The government’s proposal for universal insurance has sparked debate

Access to free medical treatment is a constitutional right in South Africa, but though the government has devoted at least 12% of its budget to health care annually since 2010, the Department of Health (DoH) itself has characterised the system as “inequitable, with the privileged few having disproportionate access to health services”. Total per capita health spending – public and private combined – stood at $645m in 2012, according to the World Bank. Expenditure is split fairly evenly between the public and private health care sectors, although 84% of South Africans (42.5m) rely on state services, while private facilities serve just 8.7m people, or 16% of the population.

HIV treatment accounts for at least 25% of public health care spending, according to a sector investment report published in The Lancet in 2013. While the government has made great strides in expanding access to antiretroviral therapies (ARTs) since 2009 and stabilising the HIV/AIDS mortality rate, the epidemic remains one of the country’s most pressing public health concerns, along with tuberculosis (TB) and child mortality. South Africa is also seeing a shift in the disease burden to non-communicable diseases (NCDs), which are now the number three cause of premature death. NCDs account for an estimated 40% of deaths in the country, according to the WHO. Over the next 10 years, deaths due to NCDs – especially cardiovascular and respiratory diseases, cancer and diabetes – are projected to rise by 24%.

Indicators

A high prevalence of HIV and TB, child and maternal mortality, NCDs, and death or disability due to violence and injury bears much responsibility for the persistently poor national health indicators over the past two decades. After the spread of HIV/AIDS caused life expectancy at birth to fall from 62 in 1990 to 53 in 2011, mortality rates from the epidemic stabilised in 2012 and pushed life expectancy back up to 56 for men and 62 for women. HIV/AIDS: In 2014, 2.5m South Africans were enrolled in state HIV treatment programmes, and this number is expected to rise by at least 500,000 per year. According to the 2012 “South African HIV Survey”, published by the Human Sciences Research Council (HSRC), in 2012, 6.4m South Africans had HIV, up from 5.2m in 2008, for a prevalence rate of 12.2%.

Peak prevalence shifted from the 25-29 age group in 2008 to 30-34 in 2012, a trend that the HSRC attributed to increased ART coverage. However, the council found that HIV incidence among females aged 15-24 was four times higher than among their male counterparts, and that women in this group were eight times more likely to be infected. The HSRC concluded that the DoH is unlikely to achieve its target of a 50% drop in new HIV infections by 2016.

Tuberculosis

Although the number of South Africans with TB dwarfs those with HIV, the diseases are “fatally intertwined”, according to the DoH, and the country accounts for 17% of the global TB burden. Between 54% and 65% of people diagnosed with TB are also HIV positive, and a further 16% of sufferers either do not get tested for HIV or do not have their status recorded with health authorities. South Africa has an estimated TB prevalence rate of more than 1000 cases per 100,000 people, compared to fewer than 10 per 100,000 in most developed countries, and TB remains the leading cause of non-natural death. Between 2011 and 2012 South Africa was one of the three countries to post the largest increases in multidrug-resistant TB. The successful treatment rate for TB remained stable at approximately 70% between 2006 and 2010, according to the DoH, although the UN Development Programme estimates that nearly one-quarter of South Africans diagnosed with TB never receive treatment.

Child Mortality

South Africa has also lowered its child mortality rate by reducing mother-to-child transmission of HIV from 8.4% in 2008 to 2.6% in 2012. The under-five mortality rate dropped from 56 per 1000 live births in 2009 to 42 in 2011, according to World Health Organisation (WHO) statistics, while infant mortality fell from 40 per 1000 births to 30 during the same period. Much of this improvement is due to the government programme to expand access to ARTs since 2009. According to the HSRC, exposure to ARTs nearly doubled from 16.6% in 2008 to 31.2% in 2012.

The government increased its total annual health care budget by $1.1bn in 2014/15 to $13.8bn. Consolidated public health care spending is projected to rise by an annual average of 7.1% between 2014 and 2017 to R155bn ($14.7bn) in 2015/16 and R165bn ($15.6bn) in 2016/17. In February 2014 the finance minister, Pravin Gordhan, said total government spending on health care is expected to exceed R492bn ($46.6bn) over the next three years in preparation for the implementation of the National Heath Insurance (NHI) scheme, which was launched in 2011 to overhaul provision of health care over a 14-year period.

