Melanie Da Costa Director – Strategy and Health Policy

South African review - Health policy and regulation

Health policy

Most nations, rich and poor, are facing the problem of per capita healthcare spending rising faster than per capita GDP. Consequently, expenditure on healthcare is absorbing an increasing share of government, employer and household incomes. This fiscal pressure is forcing nations to confront two fundamental issues: financing growing health burdens and containing the pressures of health expenditure growth.

To formulate appropriate policies to address these issues requires a sound understanding of the factors driving health spend.

Several common factors on the demand and supply sides have caused the rapid rise in healthcare costs globally¹. On the demand side, people’s heightened expectations and demands, as well as the HIV/Aids pandemic, are the principal causes. Widely accessible information about disease and treatments is fuelling greater awareness about health, and expectations are being raised about healthcare’s ability to treat and cure.

A recently published study by Newhouse et al (2009) expands on previous research into the drivers of healthcare spend between 1940 and 1990. This research concludes that the largest driver of increasing spend is attributed to income/affordability, with up to 43% of growth in real per capita health spending attributed to income growth.

Income is a critical factor in determining how much nations spend on medical care. It consistently accounts for around 90% of variation in real health spending across countries and time². Income growth will continue to drive healthcare’s increasing share of GDP in decades to come.

Burden of disease

To determine the extent and severity of a country’s burden of disease, the various causes of death are divided into broad categories:

Most middle income countries are faced with a “double disease” burden. As a nation’s economy matures, it develops additional knowledge and resources to address issues such as basic healthcare, clean water, sanitation, malnutrition and communicable diseases. As the incidence of infectious diseases and infant and maternal mortality decrease, middle and higher-income urban households increasingly suffer from chronic illnesses, while lower-income and rural households continue to suffer primarily from infectious diseases.

South Africa (SA), in particular, suffers from a “quadruple burden” of disease, given high levels of trauma due to traffic accidents and violence. Furthermore, the unusually large burden of the HIV/Aids pandemic was recognised by the South African National Burden of Disease study³ and was assessed separately.

back to top

The graphs below reflect the disability adjusted life years (DALYs) per 100 000 of the population. DALYs indicate the sum of years of potential life lost due to premature mortality and the years of productive life lost due to disability. At 2.6 times higher than developed countries and 1.8 times higher than the average in developing countries, SA’s burden of disease reflects a unique set of circumstances, highlighting complexity not experienced by most healthcare systems.

Regulation

The aim of providing universal healthcare coverage characterises the health reforms in many developed and developing countries, including SA. This is evident in the proposed National Health Insurance (NHI), which aims to expand healthcare coverage to the entire South African population.

Some of the NHI’s key features that have been made public include extending cover universally, providing a comprehensive benefit package, utilising a combination of public and private healthcare providers, and the creation of a publicly funded and administered National Health Insurance Authority (NHIA). A Green Paper providing details of the proposed plan has not yet been published.

The first concrete steps to establish the NHI were taken recently through the formation of a National Health Insurance Advisory Committee. The committee’s mandate is to “advise the Minister on the development of policy and legislation relating to the introduction of a National Health Insurance System”⁴.

Underlying the health reform debate are the issues of:

• Affordability;
• Price;
• Demand; and
• Capacity to deliver health services.

Affordability

The affordability constraints in SA are acute; 83% of South Africans (or 39 371 894⁵ people) live in households with income of less than R100 000 per annum.

Medical scheme coverage continues to track growth in formal employment; currently 80% of households that earn above R250 000 per annum have at least one person on medical aid. Low income medical schemes have struggled to gain traction with patient affordability constraints exacerbated by structurally low employment.

Formal employment trend versus medical scheme coverage trends

back to top

Higher levels of cross-subsidies across income groups are required to provide poorer people with health insurance. However, tolerance for higher taxes needs to be determined as the upper quintile (where most medical scheme members reside) currently contributes 82.3% of total health financing⁶.

According to Lighthouse Actuarial Consulting, families in the upper quintile paid R1 725 per family per month to the public health budget in 2006, against average medical scheme contributions of R1 655. Under the proposed NHI, an additional health payroll tax is being earmarked. If a payroll tax is effected, affluent South Africans may be paying for healthcare in triplicate in future. This could result in the pool of privately covered members contracting.

Price

Expenditure is a function of price and utilisation. The most effective way to address pricing concerns is through cost benchmarking of both public and private health services. However, the absolute and relative cost of delivery in both sectors remains unclear at this stage. It is imperative for the NHI to establish these costs, which would allow the NHI Authority to objectively assess pricing in the private and public sector.

The Reference Price List process, effected in 2008, provided an opportunity to establish pricing. However, the process has weaknesses. The healthcare sector would benefit from the process being redone and extended to the public sector.

Real per capita expenditure in the private versus public sector

back to top

Distribution of South Africans without private medical cover, by household income

The disparity between healthcare expenditure in the private and public sector is often proposed as a driver of health reform, in pursuing the goal of social solidarity. On the face of it, the real per capita expenditure on health in the private sector is between five to seven times more than in the public sector.

