Opinionista Sha'Ista Goga 14 March 2013

Competition Commission can now go after private healthcare providers

The Department of Health has failed to address growing calls for the urgent reform of private healthcare, in particular pricing structures. Fortunately the Competition Commission has finally been given the necessary powers to investigate the industry in order to determine why members of private healthcare schemes are bearing the brunt of spiralling costs.

Aspects of health in the South African private healthcare system have not been optimally assessed and addressed – the key issue being pricing. In the context of increasing medical inflation and crises at public hospitals, which limit alternatives, this is an increasing area of concern for a sizeable minority of the population.

Private healthcare is a market replete with distortions. This is in part due to the very nature of healthcare. As something intrinsic to well-being we place high value on healthcare, however, we are unable to fully comprehend and assess the quality of healthcare services because of specialised knowledge required to do so and the complexity of provision. Some regulation of private healthcare markets is therefore desirable. For example, the regulations that prohibit medical schemes from pricing based on individual risk profiles ensure that the public is protected from the costly discrimination that may occur if medical schemes were able to cherry pick the young and healthy and drop cover for those that pose greater risk and cost.

However, pricing mechanisms and negotiations over reimbursement between providers and medical schemes have long been a contentious issue. South African providers and funders are currently in a non-regulated situation that ultimately means that members of these schemes have to bear the brunt of spiralling costs and out-of-pocket payments.

The causes of the problem are attributed to a variety of factors, depending on who you ask. These include problematic bargaining structures as a result of the Competition Commission rulings that prevented collective bargaining within the industry, the removal of The Health Professions Council of South Africa (HPCSA) ethical tariffs as a ceiling on prices and the frozen attempts at price regulation by the Department of Health. The problem has also been attributed to structural issues such as increased concentration in the hospital industry, shortages of specialists combined with an erosion of general-practitioner gatekeeping of specialist usage, and improvements in technology.

Given the state of affairs, and the fact that addressing pricing regulation can be seen as a duty on the state (based on Section 27 of the Constitution read together with Section 8), urgent action is required. This should take two forms. First, there is the need for immediate, decisive intervention by the Department of Health. It has the power and ability to develop legislation for a new statutory pricing framework. The department is, at present, the only body capable of creating a legal framework for multi-lateral bargaining and price-determination. However, given the history of failed attempts to publish a reference price list, it is essential that this is developed in a scientific manner, with sufficient consultation and within the correct legal framework.

Second, from a structural perspective an investigation into the sources of distortions in private healthcare markets and holistic recommendations on potential regulatory and behavioural remedies is critical. The institution with both the mandate and the expertise to engage in such as study (and one that is often accused of creating the impasse through its decisions over time) is the Competition Commission. The commission has some experience in market inquiries, having run an inquiry into the banking industry that highlighted some of the key market failures. However, this inquiry was conducted in the absence of a legislative framework and had certain failings. Some of these failings are remedied by the new market inquiry provisions of the Competition Amendment Act, which creates a clear legal framework for conducting market inquiries, and provides the Competition Commission with the powers to engage in a more meaningful investigation of markets, while other failings can be remedied through the design of the inquiry, for example, bringing in regulators in the sector at an early stage so that they understand and act on recommendations.

The new provisions of the Competition Amendment Act have finally been given a commencement date by President Jacob Zuma after being passed by Parliament on 28 August 2009. As these provisions give the commission a clear set of tools to meaningfully investigate and offer solutions to the healthcare market, this should be celebrated. Though the full range of amendments includes some contested and highly controversial provisions, including the prohibition on complex monopoly conduct and the introduction of individual liability for cartel conduct, the market inquiry provisions are far less controversial.

Private healthcare subscribers are clamouring for the issues in the industry to be resolved and it is heartening that the state is finally instituting measures to do so. The next essential step is for the Department of Health to move to create an interim pricing framework, even if through a bargaining chamber, and spend time and effort developing a considered and scientific pricing framework. Now that the Competition Commission, which has now been provided the legal framework that would allow it to meaningfully investigate the industry, it must be supported. Only through alignment with the various healthcare regulators and honest and non-obstructive engagement by market participants and civil society can we ensure that a market inquiry into healthcare yields meaningful results coupled with solid practicable recommendations that will contribute to an improved healthcare system. DM

Sha’ista Goga is a senior researcher for SECTION27


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