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Medical Costs Controversy
There have been many comments about the cost of private hospitals and medical aids and you can clearly see who understands the issues and those who don’t. Those who understand have said many true and correct things even though only a few liked what they said. I would like to add my penny’s worth to what the knowledgeable have written.
I worked for one of the big hospital groups for nearly two decades both as hospital manager and data analyst and am now retired. I was also intensely involved with tariff calculations and negotiations. The result is that I have a fairly good grasp of the issues involved. Since one could write a book or two on the subject I have to be concise in what I now say:
We are dealing with an extremely complex situation with many different parties involved. Unfortunately none of the parties really understands any of the other parties’ issues and problems even though they claim to do so. Hospitals don’t understand the medical aids. Medical aids don’t understand the hospitals. Doctors understand neither. And so you go on. Blame is assigned to all the others whilst you understand your own "reasonable" situation very well. To make matters worse the the press has no understanding at all and misleads the public. This is understandable since there is no one with a complete and unbiased understanding of all the issues.
Now add the government with absolutely no understanding whatsoever together with its political agendas and you have the makings of a disaster. This is what we now see. It does not help to explain the issues to the government since an understanding on their part will negate their views and show up their actions as wrong and unworkable and this is unacceptable to them. You need knowledge to know how little you really know.
By comparing the various states in the USA studies have shown that the more government interferes and tries to reduce medical costs, the higher costs go. Now let us look at specifics. Firstly government interference and regulation:
Some degree of regulation is essential. Training of medical staff and doctors obviously need to regulated. Medicines need to be regulated. All facilities need to comply to certain minimum standards etc. But, are all the new regulations imposed on private hospitals meaningful? I doubt it, but they certainly add to costs.
Now, what about tariffs? This is a very contentious issue. In the distant past medical aids negotiated with doctors and other service providers and an agreed tariff was issued which everyone adhered to. The hospitals had the RAMS tariffs. This was found to illegal under the competitions act and all the parties had to pay fines for using it. The act that regulates competition just was not written to take into account the extreme complexity of the medical industry. The commissioners expected every individual member to negotiate tariffs with his service providers and agree to a tariff. How could this possibly be done? Not in your wildest dreams can this be done.
Medical aids were expected to negotiate individual tariffs with each doctor and each hospital. Simple? Not so. There are thousands of tariffs involved. There were hundreds of medical aids; hundreds of hospitals and many thousands of doctors and other service providers. This just could not be done. The government then tried to set tariffs – the National Health Reference Price List (NHRPL). A total failure.
The upshot of all this is that many medical aids just could not handle the work involved and had to be taken over by bigger ones. So instead of increasing competition the exact opposite happened – hundreds disappeared. The complexity of running a hospital and the data requirements and negotiating effort to agree to tariffs with each of the current 90 plus medical aids makes it just impossible for an independent hospital exist. So the big groups had to take over the smaller ones who could not survive. Again a reduction in competition.
The tariffs paid to a hospital for the work done is not an economic tariff – it does not really reflect the cost of running a hospital - unpopular statement, but true. The net result is that it no individual or group of persons outside the hospital industry can build new hospitals – the capital costs are just too high. The only reason why the big groups can build new hospitals is because the old ones subsidize the new ones since it take years before a new hospital can show a profit. This reduces competition again. There is no simple solution to this problem.
The administrative burden placed on hospitals in terms of coding and case management and other issues is just so big that it has increased their administration costs and also makes it very difficult, if not impossible, for a competitor to enter the market. You need economies of scale to pay for this. This again reduces competition.
I cannot comment on the issues the medical aids face since I have no real understanding of them, but rest assured they are many and complex – way beyond what an outsider could imagine.
Now, let’s add the government to this. When the new government took over they had two goals, as far as I know: 1. They wanted to expand membership to cover everyone in the country. A laudable goal. 2. They also wanted to extend the coverage that members were entitled to. Again a laudable goal. If they had done it correctly we would in effect have had a national health scheme that would have been affordable. However they went about it in the wrong way.
They first extended the coverage that had to be provided. They also enforced community rating which implies that everyone had to pay the same medical aid contributions. No discrimination on the basis of age or condition of health was allowed. This increased costs and with it increased the cost of membership to medical aids. Those who could not afford it opted out of the medical aids and increased the burden on the public sector hospitals. This also decreased the pool of young and healthy who contributed to the funds. The government totally denies this, but how can you force increased benefits (PMB’s and community rating) without increasing costs to members? Not possible. The result is that fewer and fewer young and healthy members must subsidize more and more older members. Therefore they see their contributions increasing disproportionately to what they get which aggravates the situation.
If they had first made medical aid membership compulsory at a low contribution and initially allowed community rating and then later extended benefits it would more than likely have worked. A large number of young and healthy members would have been subsidizing a relatively small number of older members and with our young population this would have made medical aids affordable to them and the government’s goal would have been achieved. We may even have had a national health scheme for all those employed. A big opportunity has been missed and cannot easily be recovered.
If the medical aids were now allowed to apply community rating so that young and healthy people could join at low tariffs and so increase the pool of members the situation might still be salvaged, but with the government’s antagonism to the private industry this is unlikely to happen.
A further complication is that of litigation. Years ago people accepted that mistakes are made and accepted it as part of the risk of treatment. Now everyone is looking for some compensation from anyone who makes a mistake. This has necessitated many actions, and many costly actions, on the part of service providers to avoid litigation and the cost of insurance has increased. This adds to cost.
We also face the situation where bugs are becoming more and more antibiotic resistant. More precautions, more expensive drugs, longer treatment and more costs.
Better technology is giving better outcomes, but it costs money. Who pays for this? Because of all this people are living longer and kept alive longer and this also increases costs.
I could go on and on, but in the end, we are dealing with an extremely complex problem and there will always be those cases where people will feel aggrieved because they rightly or wrongly feel the system cheated them.
The one thing that I find consoling is that we were dealing with these same issues and were very concerned about affordability when I entered the industry a quarter of a century ago! The details have changed, but the problems have remained the same. What we do know is that government interference is going to make matters worse, not better, so they should stay out. We should leave it to the role players in the industry to sort the matter out. Every one of them has a vested interest to ensure that the industry remains viable and that as many people as possible are included in the pool that can make use of their facilities. If the industry crashes many hundreds of thousands of people will be without work and no one will receive the services they need.