However, different commercial imperatives exist between the private and public sector that, when adjusted, dramatically reduce the health funding differential between the private and public sector. These include:

1. Levying VAT on private health products and services;
2. Medical scheme solvency requirements;
3. Public purchases of drugs and medical devices are based on tender and are cross-subsidised by prices paid by the private sector. This is further entrenched in the single exit price regulation that is only applicable to the private sector;
4. Higher vacancy rates and ongoing difficulties in filling posts reduce the cost of delivery in the public sector; and
5. Cost of capital and private investor return requirements.

Once the numbers are adjusted to ensure a like-for-like comparison, the private sector expenditure differential falls dramatically closer to two times that of public sector expenditure.

Real per capita health expenditure adjusted for VAT, medical scheme solvency, tender prices versus private sector input costs and differential vacancy rates

Demand

The South African NHI proposal proffers the concept of zero (no) co-payments, with all services covered under the benefit package of the NHI. This feature implies that access to healthcare will be free to all South Africans at the point of service. This can be compared to universal general insurance with no ‘excess’ payable on claims⁷. Taking current healthcare provision in SA as a starting point, a newly introduced comprehensive benefit package with zero co-payments is bound to result in a dramatic increase in the demand for the whole range of medical services.

Understanding the impact of market-wide changes in health insurance is crucial for analysing the optimal design of health systems. Market-wide changes in health insurance can fundamentally alter the nature and character of demand and medical practice.

Finkelstein (2005)⁸ examined the impact of market-wide changes in health insurance on the healthcare sector by studying the single largest change in health insurance coverage in the United States: the introduction of Medicare in 1965. He found robust evidence that Medicare’s introduction is associated with an increase in hospital utilisation, hospital spending and the adoption of hospital technology. Based on Finkelstein’s estimates, the overall spread of health insurance between 1950 and 1990 may explain at least 40% of the five-fold increase in real per capita health spending, and potentially far more.

This leads to the question of whether this research explains why most other Organisation for Economic Cooperation and Development (OECD) countries have also experienced sustained growth in the healthcare sector over the last half century (OECD 2004). It is interesting to note that, like the United States, many of these countries established their national health insurance systems in the 1960s and 1970s⁹.

Capacity to deliver health services

The potential exists for a substantial near-term stimulus for healthcare demand if coverage is expanded to the currently uninsured population. It is unlikely that the healthcare sector has the existing capacity to meet the country’s current and future healthcare needs.

Health professionals

With public sector health professional vacancy rates at 36%¹⁰ and private sector vacancy rates around 25%, it is unlikely that significant increases in access to health services will be achieved without a concomitant redesign of the delivery model, as opposed to only changing the funding model.

Too much focus is being placed on the distribution of health professionals between public and private sectors at the expense of the real issue – SA has a shortage of health professionals.

Nursing and midwifery per 10 000 population

Source: WHO, Persal and HASA.

In the NHI debate, the number of health professionals has only been based on the number of people with professional registrations, including the Health Professional Council of SA (HPCSA) and the Nursing Council. Using the number of professionals employed by the state, authors have assumed that the balance of health professionals work in the private sector. This assumption is inaccurate as many people with valid health registrations no longer work as health professionals or have emigrated. According to Persal, there were 105 000 nurses employed in the public sector in 2008, compared to the Nursing Council figure of 213 000. The difference of 108 000 nurses was incorrectly attributed to be working in the private sector, yet the correct number is closer to 35 000. The total for active nurses would therefore be closer to 140 000, not 213 000.

Number of nurses employed in the private sector

Inconsistencies in the number of doctors recorded on the databases of the HPCSA, All Media and Products Survey (AMPS)¹¹ and the Labour Force Survey are equally severe. According to Persal, there were 10 650 doctors employed in the public sector in 2008, compared to the HPCSA figure of 35 000. The difference of 24 350 doctors was incorrectly attributed to them working in the private sector, yet the correct number is closer to 12 475. The total number of active doctors is therefore closer to 20 000, as opposed to 35 000.

back to top

Number of doctors operating in the private sector

Hospital

The public sector manages approximately 82% of hospital beds in SA, with the remaining 18% privately owned. An expectation is being created that private hospital access for all South Africans can significantly alleviate the problems of access in our country. Recent analysis completed by Lighthouse Actuarial Consulting¹² concluded that the private sector has spare capacity to cater for an additional two to four million lives, considering the shortage of hospital beds and healthcare professionals. This remains a far cry from what is required to alleviate bottlenecks to access.

Conclusion

Notwithstanding the private sector’s ranking among the best health systems in the world¹³, SA ranks 175 out of191 countries in the World Health Organisation’s performance report. There is significant capacity for improvement, and areas of excellence in both the public and private sector can be leveraged.

In a resource constrained environment, the private sector is an essential partner in finding solutions to the healthcare maladies affecting our nation. Netcare stands ready to partner with government and the Department of Health to meet the critical challenges we face in broadening access to quality healthcare, and ensuring better outcomes. Through our substantial training of nurses and paramedics, our active involvement in Public Private Partnerships, servicing indigent patients through Netcare 911 and extending private healthcare to lower income groups through Prime Cure, Netcare is already demonstrating this commitment.

back to top