Chapter 5 - Healthcare

Question 1

Define Healthcare

Answer 1

It is the diagnosis, treatment, and prevention of disease, illness, injury, and other physical and mental impairments in human beings. It is delivered by health professionals.

Question 2

requirements of the WHO well-functioning healthcare system

Answer 2

RAWR

• ROBUST financing mechanisms
• A well-trained and adequately-paid workforce
• WELL-maintained health facilities and logistics to deliver quality medicines and technologies
• RELIABLE information on which to base decisions and policies

Question 3

What is Primary care
- What is the scope of healthcare provided

Answer 3

It is the work of health professionals who act as a first point of consultation for all patients within the healthcare system. e.g: A GP, independent practitioner such as a physiotherapist

It offers the widest scope of health care including:
- all ages of patients
- all socioeconomic and geographic origins
- patients seeking to maintain optimal health
- patients with all manner of acute and chronic physical, mental and social health issues, including multiple chronic diseases

Depending on the nature of the health condition,patients may then be referred for secondary or tertiary care

Question 4

Secondary care

Answer 4

Refers to healthcare services provided by medical specialists and other health professionals who generally do not have first contact with patients. e.g cardiologists.

It includes acute care and skilled attendance during childbirth, intensive care, and medical imaging services

Patients may be required to see a primary care provider for a referral before they can access secondary care.

This restriction may also be imposed under the terms of the payment agreements in private or group health insurance plans.

Question 5

Tertiary care

Answer 5

It is specialised consultive healthcare, usually for in-patients and on referral from a primary or secondary health professional,
- in a facility that has personnel and facilities for advanced medical investigation and treatment, such as a tertiary referral hospital.

eg. Cancer management, surgery

Question 6

Public healthcare sector

Answer 6

These services are usually heavily subsidised or offered for free, but are often associated with significant queues, prescribed protocols and limited alternatives.

It is primarily used by South African citizens and foreigners who are not part of medical schemes or other healthcare insurance products.

The use of public services is not free in all countries. The South African public sector is subject to a nominal income-based charge. This charge is waived for those that cannot afford it

Question 7

Private healthcare

Answer 7

Any members of the public can use these providers, as long as they can fund the cost, or are covered by a funding structure such as a medical scheme or health insurance.

Question 8

Supply-side key providers

Answer 8

the provision of effective and efficient healthcare requires interaction between the following key providers:
- Doctors
- Nurses
- Support medical personnel and clinical associates
- Hospitals
- Upstream service providers:
– Pharmaceutical manufacturers
– medical distributers
– suppliers of medical equipment

Question 9

Public hospitals

Answer 9

Poorer countries have shifted from tertiary to primary healthcare and from better-funded healthcare in urban areas to underfunded healthcare in rural areas.

Tertiary sector suffered the most. The overall number of hospital beds have declined due to budgetary constraints ,and demand has increased.

Question 10

Private hospitals

Answer 10

Number of beds has been increasing. They have continued to invest in medical equipment, staff management, training services.

Question 11

Structure and ownership of private hospitals (3)

Answer 11

• Not-for-profit: Faith-based hospitals
  – They have played a large role in providing hospitals to the rural poor
• Not-for-profit: Mining hospitals
  – Geographically remote mining companies provide a range of healthcare services to their staff and sometimes the families of staff.
• For-profit private hospitals
  – These are either privately owned of listed companies with a direct profit motive

Question 12

Upstream service providers

Answer 12

The provision of healthcare services is only possible because various other industries supply the necessary goods and services. Eg. pharmaceuticals, food, cleaning products, water, electricity, computers

Question 13

Funders of healthcare

Answer 13

COGENT

• COMMERCIAL insurance products
• OUT-of-pocket expenditure by users themselves
• GOVERNMENT
• EMPLOYERS
• NON-government organisations and donors
• TRADE-related employer groups

Question 14

Government as a funder of healthcare

Answer 14

• They are administratively and financially responsible for public sector healthcare
• Funded by taxes, grants, funding from the asset finance reserve
• Sometimes government may partially fund private healthcare to alleviate demand pressure on public sector healthcare. Eg. personal tax rebate or direct funding of certain private institutions.

Question 15

Non-government organisations and donors as funders of healthcare

Answer 15

Donors, including foreign governments, and non-government organisations, often contribute to the funding of healthcare

Question 16

OUT-of-pocket expenditure by the users themselves as a funder for healthcare

Answer 16

There are 3 forms

1. Payment of invoiced medical services by users of commercial health insurance products who require to:
   – make co-payments
   – fund the difference between the actual and the covers price of services
   – pay for services if threshold payments have been met
2. Payments by those who do not have any commercial health insurance products
   – Young and healthy who elect to not buy any insurance products on the grounds that they do not add sufficient value
   – the wealthy who choose to self-insure
   – lower income groups who have elected to use private services or facilities above public sector facilities
3. Payments for medical services that are not invoiced. Eg. surgeons and midwives, traditional healers such as herbalists

Question 17

Trade-related employer groups as funders of healthcare

Answer 17

They may join to form bargaining councils which may establish and manage schemes or funds to benefit their parties or members. This could include funds to pay for certain healthcare expenditure.

