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2 September 2019
Dear Colleagues
Many doctors and other health professional colleagues have reached out to us to get our views on the
National Health Insurance (NHI) Bill and how we see this impacting on the health care system, including
private healthcare, going forward. This letter is intended to share our current views at a high level. We have
also arranged a number of update sessions for health professionals around the country and will continue
to arrange these going forward. We are now at the early stage of active engagement between the policy
makers driving the NHI process and various organisations representing private healthcare, and we will also
share updates on these developments on an ongoing basis.
Discovery’s perspectives on NHI
Discovery recognises the deep inequalities in our current healthcare system, and for this reason, we
support the drive towards ensuring that all South Africans have access to quality health services based on
need rather than affordability. We therefore support an NHI that assists in strengthening and improving
the healthcare system for all South Africans.
We also believe that the publication of the NHI Bill creates a very important opportunity for active
collaboration between the Department of Health and the private healthcare sector, to ensure that the
assets, skills and experience available in the private healthcare system are maximally leveraged to ensure
the success of the NHI roll out.
The NHI is a huge, complex and multi-decade initiative and a considerable amount of debate and effort will
be required to make it workable. Discovery is committed to assisting where we can in building the NHI, and
making it workable and sustainable. We believe that all stakeholders with an interest in the future of our
country should take the same approach. Of course, debates about its timing, affordability, and execution
will no doubt be complex.
In the following sections, we discuss four key issues arising from the NHI Bill – the role of medical schemes,
the financing of the NHI and the resulting tax implications, the role of private hospitals and professionals
within and outside of the NHI, and the NHI policy process going forward.
The role of private healthcare and medical schemes as envisaged in the NHI Bill
The NHI Bill contains only one paragraph (Section 33) specifically referencing the role of medical schemes.
This paragraph indicates that “once National Health Insurance has been fully implemented as determined
by the Minister through regulations in the Gazette, medical schemes may only offer complementary cover
to services not reimbursable by the Fund”.
2019/07 Page 2 of 6
This clause raises the issue of the future role of private healthcare and medical schemes – and in particular,
what it means for medical schemes to provide “complementary cover ” to the NHI and when this will take
effect.
We have no doubt that the medical scheme system will change and evolve over time as the NHI emerges.
To the extent that the NHI creates competition for medical schemes, this must be a good thing as it will
mean that citizens will have more choice, and competition will ensure that we all remain ‘on our toes’ in
providing good service and high value products and services to our clients/patients.
However, our strong view is that substantially limiting the role of medical schemes would be
counterproductive to the NHI because there are simply insufficient resources to meet the needs of all South
Africans - this is an unavoidable reality.
Limiting people from purchasing the medical scheme coverage they seek will seriously curtail the
healthcare they expect and demand. This will erode sentiment, denude the country of skills and impact the
economy. Crucially, by preventing those who can afford it from using their medical scheme cover, and
forcing them into the NHI system, this approach will also have the effect of increasing the burden on the
NHI and will drain the very resources that must be used for people in most need. This would be detrimental
to all South Africans, and would undermine the objectives of the NHI as we understand it.
While this is our view, we are seeking clarity and actively engaging with the key policymakers on the
potential impact of the NHI Bill on the future role of private healthcare and medical schemes. The NHI Bill
makes the point that this “complementary role” for medical schemes will only apply once the NHI is “fully
implemented” and it defines “referral pathways” to which it will apply, indicating that where patients choose
not to follow the referral pathways, the NHI will not reimburse their care, and that they can then claim from
private health insurance. Recent discussions with senior policy makers have confirmed this understanding
– that where patients elect not to use the NHI pathways and NHI accredited providers, they will be free to
obtain cover from medical schemes and schemes will be able to provide such cover. This speaks to a
continued and important role for medical schemes, and we will engage actively and constructively to make
these points and to ensure an ongoing critical role for medical schemes and for private healthcare
providers as the process goes forward.
Importantly, while we do expect medical scheme products to evolve over time (as they have and continue
to do at present) we do not envisage any material impact on medical schemes, and on the health
professionals, suppliers and facilities they support for the foreseeable future. The roll out of the NHI is
expected to take place over an extended period, and will be constrained by the current fiscal position. In
addition, as discussed in more detail below, the Bill remains open to interpretation regarding its impact on
medical schemes, and we expect medical schemes to continue operating alongside the NHI. We also think
that once fully emerged, the NHI will create additional opportunities for medical schemes to innovate in
their products and for the development of new health insurance products outside of the medical scheme
environment.
