Capping doctors’ fees will cause a headache

According to recent media reports, Health Minister Aaron Motsoaledi is proposing a cap on the fees doctors and hospitals in the private healthcare sector can charge their patients. If Dr Motsoaledi has been consulting specialists in the private healthcare sector, unfortunately he has been knocking on the wrong specialists’ doors. In this case, the specialists he needs to be consulting are economists, not healthcare providers. Healthcare providers specialise in fixing people and economists in explaining why governments should not fix prices.

It is laudable that the Minister is concerned about the nation’s health and that he is taking the issue seriously, but the cure that he is proposing will be more harmful than the problem he is trying to address. There is an obvious way to decrease prices in the private sector. Increase competition. But this would require the Minister to put an end to the “old boys club” that dominates the medical fraternity by dissolving the government created monopoly responsible for training doctors in SA. The Health Professions Council of South Africa (HPCSA) determines the number of places available for trainee doctors and has limited them to approximately 1,400 positions each year. A number that has remained relatively unchanged since the 1970’s despite the fact that the demand for these positions increases every year. In 2006, it was estimated that 15,794 prospective students applied for these coveted positions.

Everyone is aware of the dramatically increased burden of disease since the 1970’s, driven largely by the onslaught of the HIV/AIDS virus. Moreover, South Africa’s population has increased from about 24.28 million in the mid-seventies to the current estimate of 49.32 million, an increase of 25.04 million people. Add to this our ageing population, which will require more treatments for chronic ailments in the future and one cannot fail to see that the current shortage of doctors is going to get even worse. It is also exacerbated by a poorly performing public healthcare system that is driving our doctors away. Among the common reasons cited for the mass exodus of skilled healthcare personnel from the public sector are poor salaries, high workloads, poor work environments and few opportunities for advancement.

These push factors result in many healthcare workers choosing either to exit the public sector in the hope of finding employment within the private sector or leaving South Africa to seek job opportunities abroad. According to HPCSA, despite the fact that medical schools produced approximately 19,500 graduates between 1990 and 2005, their records show only 9,304 new registrations during this period. This implies that a significant number of individuals, after graduating, instead of practising in South Africa, are leaving the country. This shortage of skilled healthcare personnel reduces the quality of care for all South Africans.

Fees charged by private hospitals could be reduced if government cuts some of the red tape that prevents private facilities from being established or operating efficiently and effectively. For example, a licence or Certificate of Need (CON) is required before a private hospital can be erected or expanded or even new high value equipment introduced. The intended purpose of the CON purports to be to control the kind of services that may be offered in any particular area. In other words, it is an attempt to match health services offered with the needs of the population on a geographical basis, something that is neither feasible nor economically justifiable.

Certificates of Need are granted for a maximum of twenty years and there is no guarantee that they will be renewed. Because of the time and expense involved in obtaining a CON for medical personnel and facilities, and other long, complicated bureaucratic procedures that delay the introduction of new medical technologies and stifle competition, the cost of healthcare is driven up. The only way these costs can be recovered is from patients. Thus bureaucracy, red tape and a conflicting mix of social, political and budget objectives drive up the cost of healthcare.

Dr Motsoaledi’s response of capping the fees doctors and hospitals charge in the private sector will not reduce prices in the long run. A long-term strategy to alleviate the chronic staff shortages requires the government to relax the controls on tertiary education facilities, make entrance to these facilities less restrictive, and allow the private sector to provide a large percentage of tertiary medical education for doctors. Private education facilities could operate on either a for-profit or non-profit basis and would relieve a significant part of the burden currently faced by the public sector.

An unintended consequence of capping private hospitals fees will be capital deterioration of buildings and equipment. Another will be preventing hospitals from expanding in order to meet the growing demand for healthcare. Ultimately, it is the patients who will suffer.

If the Department of Health genuinely has all SA’s citizens’ interests at heart, it would increase competition in the market by removing the barriers currently constraining the efficient functioning of the private provision of healthcare services. Increased competition in the market will lead to decreased costs and improve the overall healthcare options of the nation. Government should concentrate on fixing the public health sector and leave the private sector alone. Let people decide how and where they want to spend their money.

Dr Motsoaledi told Business Day, “Health is not an ordinary commodity. It’s not like if I go to buy a suit and I can negotiate with the person who’s selling. If you are sick and your regular doctor says you need an op and it will cost you R2,000, it will be very difficult for you to challenge him, because you may not understand what he is talking about and all you know is that you want to live”.

According to this line of reasoning, the fact that healthcare is essential to survival makes it different from other goods and services and therefore necessary for government to intervene. But to the consumer, healthcare is a commodity to be purchased just as other life-sustaining goods and services are. Food is essential for survival and is provided perfectly by the market. And everyone knows that a price cap on a certain food will make that particular food disappear.

Government should not be involved in the determination of prices in the private sector. All healthcare prices, including insurance, medical schemes, medicines, hospital fees and doctors’ fees, should be determined by the value judgements of consumers in a competitive market free of barriers to entry.

Apart from the shortages that will result from the introduction of price caps, it is probable that further government interventions will be introduced to respond to all the other unintended consequences of previous interventions. If price controls on doctors’ fees are introduced, apart from exacerbating the brain drain, I predict that in order to keep doctors from leaving, government will force our remaining doctors to be enslaved in the public sector for longer periods under the guise of community service or, to put it more accurately, servitude.

Author: Jasson Urbach is a director of the Health Policy Unit (a division of 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 / 01 June 2010

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