Robust cost-containment crucial for fighting healthcare inflation
ESCALATING healthcare inflation and costs are one of the key concerns facing the medical scheme industry and Bonitas Medical Fund believes rigorous negotiations premised on strategic purchasing and the development of advanced managed care protocols are the only way forward.
Gerhard Van Emmenis, Acting Principal Officer says healthcare costs consistently outpace inflation.
“In South Africa, because they are not regulated, it is pivotal for schemes to explore ways and means of decreasing costs on the supplier side, particularly with hospitals as they account for half of Bonitas’ total claims costs - nearly R6 billion a year.”
This is coupled with a private healthcare industry cost blow-out, last year, largely related to increased hospital admission rates and an oversupply of private hospital beds, particularly in metropolitan areas.
Dr. Brian Ruff, CEO of healthcare management company PPO Serve, elaborates, “There are approximately four private hospital beds per 1000 medical scheme beneficiaries and the number is increasing.
“Some parts of the country have as many as six beds per 1000 people. This is twice or three times higher than the ratio seen in efficient systems with good community-delivered healthcare services.
“For example, the UK has 2.5 hospital beds per 1000 population and New Zealand has 2.8. When allowing for differences in age, gender and disease burden, regions in South Africa with more hospital beds see more hospital admissions, without any observable difference in quality outcomes.”
Van Emmenis says, “As a result, Bonitas commenced negotiations with the three large hospital groups in South Africa, with a view of creating a network of Designated Service Providers (DSPs).
“It allows the scheme to negotiate preferential tariffs with participating hospitals and curtail the burden of escalating healthcare costs on members.
“And, this rests on a core pillar – strategic purchasing – which uses market share to negotiate and influence prices.”
This strategy, he reveals, is projected to save more than R100 million this year and about R500 million over the next three years in present value terms. This will directly impact future contribution increases and ensure that the scheme can continue to meet the needs of its members.
He adds, “Because hospital admissions are the biggest expense for medical schemes, it is vital that the scheme sources the lowest possible tariffs.
“The reasons are two-fold: It maintains sustainability while ensuring that our members continue to have access to affordable healthcare of the highest standard.”
To this end, hospital groups were advised that Bonitas would restrict member cover at 14 hospitals located in metropolitan areas where there is an oversupply of hospital beds, thereby addressing supply-induced demand.
These hospitals, he explains, were carefully selected to ensure that Bonitas’ members would continue to have access to quality care in other hospitals in close proximity.
Van Emmenis says the groups were asked to propose discounted tariffs to determine which hospitals would be excluded.
Life Healthcare’s bid was the least beneficial for Bonitas’ members, so 14 of its facilities were identified for restricted access.
“The high ratio of hospital beds per capita in the private healthcare sector results in a low threshold for hospital admissions, increasing the rate of hospital admissions through supply-induced demand,” he explains.
“Under normal circumstances the market or demand dictates pricing. However, in the medical scheme industry the law of supply and demand is distorted in that medical schemes pay the majority, if not all of the hospital costs.”
Patients or members are generally not involved in the settlement of the hospital invoices as most are dealt with electronically and are therefore unaware of the costs involved, or how hospital costs affect their medical scheme contributions.
In addition, it is the norm for doctors or specialists to specify which hospital patients should use and very few patients ‘shop around’ for the most cost effective hospital rates.
These factors forced a doubledigit increase in Bonitas’ contributions this year.
Such increases are not sustainable in the long term and, as such, Bonitas has taken the bold step of using its market power to protect its members and the Scheme’s sustainability by implementing a strategy to address both the cost of hospital services and the increasing admission rate arising from supply induced demand.
“Hospitals account for about 40 percent of total medical schemes claims and we are asking hospital groups to become more accommodating during fee negotiations with medical schemes.
“This could make a significant impact on the medical scheme affordability. Control of hospital tariffs and utilisation would also contribute to reducing the increases to medical scheme contributions considerably, thereby improving access to a greater proportion of the population,” says Van Emmenis.
The scheme also offers a range of managed care initiatives aimed at actively managing disease and ensuring the coordination of care.
Van Emmenis believes this will go a long way towards managing the increasing disease burden and sustainability of the current healthcare funding model.