Deregulation in the South African
Optometry Industry
Marita Joubert
Mini research report
presented in partial fulfillment
of the requirements for the degree of
Masters of Business Administration
at the University of Stellenbosch
Supervisor: Prof. M. De Klerk
Degree of confidentiality:
A
December 2009
ii
DECLARATION
I certify the content of this proposal to be my own and original work and that all
sources have been accurately reported and acknowledged, and that this
document has not previously been submitted in its entirety or in part at any
educational establishment in order to obtain an academic qualification.
M. Joubert
17 July 2009
iii
ACKNOWLEDGEMENTS
I am grateful for all the support I have received during my research and writing of
this report. Thanks especially to Prof. Manie de Klerk, my supervisor, for his
patience and also for reading my draft copies and pointing me in the right
direction. I would also like to thank Christiane Von Arnim who has set up the
website and online questionnaire. Thanks also to Kerry Leask who has assisted
me with the statistical correlations.
iv
ABSTRACT
The South African health care industry is fragmented between the private and
public sector. The disparity of resources between the private and public sectors
as well as the escalating cost of health care services is threatening the
sustainability of the private health sector and interferes with the national health
policy objectives. Optometry shares the same concerns as the wider South
African health industry with regards to accessibility, affordability, quality and
equity of services.
Deregulation of optometry has been suggested to address these concerns to the
benefit of the consumer. But it seems to contradict the proposed higher
regulatory environment of the greater private health sector. The objective of the
research is to assess whether deregulation is the best way forward for the
optometry industry. It also intends to get a more diverse perspective from service
providers on the possible effects that deregulation might have on the industry.
The study is conducted in three phases. The first two phases involves secondary
data and includes an industry analysis and an assessment of the current
regulatory framework of the optometry industry. The international deregulation
trends in optometry are investigated as well as the deregulation trends of similar
industries in South Africa. The third phase of the research includes an online
questionnaire and approximately 2000 service providers were invited to
participate. The 229 responses was analysed to assess the overall perception of
deregulation.
The skewed distribution of optometrists between the private and public sectors
illustrates the need for more accessible and affordable eye care. Service
providers are reluctant to get involved in community service and are not
optimistic about the positive effect of deregulation. Professionalism and
v
profitability are feared to be negatively influenced while trends in deregulation
suggest that it is beneficial to consumers at least in the short term.
Alternative options to deregulation should be investigated. But until the optometry
industry increases their contribution to address industry issues, deregulation is
the best alternative to improve accessibility, affordability, quality and equity of
eye care services.
vi
OPSOMMING
Die Suid-Afrikaanse gesondheidsorg industrie is gefragmenteer tussen die
private en publieke sektor. Die verskil in verspreiding van hulpbronne tussen die
private
en
publieke
sektore
sowel
as
die
stygende
koste
van
gesondheidsorgdienste dreig die volhoubaarheid van die private sektor en
belemmer die doelwitte van die nasionale gesondheids beleid. Oogkunde deel
dieselfde bekommernisse as die groter Suid-Afrikaanse gesondheidsorg industrie
in terme van toeganglikheid, bekostigbaarheid, kwaliteit en gelykheid van
dienste.
Deregulasie van oogkunde is voorgestel om die kwessies aan te spreek tot
voordeel van die verbruiker. Maar dit lyk teenstrydig te wees met die
voorgestelde strenger regulasie van die groter private gesondheid sektor.
Die
doel van die navorsing is om te bepaal of deregulasie die beste weg vorentoe is
vir die oogkunde industrie. Dit beoog ook om ‘n meer diverse perspektief van
diensverskaffers te verkry rakende die moontlike effek wat deregulasie op die
industrie mag hê.
Die studie word gedoen in drie fases. Die eerste twee fases behels sekondêre
data en sluit ‘n industrie analise en ‘n assessering van die huidige regulatoriese
raamwerk van die industrie in. Die internasionale deregulasie neigings in
oogkunde word ondersoek sowel as die deregulasie neiging van soortgelyke
industrieë in Suid-Afrika. Die derde fase van die navorsing behels ‘n aanlyn
vraelys en ongeveer 2000 diensverskaffers is uitgenooi om deel te neem. Die
229 responsies is geanaliseer om die oorsigtelike persepsie van deregulasie te
bepaal.
Die skewe verspreiding van oogkundiges tussen die private en publieke sektore
illustreer die nodigheid van meer toegangklike en bekostigbare oogsorg.
Diensverskaffers is huiwerig om betrokke te raak by gemeenskapsdiens en is nie
vii
optimisties oor die positiewe effek van deregulasie nie. Daar word gevrees dat
professionalisme en winsgewendheid negatief beïnvloed sal word, terwyl
neigings in deregulasie wys dat dit tot voordeel van die verbruikers is, ten minste
in die korttermyn.
Alternatiewe opsies tot deregulasie moet ondersoek word. Maar totdat die
oogkunde industrie hulle bydrae verhoog om die kwessies van die industrie aan
te
spreek,
is
deregulasie
die
beste
alternatief
om
toeganglikheid,
bekostigbaarheid, kwaliteit en gelykheid van oogsorgdienste te verbeter.
viii
TABLE OF CONTENTS
DECLARATION............................................................................................................... ii
ACKNOWLEDGEMENTS............................................................................................... iii
ABSTRACT .................................................................................................................... iv
OPSOMMING ................................................................................................................ vi
TABLE OF CONTENTS ................................................................................................viii
LIST OF TABLES ........................................................................................................... xi
LIST OF FIGURES ........................................................................................................ xii
LIST OF APPENDICES .................................................................................................xiii
LIST OF ACRONYMS .................................................................................................. xiv
CHAPTER 1: INTRODUCTION AND STATEMENT OF PROBLEM ................................ 1
1.1. INTRODUCTION .............................................................................................. 1
1.2 STATEMENT OF PROBLEM ............................................................................. 2
1.3 PLAN OF STUDY .............................................................................................. 5
CHAPTER 2: LEGISLATIVE FRAMEWORK OF OPTOMETRY IN SOUTH AFRICA ...... 8
2.1 INTRODUCTION ............................................................................................... 8
2.2 THE LEGISLATIVE FRAMEWORK ................................................................... 9
2.2.1 The Constitution, National Health Act and the National Health Policy ............. 9
2.2.2 The Health Professions Council of South Africa ............................................ 12
2.2.3 The Medical Schemes Act No131of 1998 ..................................................... 14
2.2.4 The Medicine and Related Substance Control Amendment Act of 1997 ....... 15
2.2.5 The Competitions Act ................................................................................... 16
2.3 SUMMARY ...................................................................................................... 16
CHAPTER 3: DEREGULATION TRENDS..................................................................... 18
3.1 INTRODUCTION ............................................................................................. 18
3.2
INTERNATIONAL TRENDS OF DEREGULATION IN THE OPTICAL
INDUSTRY ............................................................................................................ 19
3.3 DEREGULATION OF THE SOUTH AFRICAN PHARMACY INDUSTRY ......... 22
3.4 SUMMARY ...................................................................................................... 23
ix
CHAPTER 4: THE SOUTH AFRICAN OPTOMETRY INDUSTRY LANDSCAPE .......... 25
4.1 INTRODUCTION ............................................................................................. 25
4.2 STAKEHOLDERS ........................................................................................... 25
4.2.1 Service providers .......................................................................................... 26
4.2.2 Financial providers........................................................................................ 28
4.2.3 Suppliers ...................................................................................................... 30
4.2.4 Professional business organizations ............................................................. 31
4.3 EXTERNAL MACRO FEATURES OF THE OPTICAL INDUSTRY................... 34
4.3.1 Economic features ........................................................................................ 34
4.3.2 Political factors ............................................................................................. 35
4.3.3 Demographic changes .................................................................................. 35
4.3.4 Technology ................................................................................................... 36
4.4 COMPETITIVE ENVIRONMENT ..................................................................... 37
4.5 DRIVING FORCES OF THE OPTOMETRY INDUSTRY.................................. 39
4.6 CONCLUSION................................................................................................. 40
CHAPTER 5: METHODOLOGY OF RESEARCH .......................................................... 41
5.1 INTRODUCTION ............................................................................................. 41
5.2 SAMPLE DESIGN ........................................................................................... 41
5.3 QUESTIONNAIRE ........................................................................................... 42
5.4 PILOT STUDIES .............................................................................................. 44
5.5 DATA PROCESSING ...................................................................................... 44
5.6 RESPONSE RATE .......................................................................................... 45
5.7 SUMMARY ...................................................................................................... 46
CHAPTER 6: RESULTS OF QUESTIONNAIRE............................................................ 48
6.1 INTRODUCTION ............................................................................................. 48
6.2 CHARACTERISTICS OF RESPONDENTS ..................................................... 48
6.3 TECHNOLOGY AND PROFESSIONALISM .................................................... 51
6.4 PROFESSIONAL FEE ..................................................................................... 52
6.5 ADVERTISING ................................................................................................ 54
6.6 PRICING ......................................................................................................... 55
6.7 SPECIALIZED SERVICE ................................................................................. 57
x
6.8 MEDICAL SCHEMES ...................................................................................... 58
6.9 SUPPLY OF OPTICAL PRODUCTS ............................................................... 60
6.10 COMMUNITY SERVICE ................................................................................ 60
6.11 OWNERSHIP ................................................................................................ 64
6.12 CORRELATIONS .......................................................................................... 66
6.13 SUMMARY .................................................................................................... 73
CHAPTER 7:CONCLUSIONS, RECOMMENDATIONS AND SHORTCOMINGS .......... 74
7.1 INTRODUCTION ............................................................................................. 74
7.2 CONCLUSIONS .............................................................................................. 74
7.2.1 South African Health Industry ....................................................................... 74
7.2.2 The OPtometry Industry ................................................................................ 75
7.3 RECOMMENDATIONS ................................................................................... 80
7.4 SHORTCOMMINGS OF STUDY ..................................................................... 82
7.4.1 Broad scope of optometry ............................................................................. 82
7.4.2 Lack of statistics ........................................................................................... 82
7.4.3 Expand questionnaire ................................................................................... 82
7.4.4 Comparable industries .................................................................................. 83
7.4.5 Areas for future research .............................................................................. 83
LIST OF SOURCES ...................................................................................................... 84
APPENDICES .............................................................................................................. 91
xi
LIST OF TABLES
Table 3.1
Summarized effects of deregulation in the United Kingdom
Table 4.1
Optometry posts in the public sector as at May 2007
Table 4.2
Number of suppliers per product group
Table 5.1
Categories of the questionnaire
Table 6.1
Distribution according to gender and profession
Table 6.2
Work experience in years
Table 6.3
Majority’s perspective on the possible effect of advertising
deregulation
Table 6.4
Majority’s perspective on the possible effect of price deregulation
Table 6.5
Number of respondents offering a specialized service
Table 6.6
Majority’s perspective on the possible effect of supply deregulation
Table 6.7
A list of criteria used to qualify clients for a low-cost option
Table 6.8
Community service and the percentage of practitioners involved
Table 6.9
Majority’s perspective on the possible effect of deregulation of
ownership
xii
LIST OF FIGURES
Figure 1.1
Distribution of the South African population between private and
public health sectors
Figure 4.1
Relationship between medical schemes, managed organizations,
service providers and scheme members
Figure 6.1
Number of responses (as % of total) per province
Figure 6.2
Distribution of practice type
Figure 6.3
Utilization of technology in practice
Figure 6.4
Proportion of respondents agreeing and disagreeing with the
statement ‘the current suggested professional fee is fair’.
Figure 6.5
Respondent’s suggested professional fee in Rand
Figure 6.6
Proportion of respondents agreeing and disagreeing with the
statement ‘current advertising regulations are too strict’
Figure 6.7
Proportion of respondents agreeing and disagreeing with the
statement ‘NHRPL guideline tariffs are fair’.
Figure 6.8
Distribution of clients that use medical scheme optical benefit
Figure 6.9
Size of business that comprises low-cost packages
Figure 6.10 Distribution of time (in %) dedicated to community service
Figure 6.11 Proportion of respondents agreeing and disagreeing with the
statement ‘deregulation is in the best interest of service providers’.
Figure 6.12 Proportion of respondents agreeing and disagreeing with the
statement ‘deregulation is in the best interest of consumers’.
xiii
LIST OF APPENDICES
Appendix A
Cover letter of the questionnaire
Appendix B
Questionnaire
Appendix C
Output of statistical significance tests
xiv
LIST OF ACRONYMS
ANC
African National Congress
ANHP
Annual National Health Plan
BBEEE
Broad based Black Economic Empowerment and Equity
BHF
Board of Healthcare Funders
CAO
Canadian Association of Optometrists
CPD
Continuing Professional Development
CMS
Council of Medical Schemes
DOH
Department of Health
DVN
Dynamic Vision Network
GDP
Gross Domestic Product
HPCSA
Health Professions Council of South Africa
NGO
Non-government Organization
NHC
National Health Council
NHRPL
National Health Reference Price List
NHI
National Health Insurance
PBO
Professional Board of Optometry and Dispensing Opticians
PPI
Private-Public Interaction
PPN
Preferred Provider Network
SAHR
South African Health Review
SAOA
South African Optometric Association
SARB
South African Reserve Bank
WCO
World Council of Optometry
1
CHAPTER 1
INTRODUCTION AND STATEMENT OF PROBLEM
1.1. INTRODUCTION
A free market economy is the ideal economic system with perfect balance
between products or services supplied and the demand thereof. In any given
industry certain factors can cause imperfections in the market in such a way that
this supply-demand equilibrium is distorted and the market subsequently fail.
When markets fail government involvement is often necessary to direct the
market towards higher competition and lower prices to restore the equilibrium.
