The Competition Commission on Monday released the long-awaited findings and recommendations report, following a Health Market Inquiry (HMI) that was launched in 2013, highlighting the need to establish a supply-side regulator (SSR) and a multilateral negotiating forum to set tariffs.
In handing over the report to the Ministers of Trade and Industry and Health, the commission stated that the South African private healthcare market was characterised by high and rising costs of healthcare and medical scheme cover and significant overuse of hospital care without stakeholders having been able to demonstrate associated improvements in health outcomes.
The report found that the private healthcare market was characterised by highly concentrated funders and facilities markets, disempowered and uninformed consumers, a general absence of value-based buying and practitioners who were subject to little regulation.
Trade and Industry Minister Ebrahim Patel confirmed that his department would give careful consideration to the findings and recommendations, which would be tabled in Parliament in due course.
He pointed out that the report was finalised at a time when South Africa was establishing a National Health Insurance (NHI) Fund, which was scheduled to be operational by 2026 at the earliest.
Patel said the report would help to inform policy and decisions around the NHI and the future of private healthcare, and the private healthcare sector in the meantime, while the NHI was finalised.
Former chief justice Sandile Ngcobo, who served on the HMI panel, said the panel had considered in its recommendations the environment in which a fully implemented NHI could function.
The report highlighted that there had been inadequate stewardship of the private sector, with failures that include the Department of Health (DoH) not using existing legislated powers to manage the private healthcare market, failing to ensure regular reviews as required by law and failing to hold regulators sufficiently accountable.
“Consequently, the South African private healthcare sector is neither efficient, nor competitive,” the report stated.
Ngcobo added that a more competitive private healthcare market would translate into lower costs and prices, more value-for-money for consumers and should promote innovation in the delivery and funding of healthcare.
The commission reported that, as the State increasingly became a buyer of services from the private sector, as also indicated by the NHI Bill, it should be able to enter a market where interventions had already contributed to greater competition and efficiency – such as the establishment of an SSR, a standardised single obligatory benefit package, risk adjustment mechanism and a system to increase transparency on health outcomes.
“Competition should occur on price, cost and quality, and not on risk avoidance, which has been the case in the South African private healthcare sector,” said Ngcobo.
Moreover, the report noted that the supply side of the market was largely unregulated, with negative consequences for competition and for the consumer; the commission suggested that a new SSR authority for health will not clash with other regulators.
The HMI report recommended that a new regulator could formulate a needs-based system of licensing, which will be more rational and could curb excessive utilization.
The regulator will have four main functions, namely healthcare facility planning – including licensing, economic value assessments, health services monitoring and health services pricing.
HMI panel member Dr Nthuthuko Bhengu suggested that the SSR would set up a multilateral tariff negotiation forum for all practitioners to set a maximum price for prescribed minimum benefits (PMBs) and reference prices for non-PMBs.
Practitioners who do not want to engage in fee-for-service contracts will be encouraged to enter into bilateral negotiations with funders, as long as they include a value component, risk transfer and are not contravening the Competition Act. Both funders and practitioners will be required to submit contracts to the SSR and Council for Medical Schemes.
The HMI report found that three hospital groups – Netcare, Life and Mediclinic – dominate the facilities market, while 60% of local facility markets are also highly concentrated, against benchmarks proposed by the International Competition Network.
Therefore, these markets are more vulnerable to collusion, both formal and information. At local level, concentration in the market limits the extent to which funders – or medical aid schemes – can employ designated service provider networks to effectively discipline hospital groups.
“These hospital groups are able to secure steady and significant profits year-on-year and make it hard for newcomers and fringe-players to grow and compete on merit.
“The three groups are able to prevent competition by binding the best medical specialists to their hospitals with lucrative inducement programmes,” explained HMI panel member Dr Caes van Gent.
He added that the hospitals benefit from excessive utilisation – of hospital care – without the need to contain costs, and they continue to invest beyond justifiable clinical need without being disciplined by competitive forces.
HMI panel member Professor Sharon Fonn explained that the market had perverse incentives that increase cost, but not necessarily value.
She added that overuse was partly as a result of consumers not being able to afford comprehensive medical aid plans, but opt for a hospital plan only, meaning that practitioners will book patients in for any procedure or test, often for more than one night.
Additionally, the HMI report found that incentives in the market promote overutilization, such as fee-for-service, meaning that the more services practitioners provide, the greater their income. Excessive use – including hospital admission rates, level of care and length of stay – was a significant driver of healthcare costs.
The report recommended that changes are needed to the HPCSA ethical rules to promote innovation in models of care to allow for multidisciplinary group practices and alternative care models, so that fee-for-service ceases to be the dominant payment mechanism.
“Further, facilities operate without any scrutiny of the quality of their services and the clinical outcomes that they deliver, because there is no standardized publicly shared measure of quality and healthcare outcomes to compare one against the other,” Fonn noted.
Fonn said that South Africa has 86 medical schemes, of which 28 are “open” schemes, meaning that anyone can belong and the balance are restricted schemes for certain professions or companies.
HMI panel member Dr Lungiswa Nkonki explained that an incomplete regulatory framework has contributed to medical aid companies – or funders – competing lesser on price and value and more on risk – offering rewards to attract younger and healthier members.
This competition on benefit design is at the expense of competition on metrics which boost consumer welfare, such as procurement of value-for-money healthcare services, increasing benefits, adopting innovations, improving service quality and directly competing on premiums.
Another consequence of this competition on benefit design had been the proliferation of generally incomparable benefit options; funders have no pressure to compete on pro-consumer metrics and to offer better products, the report stated.
The HMI report suggested that government introduce a single, comprehensive, and standardized base benefit option, which must be offered by all schemes, to increase competition in the funders market and enable consumers to compare products.