…but more affordable delivery models needed
In terms of facilities, quality and service, South Africa’s private hospitals pass the acid test with flying colours. The fact the all three major hospital groups have made – and continue to make – inroads into various parts of the world, bear testimony to an international stamp of approval and a growing demand for their services and expertise.
Economically speaking, the contribution of private hospitals to the state coffers, as well as its ripple effect on the South Africa economy, is also significant. Not to mention the wide range of corporate social investment initiatives and valuable training and educational contribution worth millions, to which the private hospital sector remains committed year after year in response to growing needs.
An Econex report of January 2012 points out that, with a workforce of 64 000 full-time equivalent employees, sales revenue of R36.5bn and tax contributions of around R5.9bn (inclusive of corporate, personal income and indirect taxes) in 2010, member hospitals of the Hospital Association of South Africa (HASA), the industry’s umbrella body, indeed make a substantial direct contribution to the SA economy.
“However, this initial injection of economic activity by private hospitals is only the tip of the iceberg,” according to the report. “When the economic multiplier effects of the provision of healthcare services by HASA members are also taken into consideration, HASA members and their value chain sustained production to the value of an astonishing R110bn, supported 218 000 jobs throughout SA and generated more than R17bn in government tax during 2010. In addition, the economy-wide impact of the relevant private hospitals’ operations sustained capital stock to the value of R92.7bn, or 1.8% of South Africa’s total capital stock.”
Conversely, and despite its significant contribution to the economy and quality of care, private healthcare is perceived to be mainly out to make a profit. As a result, the South African private hospital sector continuously finds itself in the dock for being inaccessible and unaffordable to the majority of South Africans, resulting in robust sparring sessions between private and public sector role players.
Perhaps Roly Buys, Mediclinic Southern Africa’s Funder Relations and Contracting Executive, hit the nail on the head when he said “Healthcare is expensive all over the world. But instead of fights over price and price control, we need to work harder at producing alternative delivery models” at a media conference in September 2012 when the hospital group countered an argument of Dr Anban Pillay, head of Health Financing and Economics at the Department of Health, in a presentation at the 2012 Board of Healthcare (BHF) conference, namely that SA’s private healthcare costs are five times higher than those of other member countries of the Organisation for Economic Development (OECD). According to Mediclinic, Pillay’s analysis was simplistic and the model fundamentally flawed.
Buys, added “One of the fundamental things that we have to do in South Africa…is to increase the number of staff. Due to the shortage of skilled staff, we find that there is always a premium to be paid for nurses. From our side, we have to look at alternative methods of delivery and ways of producing at lower costs…”
Concurring, colleague Koert Pretorius and Mediclinic SA CEO, Life Health CEO Michael Flemming and Netcare Hospital Group CEO Jacques du Plessis, all stress the need for more affordable delivery models.
Pretorius reckons four alternative models have potential to lower costs and increase access to healthcare going forward:
- First, day facilities focusing only on certain types of services such as surgical procedures, have significant potential to drive down costs and are already increasingly being developed.
- So-called production shops such as those in India that focus on one or two procedures like maternity or eye surgery by highly skilled healthcare professionals, are also worth considering.
- Another possibility and similar to the mine hospital environment, is the staff model Health Maintenance Organisation (HMO) where a more integrated delivery model is developed, doctors are employed, formularies and protocols are applied, choice for pharmacy items is restricted and the focus is primarily on lifestyle and preventative measures to keep members out of hospitals.
- Fourth, the familiar Private Public Partnership (PPP) model, through which the state can either contract out services to the private sector, but preferably allow the private sector to upgrade under-utilised state sector capacity, also has more potential than what is currently realised.
“The state only needs to make the facility available to the private sector, which can then upgrade it, and by having access to state medicines, which are obtained much cheaper (than in the private sector) through the state tender process, and by perhaps not charging VAT, the facility could potentially offer its service 30%-40% cheaper than currently in the private sector. At the same time, funders might also offer some low-cost products (with a limited network of service providers) to patients.
“While we believe that these four models have potential that could be further explored, it may be easier said than done to bring them to life, as the regulatory environment is not particularly supportive, nor has the system, up to now, been conducive to innovative thinking and cooperation to bring about accessible and affordable models,” Pretorius argues.
Life Healthcare CEO Michael Flemming stresses that while private healthcare will always have a role “if it’s elitist to the point where others don’t have sufficient access, it is something that I don’t feel comfortable with. So I’d like to see Life Healthcare playing a far greater role in helping in the delivery of healthcare to more South Africans.
“But in order to make it work – and we have to make it work – we need to come up with products that are cheaper than what we’re currently offering the market. This is not about affecting the quality of healthcare delivery, but more limiting the ‘hotelling’ aspects of what we’re currently offering, limiting the choice that the consumer has in terms of which facilities and some of the utilisation of the very expensive products that we have no choice over. If you talk about a knee replacement, at least 60% of that bill is the cost of the prosthesis. We make no money on it, there are very limited suppliers, it’s an imported product, so we end up with a very high cost of delivery,” argues Flemming.
“So we need to – and there are ways for us – come up with new and innovative products that can be much cheaper. If we do this right and convert some public sector users into private sector users, the public sector will have more resources to spend on people that truly cannot afford access to any other system. Hopefully, with a lower demand for their services, we can then also see an improvement in the quality of healthcare delivery out of the public sector – and there’s a win-win for everyone,” he adds.
