether brokers do their jobs properly?” Dr Broomberg responded that DHA has contracts with brokers to ensure they perform the tasks that they are required to and that activities of brokers are also regulated.
Member’s knowledge about schemes and their rights
The Panel raised various questions about the low knowledge of users of the private healthcare system of their rights and how the system works. In this regard, DHA said that people “tend to not focus on the detail of their schemes” until they need them to claim. This, Dr Broomberg said, was supported by a growing field of evidence in behavioral economics. This led to a prolonged exchange with the Chief Justice who seemed unsatisfied with Dr Broomberg’s answers, and pushed further asking “hopefully at some stage you will give us full explanation of who is to blame for patients not knowing?” To this Dr Broomberg responded that this is a “global problem”. The Judge again interjected to specifically ask what mechanisms DHA has put in place to solve this problem.
Although he acknowledged that lack of information was still a problem, Dr Broomberg said that it was provided on phone lines, in contracts and by brokers. He listed websites, emails, letters and mobile applications as other channels for keeping members informed.
Ultimately the Judge’s concern, which is of central importance to the Health Inquiry, remained. He asked if DHA and others “accept the problem” exists why do they not solve it “on the ground”? He also pushed back against the suggestion that the lack of information available to users of the private healthcare sector is a “complex issue” asking “what is complicated about a person getting sick and knowing where to go and what to do?” Dr Broomberg ultimately agreed that “it is bad for our members and bad for us if members don’t understand.”
Prompted by a question from the Panel about whether DHA was satisfied with the status quo in the private healthcare sector, Dr Broomberg again referred back to the issues of prices and patient knowledge. He answered “we are not happy that the products are as complex as they are”. He said “that consumers are hurting … we cannot be satisfied with that” and that there are “significant improvements” that can be made “both to cost and to quality” in the private healthcare sector.
Judge Ncobo questioned DHA on quality of health care services and whether DHA shares quality data with members of schemes. Dr Broomberg explained that it did not because it would compromise the relationship with the doctors and hospitals whose cooperation they need. The Judge pressed on, “doesn’t that compromise members”?
The discussion then shifted to the constitutional obligations of the private sector players, which Dr Broomberg characterised as limited to supporting the state in meeting its constitutional obligations in respect of the right to health. The Judge was not satisfied with the answer and asked whether the private sector stakeholders were not subject to the constitutional right, which is fundamental to the Constitution and is sometimes a matter of life and death. Dr Ayanda Nstaluba, also of Discovery Health, stepped in to say that section 27 of the Constitution reflects the pact entered into by all the stakeholders, and that achieving the objectives involved the state but that the private sector had a role in helping to attain the objectives of the Constitution.
MMI Holdings Limited is the consolidated company following the merger between Momentum and Metropolitan. Through its subsidiaries, MMI is involved in health administration and the management of medical schemes. In its submission to the Panel, MMI highlighted the inequalities in income distribution and made use of the OECD and WHO comparative study to reiterate the concerns of the high price of private hospitals in South Africa.
MMI discussed its views on the risk equalisation fund, which was brought up by the other schemes, saying that the lack of risk equalisation is problematic and leads to older, sicker people being forced to discontinue membership as they become unable to afford premiums.
Again PMBs were considered as a cost driver, with MMI submitting that PMBs contributed to the increase of specialist fees, adding that the dramatic increase coincided with the decision to set aside the Reference Price List in 2010. MMI also raised the failure to review PMB regulations since their implementation in 2000, stating that the treatment algorithms no longer reflect current evidence or cost effectiveness. It further criticised the private health sector’s regulatory framework arguing that it is incomplete and fragmented.
MMI agreed with Bestmed that open schemes are reliant on brokers to bring them new members and noted that smaller schemes experienced difficulty with large brokerage firms that are incentivised to work with larger schemes. MMI also suggested that players in the sector such as specialists and GP’s have unequal bargaining power in the market and that this indicates the need for a well structured multilateral system for tariff determination, overseen by independent organ of state.
As with Discovery, the Chair asked MMI about information asymmetry, in particular why the system was so complex that it could not be simplified for members and what MMI was doing to address the information asymmetry. The Chair also pursued questions about whether MMI provided beneficiaries with information about the quality of health care services provided by particular providers, particularly if there were reports of poor quality. MMI had to concede that it did not and that, ordinarily, beneficiaries would be penalised if they attended a non-DSP, and would not be told that the reason that the provider was not a DSP was because of poor service. The Chair characterised this as vital information for a member to be able to make decisions about their heath care.
Unlimited Group is a financial service provider and described itself as a direct marketer of health insurance products. It has 5000 principle members. It pays out to the individual member and not health care service providers. The main concern of this stakeholder was the draft demarcation regulations applicable to the Long Term and Short Term Insurance Acts, published by National Treasury. They are currently governed by Financial Advisory and Intermediary Services (FAIS) Act, amongst others.
Unlimited addressed the concern in the industry that such health insurance products could draw young people out of medical schemes or divert them before entering a medical scheme. The insurance products include Hospital Cash Plans (HCP), which aimed at covering any expense incurred by members in the course of hospitalisation, including non-medical items.