Privatization and market liberalization are two methods of promoting a more
efficient free market (Doyle, 2005: 228). Market liberalization is a process where
the regulations imposed by the government are adjusted to be less restrictive or
totally removed. The primary motivation for this deregulation is the protection of
consumer interest i.e. to protect the consumer from any undesirable business
practices. Regulatory policies aim to increase market efficiency by restoring the
market equilibrium. The basic law of supply and demand explains that higher
levels of competition in a deregulated environment will ultimately result in lower
prices.
Deregulation has become very topical over the last few years globally and across
various industries. Internationally, market pressure promotes deregulation due to
the increase in consumer benefit which can be gained through more competition
in a free market system (Goulet, 2002: 10). In South Africa deregulation has
been
applied
to
various
industries
including
telecommunication and also the pharmacy industry.
airline,
agriculture,
2
The optometry industry of South Africa is currently regulated with regards to
ownership and advertising while prices, although not regulated, are guided by the
National Health Reference Price List (NHRPL). These government interventions
cause market imperfections by constraining competition. The optometry
industries of various countries including the United States of America, Australia,
New Zealand, United Kingdom and a few European countries, have gone
through a process of deregulating certain aspects of the industry. The main focus
of these deregulations was on ownership and advertising.
A change in the current regulations of the optometry industry in South Africa is
probably inevitable. Arguably a change is indeed necessary to accommodate a
new structure considering the following:
1. the concerns regarding the wider South African health care system
2. the changes in the pharmacy industry in terms of deregulation
3. the way the optometry industry in South Africa has changed from a
service-focused industry to an industry with an increased focus on the
retail aspect
1.2 STATEMENT OF PROBLEM
The World Council of Optometry (WCO, 2008) estimated that approximately 250
million people around the world are blind or visually impaired as a result of not
having access to visual health care. The lack of quality health care services to
the majority of the population is also a major concern in the wider health care
industry of South Africa as a developing country. Optometry as a health
profession regulated under the Health Professions Council shares the same
concerns.
The optometry industry in South Africa is primarily driven by medical schemes as
the majority of practitioners operate within the private sector. The number of
beneficiaries of medical schemes are approximately 7.4 million (CMS, 2007: 62)
3
or approximately 15% of the total estimated population of South Africa of 47.9
million (STATSSA, 2008).
7.4 million beneficiaries
of medical schemes
→ 2527 optom etrists
15%
85%
40.8 million people not
covered by medical
schemes
→ 59 optom etrists
Figure 1.1 Distribution of the South African population between private and
public health sectors.
According to the Health Professions Council of South Africa (HPCSA) 109
optometry posts were available in the public sector as at May 2007 in six
provinces, while only 59 were filled (HPCSA, 2007). This implies that with 2586
optometry professionals currently registered with the HPCSA (HPCSA, 2008)
only 2% of them are responsible for the visual health care of approximately 40
million people that are not covered by a medical scheme and that are dependent
on public health care services.
The escalating cost of health care in the private sector as well as the increasing
expenditure by medical schemes on paying claims is challenging the
sustainability of medical schemes. A private health care indaba was held on 21
September 2007 on the increasing cost of health care in South Africa.
Submissions by almost all stakeholders indicated that self regulation in the
4
private sector has not worked and that government intervention is necessary to
strengthen the current regulations and legislative framework (BHF, 2007).
In the optometry industry of South Africa, deregulation of ownership is currently
the most relevant topic of discussion. Legal action has been initiated by two of
the major competitors – Specsavers and Torga Optical Pty(Ltd) – challenging the
current regulations with specific focus on ownership as well as the franchise
model as an accepted business model for optometric practices. Torga Optical
has since withdrawn from the legal debate around the business model, but is still
challenging the HPCSA to deregulate ownership. Although ownership is currently
the main focus, regulatory intervention could also be applied to the other areas in
the industry i.e. pricing, advertising and the supply of optical goods.
The main motivator for deregulation is to enhance consumer benefit when
barriers to enter this market are removed and higher levels of competition can
drive prices down. Higher levels of competition together with less restricted
advertising ideally will lead to better variety and choice for consumers.
Arguments for deregulation are supported by the retail chains and are evident in
the legal action taken by Torga Optical.
On the other hand, professional bodies have concerns about the possible
compromise on professionalism that can be caused by deregulation. Higher
competition following deregulation could impact the reduction of cost to the point
that quality of the professional service as well as of the products may be
compromised. Deregulation of the supply of e.g. readymade spectacles without
prescription or contact lenses without prescription could impact the demand for
visual examinations negatively. Smaller independent optometry practices might
be at higher risk for having to compete with larger companies on advertising cost
and on their benefit of economies of scale.
5
The same division of the major parties involved was also seen pre-deregulation
in the UK market where competition authorities and retailers supported the notion
of deregulation while the professional bodies of optometry opposed (Davies et al,
2004: 25). Ultimately any decision on the regulations and legislative framework
should not only consider the benefit to consumers but should be to the benefit of
all stakeholders involved.
Considering the concerns of the wider South African health care system one
could ask whether deregulation of the optometry industry is the best way forward
for the industry and/or consumers. Will deregulation of optometry have the
desired effect to address the key issues of access, affordability, equity and
quality as set out in the national health policy by increasing competition within the
industry and subsequently increase the efficiency of the industry? And if
deregulation is the way forward, where does the deregulation fits in the proposed
higher regulated private health sector environment?
1.3 PLAN OF STUDY
One objective of this research report is to assess the current regulations in order
to determine whether deregulation of the industry is the best way forward to
embrace the abovementioned changes in the context of the wider South African
health care industry. The current regulations are restrictive in some aspects but
they were right for the industry at the time of implementation. In order to justify
either total deregulation or just a better regulatory system, the changes in the
industry need to be considered.
Furthermore the study will look at trends regarding deregulation. This will include
international trends of deregulation of the optometry industries in the UK,
Canada, Australia and New Zealand as well as the pharmaceutical industry of
South Africa. This will hopefully highlight strengths and weaknesses in an effort
to avoid a trial and error method for South Africa.
6
The study also intends to get a more diverse perspective on the proposed
deregulation. The input from all types of practice owners (franchise groups,
partnership and independent practices) is crucial in the assessment of a
regulatory framework because ideally any regulation should also be to the benefit
of all providers. In anticipation of any possible industry change it is in the best
interest of all stakeholders to know exactly what the current position of the
industry is. A brief industry analysis will provide the relevant information.
Lastly the research will aim to provide some recommendations and suggestions
as to a possible framework for a more efficient regulatory system for the
optometry industry of South Africa.
A combination of primary and secondary data will be used to conduct the
research. The proposed research will be approached in three phases:
Phase 1
The initial phase of the study will focus on the assessment of the current
optometry industry in South Africa in an effort to understand the different
stakeholders and factors that could be affected by a process of deregulation.
This phase will focus on the current legislation regarding regulatory policies. The
information will be obtained from the SAOA, the HPCSA, the Constitution of the
Professional Board of Optometry and Dispensing Opticians as well as national
legislation in terms of the National Health policy, the Health Professions Act and
the Competitions Act.
Phase 2
The second phase of the study will also involve secondary data. The effect of
deregulation on the industry will be investigated. This will be approached by
looking at the international models of the UK, Australia and New Zealand where
deregulation has been applied to optometry. Due to the fundamental differences
7
in health care systems between that of South Africa and that of first world
countries it is also important to relate it to a comparable industry in South Africa.
Therefore this second phase will also look at the pharmacy model of deregulation
which has been implemented in 2003.
Phase 3
In the third phase primary data will be gathered by having service providers that
represents the different forms of practices complete a questionnaire. The goal of
this questionnaire is to assess the overall perception of the effect of deregulation
and whether the views of the franchise groups are shared among the rest of the
service providers.
The results of the review of literature available on this topic as well as of the new
information obtained will be used to assess the current situation with regards to
legislation and the effects of deregulation of the optometry industry.
8
CHAPTER 2
THE LEGISLATIVE FRAMEWORK OF OPTOMETRY IN SOUTH
AFRICA
2.1 INTRODUCTION
The literature reviewed for this report cover three main areas relevant to the
deregulation of optometry in South Africa. These areas include:
1. Legislation significant to optometry in South Africa
2. International trends regarding deregulation in the optometry industry of the
following countries: the United Kingdom, Canada, Australia, New Zealand
and also the United States of America
3. Deregulation in the pharmacy industry of South Africa
This chapter will focus on the legislation relevant to the optometry industry. A
number of acts as well as regulations associated with these acts set the
legislative environment within which the optometry industry operates under the
national health care services. These acts include:
-
The National Health Act No 61 of 2003
-
The Health Professions Act No 56 of 1974
-
The Medical Schemes Act No 131 of 1998
-
The Medicines and Related Substances Control Act No 101 of 1965 and
the amendment act No 90 of 1997
-
The Competitions Act No 39 of 2000
Deregulation certainly challenges the relevance of some of these legislations, but
it is equally important to consider the relevance of deregulation firstly in the wider
South African health care system and secondly in the South African economic
system by looking at the objectives of the national health policy and the
competition laws respectively.
9
2.2 THE LEGISLATIVE FRAMEWORK
2.2.1 The Constitution, National Health Act and the National Health Policy
The primary purpose of the National Health Act is to “provide a framework for a
structured uniform health system within the Republic, taking into account the
obligations imposed by the Constitution and other laws…with regard to health
services…” (RSA, 2003: 2). The Constitution of the Republic of South Africa
(RSA, 1996) provides a foundation for health care services in section 27(1) (a) to
progressively realize the right of the people of South Africa to have access to
health services. This also applies to optometry as a health profession in the
“uniform health system” of South Africa.
The Constitution of South Africa mandate the government in section 27 (2) to
ensure the right of access to health care: “the state must take reasonable
legislative and other measures, within its available resources, to achieve the
progressive realization of the right of the people of South Africa to have access to
health care services” (RSA, 1996).
This responsibility is emphasized in the
National Health Act section 41(e) where the Minister of Health is mandated to
“prioritize the health services that the state can provide taking into consideration
health needs and resources available” and to “prescribe mechanisms” to achieve
the Act’s goal of a coordinated relationship between the private and public health
care sectors (RSA, 2003: 48).
The BHF (2007) concluded at the Private Healthcare Indaba that government
intervention is necessary in the transformation of regulations relating to the
private health sector to create certainty and stability as self regulation in the
private sector has been proved to be inefficient.
The SAHR (2007) presented four reasons why the private health sector needs to
be regulated:
10
a) The health care market does not always react to a more efficient
competitive market as traditional economics expect. The possibility of an
oligopoly can contribute to spiraling cost in the private sector
b) The human resource shortage in the public sector needs to be addressed
by integrating the distribution between the public and private sector
c) The current private health sector is not sustainable given the rate of
escalation of costs
d) The current status of the private health sector is contributing to the
inequity of access to health care by focusing on socio-economic status as
a deciding factor for the level of access to health care.
Since the implementation of the National Health Act of 2003, an Annual National
Health Plan (ANHP) submitted to the National Health Council (NHC) is a legal
requirement of the Health Act and the first annual health plan was produced for
2006/2007 with the vision of an “accessible, caring and high quality health
system” (ANHP, 2007: 5). The NHC adopted a 10 point strategic plan for the
term of office of government from 2004 to 2009. These strategies include:
-
Improve governance and management of the NHC
-
Promote healthy lifestyles
-
Contribute towards human dignity by improving quality of care
-
Improve management of communicable diseases and non-communicable
illnesses
-
Strengthen primary health care
-
Strengthen support services
-
Strengthen human resource planning, development and management
-
Strengthen planning, budgeting and monitoring and evaluation
-
Prepare and implement legislation
-
Strengthen international relations (ANHP, 2007: 6)
11
Furthermore five key priorities were identified to accelerate during the period
2006-2009 which coincides with the term of office of the government:
-
Development of service transformation plans
-
Strengthening of human resources
-
Strengthening physical infrastructure
-
Improving of quality of care
-
Strengthening strategic health programmes (ANHP, 2007: 6)
The national health plan created by the ANC (1994: 2,3) recognized the need for
the health care system of South Africa to be more accessible and equitable
across the different socio-economic groups in South Africa and that it is the
responsibility of the government to achieve these goals and to promote health.
The health plan also emphasized the need for transformation of the health care
system in South Africa, which is fragmented between the private sector, mainly
accessible to members of medical schemes and the public sector for those not
on medical schemes, to eliminate the inequity of health care due to past policies.
Various changes in policies have been to the benefit of the greater South African
population, but Rispel and Setswe (2007: 4) concluded that the inequity between
the public and private sector is still a progressive concern.
A national Health charter was initiated by the minister of health to address the
inequities between the private and public health sectors. The Health Charter
finalized in 2005 identified the following four key areas in the transformation of
the health sector to increase sustainability through an increase in efficiency:
-
Access to health services
-
Equity in health services
-
Quality of health service
-
Black economic empowerment (RSA, 2005: 1)
Improvement in these four key areas is dependent on a more efficient health
system. A more equitable distribution of human resources and also financial
12
resources is vital to the creation of a sustainable health system in South Africa
(RSA, 2005: 4). In 2006 just over R100 billion were spent on health care in South
Africa, equal to 7.7% of Gross Domestic Product (McIntyre and Thiede, 2007: 37)
although this figure doesn’t portray the skewed distribution of funds between the
private and public health sectors. According to McIntyre and Thiede (2007: 36)
only approximately 40% of this total was spent in the public health sector while
approximately 60% were spent in the private health sector. Private-public
initiatives (PPI) are one way of achieving better sharing of financial resources
between the public and private sectors to the benefit of the greater population
(Shuping and Kabane, 2007: 152).
2.2.2 The Health Professions Council of South Africa
The optometry industry of South Africa is currently regulated under the HPCSA.
