Private Hospital Review

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Private Hospital Review

• Melanie Da Costa

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Misconceptions

• Private vs. public expenditure on health and
  affordability constraints
• Hospital cost increases represent the most
  important contributor to medical scheme cost
  increases (1)
• This coincides with the hospital market becoming
  technically concentrated (1)
• the increased market power expresses itself
  through its influence of pricing in the supply
  chain (2)
• Cost Price multiplied Volume
• Break in trend
• Balance of negotiating power
• Levels of private hospital capacity
• Supernormal profits

3

• Public vs private expenditure on health and
  affordability constraints

4
There is an underspend on healthcare at a
national level
Government expenditure on health in developing
countries
Source World Health Statistics, 2007 (2004 data)
5
Private healthcare expenditure is in-line with
other developing countries
Source World Health Statistics, 2007 (2004 data)
6
At 910(1) (ex VAT) per capita spend, private
sector costs at developing economy levels but
outcomes are first world
(1) Based on 9 million and ZARUSD 780
7
Crises of affordability of healthcare in South
Africa

• Approximately 15 of South Africans have medical
  cover
• The percentage of formally employed on medical
  schemes has remained constant at approximately
  37 since 2000
• Medical scheme membership however comprises the
  bulk of tax payers i.e. gt70
• The employed but uninsured sector, below the tax
  threshold, has very little if any disposable
  income

Source CMS and Annual Labour Force Survey
8

• Concentration of hospital sector and impact on
  price

9
Hospital industry concentration HASA stats show
a relatively stable market over last 5 years
Period of collective negotiation
Source HASA
6 medical aid administrators represent 71.6 of
medical schemes in provider negotiations
10
Average increase in total hospital prices versus
consumer inflation and medical inflation (1999
2006)
Pure price increases excludes for e.g. impact
of new drugs or surgicals, excludes volume
increases and case-mix changes
Source Regional Business Analytics, 2008 Stats
SA,
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Break in trend?
Source CMS
12

• Utilisation volume impact of triple burden of
  disease

13
USA Hospital inflation drivers 44 utilisation,
56 price
Sources Data on hospital spending are from the
Milliman Health Cost Index both hospital
inpatient outpatient services. Data on hospital
prices are from the Bureau of Labor Statistics
14
Increased burden of disease is a global phenomena
Source WHO 2007
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Utilisation

• Since 1998, R7 billion has been spent by schemes
  on hospitalisation for reasons not attributed to
  price changes
• Increase in utilisation, which comprises
• increases in the number of admissions and
• increases in the average billed per admission
• Increases in the average billed per admission
• Price
• Impact of new drugs and surgicals
• Level of care
• increased access to health due to improvements in
  technology
• case-mix changes
• demographic changes in ageing
• disease patterns and Aids
• Unintended consequences of the Medical Scheme
  Amendment Act regarding Prescribed Minimum
  Benefits and risk rating

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Disintermediation of the GP
Change in thehospital admission rate
Change in the relativefrequency of GP vs
Specialist visits
Source Discovery Interim Results presentation,
Dec 2006
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Medical scheme admissions into same store
hospitals up approximately 13 (2002-2006)
17
Source Regional Business Analytics Netcare
and Medi-Clinic based on same store 2000 Life
Healthcare based on same store 2002
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Increased utilisation from demographics triple
burden of disease

• Increased trauma -

• Burden of disease

Age
Trauma
Cardiac chronic disease as of total admissions
Burden of Disease
HIV/AIDS
Source Regional Business Analytics, 2008
19
Change in distribution of medically insured lives
from 2005 vs. 2001
Source Council for Medical Schemes
20
Ageing profile of hospital admissions cost
schemes gtR1bn
Average age of hospital admission

• Average age of a patient in a private sector
  hospital in 2006 was 42,5 years compared to 36,9
  years in 2002
• There is a strong, near linear relationship
  between age and hospital billings
• The higher age attributable admission rate has
  not been factored into the calculation
• The ageing patient profile in Netcare,
  Medi-Clinic and Life Healthcare hospitals alone
  cost medical schemes R936 million from 2002 to
  2006

Source Regional Business Analytics, 2008
21
Increased admissions with chronic diseases
Cardiac as a percentage of total admissions
Diabetes as a percentage of total admissions
Source Regional Business Analytics, 2008
22
Hospital admissions with indications of HIV on
the increase
Source Medi-Clinic
23
The solution to cost and access does not lie in
price alone
Trauma as burdensome as TB?
Source Regional Business Analytics 2007
24
Reconciliation of a hospital groups claims by a
large administrator
Truth of data exercise shows that after allowing
for the utilisation impact of age and case-mix,
hospital price inflation exceeded CPIX by 2 per
annum from 2000-2005
Source Administrator
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Medical schemes do have countervailing power

