Managed care

12 October 2005, Indaba Hotel, Johannesburg, South Africa

Change of focus will provide cover for more employees Netcare is doing the smart thing by getting into bed with the doctors. Its deal with SA's largest doctor group, the SA Managed Care Co-operative (SAMCC), gives the country's biggest private hospital company preferred-supplier status to provide healthcare services to the new state medical aid scheme. The deal marks a change of strategy by Netcare, which has up to now focused on the provision of healthcare to the middle-to-high-end of the market. The new venture, called Netpartner Investments, will enable Netcare to tap into 480 000 civil servants who will for the first time become members of a medical scheme. Government plans to consolidate all civil servants with medical aid cover on to a new scheme. It will also provide cover for the first time to lower-ranking employees. The scheme is likely to be launched in January 2005. The new scheme is a precursor to the launch of a state-sponsored open medical scheme that will be a low-cost alternative to traditional schemes. Government aims to encourage private healthcare providers and funders to compete on the basis of price, or risk losing existing and new members to the government-sponsored scheme. Netcare CEO Jack Shevel says the new managed care company will position Netcare as the low-cost provider to the new state scheme. Netpartner Investments intends to drive down healthcare costs to the point where medical aid ecomes affordable to blue-collar workers. Shevel says private healthcare cannot be run as it used to be. Past practices have led to sharp increases in healthcare costs, a development that has increased the cost for employers to subsidise their employees' medical aid contributions. Hospital companies, on the other hand, have seen bed occupancies drop. They are also under increasing pressure from large funders to cut rates. One of Netpartner's first investments will be to acquire a stake in Medicross, Netcare's primary care subsidiary. Its capitated products will form the basis of Netpartner's offering. It will work like this: a medical scheme will contract Netpartner to provide the full continuum of care for its members, including GP visits, dental care, radiology, pathology, specialist care and tertiary hospital care. Netpartner providers will have incentives to keep patients well through risk-sharing reimbursement arrangements. For instance GPs, radiologists and pathologists will be capitated - paid a fixed fee per patient per month rather than a fee per consultation or investigation. Netpartner as a whole is likely to operate on a gain-share model where the entity agrees to service a scheme's patients for a certain budget. If actual costs exceed the budget, Netpartner takes the fall, but if it manages to cut costs then all Netpartner providers share in the upside. As doctors, dentists and specialists may also purchase shares in Netpartner, (the intention is to list it on the JSE), there will also be a financial incentive for providers to ensure that the company delivers affordable, quality care. However, it also creates an incentive for doctors to direct more patients to Netcare hospitals - away from other hospital groups. The SAMCC represents 3 200 doctors out of about 5 800 full-time practising GPs in SA. SAMCC national chairman Dennis Dyer says the venture has the potential to increase doctors' patient volumes, ensure that they are paid better, faster (many wait 90 days for schemes to pay claims) and with less administrative hassle while ensuring their clinical independence. Much back-slapping occurred at Netpartner's launch in Cape Town last week, with both Netcare and SAMCC executives touting the partnership as the solution to rising medical aid costs. It is too early to tell whether their good intentions will translate into cost-saving solutions for members, but the initial market reaction has been less cynical than is usually the case when the term managed healthcare is used. Despite the fact that capitated products and provider networks have failed to drive down the cost of health plans enough to attract the low end of the market, Alexander Forbes Healthcare Consultants deputy head Bernie Clark supports the move. Even administrators, such as Discovery Health, who could feel threatened by Netpartner, have tentatively welcomed the new initiative.( Source: The Financial Mail, 1 August, 2003).

The provision of healthcare needs to change drastically or fewer South Africans will be able to afford medical cover, says Prime Cure CEO Professor Gerard Slabbert. Even as more service providers try to broaden the stagnant pool of insured lives from six - seven million by coming up with low-cost options, a growing number of medical aid members are being forced out of the system by high drug and private treatment costs. Medical inflation has outpaced consumer inflation for 10 years and people now spend 14%-16% of their income on health cover. Medical aid premiums overtook pension fund contributions in 1996 and now constitute an employer's biggest expense after actual salaries. Managed care also has not helped to bring costs down much, says Slabbert. It simply added another layer to costs while benefits were cut back. More partnerships between individuals or organisations and the medical profession are needed, with a view to health education, says Slabbert. These worked well for Prime Cure, which has focused on the low-income market for the past seven years, he says. Contracted doctors (about 700) are paid a fixed monthly sum to provide patients with quality healthcare. This encourages the use of preventative medicine because it's much cheaper than treating sick people. Service providers are increasingly coming out in support of risk-sharing to curb costs, says Discovery Health MD Barry Swartzberg. Providers and networks that form such partnerships are motivated to provide effective services, which ultimately improve margins and restrict over-servicing, he says. Also, in line with trends overseas, we are seeing a shift to generic medicine in SA, says Swartzberg. Medscheme set the ball rolling early this year with the implementation of its value-for-money medical price list (MPL), which boosted usage of generic medicine and resulted in a general unit cost-saving of R5 per item in the first month. It remains to be seen to what extent these measures will stem the tide of fee increases and make healthcare more accessible and affordable.(Source:Wilma de Bruin: Finance Week, 22 November 2002)

