Bureaucracy burdens SA’s private health care

Health care policy in South Africa emphasises the role of the public sector in providing healthcare almost to the detriment and exclusion of the private sector. The Minister of Health in this year’s health budget speech alluded to steps taken by the department to move the South African system to a national health insurance system.

The 2007 budget made provisions for state-run healthcare facilities to consume R59.2 billion, ie approximately 11 per cent of total government expenditure. Public provisions for government-run hospitals continue to increase at rates that exceed the growth of GDP. Yet, despite these significant budget transfers, the public health sector continues to be plagued with inefficiency and often fails to meet the needs of patients. The result is that patients seldom receive the level of care that they deserve.

Life expectancy in SA has steadily declined from 62 years in 1990 to a mere 43 years in 2006. Rather than merely attempting to solve the problem by pouring in more money, South Africa should learn from the mistakes of other countries. The large sums of extra public money transferred into the National Health System (NHS) by the British government (up from £34 billion in 1997 to an estimated £92 billion) have had limited success in improving the government-run service. Even NHS supporters consider it to be a national embarrassment and failure. The former director of clinical governance in the NHS, Professor Aidan Halligan said, “What we have learnt is that throwing money at the problem only allows us to do more of what we have always done”.

The increased provisions for government owned hospitals in South Africa reveal that most of the funding has been directed towards improving the salaries of medical professionals. Although this is a logical short-term fix to retain health professionals in the South African system, it means that less money is invested in new technology. The inadequate investment in technology by government-run hospitals ensures that their technological capabilities will continue to lag behind that of the private sector. Governments, restricted in their ability to pay for new technology, must decide whether they can afford to own and operate hospitals.

Most government-owned hospitals have already sub-contracted out many of their services but continue to hold onto the most vital services – clinical care. The SA government could improve the care provided to public patients considerably by purchasing services from the private sector for patients that are simply unable to afford the required procedures.

Recently the British Department of Health (DOH) signed the first government-brokered deal allowing a private company to run traditional family doctor services. This move is largely in response to the appalling conditions within the public sector. According to the British DOH, “More than 250,000 NHS patients have had operations or scans faster than they otherwise would, thanks to the use of the independent sector”. Furthermore, the British DOH plans to buy 250,000 procedures a year from the private sector. The South African government should therefore focus its attention on trying to create an enabling environment for the private sector to operate rather than restricting its activities and those of potential competitors.

Despite the SA government’s best intentions in wanting to improve the overall health and welfare of the nation it is obviously not capable of meeting unlimited demand. There is a general consensus that the private sector provides services that are superior to those provided by the state so there is no reason for government to attempt to dominate healthcare because it is considered to be an essential service. Although the South African government has good intentions in wanting to provide free health care for all, it is simply not an economically viable and sustainable option.

The SA government has already taken steps to make private provision more affordable, such as allowing individuals tax deductions, and these moves should be applauded. But the biggest obstacles preventing medical schemes from rolling out options to low income individuals are the regulations put in place by government to protect privately insured individuals. These regulations could be amended by exempting low income individuals so that options can be provided to the previously uncovered population. As more people join low income medical schemes, providers will obtain more accurate information to predict the financing requirements of the scheme and it is likely that the cost per person will decline. Evidence suggests that governments inadvertently raise health care costs and reduce performance when they crowd out private medical schemes, run public hospitals and adopt laws and regulations that increase the demands on the private health sector.

Government requires hospitals to obtain certificates of need (CON) before they can expand their buildings or install new high-value equipment. The intended purpose of the CON is to control the distribution of healthcare services and the kind of services that may be offered in any particular area. The CON is imposed so as to match health services offered with the needs of the population on a geographical basis. The certificates are granted for a maximum of 20 years and doctors and hospitals have no guarantee that the certificates will be renewed.

Government officials and politicians have a limited knowledge of the intricacies associated with the establishment and expansion of health facilities, or for that matter, the actual health care needs in any area. Long, complicated bureaucratic procedures delay the introduction of new medical technologies and because of the time and expense involved in obtaining a CON for medical personnel and facilities, drive up the cost of care. These additional costs then have to be recovered from patients. Thus bureaucracy, red tape and a conflicting mix of social, political and budget objectives will inevitably result in higher costs, stifle competition, and, as the acronym unfortunately suggests, con patients out of money.

Author: Jasson Urbach is an economist with the Free Market Foundation. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.

FMF Feature Article/ 23 October 2007 - Policy Bulletin / 04 August 2010

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