In our view, medical schemes should and will continue to cover all of the healthcare services which they
currently cover. We believe this to be the case for the following reasons:
2019/07 Page 3 of 6
- There is no clear definition of services to be covered by the NHI. Some of the policy makers have
suggested that the services will be ‘comprehensive’ and will not be defined on a benefit by benefit basis,
while others have suggested that the services reimbursed by the NHI will be expanded on an
incremental benefit and geographic basis, with an initial focus only on primary and maternity care and
other high priority services for vulnerable populations. There are contradictions in these positions that
need to be resolved since the Bill, in its current form, does not define the services that will be included.
- Even for the limited initial definition of NHI benefits, we expect the actual implementation of universal
coverage to be considered and deliberate, as there are extensive financial, legislative and administrative
challenges to be overcome, as the Minister and other policy makers have acknowledged. The initial
focus, which is likely to last at least until 2026, will be on building the NHI Fund infrastructure and on
the substantial work required to change the flows of funds within the current public financing
mechanisms.
- There is uncertainty as to when the NHI will be considered “fully implemented”. This also needs to be
more clearly defined. In our view, given the constraints, it is likely that this point is most likely to be
quite far in the future, certainly well after 2026.
- The specific language of the Bill is open to interpretation. Section 33 of the Bill states that medical
schemes cannot cover services “reimbursable” by the NHI. At the same time, Section 8 (2) clearly states
that to obtain reimbursement, patients will have to follow the ‘referral pathway’ dictated to them by the
NHI’s contracted providers. If patients decline to follow these referral pathways, their care will not be
reimbursable by the NHI and they will have to either pay out of pocket or will be able to claim from
voluntary private health insurance. When these sections are read together, the Bill appears to
accommodate medical schemes being able to fund any services that are not reimbursable by the NHI
due to patients choosing not to use NHI pathways. This interpretation has been confirmed in recent
discussions with senior policy makers.
- We believe that the limitation of the rights of citizens to purchase additional health insurance, even
after they have contributed to the NHI, would be globally unprecedented and inappropriate. As noted
above, we believe that this approach will actually harm the NHI by draining resources from those most
in need. It is also important to point out that no policy maker has yet provided a clear justification for
this element of the NHI Bill.
- In virtually every other country with some form of NHI or equivalent nationally funded healthcare
system, citizens are fully entitled to purchase additional private health insurance cover, including cover
that overlaps with services covered by the national system. A restriction on choice of medical scheme
cover is not dissimilar to limiting the rights of citizens to purchase private education for their children
or private security, on the basis that the public system already provides state schooling and security
services.
The financing of the NHI system
The Bill provides no clear detail of the likely costs of the NHI once fully implemented. A range of numbers
have been published. A memorandum attached to the Bill suggests that approximately R30bn in additional
funding will be required by 2026 in addition to the current R223 bn spent in the public healthcare system.
In other documents, the costs have been estimated at between R70bn-R110bn in 2010 prices. The policy
makers have suggested that the National Treasury will soon publish a paper providing more detail on the
quantum of funds that may be required and how these will be raised and over what period.
2019/07 Page 4 of 6
In our view, the government faces significant challenges in securing the funding required to implement the
envisaged NHI, including the current and likely future fiscal constraints facing government. In recent days,
the media have quoted the National Treasury as requesting Cabinet Ministers to cut public expenditure
budgets by up to 19% over the next 3 years, presumably to assist in managing the growing debt to GDP
ratio, which poses a threat to our country’s credit rating. Consistent with this approach, the Minister of
Health has indicated that no tax changes are envisaged over the 3-year period of the current Medium Term
Expenditure Framework. Note that any tax legislation falls under the remit of National Treasury and this
is acknowledged in the Bill.
The Bill refers to possible use of personal income taxes, a payroll tax and to a redirection of the current
medical scheme tax credit. This is obviously possible in theory, but it would harshly affect those towards
the lower end of the income spectrum who benefit most from the tax credit. Any adjustments to other
government subsidies to medical schemes would be a material change to the employment conditions of
public sector employees and would impact their trade unions. It is also worth noting that the Provisional
Report of the Health Market Inquiry argued for a restructure of the tax credit to create a greater income
cross subsidy, rather than for its abolition.
