1. INTERNATIONAL COMPARISON OF SOUTH AFRICAN PRIVATE HOSPITAL PRICE LEVELS Francesca Colombo, Head of Health Division, OECD Luca Lorenzoni, Economist, OECD Tomas Roubal, Health Economist, WHO South Africa Sarah L Barber, WHO Representative, South Africa World Health Organization 1

2. Why are South African private hospital prices a public policy concern? South Africa spends a higher share of its total health expenditures on private voluntary health insurance (41.8%) than any country globally – >6x OECD average (6.3%) – even though it only serves 16% of the population. This is equivalent to 3.7% of South Africa’s GDP. Source: OECD health data 2015, data for 2013 or latest year available Figure 1. Private health insurance as a share of total current health expenditures (%), 2013 2

3. Private voluntary health insurance (PVHI) in OECD countries tends to fill in the gap above public cover- unlike in South Africa where medical schemes mainly finance an alternative to the public sector. Source: OECD, Health at a Glance 2015; WHO, Global Health Expenditure Database. Countries with private voluntary health insurance that offer duplicative cover spend much less on PVHI (3.4-13.4% of total health expenditure). Country PVHI as % of Total health spending % pop covered by PVHIType of coverage South Africa41.816Duplicate, supplementary USA 34.9 52.5Primary Chile 20.0 18.3Primary Ireland 13.4 44.6Duplicate France 13.9 95Complementary Canada 13.2 67Supplementary Israel 10.7 82.9Supplementary Germany 9.3 11.0/22.0Primary/complementary Australia 8.9 54.9/47Supplementary/duplicate New Zealand 4.9 29.7Duplicate Portugal 5.3 21.1Duplicate Spain 4.4 12.5Duplicate UK 3.4 10.6Duplicate Italy 1.0 15Complementary 3

4. OECD countries have measures in place to cap, set or benchmark prices that RSA lacks OECD: public sector tends to have some form of price setting for specialist and hospital services, and this provides benchmarks for the private sector. South Africa lacks these price setting measures. For OECD countries, prices in the private sector are set using these benchmarks. This has been used as a means to contract/purchase private services to expand access. Without these measures in South Africa, negotiations between a handful of medical scheme administrators and private hospitals and specialists determine how a large section of the country’s funds for health are spent (3.7% GDP). 4

5. Objectives of the study Compare private hospital price levels in South Africa with OECD countries. Examine correlations between a country’s income and hospital prices. Estimate affordability of hospital services in comparison with general goods and services. Using South African data, assess the factors influencing private hospital prices: volume and components of the price (hospitals, specialists, pathology, radiology) 5

6. Methods (1) Cross-country price comparison requires standard units, definitions, and ways of measurement that can be applied uniformly across all countries to ensure comparison of “Like with Like.” Approach applied and validated in OECD countries: OECD Eurostat Purchasing Power Parities (PPPs) project. The PPP project identified 28 case types as a sample of hospital services that are the most common services appropriate for international comparison. – 7 medical services – 21 surgical services 6

7. Methods (2) These are services that are typically covered under the public basket, paid for through government contracting – regardless of whether they are delivered through public or privately- owned facilities. Prices reported represent the total price paid for each case type, including capital We also collected information on the number of admissions and average length of stay per case type South Africa collected information on the following price components: hospitals, specialists, pathology, radiology. 7

8. Methods (3) South Africa Data from several large medical schemes from 2011-2013 – representing 59.4 % of members and total of 625,940 cases OECD countries Used existing data already collected using same methodology for comparison (Purchasing Power Parities project) for representative sample 20 countries: Austria, Czech Republic, Estonia, Finland, France, Germany, Hungary, Iceland, Ireland, Italy, Luxembourg, Netherlands, Norway, Poland, Portugal, Slovenia, Spain, Sweden, Switzerland and United Kingdom Lower income subset of 7 countries with GDP per capita level closer to South Africa: Czech Republic, Estonia, Hungary, Poland, Portugal, Spain and Slovenia 8

