The Private Hospital Sector in South Africa'

1
The Private Hospital Sector in South Africa.

• Costs and comparisons

2
The Private Hospital Sector in SA

• Comparisons with public sector, medical schemes
  and even hotels from official data sources.
• Towards a cost index for private hospitals to
  measure input costs on a neutral scale.

3
Something about this presentation

• Last year after this presentation was done here
  at the HASA conference, I was called a public
  relations exercise by people like Mr. Van den
  Heever from the CMS.
• He claimed that the figures we used were biased
  and that we said just said what Private
  hospitals had told us to say.
• I decided to get statistics from sources outside
  of our firm, as well as outside the private
  hospital industry.
• Statistics South Africa and National Treasury
  were very helpful as were the CMS annual reports
  on the web.
• None of these sources can be accused of bias as
  they are not motivated by financial payments from
  the private hospital industry.

4
Private Hospital sector inflation vs. CPIX
Official Inflation rates from Statistics South
Africa
Source StatsSA.
5
Private Hospital sector inflation vs. Medical
scheme Inflation Official Inflation rates from
Statistics South Africa
Source StatsSA.
6
Official consumer price increases total price
change since 2000 (source Stats SA inflation
data)
Source StatsSA.
7
Medical Inflation increases over time.

• Medical Inflation generally increases faster than
  normal inflation in most countries around the
  world.
• Medical schemes have increased their prices the
  most according to Statistics South Africa.
• Medical scheme consumer price inflation over the
  total period was 158 while private hospitals
  increased their consumer prices with 74.
• Public Hospitals increased their total consumer
  prices by only 12,8 over the period.

8
Increases in public health spend per capita from
2001.
Source National Treasury IGFR
9
Public vs. Private Hospitals

• Consumers account for only 2 of public hospital
  revenue, while 100 of private hospitals revenue
  is attributable to consumers and medical schemes.
• Public hospitals are therefore funded by the tax
  payer and the latest Inter -government Fiscal
  Review (IGFR) from the National Treasury points
  out that funding grew by 10,2 annually from
  2003/4 to 2006/7.
• Real after-inflation growth will average 4 from
  2003/4 to 2009/10 according to the IGFR.
• Looking at the cost per admission at public
  hospitals since 2000, the funding cost per
  admission has increased with 111,7 .

10
Public vs. Private Hospitals Public hospitals
government funding per Admission
Source StatsSA and 2007 Inter Government Fiscal
Review as Budget 2008
11
Funding cost per admission in public hospitals

• In four out of the last eight years, the increase
  in costs per admission has been over 10.
• The Public hospitals have seen an increase of
  just 0.5 in admissions since 2000 according to
  the IGFR.
• During this time period, the total SA population
  grew by 8,5 and the mortality rate increased by
  42 between 2000 and 2005.

12
Official consumer price increases Total price
change from 2000 - Statistics South Africa but
public hospitals government funding per admission
from National Treasury
Source StatsSA and 2007 Inter Government Fiscal
Review as Budget 2008
13
Public hospitals have a higher inflation rate
over the longer-term.

• Using Council of Medical Schemes annual reports
  from 2001 to 2006, the total cost per admission
  into private hospitals increased by 22,1.
• Using the same Council of Medical Schemes annual
  reports from 2001 to 2006, the total cost per
  admission into public hospitals increased by
  57.7!
• Public hospital cost inflation is likely to
  increase by over 10 again, as salaries will
  increase with over 10 in the coming year.

14
Cost increases in 2007 - again from official data.

• According to Statistics South Africa medical
  schemes had an inflation rate of 11,8 in 2007
  while Private Hospitals had an inflation rate of
  4,9.
• According to National treasury data the funding
  per admission in public hospitals increased with
  16,7.
• A bed night in a Hotel increased with 11,6 and
  with 28 at a guest house. (Statistics SA
  Accommodation in SA)
• Private hospitals therefore had the lowest
  inflation rate of all these services in South
  Africa.

15
Private Hospitals are not a major current cost
driver in medical inflation.

• Overall CPIX inflation for April was 10,4.
• Medical Inflation is currently at 5,6, but there
  has been a delay with gathering public hospital
  prices.
• Private hospital inflation is at 5,4 according
  to Statistics South Africa, while medical scheme
  inflation is at 9,4.
• The March hotel inflation rate is at 21,6 - the
  highest since the index started in September 2004.

16
Occupancy rates of different hospitals and hotels.
Sources Annexure B IGFR, StatsSA and Economists
Dot COZA
17
Moving towards a Private Hospital Cost Index.
18
Why a Private Hospital Cost Index?

• With government, the Council for Medical Schemes
  and the public worried about Private Hospital
  price increases, there must be a way that the
  sector can explain their cost pressures using a
  neutral and scientific method.
• (Certainly not the quality, as the GHS shows)
• Recent statements and draft bills show that the
  Department of Health has been looking at
  regulating private health care.
• A Private Hospital Cost Index would provice an
  undisputed method of showing the cost drivers and
  pressures of the industry - if neutral data is
  used.

19
Firstly from the PPI an index of operating costs
excluding staff Our old Hospital Cost Index.
20
Composition of the HCI

• Pharmaceutical products
• Medical, precision and optical instruments
  scientific, optical and related equipment
• Electricity
• Wholesale Food Index.
• Water Gas
• Rubber (for gloves.)
• Source PPI from Statistics South Africa

21
Then , add staff costs from Quarterly Employment
Survey.
Note still needs some cleaning up
22
Staff Costs are a major item in Private Hospitals.

• A CMS report says staff costs added only a 5
  real increase to the price of a private hospital
  bill.
• This official data shows that this is not the
  case as staff costs increases with 112,8 between
  2000 and the end of 2007.
• This is while the official CPIX 55,8 over the
  same period.
• I challenge the CMS to state where they got their
  staff salary increases from!

23
Leads to a total operating cost index for Private
Hospitals The New Private Hospital Cost Index.
24
Annual Increases in CPIX and PHCI.
25
What the new Private Hospital Cost Index tells us.

• Private hospital costs have increase with an
  average of 2,4 more per year than CPIX.
• CPIX increased with 6,2 on average, while PHCI
  increased with an average of 8,6
• The index is neutral and the index weights were
  obtained from Private Hospital costs ( as
  received by us )
• The components are measured by Statistics SA and
  put together by Economists.co.za
• Data is relatively robust and gives us a way to
  forecast cost increases in the hospital
  environment

26
Adding a Capital Cost Index.

• First, wed like to caution that we do not yet
  have any idea of what the weight of capital
  should be for a total cost index.
• The overall cost of building a hospital,
  according to Building statistics, was over 191
  higher by March 2008 when compared to 2000
• Taking the overall cost of building a hospital at
  10 of the total costs (without taking interest
  rates into account) we notice a 3 difference
  between CPIX and private hospital cost pressures.
• CPIX 6,2 and Total PHCI 9,2.

27
A private hospital cost index idea

• Use this index on a quarterly basis when capital
  costs are ready and use it to motivate cost
  increases to the public.
• The index is neutral and figures are collected
  independently outside industry.
• If you believe figures to be wrong, one can
  approach Stats SA and ask for an investigation.
• The department of health cannot fault Statistics
  SA data and your neutral cost-reflecting index.
• Forecasting costs as whole become easier.

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Thank you and questions

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