• Price containment a reflection of robust
  negotiations
• Medical schemes determine which medical treatment
  will form part of covered benefits
• The admissions and utilisation of South African
  Private Hospitals are approved by an independent
  third party intervention. This process has been
  put in place by the Medical Schemes Industry to
  ensure appropriateness and necessity of care
• The third party pre-authorise hospital events
• The third party has pre-determined length of stay
  benchmarks
• Any deviation from the norm requires
  re-authorisation.
• Consequently, length of stay and level of care is
  determined by the treating practitioner and
  actively scrutinised by external third parties,
  therefore these factors are not influenced, nor
  under the control, of Private Hospitals

26

• Occupancy levels within the private sector and
  bed density in SA

27
Weekly occupancies of available beds
under-reported due to seasonal (holiday) weakness
Source Regional Business Analytics 2008
28
SA has 27 beds per 10,000 people below the
emerging market average of 44 and the G8
countries average of 67
Source HASA
Source WHO 2007
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• Supernormal profit levels of private hospitals

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Benchmarking shows that the supernormal profit
argument has no basis Returns on Average Capital
(ROACE) (1) and Economic Profit vs. other SA
industries?
GRAPH TO BE INSERTED
Source PWC, April 2008 (1) in US
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How do hospitals compare to medical
device/equipment companies or medical scheme
administrators?
Source PWC, April 2008
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Misconceptions addressed

• By global standards, SA private health is
  efficient
• Expenditure at the upper end of developing market
  levels but
• Standards and service is world class
• Public sector requires a substantial budget
  increase to deal with significant increases in
  demand
• Private hospital price increases have been very
  well contained in the last decade aided by
  stronger currency and contained general
  inflationary environment
• Many medical schemes negotiate under large
  administrators
• Medical Schemes/Administrators/Managed healthcare
  have a say in benefit design and utilisation but
  are also victims of triple burden of disease
• SA hospitals hitting capacity constraints and
  envisage more investment required to cater for
  the populations health demands
• No evidence of supernormal profits in the
  hospital industry, locally or globally

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• Conclusion

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Time to move beyond the conspiracy theories
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Sector needs to galvanise around solutions,
hospital pricing alone will not solve the problem

• A significant amount of work needs to be done on
  understanding drivers of utilisation in order to
  determine appropriate policy action
• Sector needs to focus on solutions
• The topic of access and affordability needs to be
  debated on two fronts
• access and affordability of medical scheme
  membership (or Funding initiatives) and
• access and affordability of health and non-health
  services (or Service delivery)
• Contextualising the impact of hospitals on
  overall medical aid affordability what would be
  the impact of making hospital not-forprofit
  (ignoring the risk of disinvestment) ?
• Assumptions
• If private hospital contribute approximately 35
  of scheme claims
• removal of any hospital profit (listed hospitals
  used as benchmark)
• All the associated savings passed on to scheme
  members
• would result in average contributions of
  decreasing by 5.5

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• Thank You

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Final thought
Problems will never be solved within the culture
in which they were created
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• Health professions skills crises

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Like for like comparisons of public vs. private
health expenditure

• Comparisons should adjust private spend for the
  following charges that the public sector does not
  have
• value-added taxation of 14
• cost of financing investment
• rental charges
• the private sector is cross-subsiding the states
  purchase price of pharmaceuticals
• Medical Scheme solvency requirements
• The assumption that only medical aid
  beneficiaries consult in the private sector is
  inaccurate
• The most recent General Household Survey (2006)
  indicates that many more South Africans are
  using private sector facilities than simply those
  who belong to a medical scheme

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Private sector trains 50 of registered nurses
and 70 of enrolled nurses but only has 20 of
hospital beds
Annual number of registered nurse graduates
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Source South African Nursing Council
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Potential Solutions to the Skills Shortage

• South Africa has an estimated shortage of
  approximately 40,000 registered nurses
• Current training output of approximately 4,400
  Registered Nurses per annum is insufficient to
  close the skills gap
• Private sector currently trains approximately
  half of Registered Nurses, and two-thirds of the
  Enrolled Nurses graduating per annum
• Netcare trains 53 of all nurses in the private
  sector
• There are several bottlenecks that prevent the
  resolution of the skills deficit.
• There are several innovative ways to relieve
  nurses of non-nursing tasks and to focus our
  efforts on mid tier nurses
• (4) Netcare Health Policy Unit Health Sector
  Training Issues Impacting on the Delivery of
  Health Care in South Africa

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