For these reasons, we expect complex discussions regarding the future role of the medical scheme tax
credit. Our broad expectation is that National Treasury will continue to cap the nominal Rand value of the
tax credit each year, as has been the case for the past two years.
These observations raise the question of whether the R30bn per annum in new funds to be raised by 2026
is realistic. It is also important to point out that even if this quantum of funds could be raised, much of it
will be required for the establishment of the NHI Fund infrastructure as well as to fill many gaps in financing
in the current public sector environment, including large numbers of frozen posts and backlogs in
infrastructure investment and maintenance. The net result is likely to be a relatively modest budget for
purchasing additional healthcare services. If this is correct, the ability of the NHI to substitute for medical
schemes will be very constrained in the foreseeable future, and the resulting impact on medical schemes
and on private healthcare providers will be similarly constrained.
In summary, there are material challenges to raising new revenues to supplement the current government
budget for healthcare, and this is unlikely to change in the foreseeable future. This in turn implies that the
rollout of the NHI as envisaged will be constrained unless there is a substantial improvement in the
country’s economic performance.
The role of private hospitals and health professionals
The Bill envisages that the NHI Fund will contract on a voluntary basis with private hospitals and
professionals and other services to supplement the current public sector delivery system. The NHI Bill
provides limited detail on how the procurement of services from private providers will be carried out.
The lack of substantial additional funding noted above will constrain the ability of the NHI to procure
extensively from private providers. Overall, for the foreseeable future we expect that the NHI will contract
with some GPs to supplement its public primary care services, and also that it will contract for certain high
priority services to address specific gaps in public sector provision. If this is achieved, it will already be a
significant step forward and has the potential to impact very positively on those communities and patient
2019/07 Page 5 of 6
groups who are targeted for these interventions. Beyond that, we expect that the majority of NHI services
will continue to be delivered by public sector clinics and hospitals, and that private hospitals, specialists and
other providers will continue to be mainly funded by medical schemes.
It is our strong view that we have a brilliantly committed, highly skilled and world-class healthcare
professional community in South Africa. These professionals work hard, provide excellent care and are
committed to our country. We believe it is legitimate to defend their rights to choose where and how to
work, to fair remuneration, to an optimal working environment that promotes sustainability and ideal
patient care, and to retaining and supporting them within our broader healthcare system.
The NHI Bill Process
The NHI Bill will now be tabled in Parliament, implying that a Portfolio Committee process will commence,
allowing for public consultation. Discovery will participate actively in the parliamentary process through
BUSA and BLSA, as well as the Health Funders Association and on its own account, and we will actively
engage with the various organisations representing health professionals during these processes. We
encourage all industry stakeholders to do the same.
There will be a parallel process within NEDLAC, which will create further opportunities for engagement and
influence over the final content of the Bill.
It also appears that the Minister intends engaging actively with stakeholders and this will create
opportunities to engage on these vital issues. There are positive signs that the policy makers are open to
the potential for public private partnerships, and we welcome the opportunity to partner in delivering on
the vision for a stronger and more accessible healthcare system for all South Africans.
Following the Portfolio Committee process, the Bill will be debated in the National Chamber of Provinces
and the National Assembly. We thus do not expect the Bill to be promulgated and regulations drafted for
at least 12-18 months from now.
Concluding remarks
The NHI Bill promises the most substantial reform to South African healthcare for decades. It is a large,
ambitious and complex reform, and faces many challenges to its successful implementation. As noted
above, we are supportive of the need for a dramatic improvement in the access of South Africans to better
healthcare and of tackling the inequalities in our healthcare system. However, we have material concerns
about some elements of the NHI Bill which need active engagement by all interested stakeholders with the
policy makers.
Having said this, we remain confident that the resulting environment will be rational and workable. Our
plans for Discovery Health and our relationships with all of our stakeholders remain the same. If anything,
the future will be more complex and the need to invest in capabilities and technology are likely to increase
substantially. That is what we plan to do.
