Competition Commission healthcare inquiry needs to be holistic

"It would be prudent for the scope of the inquiry to be holistic, across the entire sector and covering all linkages," said Econex health economist, Nicola Theron.

Addressing delegates at the Hospital Association of South Africa (HASA) 2012 conference in Cape Town, Theron said price regulation would be an" extreme" outcome of the inquiry.

"Price regulation in the private healthcare sector would not be an optimal outcome and could lead to unintended consequences and perverse outcomes," said Theron.

She added that a holistic approach would look at the impact of regulation that led to open enrolment and community rating, increased burden of disease, and employment of doctors.

A key issue will be to determine whether hospital concentration has lead to an increase in prices or tariffs. Theron said the competition authorities had dealt with numerous mergers in the private hospital sector since 1999. After protracted hearings, the tribunal had allowed all these transactions to go through on the back of findings that price is determined on a national basis through negotiations between large hospital groups and large buyers in the form of medical schemes.

"They found that adding beds (to a particular hospital group) doesn't seem to affect pricing."

Theron said Econex research showed that expenditure on hospitals was driven by increased utilisation, including a higher burden of disease; an aging medical scheme population; new technologies; and changes in the regulatory framework for medical schemes. Theron showed how hospital prices have exceeded inflation by very low single digits and that health professional wage inflation over general inflation is a major driver of hospital inflation.

Between 2006 and 2010, admissions to the three major hospital groups in South Africa increased by 6.2%; patient days increased by 12.5%, while the average length of stay also increased.

Theron said 60% of the real increase in medical scheme spend was due to factors other than price and beneficiary growth.

"There is strong evidence that utilisation is being driven by the burden of disease, technology and aging, so can price regulation solve these problems? The answer has got to be no," added Theron. She said an integrated policy response was needed to address these problems. "Globally hospital inflation is higher than CPI, driven by shortages of healthcare professionals and higher capital costs."