South Africa: Medicine for the masses

Many facets of South Africa’s domestic economy are considered two-tiered, with significant gaps between rich and poor in terms of spending power and access to essential services. One area where this divide is particularly illustrative is in the differing quality, capacity, and usage profile of the public and private health care systems.

At present just over 8m South Africans belong to medical aid schemes, contributing monthly fees to access private health care, while the remaining 40m are reliant on overcrowded and often poor quality public facilities. With an estimated 5% of the 8.5% of GDP spent on health care in private hands, according to the Department of Health, the 17% of South Africans on private medical schemes benefit from a greater collective spend than the 83% reliant on public care.

To resolve this divide and ensure that the distribution of national spending on health care is more equitably shared, the current health minister, Dr Aaron Motsoaledi, has made universal access, through the implementation of a National Health Insurance (NHI) fund, one of his key priorities. The first NHI draft policy was released in 2011 and pilot trials commenced in 10 districts in April.

According to the draft paper, it is anticipated that payment towards an NHI scheme will be compulsory for higher income earners and employers, with these funds being used to improve government hospitals, develop new infrastructure, and improve human resources and back end systems.

While most stakeholders agree with the rationale behind an NHI, acknowledging that public care is considered below par while private coverage is not affordable for a significant portion of the population, questions remain over the finer details of how exactly the programme will be funded and the model it will ultimately take in terms of public and private mix.

According to Brian Daniel, the CEO and country manager for Pfizer South Africa, “While it is uncertain how the NHI will be rolled out and financed, it will undoubtedly ‘grow the pie’ in terms of the size and scale of medicine consumption at a national level…. South Africa’s private health care system is world-class, and for the NHI to succeed, the government must leverage the help of the private sector across the entire value chain.”

While the NHI is only in its infancy and it is expected to take over a decade until full implementation, so far the government is indicating that the private sector will have some role to play, potentially as scheme administrators and care providers, though this comes with the caveat that they must lower their prices.

“The NHI is not a competition between the public and private sectors,” Motsoaledi told OBG. “To be a success, it must be sustainable, and there are two core conditions for making it sustainable. On the part of government, the quality of health care in the public sector must be overhauled and dramatically improved. At the same time, private health care prices must be reined-in as they are out of control. If the NHI will be subject to exorbitant prices by the private sector, it cannot survive.“

With medical aid premiums rising at annual rates far exceeding the consumer price index, the topic of escalating prices for private care and the reasons behind this phenomenon are a highly contested public debate. Motsoaledi cited the issue of concentration, referencing a public inquiry undertaken by the country’s Human Rights Commission that discovered increasing rates coincided directly with the market consolidation that began to take shape in 1998, “when private hospital groups reduced in numbers and crowded out smaller competitors,” he added.

Those defending and justifying the price increases point to a confluence of factors contributing to medical inflation over and above the national average, including rising costs of medicine and equipment, a shortage of specialists, ageing demographics, and costly and prohibitive regulatory requirements.

According to the most recent annual report published by the Hospital Association of South Africa, the cost of treating patients over 65 is 50% above the average. And as such, medical schemes typically rely on attracting younger members to offset the cost of older members’ claims.

Adrian Gore, the CEO of Discovery Holdings, which administers the country’s largest medical scheme, recently told OBG, “We have an egalitarian regulatory system with flat, non-discriminatory pricing and no mechanism compelling people to join schemes. This results in ‘adverse selection’, as the young and healthy delay joining until they are sick or opt for minimal coverage, while the sick and elderly tend to migrate towards very comprehensive benefit levels. Overall, this trend is inflationary for medical schemes as it reduces the surplus generated from younger, healthier members who are required to subsidise the higher claims of the elderly and the sick.”

According to Nicolaas Kruger, the group CEO of MMI Holdings, a financial services group that manages the medical schemes of more than 3m beneficiaries, “Another contributing factor to the rising cost of medical services is that regulators have set a 25% solvency target, which gets factored in as a cost of doing business.”

Regardless of the reasons for price escalation, and despite uncertainty over the level of participation the private sector can ultimately expect to play in the NHI, both government and industry tend to agree that only through working collectively can a mandate of universal access to better health services for every South African be achieved.