Discovery is committed to playing its role in building a positive future - for the members of the schemes
which we administer, South Africa’s doctors and healthcare professionals, and for all South Africans. We
will stand by South Africa’s health professionals whether they work in the public or private sectors. In doing
2019/07 Page 6 of 6
this, our aims will be to ensure that the NHI provides the right platform to leverage health professionals’
skills for the benefit of all South Africans, and also that our laws and policies protect the rights of health
professionals to choose where and how to work and to be paid for their services including by medical
schemes.
We look forward to working with you to realise this aspiration, and at the same time, to manage the risks
to private healthcare and the future role of health professionals working in the private sector.
We appeal to all of you, individually and through your organisations, to engage openly and constructively
in this debate. Together we believe that we can facilitate a legislative outcome that addresses the current
significant inequalities in healthcare in our country, and that enhances health and healthcare for all.
Please feel free to contact me at any time if you would like to discuss these issues in more detail.
Yours sincerely,
Dr Jonathan Broomberg
CEO Discovery Health
Note on Final Findings and Recommendations of the Health Market Inquiry
5 OCTOBER 2019
Discovery Health (Pty) Ltd
Discovery Ltd. registration number: 1999/007789/06. Companies in the group are authorised financial services providers.
DH Note on Final HMI Report October 2019 Page 2 of 9
Confidential
Discovery Health (DH) welcomes the publication of the Final Report of the Health Market Inquiry (HMI). The
HMI has completed a massive task in assessing several complex markets, conducting extensive data analysis
and incorporating detailed and diverse stakeholder input, and we believe that the HMI’s findings and
recommendations will ultimately strengthen the private healthcare system for the benefit of consumers. We
also believe that the work of the HMI has made a significant contribution to identifying and enhancing the
opportunities for the private health sector to play an important supportive role in attainment of the goal of
universal health coverage (UHC) in South Africa. This work is therefore very relevant to the National Health
Insurance (NHI) policy framework.
In this summary note, we provide an overview of the key recommendations of the HMI as well as our views
on these recommendations. We will continue to work through the detail of the report to provide appropriate
support and input as the recommendations are implemented, in consultation with the Department of Health
and various regulators. It is important to record that the relevant sections below labelled the “HMI FINDINGS”
are not a representation of Discovery Health’s views, but rather a factual and at times verbatim summary of
highlighted issues from the HMI report.
The HMI has identified the need for improved competition in all sectors of the private healthcare market and
has made wide-ranging recommendations encompassing a variety of factors and stakeholders. The HMI has
also identified a number of the key drivers of rising healthcare costs and has correctly concluded that the
high rates of cost inflation is due more to factors such as utilisation (driven by factors such as supplier induced
demand, new technology etc.) rather than simply an escalation in prices. However we remain concerned that
the demand side impacts (driven by anti-selection) on utilisation are underestimated in the HMI’s analysis.
We particularly welcome the recognition that the lack of appropriate regulatory interventions, including
specifically the requirement to cover Prescribed Minimum Benefits (PMBs) at cost, has been a cost driver for
the industry, has had adverse consequences on medical scheme benefit design, and has also created perverse
incentives with respect to coding and hospital admissions.
HMI FINDINGS AND RECOMMENDATIONS WITH RESPECT TO FACILITIES AND PRACTITIONERS
The HMI findings include that:
- Practitioners are key drivers of health expenditure overall and peer review mechanisms have limited
effect.
- There is evidence of specialists practicing in silos, which collectively has driven up costs.
- There has been a failure to explore multi-disciplinary models of care delivery and the reliance of the fee
for service reimbursement model stimulates over servicing.
- There is a lack of accountability in terms of reporting of outcomes.
- There is evidence of supplier induced demand including increases in the number of private hospital
beds driving admission rates and inappropriately high rates of ICU admissions. It was also noted that
facilities are competing to attract specialists (with factors such as new technology) which further drives
up costs.
- There is not an under supply of specialists but rather an inefficient use of their time.
- The private hospital market is highly concentrated with three hospital groups dominant. They have
exhibited sustained profitability and there has been a low tendency to adopt alternative modes of
Discovery Ltd. registration number: 1999/007789/06. Companies in the group are authorised financial services providers.
DH Note on Final HMI Report October 2019 Page 3 of 9
Confidential
delivering hospital care. The NHN exemption appears to have been effective from a competition
perspective.