Any person wishing to practice optometry has to be registered with the HPCSA
according to section 17 of the Health Professions Act (RSA, 1974: 15). The
HPCSA is constituted under the Health Professions Act No.56 of 1974 and they
are committed to the promotion of health among the South African population,
determining the standards of professional training and the setting and
maintenance of fair standards of professional practice (HPCSA, 2008). The
Professional Board of Optometry and Dispensing Opticians (PBO) together with
eleven other boards of health professions fall under the HPCSA under
Regulation No.R1063 of 28 July 2003 (HPCSA, 2008) and share most of the
objectives of the HPCSA. According to section 15 (a) of the Health Professions
Act (RSA, 1974: 14) the PBO is also responsible to “guide the profession and to
protect the public”. The PBO regulates among others acceptable business
model, advertising, ownership and pricing.
13
a) Business model
In a policy document on undesirable practices the HPCSA acknowledged that the
business practices in the health care sector had to be reviewed in light of the
socio-economic changes in South Africa to protect the consumer (HPCSA, 2005:
3).
The validity of a franchise as a business model for health care practitioners has
been questioned by the HPCSA in 2003 (SAOA, 2006) with the reason being that
franchise fees as a percentage of turnover could be a negative incentive to overservice customers (HPCSA, 2005: 9). Brown (2003) maintains that the franchise
structure is in line with international trends. Legal action has been initiated by two
major franchising groups, Torga Optical and Specsavers, regarding franchise
agreements. Their main argument was the anti-competitiveness and the
disadvantage to consumers where large companies can offer less expensive
prices due to buying power and lower operating costs (Benjamin, 2004). Their
final submission was initially rejected by the HPCSA’s committee on Undesirable
Business Practices due to conflict between the franchise model and the ethical
rules of the HPCSA. In 2008 the franchise model was accepted as a legal
business model.
b) Ownership
A clear distinction is made between corporate ownership which is unacceptable
and corporate involvement which is allowable on certain conditions (HPCSA,
2005: 4).
Currently an optometric practice can only be owned by a registered member of
the PBO, i.e. only optometrists or dispensing opticians. The Health Profession
Act also prohibits profit sharing with any non-registered person. As far back as
1993 political accusations have been made that ownership regulations protect
the interest of the profession at the expense of the consumer (Frey, 1993). The
same regulations still hold after 14 years. According to normal economic trends,
14
deregulation should increase competition and subsequently increase market
efficiency. New players can take advantage of the current inefficient market
(Buchanan, 2007: 15). The obvious outcome is lower price to the benefit of
consumers.
c) Pricing
Pricing of goods and services supplied by health professions is guided but not
regulated by the National Health Reference Pricelist (NHRPL) although the
National Health Act (RSA, 2003: 45) empowers the HPCSA in section 50 (3) to
make determinations on the fees of service providers. The NHRPL was first
published in 2004 by the Council of Medical Schemes (CMS) to assist medical
schemes to set benefits and reimbursements to providers. The South African
Medical Association stopped the publishing of this reference list in 2007 and the
HPCSA’s tariffs were used as a guideline. The BHF felt that the absence of such
a list may cause fees to spiral and hamper the government’s efforts to increase
affordability of and access to private health care and was also concerned that the
HPCSA’s tariffs was on average 300 per cent higher than the NHRPL (BHF,
2007).
The Department of Health (DOH) has since taken the responsibility and invited
provider groups to forward submissions on the reference price list for 2009. Of 48
submissions received, only 11 – of which optometry was one - were compliant
with the necessary regulations (Du Preez, 2008). These submissions will be
reviewed to determine the NHRPL for 2009
2.2.3 The Medical Schemes Act No131of 1998
Although not directly related to the optometry legislation in South Africa, the
Medical Schemes Act is important when looking at the regulatory framework. The
services and goods provided by the optometry industry in South Africa are
primarily funded by medical schemes, making medical schemes a major
15
stakeholder in the optometry industry. Medical schemes are highly regulated
under the Medical Schemes Act of 1998 which came into effect in 2000. This Act
regulates the application and registration of medical schemes, the rules and
benefit options of the schemes as well as financial matters including auditing and
annual financial statements.
The Council of Medical Schemes (CMS) is a statutory body constituted under the
Medical Schemes Act. They do not only control and coordinate the functioning of
medical schemes in such a way as to protect the interest of medical scheme
members and to ensure that medical schemes functioning comply with the
National Health Policy but the Council can also make recommendations to the
minister of health (RSA, 1998: 8).
2.2.4 The Medicine and Related Substance Control Amendment Act of 1997
The Medicine and Related Substance Control Act of 1965 was amended in 1997
(RSA, 1997). This act forms part of the legislative framework of the optometry
industry of South Africa since the practice of optometry includes the diagnosis
and management of eye conditions as per definition by the WCO.
In section 22 of this act (RSA, 1997: 14-22) the control of medicines and
scheduled substances provide specified conditions on which medicines may be
sold. Schedule 0 medicines may be stocked and sold in any open shop
(Section22A (3)). Schedule 1 medicine may only be sold by a person who is
registered with the HPCSA and is the holder of a license (Section 22A (4a (v))
while any schedule 2, 3, 4, 5 and 6 medicine can only be sold on prescription by
an authorized prescriber and must include the comprehensive recording of al
particulars of the medicine (Section 22A (5 and 6)).
16
2.2.5 The Competitions Act
The objective of the Competitions Act No. 39 (RSA, 2000: 11) which was
implemented in 2001 is to ensure a healthy competitive environment that will
benefit the economy of South Africa and will provide South African consumers
with markets where there are competitive prices and a choice of quality and
variety of products and services. The Competitions Act prohibits any agreement
between parties, whether in a horizontal relationship between competitors or a
vertical relationship between a company and its suppliers and/or consumers,
which could lead to competition being substantially prevented or lessened (RSA,
2000: 14).
The Competition Commission is an independent statutory body established to
implement, investigate and direct restrictive business practices in order to
enhance the efficiency of the South African economy. The BHF however feels
that the Competitions Commission was unable to standardize fees and to make
recommendations regarding benefits (BHF, 2007).
Buchanan (2007) also argues that regulations on advertising in the industry are
in violation of fair practice. This issue has been referred to the Competition
Commission for investigation. The SAOA recognizes that the enforcement of
these regulations is not being done consistently by the HPCSA, to the detriment
of independent practices (Rosen, 2003). With an increased focus on the retail
aspect of the business, advertising regulations need to be revised, but Rosen
(2003) feels that it will lead to a compromise between the service aspect and the
free market retail aspect.
2.3 SUMMARY
The South African health care system is a complex industry facing major
challenges on a few aspects including access, affordability, quality and equity.
The Ministry of Health is obligated to take responsibility of the entire health care
17
system in South Africa and that includes the public as well as the private health
sectors.
One of the most relevant challenges of the South African health care system is
the distortion between the public and the private sector. This distortion is evident
in the skewed distribution of both human and financial resources between the
two sectors. Various reports on the challenges in the South African health system
over the past two years have recognized the need for government intervention in
the private health sector to overcome the inequities created by the current lack of
regulation. The current status of the private health sector is not contributing to the
National Health Plan’s objectives of equal, affordable access to health care for
the entire South African population.
The optical industry of South Africa is operating primarily in the private health
sector and is functioning in a fairly highly regulated environment. Not only are the
majority of entities of the optometry industry (ownership, advertising and supply
of optical goods) regulated, but also the wider health care environment under the
national health legislation, the South African economy under the anti-competitive
regulations and also major stakeholders such as the medical schemes.
From the review of literature it is evident that there are mainly two views
expressed in the available information. On the one hand it is arguments from the
initiators of the legal action - the franchised group practices - which clearly have
a vested interest in deregulation because of the current franchise fee structure
and on the other hand the view from the SAOA which is protecting the optometry
profession.
18
CHAPTER 3
DEREGULATION TRENDS
3.1 INTRODUCTION
Globalization, advanced technology and the development of financial markets
changed the traditional perspective on competition within industries (Doyle,
2005). Higher competition in a liberalized market encouraged deregulation to
remove barriers to a free market. This process occurred across the United States
during the 1970’s and across Europe during the 1980’s. In South Africa the
process of reducing anti-competitive practices is more recent with the
deregulation of the airline and telecommunications industries among others.
During the 1970’s, optical markets in the United States of America developed an
increased focus on retail and deregulation followed. The same trend can be seen
in Europe during the 1980’s and Australia during the 1990’s. The United
Kingdom, Canada, Australia and New Zealand are some of the countries where
the retail optical industries were deregulated with apparent success in some
aspects.
The optical industry in the United Kingdom was deregulated in 1984 when
restrictions on advertising and entry into the market were removed. A report by
Davies et al. (2004) analyzes the benefits from competition by using six UK
cases of which the retail optical market is one. This report is significant because
it considers the short term and long term effects of this twenty year old policy.
Ownership and pricing are two aspects in the South African pharmacy industry
where regulations were changed recently. In 2003 restrictions on entry into the
retail pharmacy industry in South Africa were removed by the deregulation of
ownership. Pricing regulations on medicines have also gone through a process of
19
transformation since 2002. Although these are recent policy changes, assessing
the short term effects can provide valuable information for decision makers of the
regulatory aspects in the optical industry of South Africa.
Trends in the international optometry markets as well as trends in the national
health care system can provide useful information as to the possible effects that
deregulation of optometry in South Africa might have, not only on the optometry
industry itself, but also on the wider South African health care industry.
3.2 INTERNATIONAL TRENDS OF DEREGULATION IN THE OPTICAL
INDUSTRY
Various countries have already loosened regulations relating to advertising and
ownership on their optical industries since the 1970’s. This deregulation follows
the change in the optical industry where the industry developed from a servicefocused market to a market with an increased focus on retail. For the purpose of
this report the following countries will be considered as examples: the United
Kingdom, Australia where each of the seven territories have their own
independent set of regulations, New Zealand and also Canada.
In Australia, ownership is not regulated in Western Australia, Australian Capital
Territory and the Northern Territory while deregulation of ownership was
implemented as early as 1930 in the Optometry Act of New South Wales when
lay person ownership was allowed for certain optometric practices (South
Australia, 1996).
In Victoria the legislation was transformed in 1996 with the deregulation of anticompetitive laws (OPSM, 2004: 3). Seven years after this deregulation the
legislation was reviewed again and the question asked whether to regulate
ownership. OPSM Group Ltd, the largest commercial optical retailer group in
Victoria noted that the current legislation was sufficient and that the effect of the
20
deregulation was positive on the optical market with higher competition and no
evidence of the feared lower professional standards (OPSM, 2004: 3) while
deregulation was found to have had a negative impact on the number of
competitors, changing from six to one (New South Wales, 2004).
Higher levels of employment following the deregulation in Victoria are consistent
with most countries where deregulation was implemented. On the contrary,
Neville (1996: 321) noted that unemployment among optometrists and
dispensing opticians in Australia increased after deregulation.
According to Park (2005) the general accepted view in the UK on deregulation is
positive with more job opportunities and job creation after deregulation. The
expected outcome of deregulation in the UK was higher competition with
subsequent lower prices and better quality. Davies et al (2004: 39) noted in a
report on the effect of deregulation on competition in the retail optical market that
the available information is inconclusive on whether price and quality was
positively affected by deregulation.
The market structure in the UK changed after deregulation and it opened the field
for more players but at the same time it became more concentrated due to the
increased importance of location and well-known brands (Davies et al, 2004:28).
Davies et al (2004: 35) also report that of the arguments against deregulation of
possible lower professional standards and fewer visual examinations, only fewer
eye tests materialized.
All of the examples considered have partial deregulation of the supply of optical
goods. Ready-made reading glasses for presbyopia are available as long as it is
supplied together with a warning that regular visual examinations is still
necessary for the detection of ocular pathology. In Canada the supply of such
ready-made spectacles for presbyopia or simple hyperopia and myopia is not
21
approved although it is available and they also favour licensed products rather
than products direct from suppliers (CAO, 1992).
Advertising have been deregulated in most countries to increase competition and
to allow service providers to compete more efficiently in the retail market. There
are however still restrictions on advertising to protect consumers from misleading
advertisements and advertisements that may encourage over servicing (South
Australia, 1996). In Canada, advertising is regulated although they do allow the
advertising of prices as long as the advertisement is comprehensive and clear
(CAO, 1992). Immediately following deregulation of advertising in the UK, prices
lowered due to the increased price competition caused by promotions, however,
20 years later prices increased sharply.
Table 3.1 Summarized effects of deregulation in the United Kingdom.
Source: Davies et al., 2004
Price Effect
Short run: None
Long run: perhaps rising
Entry and effects on market
structure
Major entry, but market more
concentrated
Other beneficial effects
Perhaps improved quality and
choice
Harmful feared effects
Lower professional standards, fewer
eye tests
Harmful materialized effects
Fewer eye tests
22
3.3 DEREGULATION OF THE SOUTH AFRICAN PHARMACY INDUSTRY
The transformation of the South African pharmaceutical industry started in 2002
with the banning of sampling. Since then pricing regulations were implemented to
make pricing in the industry more transparent in an attempt to reduce the
expenditure on medicines. The regulations to date as presented by the
pharmaceutical sector at the Private Health Indaba in 2007 includes the
mandatory generic substitution, removal of bonuses, rebates and discounts, the
introduction of single exit pricing and the capping of price increases. This has
resulted in no price increases between 2003 and 2006 although pharmacists are
still challenged by the lack of transparency in the pricing of medicines as well as
the perverse incentive schemes still present in the market (DOH, 2007).
Retail group Clicks was a major new entrant in the pharmacy industry in 2004
following deregulation and is the leading corporate retail pharmacy with 125 instore dispensaries. Recently other retail groups such as Checkers and Pick ‘n
Pay has also entered the market by opening in-store pharmacies. The corporate
pharmacy has grown to a 22% market share in South Africa in the four years
after deregulation and compared to international levels there is still opportunity
for growth (Kneale, 2008).
Following the deregulation of ownership of pharmacies in 2003 there was a lack
of confidence in the future of the pharmacist. Despite this negativity there are still
a regular number of pharmacies being registered each year. 162 new licenses
were issued in the period between February 2006 and January 2007 with the
majority of theses licenses being for independently owned pharmacies and not
for corporate pharmacies (DOH, 2007).
