Medical aid company refutes minister's allegations over pricing

Media reports on strong comments by the Minister of Health regarding the cost of private hospitalisation calls for urgent reaction by Mediclinic Southern Africa, in its capacity as a leader in the private hospital sector. According to the reports in the Times, New Age, broadcast mediums and distributed by SAPA, the South African Health Minister Dr Aaron Motsoaledi slammed the private hospital sector at the Cosatu central committee meeting for being arbitrarily and unfairly expensive while calling for regulation of the private hospital industry and a concerning strong call to "resist privatisation" of the healthcare sector. The Board of Healthcare Funders' ensuing media release further speaks to "no limits on fees" and "private hospitals charging more than they should".

The private hospital sector has published a great deal of research and statistics over the past few years to expose the myths that private hospitals charge inflated fees in order to make excessive profits, and are thus responsible for driving the increase in healthcare costs. Unfortunately the minister's most recent comments perpetuated such incorrect perceptions. In recent times, such statements and the use of unsubstantiated numbers have been the justification for a call for regulation.

Prices negotiated

Mediclinic annually negotiates prices with every medical scheme and is bound by these agreed rates. It is thus clearly incorrect to assert prices are "arbitrarily and unfairly expensive" and "no limits on fees" apply.

It is unfortunate that the Minister elected to use a single circumcision bill in some private facility as the basis for making generalised statements about the behaviour of the entire private hospital industry.

In addition, it is deceptive to compare rates charged in the public sector to private hospital rates. Public sector charges are heavily subsidised by taxpayers, whilst the private sector charges for the full cost of providing the service. Indeed, other factors preclude the uniform comparison of financial costs of health services provided in the public and private sector. Private hospitals do not receive drugs at the substantially lower State tender prices as the public hospitals do, private hospitals pay VAT and have to recoup the cost of debt and equity required to maintain high quality infrastructure. It is therefore important to first assume a level playing field by considering all of the above before comparing costs between public and private hospitals.

At HASA's 2008 conference, PwC's Corporate Finance Division presented results that showed the then two listed private hospital groups' economic profits to be significantly below the average on the JSE Securities Exchange. This should be viewed with the understanding that we compete for capital with all companies on the JSE. The unsubstantiated assertions of excessive profits are therefore refuted by facts. Mediclinic supports the principle of a scientifically based pricing structure, as this will avert a potentially detrimental situation in the capital-intensive private hospital industry.

Wrong!

In the reported speech by the Minister the point was made that medical aids are suffering severely at the hand of private hospitals and running the loss of not being able to meet commitments due to being in the red by R2.5 billion during 2009. On the contrary, the fact is that by 2009 the medical schemes industry accumulated R28 billion in reserves, earning medical schemes nearly R2.8 billion in investment and other income in 2009.The inclusion of investment and other income, as allowed for in the pricing of contribution rates, resulted in schemes showing a net surplus of R2.4 billion.

The disproportional focus on price as the primary problem in private healthcare is unfortunate as it takes the focus away from the most important outstanding private healthcare reforms, being the introduction of risk equalisation and mandatory membership for those who can afford medical scheme cover. These reforms will significantly lower the cost of medical scheme cover by improving the health profile of the covered population and more importantly, improving access to lower income workers through increased income cross-subsidies.

Mediclinic again affirms our commitment to participating in finding solutions that seek to improve healthcare service delivery for all in our country.

Ultimately, it is the needs of the South African patients (private and public) that should be considered paramount. We give our patients the assurance that we will not compromise the quality of care and infrastructure they have come to expect. We will continue to provide expertise that our patients can trust with their health interest at the centre of our business.