- Provider networks are a promising tool for promoting an effective outcomes based approach.
- There has been inconsistent application of licensing processes across the provinces, which has led to an
oversupply of hospital beds.
- There is lack of transparency in pricing and lack of reporting on outcomes and the overall lack of
publicly available information affects decision-making by consumers and practitioners. This data is also
required to facilitate risk adjustment.
- The Health Professional Council of South Africa (HPCSA) has failed to provide regulatory oversight in
the interests of patients.
The HMI has made a number of critical recommendations in respect of healthcare facilities (hospitals etc.)
and practitioners. These include:
- The establishment of a Supply-Side Regulator for Healthcare (SSRH). The HMI has done extensive work
on the proposals for the SSRH. This is one area in which the Final Report is significantly enhanced relative
to the Provisional Report of 2018. The HMI proposes that the SSRH will carry out the following functions:
o Healthcare capacity planning including the licensing of facilities.
o Improved management of the practice code numbering system (PCNS) with an interim role
played by the CMS. This will allow for better measurement of supply capacity as well as
facilitating quality measurement.
o Economic evaluation of medical technology and health interventions (also with an interim role
for the CMS).
o Coordinating and overseeing a multilateral negotiation forum (MLNF) for tariffs to address the
current tariff vacuum with the CMS playing an interim role in facilitating these negotiations.
This would lead to maximum tariffs that can be charged by health professionals for
prescribed minimum benefits (PMBs) and for all non-PMB services, this would provide
reference tariffs.
The recommendations still provide for bilateral negotiations between health
professionals and schemes or administrators, provided that these include elements of
risk sharing and outcomes measurement.
It is important to note that these provisions exclude hospitals, which are still expected
to negotiate bilaterally with schemes or administrators.
- The CMS is to play an interim role as the health services pricing unit (for reference tariffs) and in
establishing a national health information dataset.
- Coding definition and development should be separated from tariff negotiations, and codes should also
be maintained by an independent body (as opposed to the current role of professional associations). The
need for academic input is specifically noted.
- The establishment of a National Health Data Registry needed for the analysis related to risk adjustment
and research to support economic evaluation.
- Revised structures for professional associations separating academic and corporate functions. The need
for the educational curriculum for health professionals to include an understanding of cost implications
and economic evaluations is also noted.
Discovery Ltd. registration number: 1999/007789/06. Companies in the group are authorised financial services providers.
DH Note on Final HMI Report October 2019 Page 4 of 9
Confidential
- The HPCSA must undertake a review of its ethical rules to encourage group practices and global fees and
to allow for conditional employment of doctors by facilities to promote alternative reimbursement
models. The rules should consider the competition perspective in general. Specific rule references have
been provided and this includes full disclosure of the practitioners interest in treatment provided
including facility shareholding and financial interests in medicines and products used or dispensed.
- Implementation of opportunities for increased synergy between public and private facilities to enhance
broader access and supplement capacity.
- The establishment of an Outcome Management and Reporting Organisation (OMRO) as a private
organisation, which will identify appropriate health outcome measurements and define national
standards.
Discovery Health’s views on the recommendations
We support the principles of ensuring maximum consumer information and transparency, through the
collection and publication of more relevant health outcome information, and most importantly, a focus on
ensuring high quality outcomes of treatment. We are always mindful of the sensitive nature of medical
scheme data and will work with regulators to ensure that data is appropriately secured and accessed.
We maintain that the SA private healthcare system delivers excellent quality, value-for-money and care to
consumers. This is supported by international benchmarks. Where we support HMI findings and
recommendations, it is within a spirit of making sustainable improvements to quality, transparency and
affordability – on the platform of this recognition of excellent care in general, provided by SA private
healthcare providers.
We support the recommendation to address the lack of effective regulation on the supply side, and the
recommendation that there be more careful evaluation of need and evidence to be applied in the licensing
of hospital and other facilities.
We support all aspects of the tariff and coding related proposals, which are very much in line with our
submissions to the HMI. It will of course be critical that this process is carefully designed to ensure full
participation by all relevant stakeholders, as well efficient and trustworthy processes.
We are concerned about the proposed requirements for contractual terms to be published as this will inhibit,
rather than promote the role of competition in securing contracts that are in the best interests of medical
scheme members.