State Coverage

The NHI green paper sets out the programme as a publicly funded universal insurance system that will provide all South Africans with a comprehensive package of benefits underpinned by re-engineered primary health care (PHC). Though South Africans will still have access to private care, NHI enrolment will be mandatory. Pilot programmes were launched in 2012 in 11 underserved provinces.

The NHI is designed to make access to care more equitable. According to the green paper, the NHI system will include “a mechanism for improving cross-subsidisation in the overall health system, whereby funding contributions would be linked to an individual’s ability to pay”. It promises that “everyone will have access to a defined comprehensive package of health care services”; that covered services will be provided through accredited public and private providers; and that there will be a strong focus on health promotion and prevention services at the community level.

Primary Health Care

Under the NHI programme, PHC services will be delivered by a range of providers, including clinical specialist support teams in each district; professional nurses in schools; and teams of municipal ward-based PHC agents in all districts that will each be “headed by a health professional depending on availability” and allocated a specific number of families per area. PHC services will also be delivered through contracted private providers.

Between 2008 and 2012, per capita PHC expenditure grew by an annual average of 11% from $45 to $69, and PHC utilisation rose from an average of 2.2 visits per person to 2.5. The DoH had aimed to raise this to 2.8 visits per person by 2013, but is likely to have missed this target due to contentious negotiations with general practitioners (GPs) as it recruits doctors to take part in the NHI roll-out.

Hospital Structure

Alongside primary care, secondary and tertiary care structures are also being reformed under the NHI. All of the country’s hospitals will be redesignated by the National Health Council as district, regional, tertiary, central or specialised. New district health authorities will be established, and will be handed the responsibility of contracting with the NHI in purchasing decisions for services from accredited providers. The green paper also promises that the NHI system will separate purchasing and service provisioning functions, and will require “a clear delineation of the roles and functions of provincial and national spheres of government”. Facilities contracted under the NHI will have to adopt a new coding system for each type of service provided to apply for reimbursement by the government.

Financial mismanagement and fraud are common in public health care, according to a 2013 report by consultancy Econex, as evidenced by the 2012 Public Finance Management Act (PFMA) audit, which concluded that 20% of state medical facilities’ audit reports were financially unqualified. The PFMA report also found that the public health sector incurred R8.2bn ($777m) of irregular expenditure in 2011/12, up by R2.4bn ($227m) from the previous year.

Staffing

The government earmarked R1.2bn ($114m) of the 2014/15 draft budget to contract 600 doctors to participate in the NHI pilot programmes, and in early 2013 the DoH began negotiations over a fee structure with the South African Medical Association (SAMA), an industry body that represents 17,500 South African doctors, 8500 of whom work at public hospitals. As of April 2014, fewer than 100 GPs had reportedly been contracted, due to the government’s refusal to pay more than R350 ($33) per hour, Dr Meshack Mbokota, the chairperson of SAMA’s specialist private practice committee, told OBG.

Financing

Though the government has kept NHI financing discussions out of the public domain since releasing the green paper, debate has raged in the media among stakeholders since 2011. The paper estimates that if the NHI is rolled out gradually over a 14-year period and provides all South Africans with a defined, comprehensive package of services it would cost R214bn ($20.3bn) in 2020 and R255bn ($24.1bn) in 2025, although the policy document does not specify the treatments covered in the benefits package.

The NHI roll-out is currently financed by the nationally managed national health grant, and the provincially managed national health insurance grant. To strengthen district health structures, more than R221m ($20.9m) was earmarked in the 2014 budget for the national health insurance grant, along with some R19bn ($1.8bn) for hospital and clinic construction and upgrades. As part of the NHI programme, the government has also announced plans to build at least 43 hospitals and 213 clinics over the next five years, and to refurbish or reequip 870 clinics in the 11 pilot scheme areas. In October 2014 the finance minister, Nhlanhla Nene, signalled possible changes to how public health sector funding is allocated: “The future introduction of NHI could imply a significant restructuring of intergovernmental fiscal relations in the health sector. These considerations will be examined by a high-level working group that will make recommendations to the minister’s committee on the budget”, he said in a policy statement.

