HPU
A curious tussle as private healthcare once again comes under threat
Author: Jasson UrbachDate: 18 January 2008

There is a curious tussle currently unfolding between the South African government and the private sector regarding private hospitals’ proposed price increases for 2008. Recently, SA’s minister of health Manto Tshabalala-Msimang said that, “The 2008 private hospital tariffs do not reflect a spirit of working towards a national health system that provides reasonable and affordable access to all South Africans”.   

What she overlooks is the fact that, according to research by Johan Biermann, the private for-profit sector provides care to between 16 per cent and 45 per cent of the population while 55 per cent to 84 per cent either use the government health sector or no health provider at all. The private sector does not currently serve all South Africans even though it may wish to do so in the longer term. A ‘national health system’ as the term is generally understood, is not in the interests of the private for-profit health sector, as it implies the end of for-profit health care in SA.  

In her speech the Minister also said, “As you are all aware the ultimate responsibility for a country’s health system performance lies with government. To us the health of our people will always be a national priority and as the Minister of Health, I have a responsibility to safeguard the health of all communities in South Africa”.  

The SA government and the Minister are right to be concerned about the nation’s health and it is laudable that they are taking the issue seriously, but the cure that they are proposing could be more harmful than the problem they are trying to address. A national health system or some kind of derivative is plagued with inefficiency and comes at great expense to the taxpayer.  

Even wealthy countries such as Canada and the United Kingdom, where average per capita (PPP) incomes are $35,700 and $31,800 respectively, are struggling to meet the demands of their patients under their ‘free care for all’ systems. The result of free care is long waiting times and those that actually need the care are often crowded out by the not-so-sick. Despite the government’s intentions in wanting to provide free healthcare for all in a country like SA, where average per capita incomes are $13,300, a national health system is not a feasible option and will result in reduced access to quality healthcare.   

Rather than assuming responsibility for all healthcare, which is not necessary or desirable, the government should allow the private sector to operate more freely by removing barriers that prevent the market from functioning efficiently. For instance, the SA government requires private hospitals to obtain certificates of need (CON) before they can erect or expand their buildings. Similarly, when private hospitals want to install new high-value equipment a CON is required. The intended purpose of the CON purports to be to control the distribution of healthcare services and the kind of services that may be offered in any particular area.  

The CON is imposed in a supposed attempt to match health services offered with the needs of the population on a geographical basis, an attempt that is neither practically feasible nor economically justifiable. The certificates are granted for a maximum of 20 years and doctors and hospitals have no guarantee that the certificates will be renewed.

  

Long, complicated bureaucratic procedures delay the introduction of new medical technologies and stifle competition. And because of the time and expense involved in obtaining a CON for medical personnel and facilities, the cost of care is driven up. These additional costs then have to be recovered from patients. Thus bureaucracy, red tape and a conflicting mix of social, political and budget objectives result in higher costs.   

Higher private hospital costs have to be borne by patients directly, or through private medical schemes, and although individual tax deductions make medical costs more affordable, the biggest obstacles preventing medical schemes from rolling out options to low income individuals are the regulations that prevent innovation and restrict competition between schemes. Medical scheme actuaries are prevented from devising schemes to suit particular categories of members and circumstances and to limit costs, which is especially important when establishing schemes that cater for low-income people. As more people join low-income medical schemes, providers will obtain more accurate information to predict the financing requirements of the members of the schemes and it is likely that the cost per person will decline.  

If the SA Department of Health genuinely has all its citizens’ best interests at heart it would increase competition in the market by removing the barriers currently constraining the efficient functioning of the private sector. Increased competition in the market will lead to decreased costs and improve the overall healthcare options of the nation. The government should leave the private sector alone – let the people decide how they want to spend their money. It does not interfere in the way that private individuals spend their money on food or shelter – so why treat healthcare any differently?  

Government should concentrate its efforts and taxpayer resources on those who cannot afford healthcare. And in doing that, it can and should enlist the support and help of the private sector by contracting out those services that can be provided more efficiently by private providers and enlisting the help of charities and philanthropists wherever possible. Private charities based in communities have a very good idea of what services are needed and they are not a burden on taxpayers.  

Furthermore, government should not be involved in the determination of any prices in the private sector. All healthcare prices, including that of insurance, medical schemes, medicines, and hospital fees, should be determined by the value judgements of consumers in a competitive market free of barriers to entry, especially unnecessary regulatory barriers.  

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.  

HPU Feature Article/ 18 January 2008