competition to make the healthcare market work for all

Competition to make the Healthcare Market work for all South African communities

Presentation to the Health Market InquiryDr. Brian Ruff

Durban, May 2016

There is an access & affordability crisis in the SA health sector

2

Monthly income Households %

Less than R3,183 8,547,006 74%

R3,183 – R6,367 1,772,576 13%

R6,368 – R12,817 1,267,165 9%

R12,818 – R25,633 996,357 7%

R25,634 – R51,200 659,057 5%

More than R51,201 383,589 3%

• 8,8 million = Medical aid members• ± 10 million = Employed, but uninsured• ± 35 million = Unemployed & uninsured

There is an access & affordability crisis in the SA healthcare sector

3

+/- 54 million people in SA

Source: Census 2011, Foundation of Professional Development, Quarterly Labour Force Survey Q3 2015

Average scheme premium

R3,024 per household

Family earning R17,000 = 23%

of income

Medical Scheme market

Majority of population cannot afford insurance & those who can are finding it increasingly difficult to maintain

Medical schemes are not growing

4

YearNumber of

medical schemesLives covered % increase % increase

(Excl GEMS)

% increase excl. GEMS & adjusted for population growth

2008 105 8,315,718 5.3% -5.3% -6.6%

2009 105 8,315,718 2.5% -1.8% -3.1%

2010 105 8,315,718 3.1% 0.9% -0.3%

2011 97 8,526,409 2.5% -1.7% -2.9%

2012 92 8,679,473 1.8% 0.1% -1.0%

2013 86 8,776,279 1.1% 0.8% -0.3%

2014 83 8,814,458 0.4% 0.8% -0.2%

-

2 000 000

4 000 000

6 000 000

8 000 000

10 000 000

2008 2009 2010 2011 2012 2013 2014

Scheme lives

Excl GEMS

Adjusted forpopulation growth

Source: Source: CMS annual report 2014/15

Current narrative

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Industry is ever more expensive because…

• Older and sicker membership owing to selective joining and lapsation:

o Mandatory cover by income level cover missing

o Risk Equalisation Fund not implemented – so focus remains on selection not purchasing

• New technology - diffuses fast

But the narrative largely ignores:

• the unregulated, poorly performing healthcare system produces unnecessarily high costs that result in high premiums, so members need to join selectively

What’s the starting point? We suggest the crisis is also caused by the dysfunctional supply structure with the wrong basis for competition

We believe a competitive market solution contain the following elements

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State framing market efficiently

What an optimal competitive health system looks like

7

=

Supply competing on value

↔

Funders purchase effectively for the

Demand (its member population)

• Consumer empowered to chose Medical Schemes that are good at purchasing high value care at affordable premiums

• Commercial supply side

• With integrated healthcare teams

• System that produces value

• Effective triage & moving patients up/down system as per individual need

• That competes for Scheme network contracts based on value

• Accountable for population

• State manages structural capacity of system • Defines & regulates demand & supply side management

role parameters

• Funders collect & use the right informationto purchase high value care on behalf of members

Supply matches the demand regionally & competes on value


This requires a purchaser/provider framework

8

=


↔



Regional supply matches demand with healthy competition

• Remuneration mechanism supports good decision making & sustainable & fair provider rewards

Incentives/ rationing(Governance)

• Relative costs, utilisation & outcomes

Production

• Manage structure & capacity• Defines ‘agency’ roles &

efficacy Regulatory control

• Geographic plan matches demand (size/capacity)

• Capacity organised in customized teams to match disease profile

Structural design

• Affordable pricing• Member selection = sufficiently

large & healthy insured risk pool

Affordability & accessibility

• Disease burden index & system case mix

• Health outcomes data

Information (collect & use)

• Choice, concentration & bargaining/ purchasing power

Competition• Dynamic demand/supply equilibrium • Success/fail consequences

Capacity control(barriers to entry/ exit)

Our current health system

9Supply side factors are being ignored

↔

Funders(medical schemes)

Demand(Population)

Individuals buy insurance

Supply side(Healthcare providers)

→

Demand(Patient)

Individuals go to individual

doctors

• Obstructive tariff pays individual professionals, not teams

• FFS payment for services not outcomes


• Fragmentation = gaps & waste• Oversupply = over servicing

Production

• System policy absent• Purchase & system delivery

‘agency’ role failure Regulatory control

• Too few funded Scheme members for available beds and clinicians

• Isolated clinicians, fragmented delivery, no coherent systems

Structural design

• Deteriorating risk pool• Over-servicing & inconsistent quality =

high premiums = access denied


• Absent information, variation in outcomes, cost performance / value unknown – no continuous improvement