According to Skinner (2006: 16) a powerful argument for the deregulation of
ownership is evident in the pharmacy industry model where lay ownership
improves access of services in less developed areas while the pharmaceutical
sector recognized the over servicing in urban areas and the lack of human
23
resources in the public sector (DOH, 2007). The positive trend in the issue of
new licenses also contributes to the accessibility and affordability of health care
in South Africa (DOH, 2007).
Vertical integration in the pharmacy industry between manufacturers and
distributors and also between retailers and distributions could benefit all
stakeholders by improving quality and efficiency of supply chain management. It
could however encourage perverse incentives and constitute anti-competitive
practices prohibited by the Competitions Act.
Although the regulatory transformation of the pharmacy industry provides
significant insights in the possible effect of similar changes in the optometry
industry there is a key difference between the two industries that needs to be
acknowledged. The pharmacy profession is not constituted under the Health
Professions Act while the optometry profession is and therefore bound by the
regulations of the HPCSA.
3.4 SUMMARY
External factors such as globalization, advanced technology and regulatory
policies drive markets towards a liberalized free market economy. These factors
also affect the optical industry and internationally deregulation is the accepted
trend in the optical industry. The short term effects of deregulation is almost
always the same – higher competition, lower prices, greater choice to consumers
– although the long term effect in some cases have proven to be neither
beneficial nor harmful to the industry or consumers.
The deregulation of the pharmacy industry is in general positively viewed as
contributing to the increased access and affordability of health care in South
24
Africa although the sustainability of the community pharmacist has been
questioned.
The next chapter includes an industry analysis of the optometry industry in South
Africa. This will provide a snapshot of the current standing of the industry.
25
CHAPTER 4
THE SOUTH AFRICAN OPTOMETRY INDUSTRY LANDSCAPE
4.1 INTRODUCTION
The South African optometry industry involves both a professional service
provision as well as the supply of products on a retail level. The emergence of
optometry as a retail industry makes this industry a unique one.
In anticipation of possible industry changes, such as deregulation, it is in the best
interest of all stakeholders to know exactly what the current industry position is.
An analysis of the industry landscape including the relevant factors at a macro
level, the competitive environment, the regulatory environment and also the
driving forces behind the industry provides the necessary framework to evaluate
the industry’s current situation.
Thompson et al (2007: 52, 53) describes an analytical framework for assessing
the external environment by analyzing the immediate industry and competitive
environment as well as the macro-environment. This framework will be used as a
guideline to perform the industry analysis of the South African optometry
industry.
4.2 STAKEHOLDERS
Apart from customers, the various stakeholders in the optometry industry can be
broadly categorized in four groups:
-
Service providers
-
Funders
-
Suppliers
-
Professional business organizations
26
4.2.1 Service providers
As with the South African health care system the optometry industry in South
Africa is also fragmented. Eye care is delivered by providers in the private sector
and to a limited extent in the public health sector.
In the public sector eye care is provided by some provincial hospitals and
community clinics. Compared to the private sector the number of optometrists
employed by hospitals or other public sector entities that provide eye care is
inadequate. In provinces where data is available it is clear that there is a serious
skill shortage in the provision of public eye care. Of the 2586 optometrists
registered with the HPCSA only 59 are employed in the public sector. See Table
4.1 for the number of available, filled and vacant posts per province in the public
sector.
Table 4.1 Optometry posts in public sector as at May 2007
Source: HPCSA (Newsletter), 2007
Province
Posts available
Posts filled
Vacant posts
Eastern Cape
?
?
?
Free State
?
?
?
Gauteng
19
3
16
Limpopo
74
50
24
Mpumalanga
7
5
2
Kwazulu Natal
?
?
?
Northern Cape
1
1
0
North West
8
0
8
Western Cape
0
0
0
109
59
50
Total
27
Service providers in the private health sector are segmented according to the
business model under which a practice is operated. Three main segments can be
identified as:
-
Franchise groups
-
Group/partnership practices
-
Independent optometrists
The chain groups operate under a franchise model. This franchise model is
based on the payment of fees by the franchisee in exchange for support form the
franchisor. The fees payable often includes an initial franchise fee and also
continuing royalty fees which is determined as a percentage of turnover. As the
fees are linked to turnover, it could be seen as a possible incentive to overservice customers and was in contradiction with the Ethical Rules (DOH, 2006: 7)
until 2008.
The franchise model is certainly advantageous for practice owners in a highly
competitive environment, although not without disadvantages. Practice owners
can share in the benefit of an established brand name and group marketing. Bulk
buying power of the chain groups implies that product prices can be negotiated to
a substantially lower level. Torga Optical can offer lower product prices by
sourcing approximately 98% of frames and lenses direct from overseas or own
factories (Torga, n.d). The franchisor also assists new owners with store location
and shop fittings while providing support of the operation systems. This gives
majority control to the franchisor which leaves the practice owner limited control
over business operations and stock selection.
The second segment is the group or partnership practices such as Mellin,
Stanley and De Kock, Mullers, etc. Typically one or more owners/partners will
own a number of stores.
28
The third segment includes all the independent optometric practices. The need of
independent practices to compete with the advantage that group and franchise
practices have in terms of economies of scale has resulted in the establishment
of networks such as Dynamic Vision Network (DVN) among others. While the
practices belonging to this network are still independently owned by the
optometrist - which implies full control over decisions concerning operating
system and stock - they share in the advantage of group advertising and
marketing under a brand name as well as the advantage of reduced rates on
optical goods due to bulk buying.
Private-public interaction (PPI) is a national initiative to increase the cooperation
between providers in the private sector and those in the public sector in an effort
to reduce inequities in the health care system. Bonang Eye Care Centre is a PPI
initiative that was established in 2003 under the support of the SAOA. The
objective of these centres is to provide eye care to people who do not belong to a
medical scheme and also to assist ophthalmology services in hospitals where
optometry is not available (Chabedi, 2004). They work closely with the
government and NGO’s to provide accessible and affordable eye care.
4.2.2 Financial providers
Financial providers of the optical industry can be divided into two segments. The
first is funders of the services provided by optometrists. This service entails all
aspects of service delivery to customers including professional examination and
any optical correction given. The second is funders for goods necessary to do
business and includes stock, equipment and any business expenses.
a) Funders for services rendered
With the majority of providers operating in the private sector of the health care
industry, the services rendered by optometrists are primarily financed by medical
schemes to ensure continuous business. The essence of a medical scheme is to
29
collect regular contributions from its beneficiaries and in return pay the medical
expenses of its beneficiaries to the relevant service provider.
Medical scheme membership increased by 5% in 2007 to a total of 7 478 040
members. This amounts to approximately 15% of the entire South African
population covered by medical schemes.
The sustainability of medical schemes is of great concern for the South African
health industry with the uncontrolled escalation of health care costs a key threat.
The amount paid out in benefits in 2007 increased by 10.2 % to R56.2bn from
2006 while gross contribution income increased by 12.3% to R64.7bn (CMS,
2008: 19). Non-health expenditure is another threat to the sustainability of
medical schemes. Administration costs and fees paid to brokers and managed
care organizations in 2007 account for 13.8% of total contribution fees which at
R8.9bn is 7.3% higher than in 2006 (CMS, 2008: 19).
According to the South African Health Review of 2007 the health care spending
in South Africa is relatively high compared to international standards and the
challenge for South Africa is to utilize the available resources more efficiently and
equitably (McIntyre & Thiede, 2007: 36).
Medical schemes are regulated by the CMS. The rules of a medical scheme
determine the degree of cover which is comprised in the contractual agreement
between the scheme and a member. The Medical Schemes Act obliges each
medical scheme to provide their members with a minimum set of benefits called
the prescribed minimum benefits or PMB’s. PMB’s ensure that beneficiaries have
cover for necessary medical expenses in the private sector.
More than 120 medical schemes offer an optical benefit to their members.
Medical
scheme
benefits
are
designed
together
with
managed
care
30
organizations. The two major managed care organizations focusing on optical
benefits are PPN (Preferred Provider Network) and Iso Leso.
b) Funders for goods
The cost of practice start-up and initial stock is usually financed by credit
providers such as banks or small business investors. Imperial Bank, for example,
has a dedicated medical finance division focusing on all aspects of practice
finance including start-up cost, acquisition, expansion, partnership buy-in,
equipment finance as well as working capital and property finance.
4.2.3 Suppliers
Suppliers to the optical industry cover a range of goods necessary to conduct
business. This includes goods needed to provide a professional health care
service and also accessories and sunglasses to cover the retail element of the
business.
Suppliers in the optical industry can be categorized according to the product
group they supply – frames (including optical frames and sunglasses), contact
lenses, contact lens solution, optical lenses, instruments and equipment,
pharmaceuticals and accessories. There is some integration between product
groups where certain companies supply more than one product group.
The variety of products available and the large number of suppliers in certain
groups make differentiation difficult for providers. There are approximately 36
suppliers of optical frames and sunglasses supplying close to 300 different
brands. More than 100 different optical lenses are available through
approximately 20 suppliers of optical lenses. Table 4.2 lists the number of
suppliers in each product group.
31
Table 4.2 Number of suppliers per product group
Source: Optical Assistant and Suppliers Guide, 2008
Product
Number of suppliers
Frames (optical and sunglasses)
36
Contact lenses
4
Contact lens solutions
3
Optical lenses
20
Instruments and equipments
6
Pharmaceuticals
2
Vertical integration is not uncommon in the supply chain of the optical industry.
The Luxottica group’s success is based on their business model of vertical
integration. They do not only manufacture and distribute frames, but also owns
5700 wholesale and optical retail stores and plans to expand in emerging
markets (Luxottica, 2008). Safilo, a leader in eyewear, also adopted a vertical
integration strategy with the announcement of their acquisition of optical retail
chains in Mexico and Australia in 2008 (Safilo, 2008).
4.2.4 Professional business organizations
Managed care networks assist in the design of medical scheme benefits to
ensure that patient needs are sufficiently met while maintaining their member’s
practice profitability.
32
Member
Medical Scheme
Contract i.t.o
scheme rules
Contract for
managed care
Managed Care
Organization
Contract for
service provision
Pre-authorization, PMB’s,
disease management, care
coordination, etc.
Contract for
service
provision
Provider
Figure 4.1 Relationship between medical schemes, managed organizations,
providers and members.
Source: CMS, 2003
Two of the largest managed care optometry networks are PPN (Preferred
provider network) and Iso Leso Optics Ltd which are both accredited by the
Council of Medical Schemes.
PPN is the largest managed care optometry network with more than 1900
optometrist contracted. The total number of medical scheme beneficiaries under
the PPN network is approximately 1.4 million lives (PPN, n.d). PPN encourage
beneficiaries under their network to utilize the services of designated service
providers contracted with PPN by only paying benefits directly to those preferred
providers.
33
PPN promote that optometrists should be able to make a living of their
professional fees which is why they structure their benefit design around a higher
professional fee while only covering a basic lens at less than NHRPL rates (PPN,
2008). In 2008 the NHRPL rate for a professional fee was R286.00 and basic
CR39 single vision spectacle lenses R178.00 each, while the PPN rate were
R400.00 and R110.00 respectively. This certainly raises some concerns that a
higher professional fee might be indeed necessary on this structure to make up
for the low profit margin on spectacle lenses.
Iso Leso is the largest independently owned managed care optometry network
with more than 900 optometrists contracted. Approximately 4 million lives are
covered by the medical schemes under Iso Leso and they are responsible for
approximately 75% of all optical spending by medical schemes (Iso Leso, 2007).
Iso Leso is administered by Healthman or Health Management and Network
Services (Pty) Ltd. Healthman is an independent health care consultancy
company focusing on among others the administration and management of
health care networks. Healthman also plays a crucial role in the design of tariff
schedules and promotes the professional and commercial interest of health care
providers and health care networks.
In 2006, concerns were raised by Iso Leso in response to a PPN newsletter that
the PPN structure is not sustainable for optometrists due to the low margin on
spectacle lenses (Jacobsen, 2006). These concerns are still valid in 2008 which
hasn’t seen any changes in the PPN structure. Another issue raised was the
relationship of PPN with the optical retail chain Specsavers. As the Competition
Act prohibits any agreement between parties in a horizontal relationship, this
issue was referred to the Competition Commission.
34
4.3 EXTERNAL MACRO FEATURES OF THE OPTICAL INDUSTRY
Macro factors of the external environment have an impact on private health care
and certainly also on optometry. Financial factors such as the economic status of
the country as well as the pricing of products and services, political factors,
demographic changes and also advancing technology influence the optometry
profession.
4.3.1 Economic features
The South African economy experienced a period of stability and growth between
2000 and 2006. Lower inflation and fairly stable interest rates together with an
average growth of 4% per annum over this period increased the average
disposable household income.
However, 2008 saw a downturn in the South African economy. The real
economic growth decreased from 4.9% in 2007 to an average 3.7% in 2008 due
to the negative consequences of the global economic slowdown (SARB (a),
2008). With investors being cautious of emerging markets during the global
financial crisis the effective exchange rate depreciated in 2008 (SARB (b), 2008).
Inflation increased from 5.0% per year in 2007 to 14.5% in the first quarter of
2008 due to the rising food and energy prices. The annual inflation for 2008 was
above the target range at 7% (SARB (b), 2008).
Higher than expected inflation, increased interest rates and a lower annual GDP
(Gross Domestic Product) have a negative influence on disposable household
income and increase the cost of debt financing which is evident in the 0.8%
decrease in household expenditure in 2008 (SARB (b), 2008).
35
4.3.2 Political factors
Since the South African political transformation in 1994, the health care industry
has also been in a process of transformation. The main focus of this
transformation is equity in the provision of health care irrespective of race,
gender, socio-economic status and demographic location. The Constitution
recognizes the right of access to health care. The state and more specifically the
Minister of Health are mandated in the Constitution to take responsibility for the
processes and policies to execute the transformation process of making health
care more accessible.
