Chapter 5 Healthcare

Question 1

What is Private sector Healthcare?

Answer 1

• Healthcare administered by private institutions.
• Consist of listed and unlisted companies.
• Any member 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 aid scheme.
• where insurance does not pay full cost patient liable for difference.

Question 2

Who are the supply-side key providers?

Answer 2

• doctors
• nurses
• support medical personnel and clinical associates
• hospitals
• upstream service providers
  1. pharmaceutical manfacturers
  2. medicine distributers
  3. suppliers of medical equipment

Question 3

Structure and ownership of private hospitals (2):

Answer 3

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

Question 4

Upstream service providers

Answer 4

-The provision of healthcare sector services is only possible because various other industries supply the necessary goods and services

Question 5

Funders of Healthcare (4):

Answer 5

• the government
• non-government organisations and donors : May include foreign governments.
• out-of-pocket expenditure by the users themselves
• trade-related employer groups
• commercial insurance products
• employers

Question 6

Funders: Government

Answer 6

• The largest funders of healthcare in a country

- In some instances gov may fund private healthcare to alleviate the public sector demand.

Question 7

Funders: Out-of-pockets expenditure

Answer 7

There are 3 forms of out-of-pocket medical expenditure.

1. Payment of invoiced medical services by users of commercial health insurance products who are required to:
   - make co-payments
   - fund diff between actual and covered price of service
   - pay for services if threshold payments have been met.
2. Payments by those that don’t have commercial health insurance products. May include:
   - young & healthy ppl who elected not to take any insurance
   - wealthy ppl who choose to self-insure.
   - lower income ppl
3. Payments for medical services not invoiced. eg surgeons and midwives.

Question 8

Funders: Trade-related employer groups

Answer 8

• Trade-related employer or groups often join to form bargaining councils.
• Bargaining councils are established to manage schemes to benefit their parties or members.
• These are generally low-income schemes with benefits to primary healthcare and managed care options.

Question 9

Funders: Commercial insurance products (CIP)

Answer 9

• These are various products in the insurance industry that contribute to healthcare costs. Insurance policies designed to fund healthcare can be divided into four groups:
  1. Optimal healthcare
  2. Optimal complement
  3. Compulsory alternative
  4. Compulsory complement

Question 10

Commercial insurance products: Optimal alternative

Answer 10

-This would be for a person who uses the public health sector and took insurance to cover expenses in the private sector.

Question 11

CIP : Optimal complement

Answer 11

• a person who took out a waiting policy designed to pay for elective procedures sooner than the state would provide.
• eg Gap cover

Question 12

CIP: Compulsory alternative

Answer 12

-this may be used in an environment in which there are people that government considers can afford to buy comprehensive cover.

Question 13

CIP: Compulsory complement

Answer 13

-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 14

Funders : Employers

Answer 14

Employers contribute to financing employee health in various different ways:

1. full or part payment of commercial insurance products such as medical aid 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 as UIF

Question 15

Mechanics between the funding and supply of healthcare

Answer 15

• There is a significant number of funders of healthcare.
• In most cases, the patient or user is not paying for the service which results in additional risks.
• The provider has an incentive to provide more expensive or comprehensive treatment than is actually require or the healthcare users abuse the “free” service. This is called “3rd party payer” problem.
• One way to address this is by using administrators/managed care who are profit organisations.
• Insurers may use underwriting principles to avoid and exclude risk.

Question 16

Reasons why healthcare cost increases (4)

Answer 16

• fraud
• static population (aging)
• medical advances in technology
• misalignment of incentives between the provider and the payer.

Question 17

Managed care interventions have a number of objectives (5)

Answer 17

• reducing cost of medical events
• improving the quality of care provided
• ensuring that medical services are delivered in an appropriate setting
• ensuring that high-risk members are managed and receive appropriate care.
• reducing the number of unnecessary medical services.

Question 18

Risks in managed care (5)

Answer 18

• price risk: fee received by provider does not cover expenses.
• intensity risk: more services are needed than anticipated.
• severity risk: cases are more severe than anticipated.
• frequency risk: more people need treatment than anticipated.
• actuarial and marketing risk: demographics are not as anticipated, thus pricing is incorrect.

Question 19

Strategies used by managed care organisations to meet objectives and minimise risk (5).

Answer 19

• Provider networks
• Reimbursment methods
• Risk sharing
• Risk adjustment
• Formularies and protocol in managed care

Question 20

Provider networks

Answer 20

• Members may be required to obtain healthcare services from a restricted network of participating providers.
• Such restrictions are used to manage costs in low-income benefit options.
• Costs managed either through volume discounts or defined set of clinical protocols and cost benchmarks

Question 21

Reimbursement methods

Answer 21

• The intention is move away from a fee-for-service environment to structure payments to providers in way that encourages them to provide high quality but cost effective healthcare (transfer risk through means of reimbursement)
• Success operation of reimbursement methods requires:
  1. availability of adequate and reliable clinical data to allow risk taker to ensure treatment complies with the specified clinica protocols and cost benchmarks.
  2. control cycle to ensure clinical protocols are modified based on feedback following an analysis of the outcomes acheived.

Question 22

Risk sharing

Answer 22

• It is not sufficient to designe reimbursement arrangements in isolation as this only involves a transfer to the healthcare providers. Risk sharing is the solution. (give providers sense of security)
• One should develop sustainable contracts where all parties accept the risks and share in benefits.

Question 23

Axene & Lucas: The principles of designing provider incentives in an optimally-managed delivery system

Answer 23

• natural vs desired objectives
• provider control
• equitable risk sharing and sense of partnership with the funder.
• simplicity
• provider involvement
• realistic goals
• education & suport

Question 24

Axene & Lucas: Incentive structures

Answer 24

• Negative incentives (e.g. Withhold arrangements)

- Positive incentives (e.g. Bonus/surplus sharing)

Question 25

What are negative incentives?

Answer 25

• 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 fee schedule.
• Some or all of the withheld amounts will be paid if funds exist at the end of an accounting period.

Question 26

What are positive incentives?

Answer 26

• Surplus under this arrange is shared between funders and providers. Surplus = contributions > costs.
• This surplus is generated by costs being reduced due to cost being reduced below target levels.

Question 27

Risk adjustment

Answer 27

• An alternative reimbursement arrangement.
• Providers are reimbursed or remunerated based on health risk of their patients.
• Instead of encouraging providres to compete based on health status of patients they’re incentivised based on efficiency and quality of care provided.

Question 28

Formularies and protocols in managed care

Answer 28

• A formulary is a list of medicines.
• Managed care organisations use prescribed or constructed formularies and protocols to ensure that appropriate and cost effective drugs are prescribed.

Question 29

Patient concerns with managed care (5)

Answer 29

• provider networks may restrict access to care
• providers may resent external parties imposing clinic protocols on them and influencing the way in which they practice medicine.
• managed care may compromise the quality of care provided to patients.
• 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 reduction.

Question 30

Ensuring quality of care (6)

Answer 30

• Managed care contract needs to ensure that the users of healthcare receive good quality care.
• The following may be used to assess the quality of care:
  1. patient mortality rate
  2. specialist referral rate
  3. hospital admission rate
  4. procedure complication rate
  5. chronic medication adherence
  6. patient questionnaires

it is critical to standardise the rates for age, ethnicity and other multiple factors that may affect the outcome.

Question 31

Barriers to optimal and equitable healthcare

Answer 31

• Critical shortages
• Inadequate skill mix
• Uneven geographical distribution of workforce