• Environment of no reward for value = weak Scheme purchasing

• Hospital oligopoly; defensive specialists

Competition• Absent demand/supply equilibrium

plan, regulator: growing mismatch• No consequences for failure


3rd party moral hazard

How this competitive market solution manifests practically

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An optimal health system designstructure x process = outcomes (Donabedian)

11

High

EffectiveRegional distribution

Capacity supply matched to demand volume

AppropriateInvestment

Case complexity

Secondary services

Primary services

Tertiary services

Cost

High

Med

Low

Number & mix of services match regional population

requirements

Supply structure depend on regional population size

Patient problem managed at right level

Med

Low

System investment at each level

matches demand

Triage & referral based on

segmentation

National norms with regional application

How this plays out in practiceOptimal integrated local system - cooperative care

12

A planned local healthcare system = 70 clinicians/ 100 000 linked members

• Comprehensive, integrated multidisciplinary clinical teams

• Clinical teams use the same patient Electronic Medical Record / Health IT platform with clinical guidelines and share support staff

• Patient centred within their community

• Clinician rewarded by Schemes are for outcomes (including quality of care)

Community Clinic

Community Clinic

Community Clinic

Community Clinic

General Hospital

Competition in an optimal health system

Consumers have ‘choice’ between competing local systems

1. Branded healthcare systems with Multi Disciplinary Teams (GPs, Specialists,

Allied Health Professionals & support services) + Economies of Scale + Effective

Management = known standards, reliability (e.g. System A & B)

vs.

2. Independent providers = isolated + casual management = variable

sophistication, reliability (e.g. System C below)

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1010

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1010

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System A

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vs. vs. 10

System B System C

National vs. Regional competition

14

Solution - Introduce Regional Scheme options • Schemes

o Premiums reflect local production experience with national risk equalisation

o Contracts local needs & support delivery model innovations

• Supply Sideo National structural capacity norms for hospital beds etc.

o Regional plans maximum cap - customised for regional population size, disease burden, geography etc.

Problem - Schemes Act allows only national Scheme plans/options• Schemes

o Advantage for incumbent Schemes & blocks new effective entrants

o Don’t reflect regional priorities, nor cost experience

• Supply side contractso Advantages existing national providers, ignores local needs

o Blocks innovative new delivery models

• CoMS 2006 review

o Reduced local premiums for discount prices – NHI ended proposal

How healthcare ‘value’ is definedHealthcare system performance measurement

Source: Institute for Healthcare Improvement (www.ihi.org) 15

Best value = Optimal Outcomes at Lowest Cost

• Measured Outcomes → soft (patient experience) & hard (e.g. longevity)

• Efficient cost → actual versus predicted

o Because sicker populations predictably have poorer outcomes & higher costs

o Regional context → local population need

Disease Burden Index & Case Mix

Case mix adjusted costs

Measured patient outcomes

(case mix adjusted)

Value contract framework

16

Increased Quality of Life

Decreased Scheme PLPM and OOP spend

Appropriate Social Investment

Increased patient satisfaction with health

services

Optimised health functional status

Inspired Clinicians

Decreased inappropriate hospital plpm

Increased appropriate OH plpm

Decrease cost of death in last 6 months

Timely access to appropriate level of care

Patient Centric System

Good clinical care with minimal adverse events

Patient centric system design

Family communication

Patient support system

Informed patient

Shared decision making

Multidisciplinary team

Flexible work time

Deceased admin

Team Indemnity at lower levels

Capacity Plan for local population issues

Holistic treatment intent

Appropriateness of care services and setting

Proactive Care

Patient Safety

Address at risk populations

Data driven management and continuous improvement

Integrated Care

Preventative Care

Commercial structure

Reliable base fee and upside rewards

MDT meetings/ huddles

Balint Groups

Integrated social services

Palliative Care

Home Assistance

Home Based Care

Good work life balance

Colleagial support

Generous and reliable income

OBJECTIVES AIMS DRIVERS TACTICS

Clinician Satisfaction

Population outcomes

Client Satisfaction

Costs

Individual Care Plans

Coordinated Care

Patient Segmentation

Discharge Planning

Family meetings

Patient education/nudges

Standard Operating Procedures

Patient reconciled view

IT Support

Population Segmentation

Population level projects

Reporting

Reliable clinical system

Appropriate Clinical and social interaction

No denial of needed care

Example …..