We strongly support the recommendations regarding the urgent need to revise the ethical rules of the HPCSA
to promote competition, and efficiency in the delivery of care through multi-disciplinary teams and global
fees. Our submissions to the HMI stressed the importance of developing alternative reimbursement models
as a way to align incentives for delivering quality, affordable care, and we have consistently pointed out that
the HPCSA’s rules are an obstacle to these important developments.
The HMI has noted the urgent need to encourage the implementation of alternative reimbursement
mechanisms (ARMs) and the important role of networks in managing both the costs and quality of care.
Discovery Ltd. registration number: 1999/007789/06. Companies in the group are authorised financial services providers.
DH Note on Final HMI Report October 2019 Page 5 of 9
Confidential
The HMI recommendations include a number of additional and some potentially complex functions to be
adopted by the CMS, particularly the interim SSRH functions. This will require CMS to add appropriate
additional capacity. Since this could impact on levies paid by medical scheme members in funding the CMS,
it will be important that there is a consultative process for establishing any additional requirements as well
as transparency in how these will be conducted with the overarching consideration always being the value
added to members. We look forward to providing appropriate support and input on these developments.
We agree that more information on quality of care should be provided to consumers than is presently the
case, but we note that improved quality outcome data is only of one of a range of interventions available to
improve consumer empowerment. DH has already undertaken a number of initiatives in this regard with
respect to quality measurement and reporting including patient satisfaction. We believe that the
establishment of a new and separate entity to measure and report on quality outcomes is not necessary
given the existing infrastructure across the industry, which includes organisations such as Health Quality
Assessment (HQA) and the Council for Health Service Accreditation of Southern Africa (COHSASA), which
currently collect and report on quality indicators, albeit in a fragmented and uncoordinated manner. There
is an opportunity to build on these capabilities, rather than establishing a new and costly entity.
HMI FINDINGS AND RECOMMENDATIONS WITH RESPECT TO FUNDERS
The HMI included medical schemes, administrators and managed care organisations under the category of
Funders. The HMI found that:
- Scheme options are highly complex, and consumers cannot effectively compare options. This is in part
due to the incomplete regulatory environment. The HMI does not agree that option complexity reflects
innovation by schemes.
- Schemes demand almost no accountability from administrators to manage supply-induced demand and
moral hazard.
- Schemes and administrators are not using buying power effectively, although the HMI clearly recognises
that DH is the only administrator that does exercise negotiating power against hospitals and has achieved
lower hospital tariffs than other administrators.
- There is limited evidence of value based contracting by medical schemes.
- Brokers play an important role in assisting members to navigate scheme complexity.
- Anti-selection has adversely affected medical schemes and it is not clear whether current measures
provide additional financial offset.
- The requirement to cover PMBs at cost is a cost driver and has created perverse incentives.
The HMI made a number of recommendations that will affect medical schemes and administrators. These
include:
- Changes to scheme benefit structures. The introduction of a standardised base benefit package covering
a comprehensive range of benefits including catastrophic cover and out of hospital primary care. Risk
rated supplementary benefit options defined on a comparable basis across schemes.
Discovery Ltd. registration number: 1999/007789/06. Companies in the group are authorised financial services providers.
DH Note on Final HMI Report October 2019 Page 6 of 9
Confidential
- These changes to scheme benefits are to be accompanied by a formal risk adjustment mechanism to
equalise risk across schemes, with the mechanics to be determined by a separate authority in conjunction
with the South African Revenue Services, National Treasury and the Department of Health.
- The PMB package for the base benefit option would be regularly reviewed (at least every 2 years) with
more detailed information provided to members on accessing PMBs.
- Reconstitution of the current tax credit regime to take the form of a contribution subsidy administered
through RAM to integrating income and risk cross-subsidies.
- The introduction of regionally based schemes with temporary reinsurance mechanisms to promote new
entrants.
- Remuneration of scheme officers should be linked to incentives appropriate for the short-term and long-
term management of schemes.
- Recommendations to expand participation in trustee elections. This includes the use of technology for
distributing information about trustees standing for election as well as for the election process.
- Training requirements for scheme officers and trustees to improve governance including regulations on
core competencies.