Optometry is not excluded from this transformation. As early as 1993, the
deregulation of optometry in South Africa was already a political debate when
political accusations was made by the then Democratic Party that ownership
regulations protect the interest of the profession at the expense of the consumer
(Frey, 1993). The main objective of the proposed deregulation of ownership is to
influence the accessibility and affordability of eye care positively for consumers.
High levels of inequity in the provision of health care services is still evident in the
number of South African citizens that can not afford to be on a medical scheme
and that are dependent on public health care.
4.3.3 Demographic changes
The population of South Africa has increased from 40 million in 1996 to 44 million
ion 2001 with the 2008 mid-year estimate at 48.9 million( STATSSA, 2008). The
population is unevenly distributed between the provinces and the intercensal
(1996-2001) population growth rates for Gauteng, Western Cape and KwazuluNatal had growth rates higher than average while the growth rates for the
remaining provinces are below the average.
36
Reports from Statistics South Africa on the data from the last two censuses in
1996 and 2001 suggest significant changes in the population during this period.
Fertility rates remained fairly stable nationally during this period although there is
a disparity by province with the fertility rates higher in Limpopo and KwazuluNatal and lower in Gauteng and Western Cape. Mortality, measured by life
expectancy at birth, decreased from 56 years in 1996 to 46 years in 2001 (Anon,
2005: 16). The decrease in life expectancy is prevalent in all provinces although
there are differences by race suggestive of the disparity in socio-economic
conditions. The main factor for the decline is HIV/AIDS.
Data from Statistics South Africa (2003) show that since 1992 the number of
emigrants is higher than that of immigrants. Political uncertainty, crime and skill
migration are all relevant factors. Internal migration patterns differ between
provinces. Gauteng and Western Cape are the only two provinces with a positive
net migration in 2001. This can be attributed to the rural urban movement where
people are moving from more rural provinces to the more urbanized and
industrialized provinces (Anon, 2005: 19).
4.3.4 Technology
The continuous development of technology has a significant effect on any
industry. Changes in technology ensure faster results, higher accuracy, better
efficiency and simplification of usage. Technology changes in optometry can be
seen in various part of the industry including instrumentation, commerce and
products.
The accuracy of clinical instruments is continuously being improved. Screening
instruments such as the autorefractor and tonometer are constantly developed to
be more accurate and easier to use. Diagnostic instruments such as the fundus
camera, slit lamp microscope, corneal topographer and retinal tomography are
user friendly and most of these include three dimensional imaging for more
37
efficient diagnosis. Lens machinery and equipment is also developed to include
digital lens systems which makes lens casting and cutting faster and more
accurate.
Technology advancements are also evident in the retail of products. The
availability of readymade reading spectacles as an over-the-counter product
contributes to the emerging retail aspect of the optical industry. Further
developments in the production of spectacles do not exclude the possibility of
readymade spectacles that can even correct simple myopia.
Contact lenses are readily available for purchase over the internet as well as
spectacle frames and prescription spectacle lenses to a lesser extent. Although
e-commerce bring new opportunity for business, the online selling of contact
lenses pose a risk with patient care and follow-up when there is little control over
client compliance.
4.4 COMPETITIVE ENVIRONMENT
The Porter five forces model of competition is a framework to analyze the
competitive environment of an industry. It also takes into account the strength
and importance of each competitive force. By analyzing each of the competitive
forces individually, it is easier to diagnose the overall state of the industry. The
five areas of competition that needs to be investigated include:
a) Rivalry among current competitors
The professional services offered by optometrists are relatively standard.
Differentiation of services is primarily on customer service excellence.
Subsequently it is difficult to maintain customer loyalty although it increases the
competition among rivals.
38
Another factor influencing strong rivalry among competitors is the emerging
optical retail environment with products such as sunglasses, readymade reading
glasses and other related products. This shift of focus as well as the fact that
many optometric practices are situated in shopping centers implies that
competition is no longer only among optometric practices, but they are also
competing with other specialty retailers. Thus the competitive force between
rivals is strong
b) Threat of new entrants
Currently the threat of new entrants is very low. The industry is showing a slow
growth and training of new optometrists are restricted in terms of the number of
students allowed. Regulation prohibiting lay ownership contributes to fewer new
entrants into the industry.
c) Bargaining power of customer
From a price point of view, customers have a fairly strong position for bargaining.
Prices related to professional service (professional fees and optical lenses) are
guided by the NHRPL and leaves little room for differentiation. It is relatively easy
for customers to switch between service providers because of similar prices
among competitors for the same professional service.
d) Bargaining power of suppliers
The major suppliers to the optometry industry include frame importers and
distributors, pharmaceutical companies supplying contact lenses and lens
laboratories for supplying, cutting and fitting of ophthalmic lenses. The large
numbers of suppliers in each category reduce their bargaining power to low to
moderate. For service providers, it is relatively easy to change suppliers without
any significant cost to the company.
39
e) Threat of substitute product or services
In the optometry industry there is a very low threat of substitute products at the
moment. There are only a limited number of options available when a customer
needs vision correction, the most obvious being spectacles or contact lenses.
Although some alternatives, such as refractive surgery and intraocular contact
lens implants exist, they pose a low threat to conventional corrective options due
to their invasive nature as well as the high cost of these procedures.
4.5 DRIVING FORCES OF THE OPTOMETRY INDUSTRY
The influence of regulations is a driving force of the optometry industry. NHRPL
tariff guidelines make it difficult for competitors to differentiate themselves from a
price point of view. Standardized prices make the service aspect of the optometry
industry a commodity rather than a specialized health care service. The only
room for differentiation and price competition is therefore on the related retail
products such as optical frames, sunglasses etc. and possibly customer service.
Another major driving force is the possibility of deregulation. A change in the
regulatory environment will have a significant impact on the entire industry and
competitive environment. Deregulation will certainly change the industry
landscape with a range of new driving forces such as new entry of major
companies, a change in long-term growth and profitability of the industry and an
increase in price competition.
The current uncertainty around the possibility of deregulation that accompanies
the pending court case is in itself also a driving force of the industry. The
uncertainty has an impact on the growth of the market. Potential owners, who
would have otherwise opened new practices, might be reluctant to do so due to
fear of the potential impact of deregulation.
40
4.6 CONCLUSION
The optometry industry of South Africa is a unique service and retail industry. It is
fragmented between private and public health care sectors with financial and
human resources concentrated in the private sector. Although there are
transformation policies in place there are still inequities in the provision of health
care and more specifically eye care in South Africa.
As a retail industry the economic outlook of South Africa has a significant
influence on the optometry industry. The global financial crisis and the
subsequent slowdown in the South African economy have a negative effect on
consumer spending overall and in the industry.
The five forces model illustrates that the competitive forces are the most powerful
between rivals and in customer bargaining power. The other three areas of
supplier bargaining power, new entrants and substitute products have only a low
to moderate impact. On the surface the collective state of competition does not
seem to be too strong, but the competitive force between rivals as well as the
bargaining power of customers could be strong enough to challenge industry
profitability. The nature of competition within the industry such as competition
from the large franchised and group practices makes it difficult for smaller groups
and independent practices to achieve the same margins due to the fact that the
bigger practices have the advantage of economies of scale, bulk buying power
and also the ability to integrate vertically to some extent.
41
CHAPTER 5
METHODOLOGY OF RESEARCH
5.1 INTRODUCTION
The first two phases of the research involved secondary data to:
1. investigate the legislative environment in which the optometry industry of
South Africa operates and
2. analyze the optometry industry of South Africa.
The third phase of the research project is to ascertain the perception of service
providers (optometrists and dispensing opticians) on the effect of deregulation.
The view of the franchise groups as an entity is predominantly pro-deregulation
but from the literature reviewed it is unclear whether the rest of the service
providers as individuals share the same views.
The relevant data was collected by way of a questionnaire posted on the Internet.
The questionnaire was designed to provide a platform for individual opinions to
be raised and then to use the aggregate results to confirm or oppose the
perceptions on the expected outcomes of deregulation.
5.2 SAMPLE DESIGN
The population of this research survey is all practicing optometrists and
dispensing opticians in South Africa regardless of the type of practice in which
they are working. Due to the unavailability of a complete list of the entire
population of optometrists and dispensing opticians registered with the HPCSA, a
method of self-selection sampling was applied.
An e-mail explaining the research objective was sent to the SAOA member
database to approximately 2000 recipients with an invitation to visit the website
42
and to complete the questionnaire. A direct link to the questionnaire was
provided in the e-mail. Approximately 80% of all practicing optometrists are
members of the SAOA. In an effort to get as many optometrists and dispensers
to participate in this survey, word-of-mouth was also used to distribute the link to
the questionnaire.
5.3 QUESTIONNAIRE
A questionnaire was decided as the survey strategy to utilize since the research
is descriptive and explanatory. The responses solicited form the questions was
hoped to describe variability in opinions on the research problem and also to find
correlations between variables. According to Saunders et al, 2003 a
questionnaire is a relatively easy method to collect responses from a large
sample and it is efficient since all cases respond to the same set of questions.
The researcher was aware of the limitations of using an on line questionnaire and
the low response rate associated with online surveys. The following efforts were
made to attempt to maximize response rate and reliability of responses:
-
careful design of the questions
-
user friendly layout of the form
-
comprehensive explanation of the objective of the questionnaire
-
pilot testing (Saunders et al, 2003: 310-311).
The main objectives of the questionnaire were to collect data on the following:
1. respondent characteristics and demographic information
2. average client profile of service providers
3. the view of service providers on the possible effects that
deregulation might have on the industry.
The sequence of the questions was purposefully selected to group the questions
according to the specific category the question addressed.
43
Table 5.1 Categories of the questionnaire
Question number
Category
1-6
Characteristics of respondents and
demographic information
7-8
Technology
9
Staffing
10
Professional fee
11 - 12
Advertising
13 - 15
Pricing of products
16 - 17
Specialized services
18 - 19
Medical schemes
20
Supply
21 - 26
Public/community service
27 - 29
Ownership
The questionnaire included both open-ended and closed-ended questions with
the majority being close questions with a number of choices from which the
respondents had to choose. The open-ended questions were used very
selectively to obtain suggestions e.g. what a fair professional fee would be.
Four different types of closed-ended questions were used depending on the type
of questions:
-
List questions provided a list from which respondents had to choose. In
closed questions where the list of choices was thought not to be
44
exhaustive the option of “other” was given usually with an open-end to
describe
-
Category questions were used to determine behaviour or attribute of the
respondents. Care was taken to ensure that categories were mutually
exclusive
-
Rating or scale questions was used to collect data on opinion. A Likertstyle rating scale was used for most of these questions to determine how
strongly they agree or disagree with the statement given. A four-point
rating scale was intentionally used to eliminate a neutral response and the
categories of response was kept the same for all these questions to avoid
possible confusion
-
A grid was used on four specific questions where the opinion on the effect
of a certain aspect of deregulation (advertising, supply, pricing and
ownership) was investigated on seven different entities (profitability,
professionalism, competition, access to service, quality of service, equity
and affordability).
5.4 PILOT STUDIES
Pilot studies were carried out prior to the questionnaire being published online to
confirm the suitability of the questions as well as to eliminate any
misunderstanding of questions. The questionnaire was adapted accordingly.
Another pilot study was performed before distributing the link to the survey to test
for user-friendliness of the questionnaire i.e. the sequence of the questions and
the layout of the questionnaire
5.5 DATA PROCESSING
A web site had been set up with the landing page taking the place of the covering
letter, explaining the research and the objectives of the questionnaire. An internet
service provider registered the domain name for the web site and also did the
45
hosting of the web site. The questionnaire was setup on line with a hyperlink from
the web site.
Appropriate coding and server settings allowed the data to be captured
automatically as soon as the questionnaire was completed and submitted on line.
The data file which was generated could be downloaded directly to an HTML
editor and then imported to Microsoft Excel.
Software used to perform the analysis was
-
Microsoft Excel (MS Office 2003)
-
STATA version 10 for all significance testing
5.6 RESPONSE RATE
The likely response rate when using an online questionnaire is variable and can
be expected to be approximately 10% or even lower (Saunders et al, 2003). The
response rate for this particular questionnaire was expected to be slightly higher
at approximately 15% due to the relevant nature of the questionnaire and that the
sample was specifically selected.
The introductory e-mail with a covering letter was sent to the SAOA members, all
of whom have a vested interest in the possible changes in legislation of the
optometry industry. This specific focused sample selection, together with the
authority added by having the SAOA sent the e-mail containing the covering
letter for the questionnaire to their member database contributed to the higher
response rate expected.
A date for final submission of the questionnaire was given in the introductory email as well as the landing page of the web site. More responses were received
in the few days after the initial deadline and as such the deadline was extended
by another week. A total of 229 responses were received three weeks after the
46
first e-mail was sent to the possible participants. A time constraint on the
research made it impossible to extend the deadline further, although a time
extension would probably have resulted in a higher response rate.
Of the 229 responses, three were omitted during the processing of the data. One
respondent indicated in one of the questions that he/she is working in Zambia.
Considering that this research is focusing on the South African optometry
industry, the responses from this case was not included in the aggregate result.
Two other respondents completed only the first six questions and since these
questions only cover the demographic information, it was decided not to include
their results in the final processing. The aggregate results are thus based on 226
responses.
The actual total response rate for this survey was:
Total response rate = Total responses/ (total number in sample- ineligible)
= 229/ (2000 – 3)
= 11.47%
5.7 SUMMARY
Primary data for the third phase of the research project was collected by using a
web-based questionnaire. The questionnaire was received by approximately
2000 of the possible 2586 professionals currently registered with the HPCSA.
The questionnaire was carefully designed to maximize response rate and
reliability of responses. Questions were grouped together according to the
specific issue that it addressed.