In summary - an optimal competitive health system looks like the following

17

=


↔



Consumer has informed Scheme choice

Value producing supply side

State manages capacity and manages ‘agents’

Effective Scheme purchasers

Supply matches the demand regionally & competes on value

↔ ↔

The framework dynamic for an optimal health system

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Regional context informs structure

Supply side frameworkHow the components interact in a working system

Regional Population

Make right treatment decisions

Efficient utilisation (incl. bed occupancy)

Good quality health

outcomes

Affordable premiums

Balanced payor bargaining power

Competitive provider networks

Healthy new members

Growth in local medical

scheme pool

Sustainable provider income

Capacity matches demand

Within local customised

teams

Payment mechanism

Efficient pricing

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Information

Regulatory control

Capacity control

Incentives

Competition

Production

Structural design


Compete for contracts based on

value measures

Choose scheme on value

purchasing

Whole system outcomes

(DBI adjusted)

PLPM

Case mix of member demand

Case mix adjusted

production

Population size & Disease Burden

Index (DBI)

Supply side frameworkThe role of information

Regional Population



Good quality health

outcomes

Affordable premiums



Healthy new members


scheme pool




teams

Payment mechanism

Efficient pricing

Equilibrium / dis-equilibrium

increases or decreases supply

Value = optimal outcomes & best cost

State sets information standards & obligations 20

Information

Regulatory control

Capacity control

Incentives

Competition

Production

Structural design


Supervision of scheme

agency role

State sets information standards &

outcome obligations

Supervision of provider agency role

Facility licensing within capacity + reviewed regularly +

conditional on risk adjusted good quality health outcomes

Supply side frameworkThe role of State

Regional Population



Good quality health

outcomes

Affordable premiums



Healthy new members


scheme pool




teams

Payment mechanism

Efficient pricing

State manages capacity & regulates competitive purchasing & supply

Information

Regulatory control

Capacity control

Incentives

Competition

Production

Structural design


Applying the framework to the current SA private healthcare system

22

Supply side framework analysisHow it currently plays out in South Africa

Regional Population

Over utilisation

Poor quality health

outcomes

Concentrated hospital ownership & isolated doctors

Schemes lack bargaining power

Smaller sicker insured

population

Lack of growth medical

scheme pool

Excess capacity

Fragmented delivery & no teams

Inefficient pricing

Target income &

excess

Individual FFS

Unaffordable premiums

Over servicing & Supplier induced

demand

Exacerbated by lack of information & regulatory control 23

Information

Regulatory control

Capacity control

Incentives

Competition

Production

Structural design


Unmeasured variation including

inefficiency of fragmentation

PLPM

No systematic measure of outcomes

Up-coding & apparent worsening disease burden

Apparent under supply

No systematic calculation of regional DBI & capacity

Supply side framework analysisLack of information

Regional Population

Over utilisation

Poor quality health

outcomes




population


scheme pool

Excess capacity


Inefficient pricing

Target income &

excess

Individual FFS



demand

Inadequate information standards & obligations


scheme pool

24

Information

Regulatory control

Capacity control

Incentives

Competition

Production

Structural design


No supply side regulation

Inadequate supply side quality measurement &

no supply side regulation

Lack of support for scheme

purchaser role

Partial implementation

of social insurance

framework

Facility licenses never

revoked

Facility licenses issued without consideration for supply & demand

Supply side framework analysisLack of State control

Regional Population

Over utilisation

Poor quality health

outcomes




population


scheme pool

Excess capacity


Inefficient pricing

Target income &

excess

Individual FFS



demand

Regulation put on back burn due to working towards NHI 25

Information

Regulatory control

Capacity control

Incentives

Competition

Production

Structural design


↔

Funders(medical schemes)

Demand(Population)

Individuals buy insurance

Supply side(Healthcare providers)

→

Demand(Patient)

Individuals go to individual

doctors

In summary – analysis of our current health system

26Value producing competition is weak

• No data for consumer to make informed choice of Scheme

• Weak Scheme purchaser environment

• No supplier performance data

• Weak value producing provider environment

State fails to manages system capacity nor does it set data standards & obligations; its regulators fail to police demand & supply sides role players


Production

Regulatory control



Structural design

Competition

Scant competition disables the market

3rd party moral hazard

The 3 competition issues requiring attention

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1. Issues between members/schemes

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Obstacles• Weak regulation

o Dysfunctional marketplace favours incumbents; there is no coherent systems to create value

