The HMI Panel at the release of its Provisional Report

The long-awaited Provisional Report of the Competition
Commission’s Health Market Inquiry (HMI) has revealed damning evidence relating
to the reasons behind the escalating costs of healthcare in the private
healthcare market and has made far reaching recommendations to address the many
issues that it has found to prevent, restrict or distort competition. According
to the report released today in Johannesburg, the private healthcare market is
characterised by high and rising costs of healthcare and medical scheme cover,
highly concentrated funders’ and facilities’ markets, disempowered and
uninformed consumers, a general absence of value-based purchasing, ineffective
constraints on rising volumes of care, practitioners that are subject to little
regulation and failures of accountability at many levels.

The report blames what it calls “an overall incomplete
regulatory regime that can largely be attributed to a failure in implementation
on the part of regulators and inadequate stewardship by the Department of
Health over the years. “Many of the recommendations we have considered are
already provided for in current legislation but have not been implemented,” the
report states.

Addressing stakeholders and the media, HMI Panel Chair,
retired Judge Sandile Ngcobo explained that one of the key tasks of the Inquiry
was to understand the factors driving expenditure in the private healthcare sector.
 Using claims data provided by the
funding industry, the Inquiry was able to identify what proportion of the
claims costs can be explained by factors that are known to influence
expenditure (explained factors), such as age, gender, disease profile and the
severity of the medical condition the person is being treated for, and the
unexplained portion that cannot be easily be attributed to the illness or
demographic features of the population.

The Inquiry found that 2% of spending amounting to around
R3bn in 2014 terms could not be explained by factors rationally expected to
drive expenditure.

Some of the main findings against medical practitioners
indicate intrinsic and extrinsic incentives that have promoted over-servicing
which have led to increased admissions to hospitals, increased length of stay,
higher levels of care, greater intensity of care or use of more expensive
modalities of care than can be explained by the disease burden of the
population. Evidence of supply-induced demand were also found showing that absolute
age-adjusted hospital admission rates increased significantly from 2010-2014  and were higher than all but two of 17 OECD
countries compared against. The rate of discretionary surgical procedures such
as C-section, cataract surgery, arthroplasty and tonsillectomy were also mostly
higher than in comparable countries while ICU admission rates were higher than
all of the eight countries with comparable published data.

“If the ICU admission rate per person were reduced to half
of its current level (i.e. to between levels found in Belgium and the US); and
half of the costs associated with these avoided ICU admissions were reinvested
in better ward-based care, approximately R2.7bn would still be saved annually –
just over 2% of private healthcare spending overall for the period studied,” Ngcobo

The HMI found that for all hospital admissions (including
both PMB and non-PMB admissions) in nine out of 11 specialties examined, there
was a significant positive correlation between risk of admission and having
more doctors or hospital beds in that geography. Similarly, there was a
significant positive correlation between the risk of admission to ICU and the
number of ICU beds in a geography, Ngcobo said.

The report also implicate some specialists’ associations in anticompetitive
behaviour despite earlier competition rulings that doctors may not negotiate

“This is more evident among some specialist groupings than
others. We found that specialists sometimes operate collectively to resist
joining preferred provider networks and to introduce or adapt codes that push
up prices without commensurate improvement in quality of care or value,” Ngcobo

Stakeholders confirmed that hospital groups compete to
attract practitioners, specialists in particular. There is little need for
explicit or formal collusive agreements; there is alignment of interests
between facility and practitioner where both stand to benefit from higher
treatment volumes and intensity. The uninformed patient assumes that these
arrangements are always to his/her advantage and is not concerned with the
longer term financial impact on medical scheme cover, the report notes.

Findings related to medical schemes indicate that there are
few incentives to ensure that scheme employees, trustees and principal officers
act in the best interest of consumers and hold administrators to account.

“In the current model, administrators have far more
analytical capacity and ‘know how’ than schemes, and administrators seem to
make decisions on behalf of schemes, even on key issues of strategy. The ‘separation’
between not-for-profit schemes and for-profit administrators, often seems artificial,
particularly in the case of large open schemes. As a result, administrators face
insufficient pressure from schemes to deliver better value for money or to
lower non-healthcare related costs.”

The most important findings from the Inquiry’s profitability
analysis in the funders market is that competition appears to be almost absent.
The analysis, conducted over a ten-year period from 2006 – 2015, shows that Discovery
Health, recorded sustained high profits over the entire period and much higher
than its competitors, Metropolitan and Medscheme.

The private hospital market was found to be highly concentrated.
The three largest hospital groups have a market share of approximately 90%
based on hospital admissions and more than 83% based on registered beds. One of
the challenges of this, from a competition perspective, is that it affords the
big-three hospital groups “must-have” status in bargaining for contracts with
funders which reduces funders’ countervailing power. Hospitals have also been
found not to compete directly for patients, but rather compete for
practitioners who refer patients to hospitals.


Recommendations to particularly address issues around costs,
quality of care and uncompetitive behaviour include:

  • The establishment of a Supply Side Regulator that will set
    tariffs after extensive consultation with stakeholders in a public forum or a multilateral
    price-setting mechanism where stakeholders conduct tariff negotiations and
    reach agreement under a negotiation framework determined by the Supply Side
  • Tariffs for Prescribed Minimum Benefits (PBs) should be
    binding and tariffs for non-PMB conditions will have the status of reference
  • Bilateral negotiations between funders and providers, not
    just corporate providers like hospitals and pathologists. The HMI sees
    bilateral negotiations as essential if wider adoption of meaningful risk
    transfer through performance-based contracts is to be attained. The Inquiry
    also proposes that a broad group of stakeholders be involved in the price-setting
    forum. Representatives of providers, funders, government and civil society should
    all participate in the process.
  • Medical scheme options must be simplified by introducing a
    base benefit option that covers catastrophic expenditure as well as
    out-of-hospital preventative and primary care. The base benefit option should
    be standardised across schemes.
  • The development of standards of care, evidence-based
    treatment protocols and processes for conducting health technology assessments
    to ensure cost-effective quality care.
  • The implementation of a standard system to measure the
    performance of providers and monitor the quality and outcomes of healthcare
  • The standardisation of coding systems across the sector to facilitate
    meaningful sharing of information. The codes should be managed by a public
    entity such as the Supply Side Regulator for Health.
  • A review of the HPCSA’s Ethical Rules that have an adverse effect
    on competition. “The rules as currently interpreted, make it difficult for
    multi-disciplinary practices and partnerships to be set up and for effective
    alternative reimbursement models to be developed. The rules should be reviewed
    with the aim of creating an environment that allows practitioners to adopt new
    and innovative models that may lead to better outcomes for patients,” the
    report notes.
  • Stakeholders have until Friday 7 September 2018 to comment on
    the provisional findings and proposed recommendations with the HMI planning to
    publish its final report and recommendations by 30 November this year.

full report is available on: