Tariff structure setting of the private sector
description
Transcript of Tariff structure setting of the private sector
Tariff structure setting of the private sector
Health Portfolio Committee, 27 July 2011
Background Information
Private hospitals constitute approximately 26% of total hospital beds in South Africa
Source: SA Health Review 2010; HASA Health Annals 2010
Medical scheme membership closely linked to formal employment
Source: Council for Medical Schemes (CMS) annual reports and StatsSA labour force surveys
Points of clarification
Doctors
Doctors are independent practitioners and do not work for private hospitals – HPCSA rules do not allow this.
Only doctors can admit patients into hospitals
Business of private hospitals
Pharmaceutical products
Surgical products
Design; build and maintain facilities, employ nurses and pharmacists, provide medical technology and hotel and admin services
Pharmaceutical products must be sold at Single Exit Price as set by the Minister of Health
Surgical products are sold at cost (acquisition price) to patients – no profit mark-up
The role of private hospitals
Capital CostsOn average, it costs roughly R2m per bed to build and equip a multidisciplinary
acute care hospital
Background to tariff setting
Current tariff setting facts
Individual annual negotiations between every hospital group and every medical scheme administrator or scheme
Negotiated tariffs apply equally to PMBs and non-PMBs
5 administrators/schemes negotiate collectively for >70% of medical scheme lives
Different hospital groups have different unique pricing models (including alternative reimbursement models) – this according to medical schemes
Medical schemes’ hospital networks have significantly increased in popularity
Thus no pricing “void” or “free for all”
Thus no “gaming” of PMB regulations by private
hospitals
Thus balanced negotiating power exist
Thus no “one size fits all” tariff schedule in play
Thus fierce competition for network participation
Only ONE question is of importance in the price reform debate...
Are private hospital prices too high given their input costs?
60%-70% of operating costs are wages
Source: Lighthouse Consulting: Period: 1999-2009; Basis: Hybrid Index (HASA, NTC, StatsSA)
Wage inflation has exceeded CPI in 7 out of the last 9 years
Source: Stanlib (the real wage increases reflect the increase above CPI)
Regarding nursing salary inflation
Severe global shortage of nurses a well documented fact
Developing countries such as SA particularly hard hit
Public sector OSD salary adjustment and continued salary increases well in excess of CPI is forcing private hospitals to follow suit
The private hospital industry trains more nurses than the public sector. This adds to cost pressure.
Regarding inflation on capital expenditure
R 139,000
R 997,000
R 2,000,000
R -
R 500,000
R 1,000,000
R 1,500,000
R 2,000,000
R 2,500,000
Above inflationcost pressure
Source: Mediclinic
Capital expenditure inflation: Cost per newly built bed
“Notwithstanding the above mentioned cost pressure, private hospital weighted average prices increased by only 1.7% per
annum in excess of CPI between 1999 and 2006”
Source: Private Hospital Review 2008, Chapter 5
Hospital price inflation well contained
Source: StatsSA, May 2011, page 22
Hospital PRICE inflation = 5.8%
Medical insurance inflation (includes PRICE and UTILISATION) = 10.2%
Definition of utilisation: private hospital services purchased
Approximately 40% of a hospital bill is a pass through to patients – no mark-up
60%
26%
14%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1
After adjusting for VAT ; drugs and surgicals
Hospital tariff Drugs and Surgicals Vat
Total Hospital Bill
Noprofit
Legislative Price Reform Processes
Erroneous perception that private hospital
industry is unwilling to engage with respect to pricing and tariffs.
Hasa has consistently provided the Department with information and
engaged in various processes initiated by the Department such as
the RPL process
Reference Price List (RPL) process
HASA welcomed the cost benchmarking or Reference Price List (RPL) regulation of 2007 as it would correct outdated benchmarking models and regulate the process for the first time.
HASA obtained approval from the Competition Commission to take part in the RPL process.
Deloitte and PWC developed the hospital cost benchmarking and return on investment model respectively at a cost of approximately R20m.
The RPL tariffs were published with no consideration of HASA’s input regarding the methodology to analyse hospital costs or actual hospital costs.
Equally the submissions by other service providers were ignored, e.g. emergency service providers and medical specialists.
More than 20 provider groups took the Department to court. HASA went to court because it wants a scientifically calculated RPL and not because it wanted to remove the price determination framework.
Judges verdict on the RPL regulation
RPL declared invalid and set aside
Court ruled that the former health director-general had failed to comply with the Constitution and had acted in a manner that was procedurally unfair. “No suitable methodology was established for private hospitals or private emergency services, yet fees were published for these parties” , a process the judge described as "irrational and unreasonable".
Following the court’s ruling, the Department of Health elected, against the judge’s recommendation, not to re-draft the RPL regulations. Instead, the Department opted for a new process which moots centralised bargaining – the very same price negotiation process which lead to stiff industry fines in 2004 due to transgression of the Competition Act.
Central Bargaining Discussion Document
Department published a discussion document which proposes central bargaining early in November 2010.
Both HASA and its members submitted written responses to this document, with the members submitting more comprehensive responses given their freedom to do so from a
competition law perspective.
Discussion Document is inconsistent: At times it seems to suggest that the interim phase does not constitute a contravention of the Competition Act, whereas at other stages it (correctly) accepts that in the absence of a “delineated exemption” it would expose the
parties to the process to risk.
No feedback on submissions have been received
Cost benchmarking ie RPL is critical to inform collective bargaining
Three important price determination principles
1. The process must be transparent and fair.
2. Tariffs must be calculated using scientific methodology that takes into account the true costs of operating a hospital.
3. The pricing process must be overseen by an independent regulator
Other important points
Impact of increased purchases of private hospital services
Increased purchases of hospital services (utilisation) contributed 40% of the increase in scheme hospital claims
between 1998 and 2006 *
Utilisation driven by ever increasing burden of disease
Utilisation driven by significant anti-selection; the healthy opting out of medical cover and the sick opting for
cover
New technology drives utilisation; new fixes for old cures; can operate on the elderly; new drugs replacing old; etc.
See Private Hospital Review 2008, Chapter 5
See IMSA Policy Brief 3 (Prof. McLeod);
Econex NHI Note 2
Discovery presentation, ASSA Health Event, May
2011
See Private Hospital Review 2008, Chapter 7
* Latest industry figures
Why you cant compare public and private hospital prices
Overwhelming part of public hospital revenue comes from governmental budgets
No central database for public hospitals with patient level information (theatre time, ICU days, general ward days, drugs administered, etc.) to
enable accurate pricing
Private hospitals pay VAT, public hospital do not
Public hospitals obtain pharmaceuticals at state tender prices, mooted to be between 50% and 70% cheaper than private sector prices
Public hospital prices thus do not have to cover expenses
and cost of capital
Accurate scientific pricing not possible in public sector at
present
The playing field is not level
The playing field is not level
Private hospitals can only access capital from the market – have to pay interest and shareholder returns. Public hospitals funded by taxpayers
who do not demand such.The playing field is not level
If private hospitals were to reduce prices to remove all profit (which is not
realistic, but illustrative), payments to private hospitals would decrease to
about 27.9% of medical schemes’ gross contribution income.
If there is a commensurate reduction in medical scheme contribution rates, the average medical scheme beneficiary
who paid R890 per month in 2009 (according to the CMS), will pay only
R63 less per month, i.e. a reduction of 7%.
A simple reasonability check shows the flaw in focus on prices, whilst ignoring utilisation
Payments to private hospitals make up about 33.0% of medical schemes’ gross contribution income of R84.8 billion for 2009.
The way forward
HASA remains committed to engagement with the Department