Private sector healthcare in South Africa ranks with the best in the world, yet barely 30% of the population can access it. The remaining 70% cannot afford private healthcare, placing the responsibility in the public sector. The Medical Schemes Act was intended to widen private sector membership by outlawing discrimination on any basis other than family size and income, but that has not happened yet. By removing the capacity to cherry-pick the best risks, schemes will have to compete by negotiating better deals with hospitals, doctors and other service providers. Soon, schemes will need to enter into risk-sharing arrangements with providers to bring down costs in a sustainable way. Coupled with better product design, this should make healthcare more affordable to the poor. Few schemes are geared up for risk-sharing arrangements. Prime Cure, a primary care provider group owned by its managers and three private equity groups, has built a network of 50 medical centres around the country delivering quality low-cost healthcare. While patients have access to comprehensive primary care from general practitioners and nurses and specialist services such as radiology and pathology, the group manages to turn a decent profit. Prime Cure contracts with a further 250 service providers around the country, expanding its reach beyond the 50 centres. These protocols are integrated into an IT system which doctors can access in real time. This means doctors generally get it right the first time, without hazarding their way through treatments and running up big medical bills. Prime Cure centres are streamlined, with support staff doing the grunt work, allowing doctors to see 90 or more patients a day, about double the industry norm. Prime Cure is paid a fixed fee per patient, eliminating incentives to over-service. Its patients fall into three categories: those with medical aids (who can consult a doctor and purchase drugs for about a third the normal cost of a consultation with a GP and the resulting prescription); cash patients (who are charged R60 to R90 for consultation, medicine and any specialist service needed, such as radiology); and, capitation patients: Prime Cure is contracted by 15 medical aids to provide fixed-fee services for 120 000 members. Prime Cure was started six years ago and it took more than four years to show a profit. As it achieved critical mass, the group leveraged its bulk purchasing power and wrung costs from the system through use of generic drugs and other cost-containment tools. It is this kind of health service the government wants to see proliferate. (Source: Business Times, 16 June 2002)

The Council for Medical Schemes has issued new draft regulations that will significantly improve the protection of scheme members; stop schemes from placing artificial barriers in the way of potential members; and stop schemes from trying to avoid paying for chronic treatment. The draft regulations were published for comment in the Government Gazette yesterday. They include: Late-joiner penalties: Anyone joining a scheme after the age of 30 can be subject to late-joiner penalties, which, depending on the time period, can double contributions. The penalties aim to discourage people from joining a scheme only when they become ill. However, many people have been faced with late-joiner penalties because they cannot prove previous membership of a scheme. Most schemes do not keep records for longer than three years. Applicants will now be able to sign an affidavit stating how long they had been a member of a scheme, and produce evidence that they attempted to provide proof from a scheme. Chronic Care: Schemes introduced benefit options in an attempt to side-step laws on community rating. Community rating provides for the cross-subsidisation of the elderly and sickly by the young and healthy. Chronic care is normally only included in the top and most expensive option, often excluding the elderly who cannot afford the option. The council proposes making the 20 most common chronic ailments prescribed minimum benefits. Stephen Harrison, the head of research and monitoring at the council, says it is conducting an analysis of what it would cost schemes if they were forced to offer chronic care as a minimum benefit. Prescribed Minimum Benefits: The council wants to enlarge the list of prescribed minimum benefits and prevent schemes side-stepping the provision of the benefits. Apart from chronic care, HIV/AIDS conditions will be added to the list, including the provision of antiretrovirals to HIV-positive pregnant women. Currently only the treatment of opportunistic diseases brought on by AIDS are covered by the prescribed benefits. In terms of the draft regulations, schemes must conclude agreements with public hospitals for the treatment of minimum benefits. With no agreement, the scheme must pay for the benefit at a private facility. Managed Care: A number of regulations are proposed to tighten up managed care to ensure proper protection of members. Included is the right of the council to apply to court to set aside capitation schemes that are unfair on members. Capitation means that a scheme negotiates a contract with a medical service provider, such as a doctor, to treat a certain number of patients. The doctor is paid whether the service is used 100 times or not at all. Capitation can remove the incentive to over-treat, but can also result in under-treatment. Fees/commissions: All fees and other payments to trustees will have to be disclosed to members and any commissions paid to health scheme brokers will have to be charged over the premium and agreed with members. Commissions are limited to three percent of the first year's premium and no other incentives may be paid. Harrison says that schemes may enter into co-administration agreements with brokers, but the brokers will have to be registered with the council as administrators and will have to show that they are co-administrators and are not merely receiving a further inducement from a scheme or its administrator. (Source: Personal Finance, 4 May 2002)

A new survey by Old Mutual highlights the increasing costs of healthcare.

Technical Report to Chapter 13 of the 1998 SA Health Review