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The healthcare industry

South Africa’s healthcare system is unlike any other. It is complex, divided, heavily regulated and sometimes even contentious. This is our ever-changing industry. And here’s how we – and you – fit in to the greater scheme of things.

Need medical treatment? These are your choices.

As members of the public, you have access to one of two healthcare sectors – either public or private. State-run, publicly accessible facilities provided by the government account for the larger public sector. The private sector, on the other hand, comprises private practices and hospitals only accessible to those who can afford it.

Public/State/Government healthcare

Public facilities offer basic forms of healthcare – usually for free, or based on a patient’s income. Because it’s the only option for the majority of the population, it’s over-used.

Private healthcare

The private sector is the opposite. Unfortunately, access to private healthcare is determined by cost alone – the average South African can’t afford it. Most middle- to high-income earners receive private care via membership to a medical scheme, with some companies offering medical scheme subsidies to their employees.

Will NHI provide quality healthcare for all?

The government has long proposed a National Health Insurance system (NHI) with a view to providing quality, comprehensive healthcare to all South Africans. The introduction of NHI would require collaboration between the public and private healthcare sectors, and would preferably dissolve their disproportionate existence.

The ball was set properly in motion in September 2009, when the Minister of Health signed a notice establishing the National Health Insurance Advisory Committee. The committee became responsible for researching, planning and advising on the sustainable provision of the system.

Because of the huge divide between the sectors, however, logistical and funding concerns started to arise. Where would the country get the additional resources? How would it be funded? And if it were to be funded through a tax contribution, how would it be made fair?

Although much progress has been made towards the creation of an NHI system, there is still much left to be done. With the passing of the initial 2010 implementation date, a revised date still remains to be set. For now, access to private healthcare remains limited to a fortunate few. And depending on what government rules, access to the NHI system may still be controlled across different income groups.

All about medical schemes

Due to the poor quality of public healthcare services, those who can, wisely choose to turn to the private sector with their health concerns. For them, belonging to a medical scheme has become a necessity in order to hedge some of the cost. But have you ever wondered how medical schemes actually work?

The medical scheme environment in South Africa

There are now roughly 75 medical schemes in South Africa, due to various mergers and acquisitions. Not all medical schemes are open to the public – only about 18 of them are. The rest are closed (restricted) schemes run by large companies for their employees only.

In terms of legislation, a medical scheme may only be registered in South Africa if it complies with the Medical Schemes Act. The criteria laid out in the Act ensure that schemes are financially sustainable, with a sound and non-discriminatory membership base. 

A medical scheme belongs to its members

All medical schemes operate as not-for-profit organisations – they have no shareholders, do not pay dividends, and do not distribute their profits. All funds managed by a scheme, and used to pay for member expenses, are made up of pooled member contributions. Effectively, a scheme is therefore a mutual fund owned by its members. 

An elected Principal Officer, supported by a Board of Trustees, oversees the operational aspects of the scheme. And at least 50% of the Board must be made up of scheme members.

But what about administration companies and brokers?

Medical schemes may be administered by a third-party administrator, although it is not compulsory. The administrator must be an accredited organisation, and is allowed to charge schemes a fee for services rendered. These services may include membership management, processing of claims and issuing of statements. Unlike the medical scheme itself, the administration company is a profit-making organisation.

Schemes may also outsource their sales to brokers. Brokers will in all likelihood also charge a fee in the form of broker commission.

Administrator and broker fees are referred to as non-healthcare costs, which need to be paid for from pooled member funds. Most schemes use one or the other, if not both. Cape Medical Plan uses neither: we are one of the only self-administered open schemes in the country, that deals directly with prospective members.

How do schemes decide on their products and benefits?

A scheme’s Board of Trustees will design an initial set of products, or healthcare plans, with varying degrees of cover (benefits) and contribution rates. The product range will usually start with basic hospital cover. More comprehensive plans will offer day-to-day benefits and/or a Medical Savings Account in addition. Products, benefits and contributions are reviewed and adjusted annually – a process known as an Annual Benefit Review, Option Renewal or Product Renewal.

Where possible, CMP includes input from its members, gained through member queries and direct contact; however, these suggestions cannot always be implemented, as they are not always to the benefit of the average member.

A decent solvency ratio – it’s the law

Solvency ratio refers to the percentage of annual member contributions in the scheme’s possession at any given time. Legally, all schemes are required to maintain a minimum 25% solvency ratio at all times – enough to pay out all member claims simultaneously if the need ever arose. Despite being one of the smallest medical schemes in the country, Cape Medical Plan has one of the highest solvency ratios, well above the legislated 25% minimum.

