Medical Aid Member

Behaviour

SEP & DSP

Clayton Samsodien

The Medical Aid Broker Experience

HPCSA concerned over health

workers/medical aid agreements

1. Impact of SEP on member behaviour

2. DSP arrangements and utilisation

3. Consolidation and race for critical mass

4. Comparing SA with international practice

in terms of medicine pricing

CONTENTS

Impact of

SEP on

member

behaviour

Reduction in spend

Source: Council for Medical Schemes

• Reduction in medicine prices – average 22% (2007)

• Medicine spend increased by 15.2% in 2011 when

compared to 2000.

• However, as a proportion of total healthcare spend,

decreased from 27% in 2000 to 19.2% in 2004.

• From 2005 – 2010, medicine expenditure remained stable

at 17%

Impact – Statistics

Source: CMS 2011-2012

Impact – Providers

Source: CMS

• Admin charges to supplement income resulting in co-pays

• No tariff codes for admin fees charged

• Increased dissatisfaction of medical scheme benefits

• Move to Corporate pharmacies fuelled by funders DSP

arrangements

• Move to generics constitute more than 50% by volume of

medicine sales in South Africa, similar to the proportions in

the US. Increase from 30% 10 years ago.

Impact – members

• Alleged that large retailers welcome price regulation as it

keeps competition out of the industry

• Low volume, high mark-up establishments provide

essential access to the poor

• Additional admin charges to supplement income not

covered by schemes

• Decrease in profit margins, business restructure, alternate

revenue streams

• Improved efficiencies in medicine stocks, billing and

reduction in overheads

Impact – Providers

DSP’s

Arrangements

&

Utilisation

• 39% of Pharmacists confident in DSP arrangements

• Confidence level of only 52% that medical schemes

provide adequately for the reimbursement of chronic

medicines and only 51% for the reimbursement of acute

medicines.

• Use of DSP’s more negative than positive as it restricts

freedom, and member provider relationships

OMAC (Old Mutual Actuaries and Consultants) Healthcare

Monitor

• Medicine cost remained stable, lower percentage of

healthcare spend, yet benefits are still depleted early in the

year

Important Issues

Source: PPS

• Lower contributions keeping healthcare affordable

• Tariffs negotiated upfront hence no out-of-pocket expenses

• Provides accessibility and delivery

• Benefits last longer

• Partnerships save in wasteful expenditures

• Members have the right to use other providers but will need

to cover the difference in cost

Benefits of DSP’s

• Action sought to declare DSP to be an incentive scheme or

rebate system hence in contravention of Section 18A of the

Medicines and Related Substance Control Act of 1010 of 1965.

• Section 18A is clearly aimed at ensuring that the market for

medicines is not affected by discount or reward schemes that

would lead to retailers or wholesalers artificially hiking the price of

medicines.

• DSP is a statutory mechanism to compel medical schemes to

fund certain medication in full when it is supplied through a DSP

and the effect is the provision of certain medicine at no cost

• The court stated that the supply of medicine by an appropriate

service provider is covered by the MSA and not by section 18A of

the Medicines Act. Regulation 8 of the MSA approves of the DSP

whereby chronic medication can be obtained by members from

approved service providers without paying a 40% co-payment.

Important Judicial Matter

Source: ENS

Pro

It is argued that selective contracting increases competition

between provider networks and drives down prices for funders

and ultimately consumers.

Con

Such arrangements have negative impact on the market by

leading to foreclosure of non-contracted businesses and

potentially raising prices to the uninsured

28 Options with DSP reduced contributions registered in 2012

Market Impact

• Restrictions on service providers compromise a patients

choice of healthcare provider resulting in negative impact

on provider choice and consumer wellbeing.

• OMAC Survey: Medical scheme members

60% negative attitude to DSP arrangements,

31% wanted “freedom of choice”,

13% wanted “to see own doctor”

9% found it “inconvenient”.

DSP Arrangement Concerns

• Cost pressure encourage members to migrate/select plans

that make use of DSP/Networks

• Poor understanding of what constitutes an emergency

results in dissatisfaction (Benefits not properly understood)

• Removal of DSPs causes confusion and results out-of-

pocket expenses

• Members tend to migrate to plans without DSP’s after a

poor experience

• Overall trend – migration to DSP plans becoming popular

Member behaviour

Consolidation &

Race for Critical

Mass

• 120 in 2008 to 95 in 2012

• Administrators: 24 to 19 (2011)

• Registered options reduced from 171 to 141 (03/2012)

• 2013 Mergers

Liberty/Spectramed

BestMed/MineMed

BestMed/Sappi

Discovery/IBM

Trends

• Static membership 3.7% growth per annum

• Migration to GEMS threatens viability of open schemes

• High volume low margins does not favour small players

• Larger administrators/schemes benefit from economies of

scale

• Estimated that the merging of 2 schemes can reduce

healthcare costs by 2%

• Larger schemes able to negotiate better DSP

arrangements and networks due to increased membership

Comments

• Change in administrators as a result of mergers not

properly communicated resulting in changes in member

cards, disease management programmes and providers

• Options within schemes merge as well resulting in some

fall out and forced migration to “default” options

• Above average contribution increases

• Mergers for the sake of gaining critical mass without regard

to members interest not proper

• Schemes attempting to prevent option changes between

merged options

Concerns

Comparing SA with

International

Practice in terms of

Medicine Pricing

• Germany: First country to roll out reference

pricing. Reimbursement prices of

pharmaceuticals products controlled indirectly

through limits on reimbursement within social

insurance schemes and doctors allocated with

drug budgets.

• USA Prices of prescription medication are

largely unregulated in the USA due to the belief

that price controls would negatively impact on

the investment in research and development for

new innovator medicines (Oriola 2009). Medicine

prices in America are reported to be 72 % higher

than Canada and 102 % higher than in Mexico

(Danzon 1999).

Global Experience

Source: Daleen Pretorius

• Canadian: All citizens have access to

medication provided in hospital through a

publically financed scheme, addressing

hospital and physician services at no cost.

Medication dispensed outside of the hospital

is not considered under the insured benefits

guaranteed by the Canadian Health Act.

• Australia: Pharmaceutical Benefits Scheme

(PBS) offers Australians government

subsidised prescription medicines at a cost

that individuals in the community can afford.

This forms the central mechanism in Australia

for supply of prescription medication.

Global Experience

Source: Daleen Pretorius

• United Kingdom: utilised pharmaco-economic

analysis or economic evaluations to determine

what the national healthcare system should pay

for therapeutic drug classes.

The National Health Service (NHS) in the United

Kingdom (UK), controls 95% of the prescription

drug market

Indirect price controls feature in the UK. This is

enforced by controlling profits Companies with

capital in the UK negotiate around a reasonable

rate of return on capital employed.

• SA one of a few countries with price ceilings for

all prescription medicines in the private sector

resulting in decrease profits.

Global Experience

Various pricing and control mechanisms are utilized by

governments globally to exert downward pressure on

Medicines and render this essential commodity to more

people.

Medicine cost remained stable, lower percentage of

healthcare spend, yet benefits are still depleted early in the

year.

Therefore….have members benefited from SEP?

DSP’s … members benefit from lower contributions but

subjected to out-of-pocket experience when accessing

benefits in non-emergencies.

Conclusion

Questions? Thank You