Infrastructure

Expanding infrastructure should help improve care, as structural and resource constraints have contributed to poor outcomes in the public system. “Spending is not the issue; development of skilled local human capital and the proper allocation of resources towards infrastructure are key for growth. The distribution channels within the public health care system are problematic and must be resolved to align itself to the future NHI,” Brian Daniel, the CEO and country manager at Pfizer, told OBG.

Improving standards at health facilities is also necessary, according to an audit of South Africa’s 3880 public health facilities conducted in 2011 and 2012. The audit found that only one out of 394 government hospitals had adequate cleanliness, infection control standards, pharmaceuticals supplies, patient safety controls, wait times and staff attitudes.

Just 32% of the medical facilities that were inspected had appropriate infection control mechanisms in place, and 93% of public hospitals had inadequate equipment to safeguard the health of mothers and children, the report found. Fewer than one-third of the hospitals and clinics surveyed had personnel that treated patients reasonably, while 25% of the facilities had staff that were deemed caring.

South African public health facilities collectively scored below 50% in two of the six ministerial priority areas measured by the audit: patient safety and security (34%) and positive and caring attitudes (30%). The deteriorating quality of public facilities is evidenced by provincial hospitals’ declining share of total annual medical scheme expenditure from 27% in 1989 to 0.3%, according to the Econex report.

As of 2014 conditions at public health care facilities are under increased scrutiny as a result of the passage of an amended National Health Act in 2013, which established a new Office of Health Standards Compliance. Over R300m ($28.4m) of the 2014 draft budget was allocated to fund the new inspection unit, which will be responsible for monitoring the standards of both public and private medical facilities. An independent board has been appointed and launched operations in April 2014.

Private Participation

The role of the private sector within the NHI is among issues expected to be clarified in the long-awaited NHI white paper, which is due to advance planning of the scheme.

Most of the public-private partnerships the government has struck in the health care field in the past have been hospital-building concessions, rather than management and clinical service contracts. The green paper pledges to draw on existing expertise in the administrative and management divisions of private insurance funds, but the state is likely to retain the core clinical and management competencies in public care, which some fear will leave underlying issues that contribute to the uneven performance in the current system unaddressed.

In an interview published by the Netcare medical scheme, Metropolitan Health’s CEO, Blum Khan, argued that the NHI must be a partnership between the public and private sectors: “It would be foolish to throw away the skills, administrative capacity and resources of the private sector. If the government tries to force private practitioners to adhere to new NHI rules without offering incentives, there will surely be a flight of skills at a time when we can least afford it.”

Private Sector

A private medical industry valued at $13.2bn-14.4bn runs parallel to the public health system. In 2012/13 the private sector accounted for more than half of total health care expenditure. The private hospital network provides 26% of hospital beds and employs 7529 GPs, 6726 specialists, 77,569 nurses and 2964 pharmacists. The private landscape is dominated by three large service providers – Netcare, Mediclinic and Life Healthcare – which each have a market share of around 25%, and collectively account for 36% of total national medical spending. In 2012 the trio jointly had a stock market capitalisation of R83.69bn ($7.93bn), contributed R1.65bn ($156m) in taxes and trained more than 2000 new nurses. Independent private hospitals claim the remaining 25% of the market and bargain collectively through the National Hospital Network.

Medical Schemes

Over 80% of private health care expenditure is financed through benefits paid by 92 different medical schemes, such as Discovery, Gems, Bonitas and Liberty, while out-of-pocket expenditure accounts for at least 13%. Medical aid contributions are tax deductible, with credits set at R242 ($23) per month for each of the first two beneficiaries on a medical scheme and R162 ($15) per month for any additional beneficiary. Membership is highly correlated with income, according to the Hospital Association of South Africa (HASA), which estimates that 80% of people living in households earning over R250,000 ($23,675) per year are medical aid members.