9. Methods (4) South Africa – data from medical schemes Insight Actuaries South Africa and other experts from medical scheme administrators worked with OECD to adapt the methodology Methodology was tested on the data from Government Employees Medical Scheme (GEMS) Several medical schemes shared their data including GEMS, Medscheme Holdings (Pty) Ltd, Bonitas Medical Fund Preliminary results were presented to and discussed with data providers and some adjustments were made to improve on the accuracy of the findings These organizations generously gave their time and expertise to this study, and openly shared their data. We thank them! 9

10. Methods (5) Prices expressed in Purchasing Power Parities (PPPs) Convert different currencies to a common currency and uniform price level Equalize purchasing power across countries Enables cross-country comparison of prices 10

11. Methods (6) Results are reported as comparative price levels Average for comparison group is calculated as the geometric mean of the comparative price levels across all countries included in the comparison group, and is then set equal to 100. Each country’s comparative price level is then expressed in relation to the mean of 100. Results should be interpreted looking at the relative positions of countries rather than looking at absolute levels. Exchange rates fluctuations are captured in both the CPI and hospital prices. 11

12. Presentation of Results South African prices by case type Prices in Rand by case type, 2011-13 Increases in prices over time Cross country comparison Correlations between hospital price levels and income Comparison of hospital price levels across countries Affordability of hospital prices relative to other goods and services What is driving South African prices? Length of stay and admissions Components of the price: hospitals, specialist, pathology 12

13. Average price (in Rand) and average annual rate of change by case type: 7 medical cases studied 13

14. Average price (in Rand) and average annual rate of change by case type: surgical cases studied 14

15. Private hospital prices in South Africa increased over time (6.2-6.8%), which is higher than the price increase for other goods/services (CPI: 5.6% and 5.7%) 15

16. Strong correlation (r=0.82) between country’s income (GDP) and hospital prices – but South Africa is the outlier Each country’s comparative price level is expressed relative to the mean of 100. South Africa’s prices are on par with France, UK, Germany – countries with much higher income levels. 16

17. South Africa has the lowest GDP per capita and a price level for private hospitals comparable to the average observed across OECD countries 17 Private hospitals are charging high-prices for their services in an environment where other goods and services are delivered at lower cost.

18. South African economy wide price level represents 53% of OECD average in 2013: but private hospital prices are comparable or higher than OECD averages Consistent over three years 18 100 = OECD mean

19. For lower GDP subset: South African economy wide price level is 74% of the subset average; but private hospital prices approximately double the subset average 19 100=OECD subset mean

20. South Africa private hospital prices rank as least affordable in comparison with other countries 20 …because there is the largest difference between hospital price levels and general price levels – i.e., prices of food, clothing and other common goods

21. Within South Africa, private hospital prices are likely to be expensive for 90% of South Africans - even for people with higher incomes Hospital comparative price levels and household consumption expenditure pc (US$PPP), including South Africa’s high income populations (expenditure deciles 7-10) 21

22. What is driving prices? Volume – Length of stay – Number of Admissions Unit price components dedicated to: – Specialists – Pathology – Hospitals – Radiology Other factors – Organization of care (supply) – Patient preferences (demand) 22

23. Average length of stay in private hospitals in South Africa (3.3 days) is lower than OECD average (4.7 days) 23

24. 8-41% lower average length of stay across all medical and surgical cases studied 24

25. No changes in overall admission rates on average in the South African sample between 2011-13 … Admissions increased in line with the increase in medical scheme membership by 12% between 2011-13. 25

26. But the structure of admissions changed – with increases mostly in selected surgical cases (2011-13).. Surgical inpatient cases increased by 16% All but 2 medical case admissions increased by 25% Large increases in hip and knee replacements (31% and 53%) 26

27. Relatively high admission rates for some services with standardized age/sex rates in comparison with OECD countries Hospital utilisation rates per 100,000, South African sample and OECD countries: Hysterectomy 27

