Prof Alex van den Heever
W its School of Governance
Alex.vandenhever@wits.ac.za
COMPETITION IN THE SOUTH
AFRICAN HEALTH SYSTEM
Source for Content
The contents of this presentation reflect a high level summary
of the analysis in a report provided to the Competition
Commission in 2012
http://www.compcom.co.za/assets/Healthcare-Inquiry/Reviewof-Competition-in-the-South-African-Health-System.pdf
What makes markets work?
• Basis for exchange
• Individuals produce products and are able to exchange them for
other products
• Consumers
• Understand the product (price/quality)
• Have a choice of alternatives
• Able to exercise choice
When do markets fail?
• Basis for exchange
• Individuals produce products and are unable to exchange them
for other products (absence of efficient systems of exchange –
money)
• Consumers
• Do not understand the product (price/quality)
• Have limited or no choice of alternatives
• Unable to exercise choice
How do consumers lose control of
demand?
• Product complexity
• Price and quality comparisons not possible in real time
• Market problems possible despite competition
• Market concentration
• Structural reduction in products choice
• National or geographic markets
• Market manipulation
• Collusion to exclude competition from the market
• Agreements between market participants, including the sharing of
information (e.g. prices/costs)
• Punishment for non-compliance
• Payment of kickbacks to intermediaries able to determine demand
(agents)
• Market segmentation
• Forcing consumers into market segments on the basis of their ability to pay
Correcting dysfunctional/failing markets
• Ensure an efficient basis for exchange
• Put consumers rather than product suppliers in control of
demand
• Effective market signalling
• Price
• Quality
• Product simplicity – remove need for advice
Correcting markets is more than just about price
What about efficiency?
• Allocative efficiency - static
• Technical efficiency - static
• Dynamic efficiency - innovation
ANALYSIS OF THE SOUTH
AFRICAN MARKET
Two key “products”
• Insurance
• Healthcare
• What about consumers?
• Don’t understand what they’re buying
• Don’t understand the pricing
• Have no idea about product quality
• Key strategic product purchases are channelled through
conflicted intermediaries
Health insurance unregulated
Financing and Risk Pooling
Brokers
Health insurance - regulated
3rd Party Administration
Holding companies
Diagnostic
Specialists
Consumer
Information
asymmetry
General
Practitioner
Surgical
Specialists
Hospitalbased and
substitute
services
Information
asymmetry
3rd Party Managed Care
Medicines and other medical
products and services
Health goods and services
Health insurance unregulated
Financing and Risk Pooling
Brokers
Health insurance - regulated
3rd Party Administration
3rd Party Managed Care
Diagnostic
Specialists
Consumer
Information
asymmetry
Gate keeper
Consumer agents
Possible conflicts of interest
Moral hazard
Anti-selection
Risk-selection
Commercial relationships
General
Practitioner
Surgical
Specialists
Hospitalbased and
substitute
services
Financial sector
holding companies
Information
asymmetry
Medicines and other medical
products and services
Health goods and services
WHAT’S IN THE CONTRACT
TODAY
Systemic Market-related Issues
What is internalised/externalised within contracts between
consumers and health insurers?
• Price
• Cost
• Quality
Regulated
Insurance
Unregulated
Insurance
What is internalised/externalised within contracts between insurers
and health care providers?
• Price
• Cost
• Quality
Regulated
Insurance
Unregulated
Insurance
Markets only compete on factors/signals that are transparent to relevant decisionmakers
Internalised into Insurance contract –
medical schemes
• Risk
Medium
• Price
Medium
• Quality of coverage
Medium
• Quality of health care services
Medium/Weak
• Quality of healthcare products
Medium/Weak
• Regulations prevent some risks from being transferred
arbitrarily back to consumers
Insurance contract – other
• Risk
Weak
• Price
Weak
• Quality of coverage
Very weak
• Quality of health care services
Very weak
• Quality of healthcare products
Very weak
Internalised into insurance contract with
HC service providers
• Derived from the contract between consumers and insurers
• Risk
Weak
• Price
Very weak
• Quality of coverage
n/a
• Quality of health care services
Weak
• Quality of healthcare products
Weak
MARKET OUTCOMES
scheme expenditure and GCI (2012
prices)
Source:
Council for Medical Schemes data from scheme audited financial statements 1990 –
2012 (adjusted for CPI)
100%
80%
60%
40%
20%
0%
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Percentage of total
claims expenditure
Changes in the structure of medical
schemes expenditure on benefits (19812012)
Year
General Practitioners
Source:
Specialists
Dentists
Hospitals
Medicines
Other
Council for Medical Schemes data from scheme audited financial statements 1981 2012
300.0
250.0
200.0
150.0
100.0
Point at which beds per 1,000 is roughly equal to the US and UK (noting
that they have vastly older populations)
50.0
Hosp claims
Beds/Pop
HHI (lag 1 yr)
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
0.0
1997
Index with 1997 = 100
Hospital claims (real pbpa) compared to beds
per 1,000 and market concentration (HHI) (for
private beds)
Changes in total beds in South Africa 1976
to 2010: public and private sector
140,000
120,000
100,000
80,000
60,000
40,000
20,000
Beds (pub)
Beds (prv)
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
0
Return on Capital Employed (Mediclinic
and Netcare)
Source: Anthony Felet, Duncan Lishman and Fatima Fiandeiro, “Do hospital mergers lead to healthy profits?”, 2012, p.11
Return on Capital Employed (Mediclinic
and Netcare) – 1997 - 2011
Source: Anthony Felet, Duncan Lishman and Fatima Fiandeiro, “Do hospital mergers lead to healthy
profits?”, 2012, p.11
Average age of Medical Schemes 2000 2013
Average age of beneficiaries
35
30
25
20
15
10
5
0
31.2 31.6 31.6 31.9 32.0 31.7 31.6 31.4 31.5 31.6 31.5 31.6 32.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Average age of beneficiaries
Sources:
CMS Annual Reports 2003-4, 2004-5, 2005-6, 2007-8, 2009-10, 2010-11, 2012-13
2001 to 2006
Real hospital cost (pbpa) changes from
2001 to 2006 (percentage) (includes
medicines)
0.0%
53.9%
Other causes
5.5%
5.4%
10.0%
Other
20.0%
30.0%
Nurse salaries
40.0%
50.0%
Age
60.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
Total Non-health
Source:
Administration
Council for Medical Schemes data from scheme audited
financial statements 1974 - 2010
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
Major deregulation
1974
Percentage of GCI
Non-health expenditure trends from 19742010: percentage of Gross Contribution
Income (GCI)
CONCLUDING REMARKS
• Ensure that health insurers have the incentive to purchase
efficiently
• Remove conflicts of interest in markets for advice
• Simplify and standardise products
• Market transparency on key indicators central to consumer choice
• Internalising price and quality into the contract
• Deal with regulatory arbitrage
• Ensure governance arrangements correctly locate the commercial
imperative in the scheme
• Ensure that insurer incentives cannot be undermined by
anti-competitive structures and conduct on the supply side
• Market transparency (price/cost/quality)
• Conflicts of interest
• Separate doctors from other products
• Accumulation and abuse of market power
• Market diversification
• Penalise abuse
• Collusion
THANK YOU