1. © Benguela Health (Pty) Ltd 2010 1 Regulatory Protection for Medical Scheme Beneficiaries FPI 3 August 2010 Durban By Esmé Prins-van den Berg Director Benguela Health (Pty) Ltd

2. Agenda Medical scheme trends PMBs ICD10 coding Waiting periods Tariffs Medicine pricing Generic substitution Dispensing fees Issues to consider when advising clients © Benguela Health (Pty) Ltd 2010 2

3. 3 Medical Scheme Trends

4. Medical Scheme Coverage 2008 Principal members: 3 388 582 (2009: 3 490 493) Beneficiaries: 7 874 826 (2009: 8 072 180) Population Coverage –2008: 48.7m…16% medical scheme coverage –Best estimate 2009: 49.32m…16.4% medical scheme coverage 4 © Benguela Health (Pty) Ltd 2010 2008OPEN SCHEMESRESTRICTED SCHEMESTOTAL Principal members2 136 9601 251 6223 388 582 Dependants2 751 9461 734 2984 486 244 Beneficiaries4 888 9062 985 9207 874 826

5. Trends: Medical Schemes Consolidation trend… –2008: 119 schemes –Jan 2009:110 schemes –Dec 2009: 112 schemes –Will be further reduced due to amalgamations and liquidations…. Bestmed & Telemed; Momentum Health & Ingwe; Oxygen & Medshield; GEMS & Medcor; Liberty Health & Medicover; Discovery Health & Umed… –Administrator consolidation: Medscheme & Old Mutual; Eternity Health & Sanlam; Momentum Health & Metropolitan 5 © Benguela Health (Pty) Ltd 2010

6. 6 Benefit Pay-out: 1999-2008 © Benguela Health (Pty) Ltd 2010 Increases in expenditure: FFS (over-servicing) Imbalance between schemes and providers (e.g. hospital groups)

7. 7 Non-Health Care Expenditure: 1999-2008 (2008: R9.7b) Increase: 8.1% Under CPIX © Benguela Health (Pty) Ltd 2010

8. Medical Schemes: Financial Health Gross contribution income –2008: R74b (R800.80 pabpm) –2009: R84.9b (R889.10 pabpm) Operating Results Average solvency –2008: 36.6% –2009: 32.6% 8 © Benguela Health (Pty) Ltd 2010 20082009 Deficit before investment & other income R929.4mR2.8b Surplus after investment & other income R2.4bR655.4m

9. © Benguela Health (Pty) Ltd 2010 9 Prescribed Minimum Benefits (PMBs)

10. PMBs Annexure A: www.medicalschemes.comwww.medicalschemes.com 2000 –Diagnosis and Treatment Pairs – DTPs –270 conditions 2003 –Emergencies –Statutory definition 2004 –Chronic Disease List – CDL –26 conditions 10 © Benguela Health (Pty) Ltd 2010

11. PMBs 270 Diagnosis and Treatment Pairs (DTPs) –Code 155E Diagnosis: Myocarditis; cardiomyopathy; transposition of great vessels; hypoplastic left heart syndrome Treatment: Medical and surgical management; cardiac transplant –Code 903D Diagnosis: Bacterial, viral, fungal pneumonia Treatment: Medical management, ventilation 11 © Benguela Health (Pty) Ltd 2010

12. PMBs –Code 168S Diagnosis: HIV Infection Treatment: –HIV Voluntary counseling and testing –Co-trimoxazole as preventive therapy –Screening and preventive therapy for TB –Diagnosis and treatment of sexually transmitted infections –Pain management in palliative care –Treatment of opportunistic infections –Prevention of mother to child transmission of HIV –Post-exposure prophylaxis following occupational exposure or sexual assault –Medical management and medication, including the provision of anti-retroviral therapy, and ongoing monitoring for medicine effectiveness and safety, to the extent provided for in the national guidelines applicable in the public sector 12 © Benguela Health (Pty) Ltd 2010

13. Medical and Surgical Management Medical management or surgical management, describes standard of treatment required, namely prevailing hospital- based medical or surgical diagnostic and treatment practice for specified condition Significant differences between public and private sector practices follow public sector practice (national/provincial protocols) No public sector protocol Consultation with provincial authorities to ascertain practice It does not restrict setting to a hospital where relevant care should be provided It does not prevent delivery of any PMB on outpatient basis or in another setting Treatment and care to be rendered where it is clinically most appropriate 13 © Benguela Health (Pty) Ltd 2010

14. PMBs Emergencies –Sudden and at the time an unexpected onset of a health condition –Requiring immediate medical or surgical treatment, –Failure of which Will result in serious impairment to bodily functions or Will result in serious dysfunction of bodily organ or part or Would place the persons life in serious jeopardy Conditions on Chronic Disease List (CDL) –Statutory algorithms/treatment paths 14 © Benguela Health (Pty) Ltd 2010

