The proposed exemptions to the Competition Act that will enable healthcare stakeholders to collectively negotiate tariffs for medical scheme benefits are “a critical step” towards addressing the cost of healthcare and promoting transparency in the healthcare market, Minister of Trade, Industry and Competition Parks Tau (pictured) said this week.
On 14 February, Tau gazetted, for public comment, regulations that will create a framework for determining the tariffs for private healthcare services.
Read: Minister proposes interim framework for collective healthcare tariff-setting
The establishment of the tariff-determination framework is the first step the government has taken to implement the recommendations of the Competition Commission’s Health Market Inquiry (HMI), which published its final report in 2019.
The Inquiry, which ran from 2014 to 2019, was an extensive investigation into the functioning of the private healthcare sector.
The HMI concluded that the private healthcare market is characterised by “high, and increasing, expenditure, and by excessive utilisation of health resources without any discernible or credible corresponding measure of improved health outcomes”.
Tau said the HMI found that the absence of a structured framework for determining the tariffs for healthcare services has led to abuses in the pricing of healthcare benefits via the overutilisation of services and co-payments.
The absence of a framework for determining tariffs often leaves patients, medical schemes, and smaller healthcare providers at a disadvantage.
The private healthcare sector has been without a regulatory framework to guide the determination of tariffs since 2003, when the Competition Commission prohibited the collective negotiation of prices between practitioners and medical schemes, saying the practice was collusive.
Industry associations and the National Department of Health (NDoH) have attempted over the years to create mechanisms for setting tariffs, but without success.
Currently, healthcare tariffs are negotiated bilaterally between medical schemes and healthcare providers.
“The current practice involves medical schemes unilaterally revising the tariffs that they are willing to pay and health professionals either accepting these terms in return for direct payment or charging a higher rate. In the latter case, the higher rate is generally collected from the patient, who is liable for a portion not covered by their medical scheme, or co-payment or balance billing. Due to the lack of a formal tariff determination framework, consumers are faced with uncertainty on prices, potential balance billing, and tariffs which are not determined through a transparent process,” Tau said.
One of the HMI’s recommendations was the establishment of an independent supply-side regulator for health (SSRH). The SSRH would establish a multilateral negotiating forum where medical schemes and providers would negotiate tariffs.
“A distinction from pre-2003 negotiations, which were found to contravene the Competition Act, is that the SSRH will create the framework under which negotiations occur, and it will be mandated to assess outcomes against several stated objectives, including public interest and policy considerations,” the HMI’s report said.
Tau said the framework developed in the draft block exemption follows the HMI’s recommendations “with the necessary adaptations”. It is an interim measure to address the vacuum in determining tariffs.
The draft regulations grant exemptions from the Competition Act so that medical schemes and healthcare providers can collectively determine the following in respect of both the Prescribed Minimum Benefits (PMBs) and the non-PMBs:
- Tariffs for healthcare services.
- Standardised diagnosis, procedure, medical device, and treatment codes.
- Quality metrics for medicine formularies and treatment protocols.
The regulations create two structures for determining tariffs. First, the Tariffs Governing Body (TGB), which will consist mainly of experts responsible for providing oversight in the tariff determination process. Second, the Multilateral Negotiating Forum (MLNF), which will consist of multiple stakeholders and will serve as the primary forum for collectively determining the maximum tariffs.
The MLNF will exclude private hospitals with respect to hospital fees or the cost of admission, not the fees for treatment.
Tau said the private hospital market is highly concentrated. The three largest hospital groups possess significant market power and account for about 80% of the beds in the private hospital market. Furthermore, the exclusion aligns with the model recommended by the HMI following its assessment of the bargaining dynamics among various stakeholders.
Additionally, smaller hospital groups already operate under an exemption granted by the Competition Commission to the National Health Network to enable them to bargain collectively with medical schemes.
Independent regulator unaffordable
The HMI recommended that the SSRH should be a stand-alone special purpose public agency established through a Schedule 3A public entity.
A Schedule 3A entity is a specific category of public entity as defined under the Public Finance Management Act (PFMA). These entities are subject to the governance and reporting requirements under the PFMA but retain some independence in managing their affairs.
The HMI said the SSRH should have its own board appointed by the Minister of Health, following a transparent public nomination process. The board should have autonomy to appoint its chairperson, chief executive and other executives, who will in turn be accountable for the appointment of all other appropriately qualified members of staff.
The draft regulations state the NDoH, in consultation with the Council for Medical Schemes, shall establish and oversee the TGB. The TGB will be chaired by a Chief Tariffs Manager, who shall be a senior official of the NDoH. The Director-General of Health will appoint the Chief Tariffs Manager and up to eight additional members of the TGB through a public nomination process.
The director-general will also appoint the members of the MLNF following a nomination process. The members will include representatives from the government, associations representing healthcare practitioners, medical schemes, civil society, patient and consumer rights organisations, and any other regulatory body within the healthcare sector.
Health Minister Dr Aaron Motsoaledi, who also addressed the briefing, said National Treasury has made it clear it will not countenance the formation of another Schedule 3A public entity because these entities are expensive.
Motsoaledi said his department agreed. The money spent on administering a Schedule 3A entity could be better used to provide healthcare.
Malebo Mabitje-Thompson, the Director-General of the Department of Trade, Industry and Competition, said the government could not afford to create an independent regulator.
However, regulatory oversight for tariff negotiation is required urgently, and the DTIC’s view is that the best way forward under the circumstances is for the NDoH to oversee the tariff negotiations “while we are still looking at various options on the independent regulator”.
Replacement of fee-for-service
Motsoaledi said the NDoH will respond to some of the other recommendations made by the HMI. One of these was that fee-for-service (FFS) “must be eradicated as far as possible” and replaced by alternative reimbursement mechanisms.
FFS is when a practitioner charges separately for each patient encounter or service rendered, irrespective of outcomes. “This creates an incentive for providers to over-service patients, over-invest in generously remunerated services, and under-invest in poorly remunerated services.”
The Inquiry identified FFS as the main driver of volume and cost inflation.
It said under FFS, the risk of escalating costs remains with the funder, because each additional cost (for example, volume, utilisation, length of stay, complexity of treatment, technology used, consumables) is billed to the funder. In response to escalating costs, funders may deny care, require pre-authorisation to limit exposure for new or expensive treatments, or pass on any additional costs to consumers.
Motsoaledi said FFS will be removed progressively. The NDoH has started the process in preparation for National Health Insurance by negotiating for capitation with doctors who will provide primary healthcare. Capitation is a payment model where providers receive a fixed amount of money for attending to a certain number of patients in a defined area.
Reason for the delay
The Competition Commission and the Department of Health said the Covid-19 pandemic is why the HMI’s recommendations are only being implemented now.
Doris Tshepe, the Commissioner of the Competition Commission, said the HMI’s report was finalised towards the end of 2019, and then the country was hit by Covid-19, and all the resources of the government, not just the Department of Health, went into dealing with it.
Motsoaledi added that the appointment of new ministers after last year’s election also delayed the work on implementing the recommendations.