With a response rate of 11.5% the total number of eligible responses are 226. As
a rule of thumb, the underlying assumption of a normal distribution can be
47
ignored when the sample size is larger than 30. Therefore this sample size can
be considered large enough to make statistical inferences about the entire
population based on the sample.
48
CHAPTER 6
RESULTS OF QUESTIONNAIRE
6.1 INTRODUCTION
Chapter 6 focuses on the results of the data analysis. The questions are
analyzed according to the category they address as explained in Table 5.1.
Graphs and tables are used to graphically present the results.
The main objective of the questionnaire was to collect data on:
-
Respondent characteristics and demographic information
-
The average client profile of service providers
-
The view of service providers on the possible effect of the different
aspects of deregulation on the industry.
Microsoft Excel 2003 was used for the greater part of the analysis while STATA
v.10 was used for all the correlation tests.
6.2 CHARACTERISTICS OF RESPONDENTS
The total of 226 responses received included responses from all nine provinces
in South Africa. The two major provinces, Gauteng and the Western Cape, were
the most highly represented with 30.1% and 26.5% respectively. See Figure 6.1
for the total spread of responses across all the provinces.
30.1
26.5
13.3
10.6
4.4
ap
e
C
n
St
at
e
1.8
N
Fr
ee
al
M
pu
m
3.1
or
th
er
a
es
t
4.4
or
th
-W
e
po
N
Li
m
po
st
er
n
Ca
p
at
al
N
Ea
aZ
ul
u
C
Kw
te
rn
W
es
G
au
ap
e
5.8
an
g
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
-
te
ng
Percentage (%)
49
Province
Figure 6.1 Number of responses (as a percentage of the total) per province.
The majority of the respondents are registered with the HPCSA as optometrists
(95%), while only 5% of those who responded are registered as optical
dispensers. Ideally a higher number of responses from optical dispensers would
ensure a more accurate representation of the total number of registrations with
the HPCSA.
There is fairly equal gender dispersion with males representing slightly higher at
57% and females representing 43% of the total responses.
Table 6.1 Distribution according to gender and profession
Optometrist
Dispenser
Total
Male
Female
Total
120
95
215
9
2
11
129
97
226
50
The number of years work experience was divided into 5 categories of 5 years
each: 0-5 years, 6-10 years, 11-15 years, 16-20 years and the last one being
more than 20 years. More than 70% of service providers who responded have
more than 10 years work experience with approximately 30% of them having
more than 20 years experience. See Table 6.2.
Table 6.2 Work experience in years
Years
%
0-5
10.6
6-10
18.1
11-15
27.0
16-20
14.6
more than 20
29.6
71% have
more than
10 years’
experience
One of the objectives of this questionnaire was to provide a platform for
individuals to raise their opinion within the framework of the questionnaire so as
to verify through the aggregate result whether the majority of service providers
support the view of the franchise groups or that of the SAOA. Figure 6.2
illustrates that almost 80% of the responses were from independent practices.
Franchise
groups
were
only
represented
group/partnership practices by 13%.
by
8%
of
responses
and
51
Franchise
8%
Group/
Partnership
12%
Independent
80%
Figure 6.2 Distribution of practice type
6.3 TECHNOLOGY AND PROFESSIONALISM
Instruments considered for this survey includes: autorefractor, tonometer, fundus
camera, visual field analyzer and corneal topographer. Approximately 90% of
practitioners make use of a tonometer in practice and more than 67% report the
use of an autorefractor.
The other three instruments (fundus camera, field analyzer and corneal
topographer) are more specialized instruments and not used by as many service
providers. The survey results indicate that just 53% of the service providers use
at least one of these instruments in practice (See Figure 6.3.).
52
Percentage (%)
100.0
90.0
90.7
80.0
70.0
60.0
67.3
50.0
40.0
30.0
20.0
53% of practitioners use
at least one of these
specialized instruments
36.7
29.6
17.7
10.0
0.0
To no meter
A uto refracto r
Fundus
camera
Field analyzer To po grapher
Instrum ent
Figure 6.3 Utilization of technology in practice.
Of the respondents, 41% do not believe that the utilization of better technology in
more specialized instruments can save them time. Only a quarter of respondents
utilize staff members not registered with the HPCSA to perform pre-test
screenings using these instruments.
6.4 PROFESSIONAL FEE
At the time of the survey, the guideline tariff for an optometric examination,
including tonometry, was R286.00 (Optical Assistant, 2008). This is usually
referred to as medical scheme rates as it is the amount which most medical
schemes will allow for a visual examination. Many practices offer a discounted
cash rate for those customers not on a medical scheme or wanting to settle
upfront.
53
4.4
6.2
19.0
Strongly agree
Agree
Disagree
Strongly disagree
70.4
Figure 6.4 Proportion of respondents agreeing and disagreeing with the
statement ‘the current suggested professional fee is fair’.
Approximately 77% of service providers agree that the current suggested
professional fee is fair while 23% believe it should be either higher or lower.
Almost 94% of those who disagreed that the current guideline tariff for the
Number of respondents
professional fee is fair suggested that the price should be higher.
14
12
10
8
6
4
2
0
0
250
350
450
550
650
750
Rand
Figure 6.5 Respondent’s suggested professional fee (in Rand)
54
The suggested professional fee range from R200 to R750 with the median being
R350. From the histogram (Fig 6.4) it is clear that the majority of the suggested
fee falls between R300 and R400.
6.5 ADVERTISING
Only 23% of providers agree with the statement that the current advertising
regulations are too strict and only 5% of those strongly agrees with that
statement.
4.9
17.7
31.9
Strongly agree
Agree
Disagree
Strongly disagree
45.6
Figure 6.6 Proportion of respondents agreeing and disagreeing with the
statement ‘current advertising regulations are too strict’.
When asked what the likely effect of the deregulation of advertising will have on
the profitability, professionalism, competition, access to service, quality of
service, equity and affordability of the optometry industry, the majority of
providers feel the likely effect will be as follows:
55
Table 6.3 Majority’s perspective on the possible effect of deregulation of
advertising regulations
Aspect affected
Effect of deregulation
% of respondents
Profitability
Decrease
52
Professionalism
Decrease
85
Competition
Increase
81
Access to service
No effect
56
Quality of service
Decrease
71
Equity
No effect
56
Affordability
No effect
51
6.6 PRICING
Tariffs for optometric services and products are not regulated but the NHRPL
provides a guideline for providers in terms of medical scheme optical benefit.
Since the questionnaire was performed ion 2008, the 2008 NHRPL was used as
the reference for all the questions related to pricing of optical lenses and related
products.
More than two thirds of the providers (68%) agree that the guideline tariffs as set
out in the NHRPL for optical lenses and related products are indeed fair with 6%
of the respondent feeling strongly about it, while 32% feel that the tariffs are not
fair. None of the respondents strongly disagree with this statement.
56
0.0
6.2
31.9
Strongly agree
Agree
Disagree
Strongly disagree
61.9
Figure 6.7 Proportion of respondents agreeing and disagreeing with the
statement ‘NHRPL guideline tariffs are fair’
Almost 60% agree that the price increase in optical products from a cost to
provider perspective was at least fair over the past 3 years. 40% of providers
disagree with the statement of which 10% disagree strongly.
10.2
3.1
Strongly agree
Agree
31.6
Disagree
55.1
Strongly disagree
Figure 6.8 Proportion of respondents agreeing and disagreeing with the
statement ‘the annual price increase for optical products was fair’.
57
On the possible effect of price deregulation on the different aspects of the
industry, the perspective of providers is as follows:
Table 6.4 Majority’s perspective on the possible effect of price deregulation
Aspect affected
Effect of deregulation
% of respondents
Profitability
Decrease
67
Professionalism
Decrease
78
Competition
Increase
78
Access to service
No effect
63
Quality of service
Decrease
73
Equity
No effect
61
Affordability
No effect
42
Profitability, professionalism and quality of service are feared by most to be
compromised should pricing of products be deregulated. The majority also feel
that access to service, equity and affordability is likely to remain unchanged while
78% expect competition in the industry to increase with price deregulation.
6.7 SPECIALIZED SERVICE
Just more than half (54%) of the respondents indicated in the survey that they
offer a specialized service to their clients. Additional services listed as options in
the questionnaire includes: orthokeratology, Cycloplegic refraction, behavioural
therapy, sport vision, low vision and other.
The response expressed as a percentage of the total respondents who indicated
that they do offer an additional service is as follows:
58
Table 6.5 Number of respondents offering a specialized service
Specialized service
% of respondents
Orthokeratology
12.3
Cycloplegic refraction
32.0
Behavioural therapy
31.1
Sport vision
20.5
Low vision
39.3
Other
36.9
Among the responses under the option of ‘other service’ are
-
Hard contact lenses
-
Iridology
-
Pediatric optometry
-
Colorimeter
-
Reading programs
-
Co-management with ophthalmologists
-
Hypnosis
-
Prosthesis fitting
6.8 MEDICAL SCHEMES
Since the optometry industry falls primarily under private health care in South
Africa, medical schemes are responsible for a very large portion of funding for
optical goods and services, making them a key stakeholder in the industry. An
indication of the average client profile of service providers is important to
determine the extent of influence that medical schemes should have in the
optometry industry.
59
Of the total response, 72% indicate that more than 60% of their clients make use
of medical schemes optical benefits to pay for visual examinations, spectacles or
contact lenses. More than half of the responses fall in the 60%-80% range. Only
6.7% indicate that less than 40% of their clients make use of medical scheme
optical benefits.
Medical scheme benefits are annually reviewed and adapted accordingly. Prices
for optical products and services are usually increased annually although
changes may occur more frequently depending on economic factors such as
inflation and exchange rate fluctuations. More than 85% of respondents agree
that medical scheme benefits usually increase in line with the price increase of
optical products and services.
60.0
52.0
% of providers
50.0
40.0
30.0
21.3
20.0
20.0
10.0
3.1
3.6
0-19
20-39
0.0
40-59
60-79
80-100
Clientele Range in %
Figure 6.8 Distribution of clients that use medical scheme optical benefit
60
6.9 SUPPLY OF OPTICAL PRODUCTS
The supply of optical products is partially regulated. Should the supply of optical
products be deregulated, the majority indicates that it will likely have no effect on
access to service, equity and affordability of services and products, while
competition is likely to increase. Professionalism, profitability and quality of
service are feared to be compromised.
Table 6.6 Majority’s perspective on the possible effect of supply
deregulation.
Aspect affected
Effect of deregulation
% of respondents
Profitability
Decrease
67
Professionalism
Decrease
78
Competition
Increase
78
Access to service
No effect
63
Quality of service
Decrease
73
Equity
No effect
61
Affordability
No effect
42
6.10 COMMUNITY SERVICE
The questionnaire cover both a low-cost option offered to consumers in practice
as well as an additional community or public service.
61
Number of respondents
60
50
40
30
20
10
0
0
10
20
30 40 50
% of business
60
70 More
Figure 6.9 Size of business that comprises low-cost packages.
a) Low-cost package
More than 95% indicate that they offer a low-cost package for people in need.
The average size of business that comprises budget packages is 18% while the
mode is 10% of total business.
74% of those who offer a low-cost option to their clients, offer it to pensioners,
61% to clients not on medical scheme, 29% to the unemployed, 19% to students
and 58% uses self discretion while offering this option to clients. Other criteria
used to determine who can utilize a low-cost option include the income of the
client while some offer it to anyone who asks.
62
Table 6.7 A list of criteria used to qualify clients for a budget option
Criteria
% providers using the
criteria
Pensioner
74
Client not on medical scheme
61
Unemployment
29
Student
19
Optometrist’s discretion
58
Other
14
b) Community service
Only 44% of service providers are involved in community or public sector service.
Approximately 80% of these practitioners who indicate their involvement provide
the public service through school screenings, 41% at factories, 47% at
community health centers and 31% at hospitals. Among ‘other’ public sector
services were:
-
Old age homes
-
Lions’ club
-
Right to sight days in practice
-
Prisons
-
Orphanage
-
Supervising students
63
Table 6.8 Community service and the % practitioners involved
Community service
% practitioners
Schools
80.6
Factories
40.8
Public
46.9
Hospital
30.6
Other
16.3
The majority of service providers (40%) spend on average 0-5% of their time on
these community services while only 2.7% spend more than half their time on
public sector service.
Only 60% of practitioners are willing to be involved in community service and
20% are willing depending on certain conditions, while 20% are not prepared to
dedicate any time to community service.
% time dedicated to public sector service
45.0
39.8
% service providers
40.0
35.0
30.0
25.0
20.0
19.5
15.9
15.0
10.6
10.0
7.1
4.4
5.0
2.7
0.0
0
0-5
6-10
11-15
16-20
21-50
more than
50%
% Time
Figure 6.10 Distribution of time (in %) dedicated to community service.
64
Conditions listed for involvement in community service includes:
-
Logistics
-
Location – concerns for safety, only in own practice
-
Remuneration
-
Organized
-
CPD points reward
-
Time permitting
-
If compulsory
6.11 OWNERSHIP
Only 9% of respondents feel that deregulation of ownership will be in the best
interest of providers while an overwhelming 91% disagree with that statement
with almost 70% disagreeing strongly.
2.7 6.3
21.3
Strongly agree
Agree
Disagree
Strongly disagree
69.7
Figure 6.11 Proportion of respondents agreeing and disagreeing with the
statement ‘Deregulation is in the best interest of service providers’.
65
On the other hand the majority is also not convinced that consumers will benefit
from deregulation. Only 12% feel that deregulation of ownership is in the best
interest of the public while 88% don’t agree and 60% feel strongly about it.
4.5
7.2
Strongly agree
Agree
27.8
Disagree
60.5
Strongly disagree
Figure 6.12 Proportion of respondents agreeing and disagreeing with the
statement ‘deregulation is in the best interest of consumers’.
