The Board of Healthcare Funders (BHF) says it will submit an appeal to the Competition Tribunal against the Competition Commission’s decision to reject an application that would allow medical schemes collectively to negotiate tariffs with healthcare providers.
The BHF, in a statement on Monday, said the Commission’s decision “is a blow for millions of South Africans, as it keeps medical scheme cover expensive and inaccessible”.
It said 68% of medical scheme beneficiaries are from previously disadvantaged groups. “Allowing medical schemes to collectively negotiate tariffs with healthcare providers and make this information public would lead to lower medical scheme contributions for these hard-working South Africans and would ensure broader access to good quality, private healthcare for millions more citizens.”
The representative association for medical schemes in December 2021 applied to the Competition Commission for its members to be exempted from the provisions of section 4 of Chapter 2 of the Competition Act, which prohibits agreements, practices, or conduct between competitors that may prevent or reduce competition in a market.
The Commission published its decision in Government Gazette No. 51950 of 24 January.
According to the BHF, the Department of Health and the Council for Medical Schemes (CMS) opposed the application. It called this stance “alarming”, considering the potential benefits of the exemption for South Africans.
Moonstone asked the department and the CMS to confirm whether they had opposed the BHF’s application, and if so, why. No response had been received from either entity by the time of publication.
What the BHF sought in its application
The BHF’s exemption application was published for comment in the Government Gazette on 6 May 2022. The objectives of the exemption were for the BHF to:
- Publish a recommended scale of benefits (reference price list for healthcare services) developed by the BHF and its members. The BHF said the recommended scale of benefits would enable medical schemes, healthcare providers, and consumers to make informed decisions with respect to benefit design, fee negotiations, which tariffs are considered reasonable, and whether or not to use a particular healthcare provider.
- Collectively negotiate with all healthcare service providers with respect to pricing, the Prescribed Minimum Benefits (PMBs), and quality of services.
- Collaborate on and publish health technology assessments research outcomes. The BHF said its members would use the health technology assessments in collective bargaining with suppliers or providers to make health technology more affordable for scheme beneficiaries.
- Make collective submissions to regulators and government bodies on behalf of its members regarding the price of healthcare services, the quality of healthcare, trade practices, health technology, a standardised package of basic benefits, and coding and health outcomes, based on information supplied to the BHF by its members.
In 2004, the BHF undertook to stop publishing a recommended scale of benefits or pricing guidelines after the Competition Commission said collective bargaining between medical schemes and healthcare providers and the determination of tariffs amounted to price fixing.
In 2008, the BHF applied for an exemption from section 4 of the Competition Act, to enable medical schemes to engage collectively in relation to certain practices, including sharing and publishing prices and costs, preventing membership churn, making collective submissions to the state, and collective bargaining for medical materials, medicines, and devices.
The Commission rejected the exemption.
Challenges facing the industry
In its latest exemption application, the BHF said the medical schemes industry is facing the following challenges:
- Schemes and beneficiaries are struggling with the high cost of private healthcare for reasons identified by the Competition Commission’s Health Market Inquiry (HMI).
- “Regulatory failures” and “inadequate stewardship” over the private healthcare sector for the past 15 to 20 years have resulted in runaway supply-side prices.
- Schemes are significantly disadvantaged by the “rules-based and inflexible” regulatory approach of the Council for Medical Schemes (CMS). Consequently, they have been severely hampered in their ability to exert downward pressure on the prices of healthcare services, keep contribution increases to a minimum, and devise innovative, cost-effective benefit packages that will promote competition and appeal to a wider market.
- The CMS and the Department of Health have not meaningfully reviewed the PMBs over the past 20 years.
- Smaller schemes do not have the bargaining power to negotiate prices that are fair and reasonable on behalf of their beneficiaries.
The BHF said granting the exemption would result in:
- a change of productive capacity necessary to stop the decline in the industry, in line with section 10(3)(b)(iii) of the Competition Act; and
- competitiveness and efficiency gains that would promote the expansion of the medical schemes industry, in line with section 10(3)(b)(v) of the Act.
According to the BHF, it represents the interests of more than 40 medical schemes and administrators covering 4.5 million beneficiaries in South Africa.
Why the Commission rejected the application
The Commission rejected the arguments put forward by the BHF, saying its investigation found that the non-profit company’s members are competitors in the provision of medical scheme services and the exemption would reduce competition. It could not find sufficient evidence to prove that the practices sought by the BHF met the objectives of section 10(3)(b)(iii) of the Act.
Its investigation found that the medical schemes industry faces “some challenges”, such as the reduction in the number of schemes, high healthcare costs, health practitioners’ ability to charge any fee they deem appropriate, resulting in patients having to pay out of their pockets when receiving healthcare services, and an increase in expenditure on PMBs by medical schemes.
The Commission, however, said insufficient evidence was submitted by the BHF and/or gathered by the Commission to demonstrate that the industry is in decline.
“Nevertheless, there are positive industry trends that suggest that the medical schemes may be relatively stable. These include an increased number of beneficiaries covered by medical schemes, a stable age profile, and the industry’s ability to adhere to the 25% solvency requirements.”
The Commission also could not find sufficient to prove that the practices sought by the BHF met the objectives of section 10(3)(b)(v) of the Act. It found there was no clear evidence demonstrating how the sought practices would contribute to the promotion of employment and/or industrial expansion.
‘Contrary to the Health Market Inquiry’
The BHF described the Commission’s refusal to allow BHF members to negotiate tariffs collectively as “perplexing” because this was one of the key recommendations in its HMI report, published in September 2019, in order to bring down private healthcare costs.
The HMI recommended the establishment of a third-party supply-side regulator for health that would be tasked with ensuring pricing is determined transparently and legally by setting up a negotiating forum between the various private sector roleplayers, the BHF said.
“The Competition Commission recommended that this forum set fixed rates for PMBs, as well as a reference tariff list for all other treatments and services. This list would be published so consumers would know what they should be charged when receiving healthcare and whether they are being overcharged.
“This would ensure greater transparency around the cost of private healthcare, which will contribute to making healthcare more affordable over time and potentially lead to lower medical scheme contributions for members. It would also mean that more South Africans would be able to afford medical scheme cover, which in turn would lessen the burden on the public health system.”
Despite these “clear benefits to consumers”, the BHF said the Department of Health has failed to implement the HMI report’s recommendations to set up a negotiating forum between private sector roleplayers.
The BHF accused the Competition Commission of “dragging its feet” for more than three years before rejecting its application “on spurious grounds”.
Regarding the Commission’s finding that allowing the exemption would reduce competition, the BHF said its application indicated it was prepared to include a third-party observer in negotiations to ensure pricing was determined fairly and transparently.