Private hospitals: a rehash of the drug pricing debacle?

[duncan drennan]

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.

Full story on MoneyWeb

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?

[Dave A]

There was a stage when the medical aid industry was virtually dictating pricing to the medical service providers. Perhaps this off-invoice discount business started out as a negotiation tool by the medical services industry to try to get the medical aids to move more in their direction. I doubt it started out at those margins, but like all rotten practices, they have a habit of growing if left unchecked.

If this was the case, to some extent the medical aid industry brought it upon themselves with their unilateral tariff system. (And that might be a big if).

There is little doubt that increases in medical tarifs have far outstripped inflation. And the difference these off-invoice discounts make to margins is, quite simply, astronomical.

I think this relates quite closely to Yvonne's post on Increasing levels of legislation and regulation. There is great cause for concern here.

[duncan drennan]

There was a stage when the medical aid industry was virtually dictating pricing to the medical service providers. Perhaps this off-invoice discount business started out as a negotiation tool by the medical services industry to try to get the medical aids to move more in their direction.

I was wondering pretty much the same thing. With my wife being in the medical field she has been exposed to (but luckily not affected by) the way that medical aids operate.

I was wondering if say a procedure cost R12k but the medical aid only would pay R10k, but would pay higher than cost related rates for disposables (e.g. R100 for something that actually costs R30), that the hospitals are recovering their expenses that way, and it actually benefits the patient, who would otherwise have to cover the R2k themselves.

It is really all very murky.

[RKS Computer Solutions]

My daughter is turning 3 on 6 August, bless the little devil, love her to death...

My wife, being European (Slovakian), comes with its ups and downs... One of those was finding out that my daughter, then 6 1/2 months, was diagnosed with a hip problem, which was not picked up by the "quacks" in the UK where she was born. (For those interested, the hip ball joint doesn't develop into the hip socket and so can prevent a person from being able to move normally or even being able to walk at all)

The specialist told me straight out, R25,000.00 give or take a few rand for the operation if done with the backing of a Medical Aid...

We then sat down and spoke to the hospital, specialist and narcotics(??) people to find out what pricing difference it would make if paid in cash.

Long story short, being able to hand over cheque's on the day of the operation to the surgeons and the hospital the day she was released, meant we only ended up paying about R15,000.00 for the complete ordeal.

Later, we took the bills to the medical aid and got reimbursed in full for the total amount.

Not everyone is always in a position when something like this happens to put down the cash and get a better price, but that single instance showed me that taking the Medical Aid out of the picture, saved us a hell of a lot of money...

[RKS Computer Solutions]

Another point I should make. Even though we have full Medical Aid cover, I don't use it for going to the doctors... Saving it up for the missus and little one...

Our local doctor has a clinic, which basically means: instead of paying R25 surcharge for the M/A and then having R180 deducted off your allowance by them, then having to pay a 30% surcharge on pills/potions at the pharmacist, which also gets deducted from M/A allowance; I walk in, pay R175 to see the doc, and get the same medicine (albeit generic versions) and walk out the door and get better...

No further bills and no allowance shrinking because of overcharging by either doctors or pharmacies... If your local doctor has a similar setup and can offer you the same, I suggest you have a look at going that route instead of tapping into your M/A and being overcharged.

[Dave A]

Here's a thought. Is the government stepping in and regulating the industry going to improve this situation. Gov has made progress in a few areas, noably getting infrastructure into previously poorly supported areas. But my rough sense of plus's and minus's tends to show that more often than not gov intervention in the formal sector has had unexpected negative side-effects that often outweigh the hoped for benefits. The medicine pricing case is a prime example. The attempt to make medicine "more affordable" led to some stock items becoming hard to come by. (Or was that actually non-viable?)

[duncan drennan]

Social heath insurance on the cards?

Healthcare is one of the few industries that is, in some respects, genuinely insensitive to price. When it comes to restoring their health, most people are willing to go to great lengths to finance any medical interventions they possibly can, regardless of the cost. Besides being relatively price insensitive, people also generally believe that they have a right to healthcare, that all the sick deserve to be treated. This is why many countries, including South Africa, enshrine the right to health or healthcare in their constitutions. This also means that every country in the world has grappled with the question of how to fund and organise its healthcare system.