Most respondents feel that, should ownership be deregulated, access to service,
equity and affordability of optical service and products will not be affected while it
may increase competition in the industry. There are concerns that profitability,
professionalism and quality of
service
deregulation of ownership be passed.
might
be
compromised
should
66
Table 6.9 Majority’s perspective on the effect of deregulation of ownership
Aspect affected
Effect of deregulation
% of respondents
Profitability
Decrease
65
Professionalism
Decrease
88
Competition
Increase
67
Access to service
No effect
57
Quality of service
Decrease
84
Equity
No effect
61
Affordability
No effect
48
6.12 CORRELATIONS
a) The correlation between respondents who use specialized instruments
and their opinion on whether the current suggested professional fee is fair.
The Chi-square test for independence was used to test if there is a relationship
between providers that use more specialized instruments and whether they
would agree or disagree that the current professional fee is fair. For the Chisquare test to be valid the expected counts should be greater than five.
(H0): There is no association between the two variables
(H1): There is an association between the two variables
67
Output 1:
+--------------------+
| Key
|
|--------------------|
|
frequency
|
| expected frequency |
+--------------------+
|
var10
var13 |
1
2
3
4 |
Total
-----------+--------------------------------------------+---------0 |
8
83
13
2 |
106
|
6.6
74.6
20.2
4.7 |
106.0
-----------+--------------------------------------------+---------1 |
6
76
30
8 |
120
|
7.4
84.4
22.8
5.3 |
120.0
-----------+--------------------------------------------+---------Total |
14
159
43
10 |
226
|
14.0
159.0
43.0
10.0 |
226.0
Pearson chi2(3) =
Fisher's exact =
10.0863
Pr = 0.018
0.017
Test result: The expected counts were less than 5 thus combined the results for
‘agree’ and ‘strongly agree’ and also combined ‘disagree’ with
‘strongly disagree’.
Output 2:
+--------------------+
| Key
|
|--------------------|
|
frequency
|
| expected frequency |
+--------------------+
|
var83
var13 |
1
2 |
Total
-----------+----------------------+---------0 |
91
15 |
106
|
81.1
24.9 |
106.0
-----------+----------------------+---------1 |
82
38 |
120
|
91.9
28.1 |
120.0
-----------+----------------------+---------Total |
173
53 |
226
|
173.0
53.0 |
226.0
Pearson chi2(1) =
Fisher's exact =
1-sided Fisher's exact =
9.6190
Pr = 0.002
0.003
0.001
Test result: p-value = 0.002 thus reject H0 at the 5% level of significance.
68
Comparing the observed counts with the expected counts, we see that more
respondents who indicate that they use specialized instruments agreed than
what we expected if there was no association and more respondent who do not
use specialized instruments disagreed than what we expected if there was no
association. We can conclude that there is a significant relationship between
these two variables.
b) The correlation between respondents’ opinion on the current suggested
professional fee and their opinion on the NHRPL tariffs for products.
The Chi-square test for independence was used to determine if there is a
correlation between whether respondents agree or disagree that the suggested
professional fee is fair and whether they agree or disagree that the NHRPL
guideline tariffs are fair.
H0: There is no association between the two variables
H1: There is an association between the two variables
Output 1:
+--------------------+
| Key
|
|--------------------|
|
frequency
|
| expected frequency |
+--------------------+
|
var27
var17 |
1
2
3 |
Total
-----------+---------------------------------+---------1 |
5
5
4 |
14
|
0.9
8.7
4.5 |
14.0
-----------+---------------------------------+---------2 |
7
114
38 |
159
|
9.8
98.5
50.7 |
159.0
-----------+---------------------------------+---------3 |
2
17
24 |
43
|
2.7
26.6
13.7 |
43.0
-----------+---------------------------------+---------4 |
0
4
6 |
10
|
0.6
6.2
3.2 |
10.0
-----------+---------------------------------+---------Total |
14
140
72 |
226
|
14.0
140.0
72.0 |
226.0
Pearson chi2(6) =
43.0035
Pr = 0.000
69
Test result: The expected counts were less than 5 (see Output 1), thus combined
the results for ‘agree’ and ‘strongly agree’ and also combined
‘disagree’ with ‘strongly disagree’ for both variables.
Output 2:
+--------------------+
| Key
|
|--------------------|
|
frequency
|
| expected frequency |
+--------------------+
|
var84
var83 |
1
3 |
Total
-----------+----------------------+---------1 |
131
42 |
173
|
117.9
55.1 |
173.0
-----------+----------------------+---------2 |
23
30 |
53
|
36.1
16.9 |
53.0
-----------+----------------------+---------Total |
154
72 |
226
|
154.0
72.0 |
226.0
Pearson chi2(1) =
Fisher's exact =
1-sided Fisher's exact =
19.5294
Pr = 0.000
0.000
0.000
Test result: p-value = 0.000 thus reject H0 at the 5% level of significance.
With the p-value very small, there is a highly significant association between
respondents’ opinion on the fairness of the current professional fee and their
response on the fairness of the NHRPL guideline tariffs.
c) The correlation between respondent’s opinion on the current suggested
professional fee and their opinion on the annual increase of optical
products over the last 3 years.
The Chi-square test for independence was used to determine if a relationship
exists between the response on the fairness of the current professional fee and
whether the price increase of optical products was fair over the last 3 years.
70
H0: There is no association between the two variables
H1: There is an association between the two variables
Output 1:
+--------------------+
| Key
|
|--------------------|
|
frequency
|
| expected frequency |
+--------------------+
|
var28
var17 |
0
1
2
3
4 |
Total
-----------+-------------------------------------------------------+---------1 |
0
4
5
5
0 |
14
|
0.1
0.4
7.7
4.4
1.4 |
14.0
-----------+-------------------------------------------------------+---------2 |
0
3
94
47
15 |
159
|
0.7
4.9
87.2
50.0
16.2 |
159.0
-----------+-------------------------------------------------------+---------3 |
1
0
21
16
5 |
43
|
0.2
1.3
23.6
13.5
4.4 |
43.0
-----------+-------------------------------------------------------+---------4 |
0
0
4
3
3 |
10
|
0.0
0.3
5.5
3.1
1.0 |
10.0
-----------+-------------------------------------------------------+---------Total |
1
7
124
71
23 |
226
|
1.0
7.0
124.0
71.0
23.0 |
226.0
Pearson chi2(12) =
Fisher's exact =
44.3127
Pr = 0.000
0.004
Test result: The expected counts were less than 5, thus combined the results for
‘agree’ and ‘strongly agree’ and also combined ‘disagree’ with
‘strongly disagree’ for both variables.
71
Output 2:
+--------------------+
| Key
|
|--------------------|
|
frequency
|
| expected frequency |
+--------------------+
|
var85
var83 |
0
1
3 |
Total
-----------+---------------------------------+---------1 |
0
106
67 |
173
|
0.8
100.3
72.0 |
173.0
-----------+---------------------------------+---------2 |
1
25
27 |
53
|
0.2
30.7
22.0 |
53.0
-----------+---------------------------------+---------Total |
1
131
94 |
226
|
1.0
131.0
94.0 |
226.0
Pearson chi2(2) =
Fisher's exact =
6.1115
Pr = 0.047
0.045
Even when combined the expected counts was still under 5 and therefore the
Fisher’s exact test was used. The Fisher’s exact test is a non-parametric
equivalent for the Chi-square test for independence that can be used when the
expected counts are small.
Test result: p-value = 0.004 thus reject H0 at the 5% level of significance.
Thus there is a significant relationship between the two variables
d) The correlation between respondents’ opinion on the current suggested
professional fee and whether they offer an additional specialized service to
their clients.
The Chi-square test for independence was used to test whether a relationship
exist between respondents who offer an additional specialized service to their
clients and their opinion on the fairness of the current professional fee.
72
H0: There is no association between the two variables
H1: There is an association between the two variables
Output 1:
+--------------------+
| Key
|
|--------------------|
|
frequency
|
| expected frequency |
+--------------------+
|
var36
var17 |
1
2 |
Total
-----------+----------------------+---------1 |
8
6 |
14
|
7.6
6.4 |
14.0
-----------+----------------------+---------2 |
76
83 |
159
|
85.8
73.2 |
159.0
-----------+----------------------+---------3 |
28
15 |
43
|
23.2
19.8 |
43.0
-----------+----------------------+---------4 |
10
0 |
10
|
5.4
4.6 |
10.0
-----------+----------------------+---------Total |
122
104 |
226
|
122.0
104.0 |
226.0
Pearson chi2(3) =
Fisher's exact =
13.1741
Pr = 0.004
0.002
Test result: The expected counts were less than 5, thus combined the results for
‘agree’ and ‘strongly agree’ and also combined ‘disagree’ with
‘strongly disagree’ for both variables.
73
Output 2:
+--------------------+
| Key
|
|--------------------|
|
frequency
|
| expected frequency |
+--------------------+
|
var36
var83 |
1
2 |
Total
-----------+----------------------+---------1 |
84
89 |
173
|
93.4
79.6 |
173.0
-----------+----------------------+---------2 |
38
15 |
53
|
28.6
24.4 |
53.0
-----------+----------------------+---------Total |
122
104 |
226
|
122.0
104.0 |
226.0
Pearson chi2(1) =
Fisher's exact =
1-sided Fisher's exact =
8.7475
Pr = 0.003
0.004
0.002
Test result: p-value = 0.003 thus reject H0 at the 5% level of significance.
There is a significant relationship between the two variables.
6.13 SUMMARY
Chapter 6 presents the results of the questionnaire. The results are grouped
according to the question categories as mentioned in Table 5.1. The results can
be applied to the entire population of service providers since the sample size is
statistically large enough for inferences.
The next chapter will link the results of the questionnaire with the research
question. The final recommendations of this study will be based on these
findings.
74
CHAPTER 7
CONCLUSIONS, RECOMMENDATIONS AND SHORTCOMINGS
7.1 INTRODUCTION
This
chapter
concludes
the
research
by
presenting
the
conclusions,
recommendations and shortcomings of the research report. The overall
conclusions and recommendations of the study are summarized. It also
highlights the shortcomings of the study and possible areas for future research
7.2 CONCLUSIONS
7.2.1 South African health care industry
The Constitution as well as the National Health Plan of South Africa recognizes
the right of access to health care for all citizens. Although most of the health
policies created since the election of the first democratic government address the
issues of accessibility, equity, affordability and quality of health care, these
issues are still evident thirteen years later in the fragmented health care system.
The skewed distribution of resources – human and financial – between the
private and public health care sectors are a great concern. It contributes to the
inequities in the health care industry and makes it impossible to execute and to
achieve the objectives of the health policies.
Medical schemes as the primary source for private health care funding in South
Africa are not sustainable in the long run. Progressive escalating health care and
administration cost is a key threat in the sustainability. The majority (85%) of the
South African population is not covered by medical schemes and dependent on
public health care. One can conclude that the provision of health services is still a
function of socio-economic status and not in line with national health policies.
75
The current private health care sector is clearly not sustainable. Since self
regulation in the private health sector has not successfully addressed the goals
of the national health policies it is clear why there is a call for higher regulation in
the private health sector.
7.2.2 The optometry industry
Deregulation of the industry has been proposed as early as 1993 to address the
abovementioned concerns to the benefit of the consumer. The possibility of
deregulation is still topical today but seems to contradict the proposed higher
regulated environment of the greater private health sector.
The majority of the optometry industry operates within the private health sector
and hence shares the same concerns about accessibility, affordability, quality,
equity as well as the sustainability of the general private health care sector. For
most practitioners more than 60% of their clientele benefit from medical scheme
funding for visual examinations and refractive corrections. The sustainability of
medical schemes has therefore an enormous influence on the optometry
industry, although medical scheme benefits are believed to be in line with the
increase of optical products over the last three years
7.2.2.1 Why deregulation?
The skewed distribution of optometrists between the public and private health
sectors illustrates the need of increasing accessibility and affordability of eye
care services to the greater population of South African citizens.
Almost all
practitioners offer a low-cost option to their clients. Approximately a fifth of
optometry business comprise of low-cost options offered by service providers
based on certain criteria. This certainly contributes positively to affordability
issues in the provision of eye care.
76
Accessibility to eye care is not sufficiently addressed. Eye care service can be
made more accessible by employing more optometrists in the public health
sector, by increasing the cooperation between the private and public sector
through PPI’s or through more community service by practitioners. The most
common community service among practitioners is screenings at schools or
factories. Although visual screening is a good sifting process, it is not conclusive
and those found to have a possible visual problem still have to consult in private
practice.
Practitioners are reluctant to get involved in community service. Those that are
willing are concerned about remuneration, logistics, time and CPD points while
some will only consider getting involved if it is compulsory. Less than half of
practitioners are currently involved in community service and they spend on
average below 5% of their time on these projects.
According to normal economic trends, deregulation will be followed by an
increase in competition in the industry. A higher competitive environment should
result in lower prices to consumers, more accessible eye care and higher quality
of care. So far deregulation sounds like the perfect solution to address the
concerns in the optometry industry. But history shows that health care industries
do not always follow normal economic trends. While the benefits of deregulation
are clearly focused on consumers, service providers are not very optimistic about
the positive effect of deregulation.
7.2.2.2 Fears of deregulation
Independent service providers are the group with the highest concern for
deregulation. Almost 80% of the response to the questionnaire was from
independent practitioners. They are expected to be the group most affected by
any form of deregulation due to increased competition and lower profit margins
anticipated. Work experience is another factor that seems to influences the level
77
of concern of service providers. More than two thirds of providers have more than
10 years’ experience in the industry.
The majority of service providers recognize that deregulation of any aspect of the
optometry industry will increase competition in the industry. They do however
fear that it will influence professionalism, quality of service and profitability
negatively. Most service providers feel that deregulation will not have any effect
on access to services, equity and affordability to consumers.
