As early as 2 January, www.cnbcafrica.com reported that the registrar of medical schemes, Patrick Masobe, had threatened to take private hospitals to the Competition Commission if they fail to justify their price increases planned for this year.

According to a report in Business Day, the bargaining power of hospital groups has been a growing concern for the government, which complains they are one of the main drivers of soaring private healthcare costs.

Masobe, who heads the supervisory Council for Medical Schemes, stepped in after schemes complained they were unable to negotiate affordable rates for next year. He has the support of the Board of Healthcare Funders, which represents medical schemes.

The Minister of Health and MECs for Health on 24 January held a meeting with the Board of Healthcare Funders, the principal officers of various medical schemes and medical scheme administrators to discuss the challenge of significant increases in tariffs in the private health sectors for 2008.

A statement after the meeting claimed that there was concern that most of schemes have increased their contribution above inflation. These increases range between 9% and 15%.

Medical scheme reserves are significantly higher than the minimum of 25% required by the Medical Schemes Act. The industry average is currently estimated at 38%.

Then in mid February the news broke that consumer goods giant Tiger Brands’ healthcare unit Adcock Ingram and several smaller healthcare groups face the threat of huge fines for allegedly colluding to fix tenders and divide up the market for intravenous drip solutions. The Competition Commission announced that it had concluded its investigation into alleged collusion between Adcock Ingram Critical Care (AICC), Dismed Criticare and Thusanong Healthcare, and had referred the matter to the Competition Tribunal for prosecution.

In a letter sent to Netcare, Medi-Clinic, Life Healthcare and the National Hospital Network, Masobe accused them of attempting to introduce unlawful ward and theatre price hikes, flouting the law on prices for anaesthetic gases, and bullying schemes into accepting unreasonably high tariff increases for next year.

“I can no longer tolerate medical schemes being held over a barrel by hospital groups to implement hugely inflationary increases,” Masobe told Business Day.

The report quoted Stephen Harrison, the Council for Medical Schemes’ senior strategy adviser, who said that except for Medi-Clinic, private hospitals were planning ward and theatre fee increases ranging from 8% (Life Healthcare) to 33% and Netcare planned a 21% hike.

Harrison said the hospitals claimed the increases were needed to compensate for lost profits after they agreed to scrap their mark-ups on consumables and “surgicals” this year.However, the council believed these profits were unlawful as these mark-ups should have been jettisoned after a 1998 industry agreement.

Medi-Clinic has billed patients for surgicals and consumables at net acquisition costs since 2004, according to company spokesperson Biren Vilodia.

The council also objects to all private hospitals’ plans to incorporate the cost of anaesthetic gases into theatre time, with increases of R6 to R13 a minute from 1 January.

Masobe has demanded that private hospitals give the council “a full costed motivation” by 15 January for their tariff increases for next year, failing which he will ask the competition authorities to investigate whether they have abused their market power.

Vilodia said the increases were justified as the public sector pay increases this year had compelled Medi-Clinic to raise nurses’ salaries 13 percent. Life Healthcare spokesperson Marietjie Shelly said nursing was the group’s biggest cost driver.

Netcare’s Mark Bishop at the time declined to comment, saying the company had yet to receive Masobe’s letter.

According to the statement after the meeting with the minister and MECs, the medical schemes explained that cost pressures arise from a number of sources, including price increases from suppliers, which include:
• Health professional services;
• Cost of hospitalisation, including all medical supplies used;
• Increased utilisation rates;
• Ageing membership of many schemes; and
• Use of high-cost medical technologies.

The schemes reported that their individual ability to negotiate effectively with private hospital groups is non-existent. If this is indeed the case, it is a major cause of concern. The schemes expressed their full support for the Minister’s view that:

• Private healthcare costs are high and that these need to be contained as a matter of urgency;
• That should private hospital groups reduce their tariffs these will be passed onto their members;
• That they will examine their own operations to explore further options to reduce their administration and other costs; and
• That the implementation of a national health insurance system will go a long way to addressing issues of affordability and access to healthcare services.

The department has agreed to meet with individual private hospital groups. Such bilateral meetings took place during early January to better understand the rationale for the tariff increases.

“We are pleased to report that the agreement reached collectively that they will maintain increases at Consumer Price Index (CPIX) was confirmed by most hospital groups.

“Similarly, the medical schemes have also committed to an in principle decision to review their tariff increases and align them with CPIX for those schemes whose 2008 increases are higher,” the statement read.

“The Department of Health will continue to work with all players in the healthcare market to seek to reduce the cost escalation in this sector as a matter of urgency. Whilst we work hard to get agreement on short-term measures to contain costs, the department will also be working with the sector on firming up proposals on the design of a National Health Insurance,” the statement said.

The Competition Commission announced that it began investigating allegations of a cartel between the firms and healthcare company Fresnius Kabi SA (FKSA) in 2005. It gave FKSA immunity from prosecution after it confessed its involvement in the cartel and agreed to cooperate with investigators.

The commission had asked the tribunal to apply the maximum penalty allowed by the Competition Act – 10% of turnover.

According to Tiger Brands’ most recent annual report, the company’s turnover was R16.2bn last year, while Adcock, which is to be unbundled from Tiger, reported turnover of R2.87bn for the same period.

If the tribunal concurs with the commission, the firms could face fines of up to R1.6bn and R287m respectively.

Tiger Brands was included in the probe because several of its directors, including Mike Norris, Phillip Nieman, Hayden Franklin and Ian Isdale, allegedly knew about the collusive behaviour, but took no action, said Mokoena.

Piet Coetzer