Exploring medical aid member behaviour in a Single Exit Price (SEP) and Designated Service Provider (DSP) environment

1. Medical Aid Member
Behaviour
SEP & DSP
Clayton Samsodien
The Medical Aid Broker Experience

2. HPCSA concerned over health
workers/medical aid agreements

3. 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

4. Impact of
SEP on
member
behaviour

5. Reduction in spend
Source: Council for Medical Schemes

6. • 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

7. Impact – Providers
Source: CMS

8. • 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

9. • 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

10. DSP’s
Arrangements
&
Utilisation

12. • 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

13. • 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

14. • 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

15. 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

16. • 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

17. • 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

18. Consolidation &
Race for Critical
Mass

20. • 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

21. • 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

22. • 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

23. Comparing SA with
International
Practice in terms of
Medicine Pricing

24. • 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

25. • 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

26. • 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

27. 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

28. Questions?
Thank You