Medical scheme membership in South Africa exceeds the number of citizens who submit tax returns. In the 2008 tax year, for example, there were 5.5m registered taxpayers, 3.5m of who submitted returns, and the number of medical scheme beneficiaries of working age was 4.8m. Most South African medical schemes reimburse policyholders for expenses at a predetermined rate, and care providers are permitted to charge patients for the remainder of their fee, a practice that is known as balance billing. Because medical scheme members are increasingly forced to pay a large proportion of their own health care expenses, there is a growing market for gap coverage products such as dreaded disease and disability packages, and hospital cash plans, which pay out a set amount to beneficiaries who are hospitalised depending on the length of stay, regardless of the medical bills accrued or the reasons for treatment. In 2012 an estimated 27% of all medical aid policyholders had hospital cash plan policies, and there were around 250,000 gap coverage policies in effect.

Cost Inflation

The private sector thus accounts for a disproportionate share of health care resources relative to the population it serves, and the cost of private care has escalated recently. The NHI green paper notes that per capita expenditure for medical aid members was R11,150 ($1056) in 2011, compared to R2766 ($262) in the public sector.

Between 2009 and 2013, medical care inflation exceeded the headline consumer price index by an average of 4.3%, while health insurance as a proportion of household expenditure rose from 3.4% in 2006/07 to 7.2% in 2010/11. In a submission to Parliament in July 2011, HASA attributed the high prices of private medical treatment to the 14% value-added tax levied on health care products and the higher costs of pharmaceuticals and surgical supplies, which inflate patients’ hospital bills by 25-30%.

HASA also cites the dearth of qualified doctors, nurses and hospital managers as a catalyst of medical inflation. This shortage is compounded by public sector wage adjustments, HASA argues, which have had a knock-on impact on private care, where salaries account for over 60% of operating costs. “The public sector wage increases have led to significant inflationary pressure in the private sector. Given the critical shortage of nurses in both sectors, this has fuelled wage inflation,” said HASA’s submission.

Inquiry

In January 2014 the Competition Commission announced the launch of a market inquiry to determine the causes of the entrenched disparities in South Africa’s two-tiered health care model. The aim of the inquiry, according to the commission, is to “determine the factors that restrict, prevent or distort competition and underlie increases in private health care prices and expenditure in South Africa”.

Critics have voiced fears that the inquiry will be used as a pretext for further government regulation of private health care prices. The commission will not set prices during the inquiry process or draft laws or regulations, but it will have unprecedented broad powers to compel stakeholders to testify, and can recommend policy changes and new legislation to regulatory bodies; investigate the conduct of specific companies; and file complaints directly with the higher competition tribunal, which can impose fines of up to 10% of a corporation’s annual turnover.

In January 2014 Netcare filed a lawsuit accusing KPMG, the firm appointed as technical adviser to the probe, of a conflict of interest. The launch of the inquiry was subsequently postponed, but the former chief justice, Sandile Ngcobo, who will chair the inquiry, assured multiple local media outlets that the commission was still on track to deliver its recommendations as scheduled by November 30, 2015.

Outlook

South African health care is poised for a huge overhaul. The question is whether the roll-out of the NHI programme is feasible, given the human resource, technical and financial constraints of the existing public health system. Many of those operating in the private sector argue that an NHI plan that leverages the medical, technical and administrative skills of the for-profit health care sector and retains the option of private medical scheme membership could work. Consolidation in the private sector may be inevitable once the NHI scheme is in place, and the cost of private care is also likely to rise. However, a system imposed in a cooperative manner could succeed. “We have the knowledge, skills and capacity across the public and private sectors to make universal quality health care a reality,” Blum said. “If the design of the NHI model is handled correctly and we concentrate on partnership, we have the opportunity to make a difference to the lives of South Africans.”

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The Report: South Africa 2014

Health & Education chapter from The Report: South Africa 2014

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