As one of the twelve health professions registered under the HPCSA, optometry
is constituted under the Health Professions Act. The professionalism of the
optometry profession is thus protected under the Health Professions Act. The
possible lowering of professional standards following deregulation is a great
concern of most practitioners. With only a quarter of practitioners utilizing staff
members not registered with the HPCSA to perform pre-test screenings, one can
conclude
that
most
practitioners
are
truly
dedicated
to
maintaining
professionalism in the industry. Internationally, although lower professional
standards were also feared, there is no supporting evidence that it ever
materialized.
7.2.2.3 Other concerns in the optometry industry
Apart from the fears regarding deregulation there are other issues in the
optometry industry such as pricing, professional fees, advertising and specialized
services that also affect the future of the industry. The ultimate solution should
ideally address these concerns.
The emerging retail aspect of optometry resulted in the change of advertising
regulations in the industry. Although it is feared that the current advertising
regulations are not contributing to fair practice when one considers the emerging
retail aspect of optometry, the majority of practitioners are happy with the current
78
regulations. Retail in optometry drove the industry to new levels of competition.
The consequent vertical relationship between some suppliers and service
providers are an area of concern in terms of competition law.
Professional fees are guided by the NHRPL and medical scheme benefits. The
vast majority of providers agree that it is set at a fair amount. A number of
providers still insist on higher professional fees with the main motives being cost
of equipment and the provision of specialized services. Accurate costing of
practice operations and overhead costs is the only way of justifying a suggested
fee. The general reluctance of practitioners to provide information on these
expenses in the past makes it difficult to justify a higher professional fee. The
submission by the SAOA to the Department of Health on professional fees was
used in determining the new guideline tariff. The increase in professional fees
over the last three years is closing the gap between the actual guideline fee and
what is expected by providers as a fair fee.
New technology provides instruments that are more accurate and easier to use.
Better efficiency is expected when making use of new technology. The recovery
of cost of equipment is often used as a motivator in arguments to increase
professional fees. There is a definite correlation between practitioners who uses
more specialized instruments in practice and those who feel that the current
professional fee is too low. Only half of practitioners use more specialized
instruments and less than half experience the benefit of higher efficiency in the
practice. Therefore the use of more specialized instruments does not justify or
support the call for higher professional fees to recover cost of equipment.
A correlation also exists between practitioners offering a specialized service
additional to the standard visual examination to their clients and those who
disagree with the current suggested professional fee. With only half of
practitioners offering an additional service it can hardly be used as a justification
for higher professional fees. Since the professional fee covers a full
79
comprehensive examination according to the professional standards of the
profession, the focus should perhaps be on value-added customer service rather
than specialized services as a basis for differentiation.
More than two-thirds of practitioners believe that the current pricing structure for
optical products is fair as set out in the NHRPL. With medical aid benefits
increasing in line with product price increases, one can conclude that price
regulation is not as crucial in the optometry industry as in the rest of the private
health care sector.
7.2.2.4 Models of deregulation
Internationally deregulation has been applied to various industries with apparent
success. In the optometry industry there are conflicting outcomes following
deregulation. This makes it difficult to draw conclusions on the benefit of
deregulation with certainty.
Although most countries reported an increase in competition, there is the case of
Victoria in Australia where competition decreased to the extent that it resulted in
an oligopoly. Unemployment rates are also affected differently from country to
country. The UK experienced a period of higher competition and lower prices, but
over time prices escalated again and competition became more concentrated.
The model of deregulation implemented in the pharmacy industry of South Africa
shows definite evidence of increased access to services in less developed
communities. The number of new pharmacies that opened following deregulation
also indicates a period of higher competition in the industry. Although more
comparable to the optometry industry than international models due to the
fundamental differences in health care systems of other countries, there are not
enough information on the long-term effects of this model.
80
In general the short term effect of deregulation is indeed beneficial to the
consumer with more access, lower prices and better quality. The long term
effects, however, are not conclusive enough to use as a benchmark for a
deregulation model. Any form of deregulation will still be based on a trial and
error method.
7.3 RECOMMENDATIONS
The question remains: What is the best way forward for optometry in South
Africa?
Many recommendations have been made to eliminate the problems in the wider
health care sector. Some of which include a National Health Insurance (NHI) with
free primary health care for all citizens of South Africa, better distribution of
resources between private and public sectors and more rigid regulatory policies
to curb private sector price increases. These recommendations will certainly
address the concerns in the health care industry. They are however difficult to
implement and may take a long time for results to be achieved.
Even though most optometrists do not agree with the benefits of deregulation,
one cannot disagree that the majority of South African citizens do not have
adequate access to optometry services. Accessibility, affordability, equity and
quality of care, as well as the sustainability of medical schemes is a progressive
concern of the health industry and therefore also of optometry. Some intervention
is necessary to alleviate the discrepancies in eye care between the private and
public sector.
Considering the reluctance of the private sector to contribute to making eye care
services more accessible, deregulation may indeed be a solution. The immediate
effect of deregulation across industries locally and internationally is almost
always the same: increased competition and subsequent lower prices to
81
consumers. Deregulation of ownership in optometry has the potential to also
increase access of services when larger retail groups enter the market. With
higher accessibility in previously under-serviced areas, the quality of care will
naturally improve.
From a consumer point of view deregulation is the answer although service
providers and more specifically independent optometrists are more at risk to
experience negative consequences following an increase in competition. More
network groups for independent optometrists will be vital in ensuring their survival
among franchise and larger retail groups. While deregulation of optometry will
make eye care more accessible and affordable at least in the short run, the long
term effect is uncertain.
As with the health care industry of South Africa there is no clear-cut answer to
simultaneously address all the problems in the optometry industry and to keep all
stakeholders satisfied. The answer perhaps lies within the optometry industry
itself to address the concerns. Alternative options to deregulation that should be
considered include:
1. Non-government organizations (NGO’s) to provide primary eye care
service at a low cost
2. Compulsory community service for all optometrists
3. Extended community service for students
4. More private-public initiatives
5. Adaptation of education programs to allow different levels of exit from the
programme at certain levels of specialization
Consumer interest takes priority over industry profitability when one considering
the current global and local economic situation as well as the human right to
health care services. Until service providers increase their contribution to address
the industry issues, deregulation is the best alternative to improve accessibility,
82
affordability, quality and equity of eye care to the majority of South African
citizens.
7.4 SHORTCOMMINGS OF STUDY
7.4.1 Broad scope of optometry
For the purpose of this mini-research report only a brief industry analysis was
performed. The main focus of the industry analysis in this study was the type of
service providers and the competitive forces within the industry. It is advised that
a more in-depth industry analysis of the various stakeholders and external factors
might reveal more aspects to consider in creating the most appropriate strategy.
7.4.2 Lack of statistics
The latest South African Demographic and Health survey was done in 1998.
Considering the demographic changes and the health industry changes over the
past ten years, it is questionable whether this data is still relevant. The
researcher noticed an overall lack of data and statistics in the health industry of
South Africa, including the optometry industry.
7.4.3 Expand questionnaire
The main objective of the questionnaire was to solicit the opinion of the service
providers on the possible effects of deregulation on the industry. A similar
questionnaire designed to focus on the opinion of suppliers, medical schemes,
managed care networks, the professional bodies and also consumers could
provide a more integrated solution.
A more comprehensive questionnaire for service providers could possibly focus
on correlating opinion to other areas of importance such as qualification of
optometrists.
83
7.4.4 Comparable industries
The research fails to have sufficient comparable industries to assess the short
term and long term impact of deregulation. The fundamental differences between
the health system of South Africa as a developing country and that of developed
countries make it difficult to relate to the real effect of deregulation. Another
factor which makes comparison difficult is the unique nature of optometry as a
combined service and retail industry. Although the pharmacy industry of South
Africa is the best comparison, the long term effect of that deregulation is not yet
determined.
7.4.5 Areas for future research
The study highlights the dilemma around deregulation of the optometry industry
in South Africa. Since it is still a hanging issue, it leaves room for further
investigation.
Future research could possibly cover the following areas:
-
Financial modeling on the true cost of optometric service delivery
-
Cost analysis of providing service and optical products
-
Evaluation of the role of managed care networks in ensuring the
sustainability of medical schemes
-
Market research in the optometry industry focusing on consumer needs
-
Implementation plans for better cooperation between private and public
eye care and/or community service
-
Alternative options to deregulation in order to address the current issues
of accessibility, affordability, quality and equity
-
Strategic planning for independent practices to survive in a highly
competitive environment
84
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August 2008
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2008
Brown, L. 2003. Eyesite Magazine, April
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Canadian Association of Optometry. 1992. Register of Public Policies. [Online]
Available:
http://www.opto.ca/en/public/02_about_cao/02_05_03_ps_04.asp
Accessed 18 February 2008
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91
APPENDIX A
COVER LETTER FOR QUESTIONNAIRE
92
Dear Optometrist/Dispensing Optician
This research study is to establish the general opinion of South African
optometrists and dispensing opticians with regards to the deregulation in
optometry and related issues.
The research forms part of the partial fulfillment of the requirements to obtain a
MBA degree from the University of Stellenbosch Business School and is carried
out by Marita Joubert under the supervision of Prof. M. De Klerk.
The questionnaire should take approximately 10 minutes to complete. Your
answers are essential to get an accurate picture regarding this issue. The main
objective of the questionnaire is to get a better understanding of
-
Demographic information
-
Average client profile of service providers
-
The view of optometrists on the possible effects of deregulation on the
industry from a service provider point of view.
Your response will be treated confidentially and only the aggregate results will be
made available in the research project. A copy of the final report will be available
for all respondents.
Deadline for submission: 20 August 2008
Should you have any questions, please contact the researcher directly on
Cell: 082 332 0797 or
Email: maritaj@vodamail.co.za
Thank you for your assistance.
Marita Joubert
93
APPENDIX B
QUESTIONNAIRE
94
Deregulation of the South African Optometry Industry
Please remember:
There is no right or wrong answers and your honest reactions will be appreciated
For the sake of completeness, please answer all questions
1. In which province is your practice located?
2. Which best describes the area in which you practice?
3. I am registered with the HPCSA as an …
Optometrist
Dispensing optician
4. Your gender
Male
Female
5. How many years experience do you have in the optometry industry?
0-5 years
6-10 years
11-15 years
16-20 years
more than 20 years
6. Please indicate which of the following most accurately describes the practice
Independent
Group/partnership
Franchise
7. Please indicate which of the following instruments you use regularly in the practice
Autorefractor
Corneal
Visual field
topographer
analyzer
Fundus camera
Tonometer
95
8. In your opinion does the use of technology such as mentioned in question 7 allow you to reduce
your testing time and increase efficiency of your practice?
Yes
No
9. Please indicate how often front staff (not registered with the HPCSA) perform pre-test screening
such as autorefraction, tonometry, etc.
Always
Sometimes
Never
10. The current suggested professional fee for a visual examination is fair.
Strongly agree
Agree
Disagree
Strongly disagree
11. The current advertising regulations with regards to the optometry industry are too strict.
Strongly agree
Agree
Disagree
Strongly disagree
12. Please indicate by ticking the appropriate box what you think the effect of deregulation with
regards to advertising will have on the following aspects.
Increase
Profitability
Professionalism
Competition
Access to service
Quality of service
Equity (equal service to entire SA population)
Affordability
No Effect
Decrease
96
13. The NHRPL guideline tariffs for optical lenses and related products are fair.
Strongly agree
Agree
Disagree
Strongly disagree
14. The annual price increase of optical goods (cost to provider) over the last 3 years was fair.
Strongly agree
Agree
Disagree
Strongly disagree
15. Deregulation with regards to pricing will have the following effect on each of the listed entities.
Increase
No Effect
Decrease
Profitability
Professionalism
Competition
Access to service
Quality of service
Equity (equal service to entire SA population)
Affordability
16. Do you offer a specialized service in addition to routine visual examinations to your clients?
Yes
No
17. If ‘yes’, please indicate which service you offer by ticking the appropriate box (es).
Orthokeratology
Cycloplegic refraction
Other. Please specify:
Behavioural optometry
Sport vision therapy
Low vision
97
18. What percentage of your clientele make use of medical schemes to pay for visual examinations,
spectacles or contact lenses?
0-19.9%
20-39.9%
40-59.9%
60-79.9%
80-100%
19. Medical scheme benefits increase in line with the annual price increase for optical products and
services.
Strongly agree
Agree
Disagree
Strongly disagree
20. Deregulation with regards to the supply of optical goods (frames, lenses, contact lenses) will
have the following effect on each of the listed entities.
Increase
Profitability
Professionalism
Competition
Access to service
Quality of service
Equity (equal service to entire SA population)
Affordability
21. Do you offer a community / budget package for people in need?
Yes
No
What percentage of your business?
No Effect
Decrease
98
22. What criteria do you use to qualify people for the budget package? Please mark all relevant.
Pensioner
Not on medical scheme
Proof of unemployment
Student Optometrist (self) discretion
Other. Please specify:
23. Do you offer any additional public sector, industrial or other services outside your practice?
Yes
No
If ‘No’, please ignore question 24.
24. If ‘yes’, please indicate by selecting the appropriate block(s)
Screening at schools
Screening at factories
Community health centers – public service
Hospital
25. On average, what percentage of your time is dedicated to these community services?
0-5%
6-10%
11-15%
16-20%
21-50%
50% or more
26. Would you be willing to dedicate a percentage of your time to community service?
Yes
No
Only on certain conditions. Please specify
27. Deregulation with regards to ownership is in the best interest of the service providers
(optometrists).
Strongly agree
Agree
Disagree
Strongly disagree
28. Deregulation with regards to ownership is in the best interest of the public.
Strongly agree
Agree
Disagree
Strongly disagree
99
29. Deregulation with regards to ownership will have the following effect on each of the listed
entities.
Increase
Profitability
Professionalism
Competition
Access to service
Quality of service
Equity (equal service to entire SA population)
Affordability
No Effect
Decrease