Speaking at the Hospital Association of South Africa (HASA) Conference in Cape Town, Director of the Economics of Social and Health Care Research Unit at the Centre for Health Economics University of York, Professor Andrew Street said: "All providers should be subject to the same regulatory and reporting arrangements. Failing which differentiated prices could be more appropriate to encourage the entry and participation of different providers and if providers were delivering different services."
"Providers face different, unavoidable costs," added Street.
For instance, regulatory factors affected private and public hospitals differently - private hospitals were taxed, while public hospitals were not. They also faced different production constraints, such as accounting for their infrastructure and capital stock, accessing funding and capital and different costs of borrowing.
If a differentiated price system were to be implemented, it would require price adjustment and for prices to vary in line with the influence of the unavoidable costs.
"Ideally you'd need to pay specific payments to compensate for the influence of each specific unavoidable cost factor," said Street.
Street said it was critical to figure out a way to determine a way to define "work".
"In many countries, hospitals used Diagnos Related Groups which help them describe not only the number of patients, but what they were treated for," says Street. "For example, whether they were in hospital for a hip replacement or were being treated for a stroke."
These were the building blocks of fair reimbursement, because they enabled hospitals and regulators to compare costs on a like-for-like basis.
Street suggested that differentiated pricing is not about ownership, but about external constraints on the provision of healthcare.
HASA CEO, Dr Dumisani Bomela added that there are key differences in input costs between private and public hospital sectors in South Africa.
"Private hospitals are required to pay VAT and Corporate tax and also cross subsidise the reduced prices of drugs and surgicals procured by the public sector on tender. They also need to raise capital at market-related rates. This creates an unequal playing field that needs to be considered when reflecting on relative pricing"
He added the HASA shared Government's vision of delivering sustainable, quality healthcare - accessible to all - and private hospitals stand ready to engage on public health delivery.
Street explained that providers needed to provide accurate, transparent information about their pricing and costs, while regulators also needed to be transparent in the way they analysed such data.
"Transparency is a cornerstone of good governance and if this process breaks down, then both sides can claim the model is flawed," says Street. "The bottom line is both providers and regulators need to commit to making it work."