28. Hospital component accounts for the largest share of prices for both medical (40-52%) and surgical cases (49-62%) Pathology: 21 – 35 % Specialists: 13 – 19 % 28

29. But the share of the price devoted to specialists increased over time, and comprises 14%–29% Changes in share of price for specialist fees, medical cases, 2011-2013 29

30. In summary… Strengths of the study Transparent and reproducible methodology, which was tested and validated on medical scheme data Hospital cases comparable, clearly defined and representative of hospital production Price estimate based on payment from purchaser – In OECD countries public purchaser’s price was used as they pay the same to public and private hospitals – This enabled us to compare private hospitals in South Africa with public/private hospitals in OECD countries All costs included (specialists, nursing, pharma, pathology, investment) When comparing prices, PPPs convert currency into common currency and eliminate differences in price levels between countries. 30

31. Limitations Comparison done with countries for which data are available from the OECD-EUROSTAT project for 2011-2013 No data on cost components of hospitals and specialists for comparator countries Cannot determine what is behind large share of price devoted to hospitals No data on individual medical scheme prices No information on the market structure/power and its impact on prices 31

32. Conclusion 1: Prices are high and increasing. South Africa’s private hospital prices are expensive relative to what could be predicted given the country’s wealth. Prices are increasing over time above the rate of inflation, or at a higher rate than other goods and services in the economy. 32

33. South Africa data demonstrate the greatest difference between private hospital price level and general prices level among all countries in the sample. Thus South Africa’s private hospital price level is ranked as the least affordable among all countries analysed. Prices are also likely to be expensive for 90% of South Africans. Conclusion 2: Prices are not affordable for most South Africans. 33

34. Low ALOS are likely related to the financing and organization of care --weak/no controls over admissions given that specialists work independently in hospitals. -- including cost control measures by medical scheme administrators, i.e., pre-authorized length of stay Impact on quality of care and health outcomes are a concern and should be evaluated in the future. Conclusion 3: Unusually low lengths of stay probably result from cost-control efforts. 34

35. Planned surgical procedures, i.e., hip and knee replacements increased by 31% and 53% over a very short time (2011-13). These changes cannot be fully explained by the 12% increase in medical scheme membership (2011-13) They also cannot be fully explained by aging population or other external factors. They are likely driven by supplier induced demand. Conclusion 4: Large increases in high volume surgical procedures cannot be fully explained by changes in membership. 35

36. Hospitals are the main component of prices (40-62%) for both medical and surgical cases. The increase in the prices observed in this study however, were driven by the increase specialists fees. This has implications for the health system as a whole and access to services. Conclusion 5: Hospital share is the main component of the price, but specialists fees are driving the increase. 36

37. Given the magnitude of private voluntary health insurance spending (3.7% GDP), market interactions between medical schemes and private health care providers spills over to the whole health system. Prices set in the private sector set labour market benchmarks that specialists face in choosing between working in public/private facility. High private prices restrict the ability of the government to use private services to achieve universal health coverage under National Health Insurance (NHI). Increases in prices are passed on as increases in premiums to members and employers – which can then lead to individuals bearing the burden (i.e., higher co-payments, reduced benefits) Conclusion 6: The high prices in private health sector spill over to the health system and economy as a whole. 37

38. High and increasing prices suggest that current methods of controlling private hospital prices are not effective in curbing price inflation. Other OECD countries have measures to prescribe, cap or benchmark prices that South Africa lacks. This study suggests that efforts to control prices while ensuring accessibility and quality are needed, which could help individual South Africans and the country at large get more value from their considerable spending on health care. Conclusion 7: The current ways in which the private sector controls prices are not effective. 38

39. Thank you! 39 International Comparison of South African Private Hospitals Price Levels; OECD Working Paper No. 85. DELSA/HEA/WD/HWP(2015)85. Available at http://www.oecd.org/health/workingpapers http://www.oecd.org/health/workingpapers Contact: WHO Representative Office in South Africa afwcozawr@who.intafwcozawr@who.int