Legally, not everything can be covered

Despite this solvency ratio, all schemes in South Africa are legally prevented from using their reserves to pay for routine medical expenses; only members’ contributions may be used. In addition, all schemes have their own set of rules and regulations, which limit how benefits are paid out.

In CMP’s case, we only cover medically necessary treatments, procedures, products and services. It’s in the interest of all our members, and prevents unnecessary spending. Medically unnecessary or excessive procedures – like elective surgeries – are for our members’ own accounts.

Representation and regulation

Medical schemes are represented by the Council for Medical Schemes, which in turn is bound by legislation drawn up by the Department of Health.

The Council for Medical Schemes is a statutory body, or ombudsman, for the medical scheme industry. It was established by the government to supervise private health financing through medical schemes, and to interpret the laws drawn up by the Department of Health.

The Council is governed by a Board appointed by the Minister of Health. The Board’s Executive Head is also the Registrar of medical schemes.

Joining a medical scheme: risk assessment and waiting periods

Legally, open medical schemes may not turn any prospective members away. If a prospective member applies to a scheme and is able to pay the required contribution, a scheme needs to extend an offer of membership. This, however, can leave a scheme in a difficult position. What happens if a member is terminally ill on application? Should a scheme be required to pay his or her medical bills from the existing pool of funds immediately on joining the scheme? The answer is no, and the reasons are valid.

Restrictions safeguard existing members

When a prospective member applies for membership, they’re assessed in terms of risk, and offered membership – with or without restrictions, depending on their health. This process is called underwriting. It’s the law, and a scheme’s way of protecting its funds – and existing members – from unforeseen expenses.

Waiting periods for risky applicants

Restrictions take the form of waiting periods. There are two types of waiting periods that can be imposed on new members – a general waiting period of three months for all new members, and a condition-specific waiting period of up to 12 months. In both cases, the restrictions fall away once the waiting period has been completed.

During a general waiting period, members will not be able to claim for any expenses. Condition-specific waiting periods are imposed on new members who present a potential risk in terms of previous or pre-existing conditions or illnesses. During this waiting period, a beneficiary will not be able to claim for any expenses relating to that condition.

The dangers of non-disclosure

Restrictions are determined by the information disclosed on a prospective member’s application form. All prospective members and members need to be completely honest, especially regarding pre-existing medical conditions and previous memberships to other schemes.

If a claim further down the line is linked to possible non-disclosure on your initial application form, you will be refused cover for that condition. Even worse, your membership could be terminated.

The Council for Medical Schemes (CMS) believes it is irrelevant whether non-disclosure was done innocently or by fraud.

It is also illegal to belong to more than one scheme at a time. You must have ended your membership with your previous scheme before joining the next.

Medical schemes and the rest of the industry

The way in which a scheme interacts with the rest of the healthcare industry is largely determined by the various governing bodies, fee structures and legislation. It’s a complex system of dos and don’ts that most people don’t take the time to learn about. Here’s your chance to change all that.

The former NHRPL and how it affects you

Previously, the National Health Reference Price List (NHRPL) was used as the pricing guideline for the medical profession. It was designed by the Council for Medical Schemes on behalf of the Department of Health, and first published in 2004.

It contained gathered costing submissions from all disciplines, providing an accurate insight into the actual cost of running a practice. Although medical practitioners and hospitals were not bound by the NHRPL, nor regulated in terms of what fees they could charge, medical schemes used the list to calculate their own Medical Scheme Rate (MSR) or tariff.

This tariff, which was calculated as a percentage of the NHRPL tariff, represented the maximum amount a medical scheme would pay to service providers on behalf of their members.

The end of the NHRPL: problems for schemes and members

Because government failed to adjust the NHRPL in 2009, all schemes had to add discretionary increases to their 2010 MSRs to conform to annual inflation figures. We adopted a Consumer Price Index-linked increase, and CMP’s tariff (the rate at which we pay claims) for 2010 was set at the 2009 NHRPL + 6%. This tariff is usually adjusted during the Annual Benefits Review process.

At the end of July 2010, however, a court ruling declared the NHRPL null and void after a judge found the process used to determine rates to be unfair and unlawful. This created quite a stir, especially for CMP. Because we were able to base our tariff on the NHRPL, we could always keep contributions fairly low compared to other schemes.

The Competition Commission is currently investigating the medical scheme industry, so schemes still await a resolve, but CMP will not be changing any rules or the way in which we reimburse members and suppliers, without first advising all relevant parties.

PMBs – the minimum a scheme may provide

PMBs (Prescribed Minimum Benefits) represent the minimum amount of cover that all medical schemes are legally required to provide. They were introduced into the Medical Schemes Act to ensure that members of medical schemes would always be covered for life-threatening conditions.

