Is this the beginning of the end for South Africa's private hospitals? "If things carry on as they are now, the private hospital industry will be in jeopardy," says Mr Mike Schüssler, economist of T-Sec.
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The minister of health, Dr Manto Tshabalala-Msimang, told private hospital groups this week she would request that tariff increases be limited to CPIX. The minister's decision gives rise to the question of what might be in store for other businesses in South Africa if the government is starting to determine the tariffs of private enterprises.
The bomb about the tariffs of private hospitals was dropped after medical funds had complained to the Registrar of Medical Schemes at the end of last year that the private hospital groups Netcare, Medi-Clinic, Life Healthcare and the New National Hospital Network (NNHN) intended implementing tariff increases of 9% to 10% this year and were also planning to increase theatre and ward fees in particular by a significant margin.
Medical schemes under pressure
The hospital groups have allegedly put pressure on the medical schemes to accept the increases. Although some of the groups have reduced their tariffs to CPIX following discussions this year, the private hospital industry insists that CPIX is not the right basis for determining tariff increases. Mr Otto Wypkema, chief executive of the NNHN, says limiting tariff increases to CPIX is unheard of in the international hospital market and does not take private hospitals' inflation into account.
"Such a proposal has no substance as a price increase model. It is also non-competitive and will curtail participation as well as investment in South Africa's private hospital industry." According to Dr Richard Friedland, chief executive of Netcare, if private hospitals do not operate profitably, the benefits for medical scheme members would be limited. "If hospital groups are not run profitably, it would not significantly improve the affordability of medical funds.
"If the hospitals' profit margins of about 15% to 16% are transferred in full to medical fund members, it would bring about a reduction of only 5,5% in hospital costs." Schüssler says private hospitals have unnecessarily become the punch-bag in the fight against rising medical inflation. "According to figures released by Statistics South Africa, medical fund contributions are the major culprit when medical inflation is analysed. Since 2000 medical schemes' total contribution to medical inflation has been 157,9%, whereas that of private hospitals has only been 74% and that of doctors 137,2%.
"How does a situation arise where a regulated industry such as medical schemes and one over which the minister has control, has such high inflation? Private hospitals have become the punch-bag, but it should also be borne in mind that they are the ones creating jobs and saving the lives of many people. It is not an industry that should be smothered," says Schüssler.
Amongst other things, Tshabalala-Msimang stated that the private hospital groups had not provided her with sufficient information to justify their tariff increases. This followed after the Hospital Association of South Africa (Hasa) had formed a task group that conducted comprehensive research on costs in the private hospital industry to submit to the minister.
Insufficient information
According to the minister, not enough information was provided to support hospitals' defence that nursing costs were their biggest expense. Wypkema says nursing costs have been the major driver of hospital inflation in recent years.
"It seems as if the minister has ignored the comprehensive documents submitted to her by the industry. All role players emphasise the important role played by the nursing staff in the healthcare industry, and that they should be paid appropriate salaries, which recently also received attention in the public sector."
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