The draft demarcation regulations limit products to non-medical expenses and capped at R3000 per day. Unlimited suggested that because their products target people outside of medical scheme, the products are not in competition with schemes. They also noted that the exploration of initiatives to create low income medical scheme started 10 years ago, with a more recent initiative started by the Council for Medical Schemes apparently abandoned in 2015.
Unlimited went on to suggest that the draft demarcation regulations will restrict the ability of people to get cover for medical costs and contingent liabilities and would therefore constitute violations of section 27(1) of the Constitution. Unlimited further alleged that the draft demarcation regulations indirectly discriminate against low income individuals, who, without insurance products, would not be able to access private health care. In this regard, Unlimited stated that the Patient Rights Charter includes “a right to insurance”. The complete provision of the Patient Rights Charter provides that patients have a right to “Knowledge of health insurance and medical aid schemes”.
When asked what recommendation Unlimited wanted the Panel to make in relation to the draft demarcation regulations, Unlimited indicated that the Panel should urge Treasury to await the outcome of inquiry before finalising the regulations as the Inquiry would otherwise be moot at least in so far as health insurance products affected by the regulations was concerned. The Chief Justice challenged the notion and said it would be inappropriate for the Panel to do so but wholly appropriate for the insurers to do so or to even approach a court to seek that kind of relief. The Chief Justice then qualified the statement and said he was not giving legal advice and could in fact be wrong.
Unity Health markets primary health care insurance products. The starting point of the presentation was that medical schemes are exceedingly expensive and the majority of people cannot afford to belong to a scheme. Unity went on to list the “failings” of medical schemes, including the community rating, open enrolment and other social solidarity policies contained in the legal framework for schemes.
Based on the latest General Household survey, Unity suggested that black people only represent 10% of medical scheme membership and explained the number by suggesting that blacks earn less than other groups. While this seems like a giant leap, Unity went even further to suggest that mostly young black people belonged to schemes, and -as young and healthy people generally cross-subsidise the old and sick – it meant that young black people were cross-subsidising older white people. As if that were not enough, Unity stated that the social solidarity principle of community rating was unconstitutional because of the cross subsidisation along racial lines. Panellist Dr Nkonki asked, “would you accept that blacks are not homogenous in terms of income” the Unity representative answered that they looked at averages. However, Dr Nkonki contended that even on that methodology, the statement that community rating disadvantages blacks is not true.
During question time, the Chair of the Panel challenged Unity’s approach in launching a broad attack on the medical schemes in order to show the benefits of its own products.
In defending the benefits of its own products, Unity indicated that its focus was on private health insurance products for primary health care and that they were much more affordable. Other benefits included:
- Expanding private health insurance to 19 million people currently without medical aid
- Creation of 500 000 new jobs in private sector
- Reduce burden on state facilities
- greater efficiency
- increased tax revenues of approximately 3%.
- Better quality of health and overall well being with focus on preventative care
- Generally “all good for the economy”
Panellist Dr Bhengu challenged the assertion that health insurance products were 10-15% of medical scheme costs, calling the statement misleading as it compares insurance primary health cover with medical scheme full cover, including PMBs.
Unity then went on to attack the National Health Insurance plan, which it characterised as an unsustainable funding model that would lead to an economic downgrade.
Unity concluded that its products increase competition in the market, which leads to an improvement in the quality of care at cheapest possible price and which is progressive and clearly in the public interest. Lastly, Unity stated that disallowing private primary health insurance (as proposed by the draft demarcation regulations) would be unconstitutional.
Panellists Dr van Gent, Dr Bhengu and Professor Fonn challenged the concept that the health insurance products were any different from medical scheme proudcts. Dr Fonn asked what Unity does in respect of social solidarity, which was not answered directly. Her question about what happens when Unity’s members get really sick, elicited the following response: “We are trying to cover something at some cost and the rest would have to go into the state. Its better than nothing.”
Verirad (Pty) Ltd
Verirad are pathology and radiology risk managers.
Verirad started its submissions by responding to some of the previous submissions made by the laboratory stakholders. For example, by pointing out that none of the laboratory submissions to the Inquiry address alternative reimbursement models. The representative from Verirad suggested that the Panel specifically request these details from the pathologists or schemes that engage in such arrangements.
Similarly, there were no submissions from suppliers of pathology tests. However,again, the representative pointed to potential sources of information, including the National Health Laboratory Service and the South African Laboratory Diagnostics Association, which sells pathology tests into market, to provide the Inquiry with the prices of tests.
Verirad noted that Pathcare laboratory posted its prices per test per medical scheme on its website for a time, but the documents were subsequently removed. However, Verirad captured some of the information and learned that the same basket of tests, including the high volume tests such as urea and electrolytes, creatinine, FBC, platelets, ESR and INR were priced differently for different schemes. Verirad compared the prices and found that the tests were priced at around R200, R300, R400 and R500 for exactly the same tests across a sample of about six schemes. Further analysis showed that malaria could be tested for between R140 and R500.
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