15. Chronic Disease List (CDL) Addisons disease Asthma Bipolar Mood Disorder Bronchiectasis Cardiac Failure Cardiomyopathy Disease Chronic Renal Disease Coronary Artery Disease Crohns Disease Diabetes Insipidus Diabetes Mellitus Type 1 & 2 Chronic Obstructive Pulmonary Disorder Dysrhythmias Epilepsy Glaucoma Haemophilia Hyperlipidaemia Hypertension Hypothyroidism Multiple Sclerosis Parkinsons Disease Rheumatoid Arthritis Systemic Lupus Erythromatosis Schizophrenia Ulcerative colitis 15 © Benguela Health (Pty) Ltd 2010

17. PMBs 2004: –DSPs (Designated Service Providers)…preferred providers / preferred provider networks Funding –Full and unlimited funding of diagnosis, treatment and care costs –Diagnosis-based (ICD10 codes) What are ICD10 codes? –International Statistical Classification of Diseases and Related Health Problems (ICD10) –Consists of +/- 12 000 diagnostic codes –Listed alpha-numerically –Used to index health care data –Confidentiality Why are they important? –Correct benefit pool –Full funding –Different rules for PMBs, co-pays, etc. 17 © Benguela Health (Pty) Ltd 2010

18. PMBs –Co-pays for Voluntary use of non-DSPs Clinically appropriate and effective drug on formulary – beneficiary chooses alternative drug knowingly Medicines: Reference price lists –Full and unlimited funding for involuntary use of non-DSPs –Involuntary use Emergencies No DSP within reasonable proximity of work or residence of beneficiary Service unavailable or unreasonable delays –Benefit limits? –Biological drugs / Biosimilars? –PET CT scans? 18 © Benguela Health (Pty) Ltd 2010

19. PMBs Interpretation of full costs –CMS: Appeal Committee Decisions –Industry: Opposing Legal Opinions Many schemes and administrators pay benefits in accordance with scheme rules CMS: Must enforce compliance with own legislation Industry Task Team –CMS/DoH –Funders –Providers –Consumers Code of Conduct: 30 July 2010 Change in legislation? 19 © Benguela Health (Pty) Ltd 2010

20. Managed Care PMBs may be subject to managed care interventions –Protocols –Disease management programmes –Formularies –Networks –Pre-authorisation Not for emergencies Therefore –Access to benefits may be subject to compliance with such interventions –E.g. registration on medicine benefit programme could be conditional prior to being able to access benefit © Benguela Health (Pty) Ltd 2010 20

21. Formularies & Protocols Regulations 15H (Protocols) & I (Formularies) Evidence-based medicine, cost-effectiveness and affordability –Evidence-based medicine = Conscientious, explicit and judicious use of current best evidence in making decisions about care of beneficiaries whereby individual clinical experience is integrated with best available external clinical evidence from systematic research Provide to providers, beneficiaries, public on request Appropriate substitution where ineffective or (would) cause adverse reaction without penalty to beneficiary –Motivations by doctors –Cannot for example impose higher co-payment 21 © Benguela Health (Pty) Ltd 2010

22. Waiting Periods S 29A, Regulation 12 Condition-specific –Max period: 12 months no benefits in respect of condition –Condition for which medical advice, diagnosis, care or treatment recommended/received in 12 months prior to application for membership of medical scheme –Medical report may be required by scheme … must pay costs of any medical tests or examinations required by scheme for purposes of compilation of report General –Max period: 3 months no benefits Change benefit options: Only unexpired periods of waiting periods, no new periods Child dependant born during period of membership: No waiting periods © Benguela Health (Pty) Ltd 2010

23. Waiting Periods Category 1 –First time joiners –Applies for membership > 90 days after previous membership –Waiting periods General and Condition-specific Apply to PMBs © Benguela Health (Pty) Ltd 2010

24. Waiting Periods Category 2 –= 24 months continuous medical scheme benefits Previously beneficiary of medical scheme for continuous period of 24 months Termination < 90 days prior to application –Waiting periods Condition-specific –Not to PMBs Unexpired portion of general or condition-specific imposed by previous scheme © Benguela Health (Pty) Ltd 2010

25. Waiting Periods Category 3 –> 24 months continuous medical scheme benefits Previously beneficiary of medical scheme for continuous period of > 24 months Terminated < 90 days prior to application –Waiting periods General –Not to PMBs Unexpired portion of general or condition-specific ? © Benguela Health (Pty) Ltd 2010

26. Waiting Periods Category 4 –Changes for reasons of employment Previously beneficiary of medical scheme Terminated < 90 days prior to application Because of change in employment or Employer changes/terminates medical scheme cover of employees: Change at beginning of financial year or reasonable notice given for transfer at beginning of financial year –Waiting periods No waiting periods Only unexpired portions or previously imposed waiting periods –General –Condition-specific © Benguela Health (Pty) Ltd 2010