PMBs comprise a list of 270 medical conditions, 25 chronic diseases and all emergency conditions. All PMB costs have to be paid for from the scheme’s risk pool, and allow for treatment at least on par with government hospitals.

PMBs and tariff complexities

Schemes are legally required to pay for the treatment of all PMB cases. Because fees charged by medical practitioners are not regulated, schemes have had to put systems in place to cushion them against the high cost of paying out PMBs at excessively high tariffs.

Schemes are sometimes allowed to impose co-payments and payment shortfalls, especially if a member exceeds the scheme’s tariff. Preferred Providers may also be specified to treat PMB conditions.

What about the cost of medication?

In 2004, the government introduced a Single Exit Price for medicines, bringing discounts and additional levies on medicines to a grinding halt. Single Exit Price refers to the price at which medicines leave the manufacturer. Medicine pricing regulations now provide only for the addition of a dispensing fee to the Single Exit Price.

Codes are used to classify medical conditions

You’ve probably heard of ICD-10 codes in passing, but have never stopped to consider their meaning. Don’t ignore them – they’re a crucial component of communication between schemes and the rest of the industry.

ICD-10 codes are used internationally as a way to diagnose and classify all diseases and medical ailments according to their symptoms. They are designed to keep diagnoses consistent and easily identifiable by medical practitioners and medical schemes. By law, medical practitioners must state an ICD-10 code on all statements to allow for efficient medical scheme claims. This is particularly necessary for members diagnosed with PMBs – schemes need to be able to identify a diagnosis to allocate correct benefits to a particular claim. Treatment for PMBs is also determined by the condition’s ICD-10 code.

Managed care and Co-ordinated care – changing the industry, containing costs

Despite having undergone quite a few changes over the last couple of years, healthcare in South Africa remains a complex, costly affair for medical schemes, as well as the general public. The emergence of managed care and co-ordinated care, however, is helping to contain costs (especially with regard to the provision of PMBs), without compromising the quality of care.

Managed care is said to be changing the way in which healthcare services are being financed and delivered in South Africa. Schemes are able to maintain the quality of care offered to their members, while still remaining financially sustainable.

Processes vary amongst doctors, hospitals and specialists, and the lack of communication between patients and doctors, and doctors and specialists, often leads to over-servicing and duplication of tests. At the end of the day, this adds up in cost to both patients and medical schemes.

Co-ordinated care, together with managed care is a possible solution to this problem. It involves the sharing of information amongst all of the patient’s medical service providers in order to meet the patient’s needs in a more, efficient, appropriate and cost effective way.

Having all medical service providers communicating with each other and sharing the information they have about the patient can allow for a more holistic, multi-disciplinary approach to treatment. Extensive hospital admissions can also be reduced.

Co-ordinated care is not a new concept to the healthcare and medical scheme world.

Scheme-run managed care programmes

In a nutshell, members of medical schemes who are diagnosed with certain chronic conditions are required to enrol on scheme-run managed care programmes. These programmes may be operated internally, or outsourced to a managed-care organisation.

Once the member has enrolled, their condition and treatment are monitored by the scheme, allowing for effective cost management. In return, members receive support from the programmes, and are guaranteed quality care.

The aim of managed care is to ensure that...

•  Service providers deliver high-quality, cost-effective care.
•  Treatment provided is medically necessary and appropriate for the patient’s condition.
•  The most appropriate service provider renders care in the most appropriate,
   least-restrictive environment.

The healthcare industry’s regulatory bodies

Each and every segment of the healthcare industry – from dentistry to pharmaceutics – is represented and regulated by one of numerous industry bodies. None are above the Department of Health, however.

The Department of Health (DoH)

This government department, headed by the Minister of Health, is responsible for drawing up all health-related legislation. It is the overall governing body for the healthcare industry in South Africa.

The Health Professions Council of South Africa (HPCSA)

The HPCSA is a statutory body established to serve and protect the public, and provide guidance to registered healthcare practitioners. They are especially instrumental in registration, education and training, and in guiding professional conduct and ethical behaviour. They also ensure continued professional development and compliance with healthcare standards.

The South African Medical Association (SAMA)

SAMA is an independent, non-profit association established to serve both public- and private-sector medical practitioners in South Africa. It is also a trade union that encourages the integrity and positive image of the country’s medical professionals.

The Hospital Association of South Africa (HASA)

This association represents the collective interests of the majority of private hospital groups and independently-owned private hospitals in South Africa. HASA is a key role-player in South Africa's healthcare environment.

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