It looks like we might be headed for another debacle similar to the pharmaceutical pricing one. Essentially hospitals are using a rebate scheme (similar to the one pharmacies were using) to increase their profits.

Revelations of ethically suspect and opaque pricing practices in private hospitals have jolted the healthcare industry in recent weeks, but that is not the only problem the industry faces.

Recent media reports have referred to the practice, in some hospitals, of charging medical schemes exaggerated fees for medical consumables. Essentially, the hospital asks a supplier to invoice it for a certain price for an item, say R100. It then charges medical schemes that price. However, the hospital demands an “off-invoice” rebate from the supplier, for example, R70. So the hospital is invoiced R100, it pays the supplier R100, bills the medical scheme for R100 and then, separately, collects a rebate of R70 from the supplier (see illustration below). It’s a complex form of markup. This practice is not illegal. However, it is opaque, and adds a layer of hidden transactions to the payment system.

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Now, I'm not to concerned directly about the rebate scheme, the thing that worries me is what the underlying reason for them to do it. Is it because medical aids won't pay high enough prices to cover the expenses of procedures, or is it just an attempt to increase profits?

One of the dangers of any private health (or otherwise) system that is an essential public service is that profits can easily end up in the driving seat, instead of patient care. So how does one get around this? Is it better to pour all the private health care funds into the state system and improve it? What are the systems used around the world? Where does it work best?