Benefits are usually limited to primary healthcare and managed care options.

Question 18

Commercial insurance as funders of healthcare (Insurance policies designed to fund healthcare can be divided into four groups)

Answer 18

Insurance policies designed to fund healthcare can be divided into four groups:

1. Optimal alternative: This would be for a person who opted not to use the public service facilities and took out insurance to cover expenses in the private sector
2. Optimal complement: A person who took out a ‘waiting policy’ designed to pay for elective procedures sooner than the state would otherwise provide. Eg Gap cover
3. Compulsory alternative: This may be used in an environment in which there are people that the government considers can afford to buy comprehensive cover
4. Compulsory complement: Compulsory top-up plans would be used in an environment where individuals are compelled to buy policies to pay for dental plans and other services not provided by the state

Question 19

What are medical Schemes?

Answer 19

They are not-for-profit entities that operate like trusts and undertake liability on behalf of the beneficiaries in return for a monthly contribution

Question 20

Employers as funders of healthcare

Answer 20

They contribute to the financing of employee health in various ways:
1. Full or part payment of commercial insurance products such as medical scheme contributions
2. Full or part payment of bargaining council premiums
3. Payment for off-and on-site health services
4. Wellness programmes
5. Payments to healthcare providers for acute medical treatment
6. Payment towards social security funds such as UIF

Question 21

What is the third-party payer problem

Answer 21

• It is when the provider has the incentive to provide more expensive or comprehensive treatment than is actually required
• or the users of healthcare abuse the “free” service

Question 22

How to manage the third-party payer problem

Answer 22

Use administrators and managed care organisations. These are for-profit entities. They combine both clinical and statistical techniques to manage risk, reduce cost and improve quality by encouraging the delivery of cost-effective, high-quality healthcare

Question 23

What are the causes of increased costs in healthcare over recent years

Answer 23

• A misalignment of incentives between the provider and the payer (ie. in a fee-for-service environment with a third-party payer, there is no incentive for healthcare providers to limit unnecessary care)
• Medical technology advancements combined with user expectations, resulting in high cost treatment
• Cost increases resulting from a fairly static population
• Fraud

Question 24

Managed care interventions objectives

Answer 24

HIM RN

• ensuring that HIGH-risk members are managed and receive appropriate care
• IMPROVING the quality of care provided
• ensuring that MEDICAL services are delivered in an appropriate setting
• REDUCING the cost of medical events
• reducing the NUMBER of unnecessary medical services

Question 25

The types of risk in managed care that can be transferred between the funder and the provider are

Answer 25

IS FAP

• INTENSITY risk - more services are needed in the encounter than anticipated
• SEVERITY risk - cases are more severe than anticipated
• FREQUENCY risk - more people need treatment than anticipated
• ACTUARIAL and marketing risk - actuarial risk is that demographics are not as anticipated, thus pricing is not correct; marketing risk is that the enrolment is not as expected, thus demographics are not as anticipated, which contributes to the actuarial risk
• PRICE risk - the fee received by the provider does not cover variable costs or makes an inadequate contribution to overhead and profit

Question 26

What are the strategies used by managed care organisations to meet objectives and minimise risk: Provider networks

Answer 26

Members may be required to obtain healthcare services from a restricted network of participating providers.

Costs may be managed either by securing volume discounts from the providers, or by securing an agreement with the providers to practise cost-effective medicine according to a defined set of protocols and cost benchmarks

Question 27

What are the strategies used by managed care organisations to meet objectives and minimise risk:

What is the aim of alternative Reimbursement methods

Answer 27

The aim of alternative reimbursement is to move away from a fee-for-service environment and to structure the payment to providers in a way that encourages them to provide high-quality, cost-effective healthcare.

Question 28

What are the strategies used by managed care organisations to meet objectives and minimise risk: Risk sharing

What are the principles of designing provider incentives in an optimally-managed delivery system

Answer 28

One should develop sustainable contracts under which all parties accept appropriate risk and share the benefits

An optimally-managed system entails:
PEN REPS

• PROVIDER control - Incentives should be based on what the provider can and should control
• EDUCATION and support - Providers often need educational resources and support to help meet their goals
• NATURAL response vs desired objectives - The natural response to an incentive should be consistent with the desired performance objectives which requires strategic structuring of how risk and/or rewards are disbursed among individual providers
• REALISTIC goals - Must have realistic goals, else providers will lose interest quickly.
• EQUITABLE risk sharing and sense of partnership with the funder - The incentive approach should be equitable in terms of provider risk and reward. To the extent that financial risk is transferred to a provider, the opportunity to share in any realised surplus should exist
• PROVIDER involvement - Encouraging provider participation in establishing their performance goals and measures of success promotes a sense of ownership in the program
• SIMPLICITY - The incentive approach should be simple in concept.

