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What are the major costs facing public and private hospitals in South Africa today?

  • 2/10/2014 6:18:00 AM
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This article is the third in a series of articles, condensed versions of which are being published in the Kempton Express by Arwyp Medical Centre over a period of 12 months. A longer version (and details of all references quoted in this article) have been posted here. We invite you to use the opportunity to send us your observations, questions and comments to arwyp@arwyp.com. We will do our best to answer them.

Take a guess: How much more expensive do you think private hospitals are than public hospitals? Double? Triple?

The results of a study done by Ms Shivani Ramjee a lecturer in the actuarial faculty at the University of Cape Town and presented at the Hospital Association of South Africa conference may surprise you. Her study Comparing the Cost of Delivering Hospital Services across the Public and Private Sectors in South Africa[i], was compiled using publically available information. She attempted to compare the average cost per admission in private hospitals with the costs per admission in public hospitals and found that the ratio was 1.058 (i.e. costs were 5.8% higher in the private sector).

The author acknowledged that the study was very crude and that she was obliged to make many assumptions. Some of the differences between the public and private sectors include the following:

  • Unlike the private hospital sector, the public sector employs medical practitioners.
  • The case mix is different in the public and private sectors. The public sector treats a large number of outpatient and emergency cases. Anecdotal evidence indicates that a much higher proportion of public-sector inpatient cases are medical cases compared to the private sector which has a higher surgical mix.
  • The study did not take quality of services into account; a meaningful comparison should have attempted to capture quality differences, especially as better quality care typically comes at a higher price.
  • Private hospitals are required to pay corporate tax and VAT, the public sector does not.
  • The State has sufficient purchasing power to be able to secure discounts for some pharmaceutical and surgical products through the issuing of tenders.

Nevertheless the study underlined the fact that there are currently no rigorous price comparisons between the private and public hospital sectors in South Africa. The release of the study highlighted the fact that current policy decisions are being made without supporting data.

Every year the Council for Medical Schemes Annual Report releases figures on the money paid to private hospitals. The 2012 report stated that medical scheme contributions for the year were R117.5 billion, health expenses paid for totalled R103.3 billion and administration costs were R8.8 billion. Expenditure on private hospitals is the highest line item at R37.9 billion, or 33.8% of the total expenses.

Private hospital expenses are noted and commented on by health care funders and regulatory authorities every year. It is interesting that while the trend in spending is documented and understood, few commentators attempt to compare it with the percentage of public sector spend on hospitals.

A 2011 report showed that there were 394 district, regional, tertiary and other hospitals managed by the Department of Health[ii]. It is estimated that the proportion of district health services expenditure on district hospitals was 39.8% for 2010/11[iii].

Latest available figures from the Western Cape Provincial Health Budget displayed on the National Treasury website[iv] show that expenditure on district hospitals, provincial hospital services, central hospital services and hospital facilities management costs amounted to 68.4% of the Provincial Health budget. It is possible that total hospital budgets in some other provinces might be a little lower, as not all the provinces offer central hospital services, as the Western Cape does.
Why do hospital costs continue to rise?

The reason for the upward trend is hotly debated. Many private hospital representatives point to the increasing utilisation of hospital services, greater numbers of medical scheme members, aging populations and relative cut backs in chronic illness treatments by medical schemes, while regulators focus on ‘fee for service’ payment structures and hospital ownership trends.

Both private and public hospitals are highly dependent on nursing staff. Currently, a shortage of nursing staff, especially specialist theatre staff is affecting both private and public hospitals. Figures from the Western Cape show that the cost of staff salaries (including doctors) range between 67% and 80% of different types of hospitals, with TB and psychiatric hospitals allocating more resources to staff costs. In the private sector, nurse salaries are also the single biggest expense, accounting for approximately 55% of costs. Annual salary increases in both the public and private sectors have been in excess of CPI for the last ten years or so.

Other costs associated with running hospitals include the cost of electricity, food and water (all of which have had price increases in excess of inflation in recent years).

So what can you do to manage hospital costs?
The increasing cost of treatment is forcing patients to take a more active decision making role in their own care.

Higher costs are forcing people to take action. Start with understanding you medical scheme terms and conditions. Secondly, hospitals are open to negotiation; if your medical scheme does not have Arwyp Medical Centre as a preferred provider, talk to us.

[i] To download the report, click here
[ii] National Health Facilities Baseline Audit 2012
[iii] National Health Facilities Baseline Audit 2012
[iv] For reference: link

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