- The publication of CMS contact details on membership cards to provide members with greater direct
access to complaints processes.
- Administrators should carry a fiduciary duty of care towards scheme clients, and CMS may levy penalties
on administrators for breach of these fiduciary duties.
- Remuneration of brokers on an opt-in basis with full disclosure of fees. This will require members to
declare annually if they wish to use the services of a broker. For those that do, the scheme will facilitate
the payment to the broker. Members who chose not to use the services of a broker will pay
proportionally lower scheme membership fees.
- Consideration of mandatory membership of medical schemes (on an incremental basis) only once
progress in certain metrics has been achieved.
Discovery Health views on the recommendations
We share the HMIs concerns regarding the complexity of benefit options, and noted in our submission that
the fee for service environment and complexity of PMBs are key contributors to this complexity. We do not
agree with the finding that schemes are competing on the basis of risk selection. On the contrary, the
introduction of new benefits options by open schemes arises from the highly competitive nature of the open
medical scheme market. This proliferation of benefit options creates greater opportunities for consumer
choice but also for anti-selection and this impacts the level of risk cross subsidies.
We believe that the recommendations regarding the introduction of a standardised base benefit option
across all schemes together, plus risk equalization mechanism across schemes, and the ability of schemes to
offer supplementary benefits on a risk rated basis are sound and workable. However, they will be extremely
complex to introduce, and we are looking forward to working with the regulators to ensure that these
changes are implemented in a way that benefits medical schemes and their members. At the same time, we
are mindful of affordability constraints and the need to ensure that PMBs are reviewed to ensure that we
are not adding costs to the already hard-pressed members. The slow progress with the current PMB review
is a cause for concern.
Discovery Ltd. registration number: 1999/007789/06. Companies in the group are authorised financial services providers.
DH Note on Final HMI Report October 2019 Page 7 of 9
Confidential
We also welcome the concept of risk equalisation on the basic benefits and the acknowledgement that a key
challenge for medical schemes has been the incomplete implementation of the social solidarity regulatory
framework. It will be critical to ensure that the risk adjustment process is technically sound in both its
structure and maintenance to ensure that there is no distorting effects.
In the case of our client schemes, we strongly disagree that schemes demand no accountability from DH to
manage healthcare costs including supplier-induced demand. In our experience, scheme trustees hold us to
account across all aspects of our contractual relationships, and we experience significant (and appropriate)
pressure from all of our scheme clients to do whatever we can to mitigate claims inflation, and we feel fully
accountable for doing so.
We do not agree that there is evidence of widespread governance failure in medical schemes. Our
experience is that scheme trustees act with due diligence to balance the need to deliver affordable care to
medical schemes with the demands of managing sustainable risk pools. Notwithstanding this, we support
the recommendations for improved trustee training, as well as for aligning scheme officer remuneration.
HMI FINDINGS AND RECOMMENDATIONS ON DISCOVERY HEALTH MEDICAL SCHEME (DHMS) AND
DISCOVERY HEALTH (DH)
The HMI notes that:
- DHMS is the dominant open medical scheme, and there is inadequate competition in the open schemes
market.
- There is some evidence of competition between administrators e.g. DH and Afrocentric and competing
for restricted schemes, but no existing players are challenging the existing dominant players, and no
competitors are entering to challenge DH.
- That DH has shown sustained profitability, earning profits that are ‘multiples higher than its competitors’.
- Much of DH’s success can be attributed to competent management but that is not enough to explain the
large and persistent gap to competitors.
- This gap may therefore be due to DH charging ‘excessive fees’ relative to its scale.
- The HMI also notes that DHMS is ‘locked in’ to DH and that the DHMS vested model raises some
competition concerns.
- DH is the only administrator that applies some countervailing power to hospital groups (better than
Medscheme and MMI), and there is clear evidence that DH (and GEMS) have managed to achieve lower
hospital tariffs.
- There are corporate linkages between DH and MMI and Mediclinic, which reduce competition and might
affect the decisions of DH to invest in hospitals.
The HMI recommends that:
- Competition in the schemes market should be increased by the introduction of ‘regional’ schemes, which
could be protected from volatile claims risk through reinsurance.
- There were no recommendations specifically applying to DH or DHMS.
Discovery Ltd. registration number: 1999/007789/06. Companies in the group are authorised financial services providers.