Question 29

Negative incentive structures

Answer 29

• Provider ‘withholds’ are the most common form of a negative incentive. Under this approach, a fee schedule or other payment rate is negotiated with providers.
• The initial provider payment is then set at a lesser amount, such as 85% of the fee schedule. Some or all of the withheld amounts will be paid if adequate funds exist at the end of an accounting period.

Withholds transfer financial risk from the plan or payer to the provider. As the withhold is increased, additional risk is transferred to the provider

Question 30

Positive incentives structures

Answer 30

Bonus or surplus sharing is a positive incentive approach where surplus, generated as a result of costs being reduced below target levels, is shared on a formula basis between the funders and providers.

Question 31

What are the strategies used by managed care organisations to meet objectives and minimise risk: Risk adjustment

Answer 31

Providers should be incentivised to compete on the basis of efficiency and quality of care provided.

• It, therefore, attempts to reduce both the negative financial impact for providers that attract an above-average number of high-risk patients, and the positive financial impact for providers that attract an above-average number of low-risk patients. It does this be adjusting the remuneration paid to providrs according to the health risk of their patients

Question 32

What are the issues that are often raised as areas of concern around managed care?

Answer 32

FAME

• The use of FORMULARIES and other financial-based managed care initiatives may result in the additional cost being transferred from the scheme to the member, with no overall cost deduction
• Provider networks may restrict ACCESS to care
• MANAGED care may comprise the quality of care provided to patients by encouraging under-servicing of patients by providers
• Providers may resent EXTERNAL parties imposing clinical protocols on them and influence the way in which they practise medicine

Question 33

What are the measures that may be compared with appropriate benchmarks in order to assess the quality of care provided under an alternative reimbursement arrangement:

Answer 33

CRAMP C

• procedure COMPLICATION rate
• specialist REFERRAL rate
• hospital ADMISSION rate
• patient MORTALITY rate
• PATIENT questionnaires
• CHRONIC medication adherence

It is critical in any comparisons to ensure that the populations being compared have been standardised for at least age as well as gender and ethnicity.

Question 34

List and discuss the risks that can be transferred from the funder to the provider using alternative reimbursement methods

Answer 34

IS FAP

• Intensity risk – The funder bears the risk that more services are needed than expected. Negotiating a fixed rate per day that the patient stays in hospital (irrespective of the treatments of received) will transfer this risk from the funder to the provider
• Severity risk – If the condition of a patient is more severe than anticipated, the funder will need to bear the cost of additional treatment. Negotiating a global fee for certain conditions or procedures (irrespective of the severity or recovering period) will transfer this risk from the funder to the provider
• Frequency risk – The funder bears the risk of more people making use of the service than expected. In primary care, frequency can be affected by an epidemic or particularly cold winter. A fee to the provider that covers an indefinite amount of patient or treatments (known as a capitation fee) will transfer this risk from the funder to the provider.
• Actuarial and marketing risk – If the funder offers the provider a percentage of premiums, then the provider shares in a fixed pool of money. This would normally be in an insurance context where a set of premiums are paid to cover healthcare costs. The provider now takes on actuarial and marketing risks.
  These risks would typically sit with the insurer as result of incorrect underwriting or business mix being different to expected
• Price risk – provider may have little control over the price if they accept the funder’s tariff. Negotiating a fee for a particular service will transfer this risk from the funder to the provider

Question 35

What are the Requirements of a successful operation of alternative reimbursement arrangments

Answer 35

Requirements of a successful operation of alternative reimbursement arrangments requires:

• The availability of adequate and reliable clinical data to allow the risk-taker to ensure that treatment complies with the specified clinical protocols and cost benchmarks
• The control cycle to ensure that clinical protocols are modified based on feedback following an analysis of the outcomes achieved

Question 36

What are the strategies used by managed care organisations to meet objectives and minimise risk

Answer 36

SNARF

• risk-SHARING
• provider NETWORKS
• risk ADJUSTMENT
• REIMBURSEMENT methods
• FORMULARIES and protocols

Question 37

What are the strategies used by managed care organisations to meet objectives and minimise risk: Formularies and protocols in managed care

Answer 37

• Managed care organisation use prescribed or constructed formularies and protocols to ensure that appropriate and cost-effective drugs are prescribed, and appropriate levels of care are given to patients

Question 38

How can the government partially fund private healthcare to alleviate demand pressure on the public sector healthcare

Answer 38

• It can be in a form of personal tax rebate
• It can be direct funding of certain private institutions

Question 39

What are managed care organisations

Answer 39

• These are for-profit entities, owned typically by shareholders that combine both clinical and statistical / financial techniques to Manage risk, Reduce cost and Improve quality by encouraging the delivery of cost-effective, high-quality healthcare

Question 40

How would companies have reduced risk when CI first appeared in the market

Answer 40

• Reviewable premium
• Reinsure a large part of the risk
• Incorporate large margins in the premium rates
• Offer the contract as an addition (rider) on a term insurance policy, so that the critical illness claims are effectively accelerated death claims