Opening address by Minister of Health Dr Tshabalala-Msimang at the Private Health Sector Indaba, Midrand

Programme Director
MECs of Health
Members of the private health sector
Officials of the national and provincial departments of health
Members of the media

I wish to welcome you all to this very important indaba. I am particularly pleased that so many of you were able to prioritise this very important meeting which aims to explore strategies to further transform the health sector in our country with particular reference to the private health sector. I must also welcome the MECs who have agreed to be with us and who will facilitate some of the group discussions.

I made a commitment to you last month that the department will provide the leadership to enable us to engage further on measures that need to be taken to address a range of issues relating the sustainability of the private health sector, including issues of costs, affordability and transparency.

Subsequent to our August meeting, a task team with members from various parts of the private healthcare sector was established to prepare an agenda for this Indaba. I believe that the agenda that the task team prepared is inclusive of all the role-players that will effect and be affected by the interventions that this meeting proposes. I would like to express my appreciation to the members of the Task Team for their participation and commitment to this process.

I wish to encourage all of us to frankly acknowledge the challenges that face the private healthcare system so that we can collectively decide how best to respond to these challenges. Off course, it is true that this will not be an easy process given the competing interests of the various sections of the sector.

As you know, we have a private hospital industry, specialists, general practitioners, dentists, etc, who operate in an environment of a "fee for service" model. This model means that the more services one provides the greater the reimbursement.

The obvious problem with this model has been recognised internationally as unsustainable, unaffordable and frankly not ethically justifiable. In addition, it is not in the best interests of either the private healthcare sector or the patients that it serves. Presently, I do not believe that patients are adequately protected against exploitation by healthcare providers.

As well, there is inadequate level of diversity of ownership and competition within the sector and this does not therefore create a downward pressure on costs. The sector is largely driven by the profit imperative as many companies in the sector are listed. Whilst this is the market imperative, we must ask what the moral imperative is for this sector and we must seek to develop consensus around this. Without agreeing on the moral or ethical basis of the sector, it is possible that all we shall be concerned about is the bottom line ,profits, and not contributing to the improvement in the health status of all South Africans.

Where we have services rendered or products made available for the survival and common good of human kind, it may be inappropriate to have a huge profit motive overriding decisions and behaviour without adequate government intervention and regulation. This is why the petrol price is controlled, and electricity, telecommunications and other social services are made available in a way that protects the consumer and the country as a whole.

Similarly, I believe private healthcare sector also needs a coherent regulatory framework to ensure that it operates in the best interests of all the citizens of the country, not just its shareholders. This Indaba should indeed begin to discuss measures that need to be adopted both by government and the sector to ensure greater transparency. We cannot afford to allow this industry to continue to be negatively affected by the undesirable practices as recently reported in the media as well as the cost spiral that we are currently witnessing.

We must also collectively ensure that the private health sector plays its role in the creation of a national health system that is "caring and humane society in which all South Africans have access to affordable, good quality healthcare."
There are therefore many challenges that have to be overcome.

Over the past five years, membership of medical schemes has become both static and increasingly unaffordable thus widening the gap between the high-income and the middle-income groups in terms of access to private healthcare.

The slight increase in medical scheme membership this year is probably enrolment in the Government Employee Medical Scheme. While we welcome this, we believe that more should be done to bring more people into the risk pooling market.
As you know, medical schemes are registered as "not for profit" as Section 21 companies. To protect these schemes, reserves have to be accumulated and according to the Medical Schemes Act this should be at 25% of gross annual contributions for a particular year. We need to ensure that this legal requirement is met by all schemes to ensure their viability.

Some schemes are building up reserves much higher than 25% while the contributions by members are at the same time increasing at a rate greater than CPIX. This is unfair to the members of the medical schemes.

Some have attributed this problem to the uncertainty and risk associated with the cost of healthcare. It is clearly in all our interests therefore to ensure that we keep cost escalations as low as possible and as predicable as possible. What is also of concern is the significant increase in expenditure on private hospitals from R8 billion in 1997 to R17,7 billion in 2006/07. This represents a 121% increase in just 10 years. Specialist costs increased from R5 billion in 1997 to R11 billion in 2006/07, an increase of 120%.

Another area of major increase in expenditure by medical schemes is non-health items. These costs are related to administration services, managed care services and broker fees. Administration fees increased from R2 billion in 1999 to R5,9 billion in 2006/07, a growth of 195%. . The cost of managed care initiatives increased from R887 million in 2000 to R1,4 billion in 2006/07.

Broker fees increased by 326% from R230 million in 2000 to R980 million in 2006/07. This is despite the fact that broker services have not increased the number of people joining medical schemes. They just move the same pool of people from one scheme to the next at a fee thus adding questionable value at high cost.

Contribution rates per medical scheme beneficiary have increased from R3,423 in 1998 to R7,807 in 2005 (i.e. more than doubling over a seven year period). This is in the face of a decrease in medical schemes' expenditure on pharmaceutical products by 24% in real per beneficiary terms between 2003 and 2005, largely as a result of the medicine pricing regulations.

I am sure you will agree with me that the ever-increasing cost of private healthcare undermines our transformation agenda. I am also sure that you agree that the picture that I have described cannot continue. If we do not intervene now, it is quite possible that the private healthcare sector will shrink and perhaps collapse. I am confident that none of us want that to happen.

Even though we are not going to point fingers at each other, we must all accept that the challenge facing us as stakeholders in the health sector is to control the cost of private healthcare, to increase access and to ensure transparency of the system.

We therefore have to engage each other today to seek possible solutions to these challenges. We have to say, for each of the problem areas, this is what each one of us is going to do to reduce the cost of healthcare, to improve transparency in pricing policies and to improve diversity and improve quality of care.

Of course, as government we have a Constitutional obligation and mandate which government must exercise to take appropriate legislative measures to ensure progressive realisation of the right of access to healthcare for the people of South Africa. But as you well know, our democratic framework also requires that legislative processes should take into consideration the views or input of all interested parties.

This Indaba provides us with a unique opportunity as main players in this industry to contribute in the realisation of the right of access to healthcare as enshrined in our Constitution by proposing concrete measures to deal with all the access barriers currently affecting the private healthcare sector.

At the end of this Indaba, we need to reach some consensus as to how we can realise the goals of reducing healthcare costs, improving transparency, increasing choice and improving the quality of healthcare.

I hope that the deliberations from this Indaba will come up with a set of practical recommendations that we can agree to. I wish all of us fruitful discussions in our effort to ensure better health for all.

Thank you.

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