DH Note on Final HMI Report October 2019 Page 8 of 9
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Discovery Health views on the findings in respect of DH and DHMS
DHMS market share and competition in the open schemes market
DHMS’s large size and market share has been hard earned, with each corporate employer and individual
member joining one by one, aside from a small (immaterial in context) number of scheme mergers in recent
years. This growth is due to DHMS offering a better product – with the widest range of options in the market,
at the lowest premiums, all of which is backed by consistently high service levels and very effective sales and
marketing capabilities of DH. We do not agree that there is limited competition in the open schemes market
– there are 21 open schemes, and competition between the 8 major open schemes is fierce and consistent.
Administrator market competition
We do not agree that there is lack of competition in the administrator market. In the open scheme
environment, competition occurs at the level of the scheme itself, and competition between the major 8
open schemes is intense. In the restricted scheme market, there is intense competition through tender
processes for contracts for closed schemes. Since 2008, DH has competed in 17 such tenders and has won
16 of these. We believe that this is due to our ability to provide a better total administration package,
including highly competitive administration fees, lower claims costs and superior service.
DH profitability and fees
Discovery Health has always worked hard to ensure maximal transparency on both the fees we charge our
medical scheme clients, and on the profits we earn as a result. We consistently disclose a significant amount
of segmental information on Discovery Health’s financial performance each year as part of the financial
results announcement of Discovery Ltd, even though we have no obligation to do so. We are proud of the
continued growth and success of our business over the past 26 years, and believe that the revenues and
profits we earn reflect an outstanding business which has been grown life by life on an entirely organic basis.
Publicly available data demonstrate clearly that the fees paid by the Discovery Health Medical Scheme
(“DHMS”) to Discovery Health for administration and managed care fees are almost exactly the same as the
weighted average of all 21 open schemes when measured as a percentage of Gross Contribution Income
(“GCI”). When measured on a proportion of GCI basis, the fees paid by DHMS are 0.17% below the average
of all open schemes. DHMS administration expenses and managed care fees rank 13th lowest out of 21 when
measured on pabpm and 8th lowest out of 21 when measured as a proportion of GCI.
Discovery Health’s higher profitability relative to competitors is thus not due to it charging higher fees, but
is a result of a number of business factors including continuous innovation and greater operational efficiency
driven by large investments in advanced systems and customer service technologies.
DHMS’s Vested model raises competition concerns
We do not agree that DHMS’s vested model raises competition concerns. The true yardstick for consumers
to assess the value they receive from their medical scheme administrator is not the administration fees paid,
but the scheme premiums, which is the actual ‘exit’ price paid by consumers for their benefits and services.
The members of Discovery Health Medical Scheme benefit from significant savings and value relative to all
of the other major open medical schemes. When compared on a like for like basis, DHMS premiums are on
Discovery Ltd. registration number: 1999/007789/06. Companies in the group are authorised financial services providers.
DH Note on Final HMI Report October 2019 Page 9 of 9
Confidential
average 16.9% lower than the next eight competitor schemes. This is due to a combination of effective
procurement and claims and fraud risk management by Discovery Health, as well as due to the impact of
Vitality on the demographics and claims experience of DHMS. This value is captured in the DHMS Value
Metric, which shows that, in 2018, for every R1.00 spent by DHMS on administration and managed care fees,
members received R2.15 in value from the activities of Discovery Health.
In our view, the evidence therefore strongly supports the contractual relationship between DHMS and DH,
as members have always and continue to benefit from this, and it is hard to see how members would be
better off in the hands of DH’s competitors.
Cross share-holding in the administrator market raises competition concern
The small number of institutional investors in South Africa results in the shared ownership of companies
across most industries. For the HMI to express concern as to the effect of cross-shareholding in a particular
industry, there would need to be evidence that this shared ownership results in illegal or other harmful
conduct that damages competition or is otherwise to the detriment of the consumer. The HMI has noted
that no such evidence has been found but has commented only on the potential for collusion. It is concerning
that this is presented as a “finding” when there is no evidence of harm. We can categorically state that the
indirect cross shareholding relationship has never influenced DH’s relationship with Mediclinic, which is
treated in the identical way to any other service provider in terms of tariff negotiations and related
contractual matters.