Industry News
Private hospitals not all-powerful in tariff negotiations
13 June 2008
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The private sector is not an “all-powerful” oligopoly when it comes to tariff negotiations with healthcare funders.
Roly Buys, director of funder relations at Medi-Clinic, told delegates at the Hospital Association of South Africa’s conference in Somerset West that medical schemes currently enjoyed significant “counterveiling” power in the tariff-setting process.
Buys said there were several factors over which the so-called oligopoly had no control. “For example, funders may decide to change the design of member benefits. The introduction of medical savings accounts negatively impacted on the way in which hospitals were reimbursed. Co-payments were unilaterally introduced and suddenly hospitals needed to look to patients for this payment. Unilateral changes to provider networks also adversely affected hospitals’ income.”
According to Buys, managed healthcare also influences the balance of power. When MHC was introduced in 1998, input costs increased due to software changes, the appointment of case managers and clinical coding requirements.
“However, despite managed healthcare we still experience problems with payment guarantees, the reversal of payments months down the line, and lists of items requiring pre-authorisation. All these factors affect our costs.”
Managed healthcare had also pressurised medical practitioners around the world into implementing new technology which in turn, drove up healthcare costs. “Consolidation in the administration market means that we are not dealing with a situation in which one big group negotiates with many smaller players, but rather one-on-one negotiations between private hospitals and some very large adminstrators.”
Buys said Medi-Clinic, Netcare and Life Healthcare each owned roughly 25% of the market and each of these groups negotiated independently with, for example, Discovery (28% market share), Lethimvula (30%), and Metropolitan (19%).
“It is a complete misrepresentation of the facts to claim that private hospitals are an oligopoly and hold all the power in the tariff-setting process.“
Commenting on the Board of Healthcare Funders (BHF) claim that the Draft Amendemnt to the National Health Act would be good for consumers because a bargaining chamber would bring about transparency in pricing in the private healthcare sector, Buys pointed out that private hospital costs were actually higher during the pre-2002 years when centralised bargaining was mandatory. He said that both funders and hospitals have genuine and unique problems. For funders, it was a question of affordability while hospitals faced the upward pressure of salaries due to a shortage of professional staff.
“Only once funders and providers agree on solutions that yield mutual benefits will we be able to move forward,” he said.
Jonathan Broomberg, head of strategy and risk management at Discovery Health and also a guest presenter at the Hasa conference, said there was a public perception that the private healthcare sector was out of control. This, he said, is a paradox because in the main, the industry was working well.
Broomberg said it was important for private hospitals and funders to work together to bring down the overall cost of healthcare. Innovative solutions were needed to ensure that hospital admissions were appropriate, the cost of adminssions was reduced and overall quality and outcomes were improved, he said.
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