What's driving up our health care costs?

Those South Africans lucky enough to afford private healthcare have rapid and convenient access to some of the best quality of care available anywhere in the world, provided by outstanding health professionals in the context of a robust, world leading healthcare system. But the reality is that public and private healthcare systems around the world are grappling with rapidly rising healthcare costs, and South Africa is no exception.

Discovery Health data indicates that, since 2008, total claims costs have increased by 11.4% a year - roughly 5% above CPI each year. Medical aids - non-profit funds by law - thus have little choice but to increase their premiums by around CPI+3-4% each year to ensure that they can sustainably pay claims.

Our data shows that the prices charged by doctors and hospitals are not a significant cause of this pattern of high claims inflation. Over the past eight years, tariffs paid to doctors and hospitals have increased by 0.5% above CPI each year. The most important cause of high claims inflation is in fact the rapidly increasing use of healthcare services by medical scheme members.

What drives these dynamics? The major cause is a combination of ageing and increased levels of chronic disease in the medical aid membership base. Slow economic growth means fewer young people enter the workforce and join a medical scheme. Schemes are therefore ageing, and with each year ageing, claims increase by 2-3%. Simultaneously, medical aids face the global pandemic of chronic diseases of lifestyle. Currently, over 1 in 5 members of the Discovery Health Medical Scheme (DHMS) are registered for one or more chronic conditions, a 61% increase since 2008. Each of these members claims around four times more than a healthy member.

Another contributing factor is that young and healthy people stay out of medical aids until they or a family member need healthcare. Together, these trends mean that the average medical scheme member is older and sicker each year, contributing to the trend of high claims inflation.

On the 'supply side' of the healthcare system, a major driver of costs is the rapid emergence of new medicines and medical technologies. Unlike information technology, new technology in healthcare comes at a typically much higher cost. In 2016, DHMS paid out R1.5 billion for high-cost medicines, up from R400m in 2008. In 2016, 89 members requiring very high-cost medicines claimed an average of R1.4m each, and the number of members requiring these high-cost medication has increased seven-fold since 2008.

A final contributor to these cost pressures is the impact of redundant, inappropriate, or unnecessary tests and procedures. Conservative estimates put this 'waste' at up to 21% of total US healthcare spend in 2010. Assuming that waste accounts for only 10% of spend in South Africa, we estimate that up to R33bn is being spent on tests and procedures with minimal clinical benefit. Finally, there is the growing challenge of fraud. During 2016, Discovery Health recovered over R400m in fraudulent claims on behalf of our client medical schemes and their members, an indication of the extent of the problem.

The bottom line is that rising healthcare costs are a global problem and South Africa is no exception. Discovery Health is deeply committed to tackling these issues actively and robustly. We are hard at work implementing what we call a shared value healthcare model, and are making significant progress, details of which I will be sharing in this column in the coming weeks.