• Medical Schemes Act intention not fulfilled

o Consumers choose Schemes for the ability to purchase high value care including quality outcomes, but current situation => competition is not on ‘value’ but on benefits and price

• Absence of comparator information

o Lower priced restricted network, benefit plans => seen as ‘cheap & nasty’

• Scheme/Administrator alignment

o Listed administrators not fully aligned to Scheme loss ratio & have a short term focus

• National Scheme plans/options

o Advantages existing dominant Schemes; hard for regional /new entrants

Consequences

• Schemes do not compete on best Value (optimal patient outcomes at lowest cost)

Solutions

• Transparent performance reports

• Regional plans & regional premiums

• Schemes with minimal nett loss ratio

2. Issue of the scheme purchasing role

29

Obstacles• National mandate:

o Advantages existing dominant Schemes; hard to embrace innovative new models

o CoMS 2006 review: reduced local premiums for discount prices – NHI ended proposal

• Tariff:

o Regulatory limbo: ‘de facto’ FFS tariff for individual clinicians & hospitals

• Funder reluctance to undertake macro innovations:

o PMB rich hospital benefits & poor community level benefits = tough Scheme unilateral gamble to invest in better community services hoping for quick reduction in hospital spend

o ‘free rider’ issue – other Schemes benefit from their efforts and investment

Consequences

• System is good with defined acute episodes; complex care sees duplicates, over-servicing & gaps

• Result: poor production – patchy quality at a high price

Solutions

• Regional purchasing

• Transparent reporting

• Team / population reimbursement schedule, rewards - returns governance to providers

3. Issues between providers

30

Obstacles• Providers are fragmented:

o absence of local teams/systems means no systematic provider competition for consumers (hospitals are not systems…)

o unhelpful competition between isolated individual clinicians (with no organisational support); resist Scheme network which don’t offer security or return clinical autonomy

o hospital national oligopoly networks prosper

• No comparator measures for Schemes or consumers to base their choices

Consequences

• System is good with defined acute episodes; complex care sees duplicates, over-servicing & gaps

• Result is poor production – patchy quality at a high price

Solutions

• Regional purchasing

• Transparent reporting

• Team / population contracts, rewards - returns governance to providers

• Regular Scheme contract review and retender

Recommendations - enabling market competition in SA private healthcare

31

• Population value tariffs for integrated teams; Reward outcomesIncentives/ rationing

(Governance)

Production

• Regulatory oversight of Demand & Supply Side players• Disqualify habitual failures

Regulatory control

• State supply side planning • New delivery models

Structural design

• Mandatory income level membership• Strengthen Scheme role as value purchaser


• Mandatory data standards & transparent information sharing• Routine reports - Scheme & healthcare systems performance


• Regional Scheme options & national REF• Align Schemes / Administrators with minimum loss ratio

Competition

• Conditional facility licenses – ongoing value production • Underserved areas


Making the purchaser provider split work

• Routine system performance assessment report

Recommendations – enabling the right regulatory environment

32Creates a competitive, value producing market place

Regulatory controlInformation

(collect & use)

= ↔

Expanded CoMS mandate

Income level mandateScheme Purchase role


Population Value TariffsIncentives/ rationing

(Governance)

Regional SchemesMinimum loss ratio

Competition

National Supply Side Regulator

Capacity planning New delivery models

Structural design

Conditional licenses Underserved areas


Production Performance reports

Data standards & reports

Regulatory oversight & exclusion

Working towards Universal Health Coverage

33

The current two tiered system is structured as follows

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• Typical emerging economy country arrangements

• Reflects income / wealth distribution

• Fragmented and silo arrangements

• Wasteful and Inequitable

High income

Everyone else…….

Costly Private services

Freestate

provided services

Demand Supply

There is an emerging gap market

35

Demand Supply

• New emerging middle class choices:

• Unhappily use State services –with some disruption….

• Struggle to meet the high price of accessing the private sector

High income

Poor


Freestate

provided services

Emerging ‘gap’

market

This gap market requires a different service offering

36

Demand Supply

High income

Poor


Emerging ‘gap’

market

• In an effective competitive marketplace new and better models of services emerge to match the needs and affordability of the consumers

Freestate

provided services

Low cost provision

Over time the model will grow

37

Demand Supply

High income

Poor


Emerging ‘gap’

market

• In In time the middle class grows and the supply side reflects its growth….

Freestate

provided services

Low cost provision

Only then is system reform to universal access possible

38

Demand Supply

Unified market

• In At the end of the developmental process is a homogenous system with equitable access

Unified supply system

competition to make the healthcare market work for all

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