27. 27 WAITING PERIODS Category 3 Month General 12 Month Condition-Specific Applicable to PMBs New applicants/persons not members for preceding 90 days Yes Applicants who were members for 2 years NoYesNo Applicants who were members for more than 2 years YesNo Change of benefitsNo N/A Child dependant born during period of membership No N/A Involuntary transfer - change in employment or employer change scheme No N/A Source: CMS © Benguela Health (Pty) Ltd 2010

28. Beneficiaries Rights Entitled to full and unlimited funding for PMBs….exceptions (DSPs)….schemes apply differently….often providers charge more for PMBs Payment may not occur from savings accounts No benefit limits Must submit accurate ICD codes Access to protocols and formularies Challenge evidence basis of formulary and/or protocols Ineffective/adverse reactions - protocols and formularies - need support of treating practitioner to enforce change at scheme level © Benguela Health (Pty) Ltd 2010

29. Disputes Medical/ Clinical Advisor Medical/ Clinical Governance Committee Principal Officer Board of Trustees Disputes Committee / CMS Courts © Benguela Health (Pty) Ltd 2010 29 Ex Gratia

30. In the Pipeline: Review of PMB Package (2008) Revised PMB Package In-Hospital Care DTPsCDL Out-of- Hospital Care DTPs/CDL Primary and Preventative Care Basic Dentistry Basic Optometry Medicine Lists Negative List (Exclusions) Potentially Above Threshold Out-of- Hospital Benefits 30 © Benguela Health (Pty) Ltd 2010

31. 31 Tariffs

32. Procedural Coding and Tariffs RAMS: Statutory tariff ( Contracted in vs Contracted out) (Until 1993) BHF (scale of benefits) & SAMA (Private Tariffs) Competition Commission: 2004…anti-competitive CMS (NHRPL) DoH (RPL) (2007) –National Health Act (Regulations) RPLs Benchmark tariffs –Doctors can determine own tariffs –Schemes have specified reimbursement rates Court Case February 2010 –RPL and Regulations declared null and void retroactively until 2007 32 © Benguela Health (Pty) Ltd 2010

33. Procedural Coding and Tariffs HPCSA (Ethical Price List) –Scrapped –RPL should be benchmark –Only charges above RPL with informed consent Central negotiations again in future? –Draft legislation –Independent Commission Where does this leave the beneficiary? Over-charging? –HPCSA 33 © Benguela Health (Pty) Ltd 2010

34. 34 Medicines

35. Medicine Pricing Medicine pricing –Single Exit Price (2004) –Formula –Annual increases authorised by DG of Health –International Benchmarking 35 © Benguela Health (Pty) Ltd 2010

36. Generic Substitution Obligation on pharmacists (and dispensing doctors)…Medicines Act No substitution if –Forbidden by patient –Prescriber wrote in own hand next to item no substitution –Retail price of generic is higher –MCC declares product not substitutable MCC Guidelines (April 2010) –Only biosomilars non-substitutable –Previously also With narrow therapeutic range Shown erratic intra and inter patient responses Dosage forms can result in clinically significant bio-availability problems Intended for the critically ill, geriatric and paediatric patients Reasonable steps to inform of substitution Generally no/lesser co-payment 36 © Benguela Health (Pty) Ltd 2010

37. Licensed Dispensers: Dispensing Fees 37 Dispensing Fees S INGLE E XIT P RICE (P ROPOSED N EW F EES ) D ISPENSING F EE (M AX ; E XCL VAT) < R65 ( R75)30% of SEP (30% of SEP) R65 (> R75)R20 (R22.50) © Benguela Health (Pty) Ltd 2010

38. Pharmacists: Proposed Fees 38 Dispensing Fees S INGLE E XIT P RICE D ISPENSING F EE (M AX ; E XCL VAT) < R75R6 + 46% of SEP R75 < R200R15 + 33% of SEP R200 < R700R51 + 15% of SEP R700R121 + 5% of SEP © Benguela Health (Pty) Ltd 2010 Retail pharmacists to annually disclose certain information to Director-General of Health Display dispensing fee structure in pharmacy Provide detailed invoices

39. © Benguela Health (Pty) Ltd 2010 39 Issues to be Considered

40. Advice to Clients Complex environment Expensive Financially healthy medical scheme…will scheme be around in the future? Good governance Benefits –Benefits when in need –Costly treatments covered Hospitalisation Cancer Good administration Compliant with legislation Business ethic Impact of NHI Affordability 40 © Benguela Health (Pty) Ltd 2010

41. 41 Conclusion

42. © Benguela Health (Pty) Ltd 2010 42 Questions? Thank You esme@benguelahealth.com