Getting involved in PPPs “ that are healthcare orientated, that do not take the burden away from Government, but ease it on a win-win basis, could be one of the ways to ensure a better quality of healthcare delivery for everyone.” This would typically entail contracting out services to the private service at an affordable level to take away the backlog in the public sector so that people don’t have to wait months and months to get their healthcare problems sorted out.
However, to ensure that new products on offer will be affordable enough, cooperation of all the parties is essential, Flemming stresses.
“We have to work with suppliers, with the funders so that they pass on these cost-savings to the consumer. And we (the private and public sector) have to work together to eliminate some costs that are not productive and in the best interest of the patient.”
For example, there is too much regulation around what the private sector can or cannot do in terms of the employment of healthcare professionals, Flemming reckons.
“If we could employ healthcare professionals, we believe we could ultimately manage and reduce the cost of healthcare delivery substantially. Unfortunately, these types of changes take a long time to implement, so in the interim we need to develop products that we can offer to people who do not want to go to the government sector, but who cannot afford to pay what we’re currently charging.”
Similar to maternity delivery, which could be done in a more cost effective way so as to attract public sector patients, much could also be done in diagnostics, both radiology and pathology, to reduce the cost of healthcare. Also, to lower costs, work can be done in the standardisation of products rather than being at the forefront of development at all points in time, Flemming suggests.
“In this way we enlarge the pond so that effectively the private hospital industry can look after a greater portion of the population. Currently the private sector has roughly 25% of the hardcore assets – bricks, mortar and beds – and yet, we’re only looking after 16%-17% of the population. We need to make that 25%, and we need to do it with differentiated products.
“At the same time, we don’t differentiate on pricing in the private sector at all; whether you go to a hospital that has substantial life support in terms of cardiac units and diagnostics with CT scanners and MRIs, or whether you go to a community hospital where there is limited access to this type of healthcare safety, the price for a night’s stay in either of those facilities is exactly the same. This doesn’t seem to make sense. If you go to the Hilton Hotel, you pay a sum of money, if you go to a City Lodge, you pay a different sum of money.
“Both offer a good quality service, but they are aimed at different market segments. Perhaps this is the way forward for the private sector: we need to deliver a different model, but with the same high quality of care and the same dedicated and skilled doctors. We need to work smarter to bring down costs, because if we don’t, I don’t see access being improved by anything that’s happening in the regulatory world.”
Jacques du Plessis, MD of Netcare’s Hospital Division, agrees that to make healthcare more accessible and affordable, new thinking around delivery models is paramount.
“Netcare’s aim is to guarantee the best clinical outcomes at the lowest possible cost. To this end we, for example, already, to a large extent, standardise consumables and devices and drive generic products to ensure that we buy the best quality products at the lowest cost possible in order to bring down the overall cost of healthcare.”
Likewise, a lot of the Prescribed Minimum Benefits (PMBs) could actually be managed in a primary-care setting, while more procedures at day facilities requiring less infrastructure, could also lead to an overall cost reduction, Du Plessis suggests.
“We often use the analogy of travelling to England by plane. You can either fly in the comfort of business class, or opt for the more affordable economy class. However, it is the same pilot that brings you to your destination, so the end result is the same – this is precisely what we are working towards,” he explains.
A prime example is the partnership with Discovery as designated service provider on the funder’s new low-cost option KeyAccess where Netcare will be able to deliver certain services at a much lower cost as doctors will use certain devices and protocols to ensure that costs remain minimal, Du Plessis points out.
Netcare’s PPP in Lesotho, where the group was tasked with designing, building, partially financing and providing clinical services for a period of 18 years, is another example of the potential of cooperation and collaboration.
This landmark project included the refurbishment of two filter clinics in addition to the new National Referral Hospital in Maseru, which replaced the Queen Elizabeth II Hospital, which faced chronic shortages of hot water, heat, medical supplies, pharmaceuticals, trained staff and reliable equipment. (See article on p ???)
“One of biggest disadvantages, though, is that while we, to an extent, can influence hospital costs, we are not allowed to employ doctors,” he reiterates the concerns of Flemming and Pretorius.
“The doctor decides on the treatment regimen. Some doctors are more proficient in their techniques and, for example, perform a hip replacement in 2½ hours. Others do one per week and it takes them six hours, which is not so proficient and clearly that eats up theatre time and contributes to higher staff wages, all adding to the cost.
“If you could therefore employ a complement of highly-skilled and well-trained doctors, and the hospital, with the support of the funders, dictates what protocols must be followed, that certainly can reduce the costs – which is exactly was Netcare aspires to,” Du Plessis explains.
In short, incentives need to be aligned and the fact that the hospitals are not allowed to employ doctors, is the single biggest hurdle to achieve this, he stresses.
He furthermore points out that contrary to a country like Cuba, which has in the region of 24 medical schools producing an oversupply of doctors, SA has for years had only eight medical schools, with the result that there has been a chronic shortage of doctors – this while the private sector is not allowed to open private medical schools to help alleviate the shortage. If we could reopen all the nursing colleges and establish more medical schools, it can go a long way to reducing the scarcity (and cost) of skills.
“So, there are many factors that, in a free-market environment, could positively influence the cost of healthcare delivery. Moreover, there needs to be far closer cooperation and collaboration by all role players to reduce the costs,” Du Plessis concludes.