The battle of the sectors - public vs private. Where should the focus be?

21 June 2017
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In 2014, the Competition Commission launched the Healthcare Market Inquiry (HMI) into private healthcare after the Minister of Health, Dr Aaron Motsoaledi, approached them with his “hypothesis” that private healthcare is too costly. Motsoaledi has always maintained that there are two pre-conditions to government’s National Health Insurance (NHI) scheme: overhauling the quality of care in the public health system, and reigning in and regulating the pricing of health care in the private sector.

South Africa is not alone in facing rising healthcare costs. Although total health expenditure as a percentage of GDP in South Africa rose from 8.3% in 1995 to 8.8% in 2014, in OECD countries, the increase was 9.2% to 12.4% over the same period.

Notably, health expenditures in the South African public sector are rising at a higher rate than in the private sector. Public health expenditure, as a proportion of GDP, rose from 3.4% in 1995 to 4.2% in 2014, whereas private health expenditure declined from 4.9% in 1995 to 4.6% in 2014. More specifically, public health expenditure, as a proportion of total health expenditure, increased from 41.3% in 1995 to 48.2% in 2014.

Several factors cause healthcare to cost more. Average life expectancy at birth in South Africa is increasing. People require medical care for longer, and, as they age, more of it. That we are living longer is a good thing, but, on average, an 80- to 84-year-old’s monthly healthcare costs are about nine times those of a 45- to 49-year-old.

Health spending also tends to rise as incomes improve because healthcare is what economists refer to as a “superior” good. As incomes go up, people not only consume more healthcare, they increase the percentage of their income they spend on healthcare. When the real GDP per capita (PPP adjusted) increased from $9,178 in 1995 to $12,434 in 2014 (an increase of 35%), real health expenditure per capita increased from $555 to $1,148 (an increase of 107%). As a proportion of income, real health expenditure per capita increased from 6% to 9.2%.

Ordinarily, to see such a trend would make people happy, but government interference turns positive demographic changes into negatives. Motsoaledi has said he is against the “commodification” of healthcare (the for-profit private sector) and ostensibly seeks to control every aspect of the private healthcare sector. Ironically, these controls reduce competition, put upward pressure on prices, and deter entry by potential competitors. But, as the name suggests, the HMI is aimed strictly at the private sector. It is unlikely we will hear how government’s actions restrict competition and raise the cost of healthcare in general and how certain regulations force up the cost of private healthcare.

Government is so preoccupied with trying to control the private sector as one of the pre-conditions for NHI, it is ignoring the colossal problems that exist in the public sector and the ongoing suffering its medical malfeasance is causing patients.

Inspection records released last year by the Office of Health Standards Compliance (a government agency), show that hospitals and clinics in the government’s flagship NHI pilot programme are not improving any faster than those in the rest of the country. Of the 1,427 facilities inspected, only 89 scored a pass mark of 70% or more. Facilities fell short on matters ranging from the availability of medicines to infection control.

When given a choice, consumers go to private sector facilities. It is choice that forces private providers to improve their service. The public sector faces no such challenge. The General Household Survey, published by Statistics South Africa, reveals that while 97.7% of users of private facilities were satisfied, in contrast, only 81.1% of users of public healthcare facilities were satisfied. Moreover, only 1.4% of users of private facilities were dissatisfied (0.5% were very dissatisfied), whereas 10.9% of users of public healthcare facilities were dissatisfied (6.1% were very dissatisfied). So, once again, we must ask why the focus is on the private sector instead of on improving conditions in the public sector which serves most people?

If the government-run healthcare sector offered a viable alternative to South Africa’s citizens, prices in the private sector would go down accordingly. Increased government supervision of already highly regulated private-sector prices is not going to improve either the quality or availability of healthcare provided to South Africans by the public sector.

This article was first published in ENT News on May 2017



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