There are two major kinds of healthcare system: privately funded, competitive free-market systems and publicly funded, co-operative systems. Most of the social democracies in Europe use a publicly funded system to deliver healthcare. The United Kingdom's National Health Service is a good example of this, as is the French healthcare system. Few countries use a purely privately funded system; the United States is one of those countries that emphasises the role of markets and competition. South Africa uses a combination of private and public healthcare systems to deliver services to its people.

--

For these reasons, the problems of competition in healthcare and the inequalities in the South African system, the SA government plans to gradually introduce social health insurance (SHI). SHI will be a national insurance programme that applies to all employed people, capturing them in a large risk pool and covering them for a package of minimum healthcare benefits. Whether this will help to even out the system and improve health outcomes remains to be seen.

Full article on MoneyWeb

The full article is definitely worth a read. So now we are going to have forced retirement savings, and possibly forced social health insurance � good or bad, what do you think?

[Dave A]

I hope after all these mandatory contributions being contemplated, there is enough change left to pay for all the trivial stuff that is obviously of lessor importance - like food, rent, electricity and our kids' education.

Heck. Lets start a national insurance scheme for that too. That should solve the problem.

[Dave A]

More on the medical aid situation here.

Clash over how to get the most from your healthcare rand

At a conference this week, medical schemes, hospitals and doctors blamed each other for the ills that scheme members encounter with their cover.
July 28, 2007

By Laura du Preez

Amid its own secret profits scandal, highly polarised views, some bickering and a number of genuine attempts to offer solutions, the medical schemes industry met this week to discuss issues arising from how schemes spend the R66 billion a year you contribute to them.

More than 800 representatives of medical schemes, administrators, doctors, managed-care entities, hospitals and pharmaceutical com-panies, as well as brokers, met in Sun City for the Board of Healthcare Funders (BHF) annual conference. The theme of this year's meeting was "Squaring the circle", and reaching consensus on how to cure the ills of the medical schemes industry did prove to be elusive.

Dr Rajesh Patel, the head of the benefit and risk department of the BHF, announced that medical schemes will spend R2 billion this year to cover the cost of the secret mark-ups - or off-invoice rebates - private hospitals make on medical devices and materials.

Days later, Discovery Health, which administers the country's largest open medical scheme, produced evidence it had gathered of the mark-ups on syringes, swabs, surgeons' gowns, catheters and the like that ranged from 1 160 percent to 400 percent.

Two large hospital groups, MediClinic and Life Health, denied involvement in the mark-ups, but a third large group, Netcare, said the rebates it receives on medical devices and materials are no more than 50 percent.

Netcare says it uses the rebates it receives on devices and materials to subsidise the ward and theatre fees it charges. This is the same argument the private hospitals used to justify raising their ward and theatre fees after the medicine pricing regulations stopped them from making profits on the medicines used in hospitals.

Netcare denies it is making super-profits, claiming its modest returns are lower than those made by other healthcare roleplayers such as the surgical device, pharmaceutical and medical scheme administration industries.

However, the high fees that private hospitals charge are being investigated by the Department of Health and the Competition Commission, the conference heard.

Afterwards, Health Minister Dr Manto Tshabalala-Msimang issued a statement noting her department's concern about the rebates on medical devices and materials, and Patrick Masobe, the Registrar of Medical Schemes, says he will meet Discovery about it next week.
Full story from Personal Finance here

[duncan drennan]

More news on this,

Netcare found itself in the eye of a storm recently amid accusations that it benefited from non-transparent pricing and for not passing on rebates from suppliers to its customers.

This week the Mail & Guardian approached eight medical device suppliers. Three of Netcare’s suppliers agreed to talk anonymously. They explained how the hospital giant pressured medical device suppliers into inflating invoices and paying rebates.

One of the eight medical device suppliers claimed that it had never been approached to inflate invoices.

Medical devices comprise medical equipment ranging from gloves to gowns, masks, syringes, prosthetics and implants.

Netcare chief executive Richard Friedland adamantly denies the allegations made by the suppliers, telling the M&G this week that there is no evidence to support them.

The ruckus over rebates occurs at a time when government is beginning to ask questions about the cost of private healthcare in South Africa.

Full story on M&G Online