Feature Article: Government regulation restricts competition in private healthcare

Government should refrain from spending hard-earned taxpayer money on an unnecessary Commission of Inquiry into private health care. In order to improve competition in private health care, government should remove all the restrictions, barriers to entry, and government-created delays that hamper the providers of private health care and reduce competition. This would allow South Africans to enjoy the best medical care that a freely competing private health care industry is capable of producing.  

Features that might “prevent, distort or restrict competition” are the target of an intended inquiry into South Africa’s private medical sector by the Competition Commission. The announcement, made in April stated that the inquiry would begin in October but it is now likely to commence sometime next year.

“There (are) two preconditions for National Health Insurance to be implemented successfully in South Africa,” Minister of Health Aaron Motsoaledi said last year. “The first is the drastic, non-negotiable improvement of the quality of public healthcare...The second precondition was that the pricing of private healthcare had to be regulated because it had become excessive and unaffordable” (Mail & Guardian, Quality care for all is the goal, May 15, 2012).

If the government-run healthcare sector offered a viable alternative to South Africa’s citizens, prices in the private sector would diminish accordingly. It is most unlikely that more government supervision of already highly regulated private sector prices would result in any improvement in the quality of public sector care.

Neil Kirby, a director at Werksmans Attorneys, said, “The Commission has to be careful that it does not slip into a tariff-setting process. The Department of Health is desperate to introduce tariffs that can influence prices... A market inquiry that is perceived to be based on vague terms of reference or that it is a tariff-setting exercise will create discomfort in the market”.

However, as Motsoaledi pronounced, the Department of Health is inclined to believe that prices in the private sector have to be regulated and the main reason, therefore, for this inquiry is to justify additional regulations. Before the Commission can justify introducing tariffs to influence prices, it has to prove that competition has been restricted and caused the artificial inflation of prices in the private sector. And how will it establish whether prices are too high? The public sector has little reliable data on the true costs of procedures.

International comparisons of medical costs do not adjust for differences in the quality of treatment, such as the speed of access to procedures, response time of reporting the results, the recovery time of patients, post-operative follow-ups etc. To compare the overall hospital costs per patient between the public and private sectors, several factors need consideration, such as: the reason for treatment (type of problem);the severity of the condition, the number of hospital admission days;the risks involved; whether extra procedures or expertise are necessary to counter them; includingother issues such as taxes, which public facilities do not pay.

In a study entitled Estimating Delivery Efficiency Under NHI, Innovative Medicines South Africa (now Innovative Pharmaceutical Association of South Africa (IPASA)), attempted to compare public and private sector costs. They found that, on average, private hospital costs are 1.438 times more expensive than public hospitals. After controlling for quality of care and other variables, they discovered that private hospital costs are more accurately 1.053 times that of public sector costs.

Ironically, many mergers of medical care providers and medical schemes in the private sector happened with the implicit approval of the Competition Commission and as a consequence ofgovernment regulation. The stringent licensing requirements needed to establish or expand an existing hospital restrict competition. They keep smaller or new competitors from entering the market and prevent existing providers from being able to meet the ever-growing demand for private medical care.

Despite the willingness of the private sector to train medical personnel, the South African government persists in ruling that only a limited number of doctors be trained at government operated facilities. This artificial restriction on the number of doctors lowers competition and raises the prices that much-in-demand doctors and specialists charge. Moreover, the ethical rules of the Health Professions Council of South Africa (HPCSA) prevent private hospitals from appointing doctors and other health professionals, with the exception of nursing staff. Private hospitals therefore have to offer incentives to attract such professionals to establish their practices within hospital premises which, again, causes the price of services to rise. Doctors and specialists should be allowed to work wherever they choose without restriction or being tied to the public sector.

In addition, we have the Medical Schemes Act of 1998 which effectively prevents medical schemes from competing on price, causing the number of schemes to drop by one-third, from 144 in 2000 to 90 in 2012, an average decline of four medical schemes per year over the 12 year period.

Contrary to the Minister’s contention that private medical costs are becoming unaffordable, the number of lives covered by medical schemes grew by 30 per cent from 6.7 million to 8.7 million between 2000 and 2012. Patients want to access treatment in private sector facilities. And, if the Minister truly believes that the private medical sector is about to collapse, why waste money on an inquiry?

The growing number of people seeking private medical insurance and the substantial rise in out-of-pocket payments at private health facilities across the country, reveal that people prefer to attend private rather than government-run medical facilities. Minister Motsoaledi said, “It is widely accepted that healthcare is a public good that cannot be subjected to market forces in the same way as other commodities”. A public good is characterised by non-rivalry in consumption and non-excludability. If healthcare were a public good, no patient could be excluded from its use and use by one patient could not reduce its availability to others.

To even suggest that healthcare is a ‘public good’ makes a mockery of the thousands of people who queue on a daily basis to access government provided care, only, for many of them, to be told to return the next day or worse, months later.

Why should the provision of healthcare be different to the provision of other commodities? If government decided to provide food for the destitute, it would not grow the food itself. When it decides to improve transportation, it does not build the roads, bridges, ports, trains, buses, cars, etc, itself. It buys the necessary services and commodities from privately competing companies. Similarly with medical care, it should purchase the best available care from competing private medical providers.

Author: Jasson Urbach is a director of the Free Market Foundation and of the Health Policy Unit. 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.


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