The Council for Medical Schemes released its annual report in Cape Town this week, and it made for some very interesting reading.
It turns out that despite a final surplus of R3.7 billion, most schemes are operating at a break-even position to maintain their reserve levels and are using investment income to subsidise their costs.
The report was a litany of “yes but…” comments. What do I mean by that?
The number of principal members in medical schemes is increasing faster than the country’s population growth rate. Yes, but… the CMS observed that even if medical schemes grew, their size did not have an impact on cost increases, which implied that they remained price takers in the industry with minimal benefit derived from economies of scale for members.
The surplus looks healthy. Yes but… it is in fact a decline when compared to the 2011 financial year, which has been attributed to rising healthcare costs. As in previous years, expenditure on hospitals and specialists increased much faster than on other healthcare services. They now represent over 64% of total costs from insured benefits. The CMS said these expenditure increases continued to be very high in 2012 and further substantiated the urgent need to regulate the fees of private hospitals and medical specialists. If one looks at the resultant decrease in the medicine spend since the introduction of Single Exit Price (SEP) strengthens the case for some form of administered prices for hospitals and specialists.
The CMS said since it started to apply more pressure on medical schemes to reduce their non-health expenditure in 2005, there had been a gradual decline in non-healthcare costs in real terms but the regulator intended to further strengthen efforts in this area. The starting point was the key amendments to the Medical Schemes Act.
Other interesting items that were revealed were:
- Restricted schemes are reducing faster than open schemes.
- Benefit Options per scheme on open schemes is now 6.3 compared to 2.2 for restricted schemes.
- Hospital and specialist cost are escalating at a rate per year much higher than other providers while also being the largest part of the cost overall pie.
- Average GP and dentist benefits are decreasing year on year.
- Average nurse visit costs show a small increase.
On the consolidation trend we now have 92 Schemes. This figure was 141 in 2001. Based on the trend from 2001 to 2012 the number of schemes projected both on a calibrated and
un-calibrated bases will be 54 schemes in 2025. Interesting note there was 234 schemes in 1994.
The question is whether this consolidation will result in cost savings. Current results seem to indicate that we shouldn’t expect cost savings, especially while we have PMBs, and negotiations are limited,
in my view, the call for some form of administrated prices seems to be well founded.
Based on international trends and especially WHO’s preferred Kutzin model, we need to take a close look at the following four aspects when considering the future of medical schemes:
- Revenue collection;
- Pooling mechanisms (Funds);
- Purchasing arrangements (Services); and
- Benefit provision (Provision of services)
Another area that needs additional research is the Out Of Pocket Spending/ expenditure (OOPS). It was encouraging to see that this year the CMS started to consider this important aspect. OOPS is growing and this is the result of benefit design, pricing instability as a result of the legal ruling on NHRPL in previous years and lack of flow through on all the required supporting pillars to implement MSA. These include community rating, universal coverage, compulsory membership and the risk equalisation fund.
The last two pillars have not been implemented and with NHI in the wings will not be actioned. This places the private healthcare system at risk. In my opinion, the only other mechanism that would help is administrated prices for healthcare, thus making it a social good offering. As we all know, health care is not a normal commercial good so the market forces that are at play are different.