The Health Market Inquiry (“HMI”) today released its final findings and recommendations pursuant to its almost six year long investigation into the healthcare industry.

In this regard, the HMI concluded that the South African private healthcare market is characterised by the high and rising cost of healthcare and medical scheme cover, and excessive over utilisation (with stakeholders unable to demonstrate associated improvements in health outcomes). In addition, the HMI noted that there has been inadequate stewardship of the private healthcare sector, including the Department of Health’s failure to make use of existing legislated powers to manage, review and regulate the sector.

In reaching these conclusions, the HMI identified various features that alone, or in combination, prevent, restrict or distort competition within the healthcare sector. Although not a closed list, the HMI noted, inter alia, that

  • the facilities market is concentrated, with three hospital groups, Netcare, Mediclinic and Life dominating the sector. While there are a small number of National Hospital Network and independent hospitals, these do not place an effective competitive constraint on the three hospital groups. The incumbent three hospital groups make it hard for new entrants to grow and compete on merit by distorting and preventing competition through, among others, binding the best medical specialists to their hospitals. As such, the incumbent facilities are not forced to innovate or compete vigorously;
  • facilities operate without any scrutiny of the quality of their services and the clinical outcomes that they deliver, as there are no standardised publicly shared measures of quality and healthcare outcomes to compare. As such, it is impossible for any patients, funders or practitioners to exercise choice which is based on value, versus quality and price;
  • there is no standardised means by which the quality and health outcomes of practitioners can be measured and reported on. As a result, the public is unable to compare outcomes across interventions and practitioners. In addition, practitioners themselves are unable to benchmark their own practice or determine (on objective criteria) to whom to refer patients;
  • hospital admission rates, level of care and length of hospital stay (i.e. utilisation rates) were found to be excessively high and a significant driver of healthcare costs. The Inquiry found that a number of incentives exist in the market which promote this over utilisation including, the fee-for-service method of payment (in terms of which the more services practitioners provide the greater their income), mandatory cover of prescribed minimum benefits payable at cost by funders (which allows practitioners to determine their own degree of intervention and rates to be paid in full), benefit design, the guarantee of payment of hospitalisation costs and decreasing out-of-hospital cover, which has encouraged admission of patients;
  • the regulatory framework in which funders “compete” is incomplete and distorts the parameters of competition. In this regard, the principles of open enrolment (funders must accept all applicants) and community rating (funders must charge a contribution price for a particular plan which is identical for all members no matter age, sex or pre-existing conditions) were always meant to be implemented alongside a risk-adjustment mechanism (schemes with above average risk-profiles are balanced through funds received from schemes with below average risk-profiles) and mandatory membership. Absent such a mechanism, and having to pay PMBs at cost, has meant funders’ costs, and, therefore, member premiums, are highly correlated to the overall risk-profile of their members, which has resulted in schemes competing on the risk-profile of their members, for example by designing benefit options to attract younger and healthier members (as opposed to competing on a value-for-money basis, by increasing benefits, adopting innovations, improving services and/or competing on premiums);
  • consumers are unable to compare benefit options easily and do not readily switch schemes in response to better offers from competitors; and
  • there are high barriers to entry in the administrator market, resulting in little to no entry in the market for several years.

In order to address the aforementioned failures within the private healthcare sector, the HMI has recommended, inter alia, that the following interrelated interventions be rolled out

  • the Competition Commission review its approach to creeping mergers to address high levels of concentration through effective merger review;
  • regulation of the supply-side of the market through the establishment of a new regulatory authority, being the supply-side regulator for health (“SSRH”). The role of the SSRH would include the regulation of suppliers of healthcare services (including facilities and practitioners), and would be responsible for, amongst others, (i) capacity planning and the issuing of facility licences (pursuant to the development of national guidelines in this regard), (ii) the setting up of a multi-lateral negotiating forum for all practitioners to set maximum prices for prescribed minimum benefits and reference prices for non-prescribed minimum benefits, (iii) maintaining a health professionals numbering / reporting system, (iv) establishing a committee to set and regularly review codes used by practitioners and funders, etc.;
  • interventions to promote competitive contracting and a move away from fee-for-service contracts between practitioners and funders;
  • the establishment of an Outcomes Monitoring and Reporting Organisation as a platform for providers, patients and other stakeholders in the provision of healthcare to generate patient-centred and scientifically robust information on outcomes of healthcare;
  • the drafting of Guidelines for Associations to mitigate the risk of potentially anti-competitive behaviour;
  • the introduction of a single, comprehensive, standardised base option (which must be offered by all schemes);
  • the introduction of a risk-adjustment mechanism to be linked to the single, comprehensive, standardised base benefit option; and
  • the introduction of an active “opt-in” system for brokers.

The HMI believes that the aforementioned interventions will result in lower costs and prices in the healthcare industry, more value for money for consumers, and increased innovation in the healthcare sector.

Finally, it is worth noting that Thembinkosi Bonakele, the Competition Commissioner, confirmed that the recent amendments to the Competition Act, No. 89 of 1998 (particularly in respect of market inquires) do not apply to the Healthcare Inquiry’s report – meaning that the Commission is not able to make binding decisions arising out of the HMI, such as, taking remedial action against an individual firm as a result of a market inquiry.