Medical schemes and hospitals

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Medical schemes and hospitals

• Exploring the power relations

HASA Conference June 2008
Roly Buys
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Contents

• Definition Background
• Unpacking the theory of cost price
• Comparison with international norms
• Need for basis on which to make informed
  decisions
• Power Relations 101
• Power Relations 201
• Changing landscape of healthcare delivery /
  finance
• Practical examples which indicate where
  negotiating averages lie
• Impact of Benefit Design
• Impact of MHC
• Impact of the Administrator in the Power
  Relations
• Hospitals do not have the negotiating power often
  alluded to
• Hospital Leverage
• As a counterbalance to the Administrator
• As a counterbalance via the members
• Future of Power Relations

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Definition and background

• Countervailing power is a theory put forward by
  esteemed economist John Kenneth Galbraith. In a
  mixed economy composed of private enterprise and
  government, there is often a certain level of
  collusion between large private entities and the
  government in order to create excess
  profitability at the expense of the consumer.

Source Wikipedia
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Definition and background

• Galbraith builds on work by
• Prof E.H. Chamberlin of Harvard
• Joan Robinson at Cambridge
• Joe S Bain of the University of California at
  Berkeley
• arguing that the America of the early 1950s no
  longer complied to a textbook definition of
  perfect competition. He sets out the conclusions
  which result from the abandonment of competitive
  behaviour in favour of oligopoly or
  crypto-monopoly

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Definition and background

• The producer now has measurable control over his
  prices. Hence, prices are no longer an
  impersonal force selecting the efficient man,
  forcing him to adapt the most efficient mode and
  scale of operations and driving out the
  inefficient and incompetent. One can as well
  suppose that prices will be an umbrella which
  efficient and incompetent producers will tacitly
  agree to hold at a safe level over their heads
  and under which all will live comfortably,
  profitably and inefficiently.

Source Wikipedia
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Definition and background

• At a micro level
• firms may merge or bond together to influence
  price
• individual wage earners may combine in unions to
  influence wage increases.

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Definition and background

• Without countervailing power
• private decisions could and presumably would
  lead to the unhampered exploitation of the
  public, or of workers, farmers and others who are
  intrinsically weak as individuals.

Source Wikipedia
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Unpacking the theory of Costs Price

• Medical scheme costs rise due to
• More admissions
• Greater acuity (Length of Stay / Level of Care)
• Price

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Unpacking the theory of Costs Price- Volume
Source Medi-Clinic internal data
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Unpacking the theory of Costs Price- Acuity
Source Medi-Clinic internal data
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Unpacking the theory of Costs Price- Price

• Price rises by the
• Effect of CPIX or general inflation
• Exchange rate
• Other supplier / demand industry specific cost
  drivers

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Comparison with International Norms
Source Medi-Clinic internal data
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Comparison with International Norms
Source The Cost of Caring Sources of Growth in
Hospital Care
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Need for Basis on which to make Informed Decisions
Source Medi-Clinic Internal data
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Need for Basis on which to make Informed
Decisions
Source Medi-Clinic Internal data
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Power Relation 101
Basic Power Distribution

• Hospital
• Prompt Payment
• Volumes

• Schemes
• Access
• Freedom of choice

Member
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Power Relation 101
Hospital low volume of claims but high value ?
Risk is with the hospital
Source CMS Annual Reports 2001-2006, AHA Cost
of Caring
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Power Relation 201
Doctor
Member

• Wants access to
• Doctors who are at the
• cutting edge (Reputation)
• Quality hospital facilities
• Quality nursing care

• Wants access to
• Quality hospital facilities
• New technology
• Quality nursing care

At this stage, roughly in balance
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Changing landscape of healthcare delivery/finance

• Gradual yet significant growth in membership of
  schemes

Source CMS Annual Report/Quarterly Report
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Changing landscape of healthcare
delivery/finance

• Consolidation of Administrators
• Mergers of medical scheme administrators
• Lethimvula
• Discovery Health
• Metropolitan
• Momentum

Source CMS Annual Reports 2001-2006
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Changing landscape of healthcare
delivery/finance

• Delay with the implementation of mandatory cover

Equivalent to 4.8 mill
Source CMS 2007 Annual report, Medi-Clinic
continuation of trend line
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Practical examples which indicate where
negotiating averages lie

• To Recap

Hospital
Schemes
Member
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Practical examples which indicate where
negotiating averages lie

• Impact of Benefit Design

Hospital
Benefit Design
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Practical examples which indicate where
negotiating averages lie

• Impact of Benefit Design
• Crafting of Benefit design options
• Risk pools associated with claim ratio and/or
• need for care
• MSA has changed flow of healthcare supply
• Deductibles / Co-payment
• Unilaterally introduced to reduce admission rates

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Practical examples which indicate where
negotiating averages lie

• Impact of Benefit Design
• Networks
• Changed unilaterally from one year to the next
• Impact on turnover of 10 20 mill. Per hospital
• Introduction of invisible network
• E.g. use of G.P. networks and specialist networks
  to redirect patients
• PMB not a factor in the negotiation process
• hospitals agree tariffs for all events

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Practical examples which indicate where
negotiating averages lie

• Impact of MHC

• Benefit Design
• MHC

Hospital
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Practical examples which indicate where
negotiating averages lie

• Impact of MHC
• Managed Health Care unilaterally introduced in
  1998
• Input costs increased due to
• Software changes
• EDI messaging changes
• Appointment of case managers
• Clinical coding requirements
• Costs scheme members R1.3 bn.
• Recast as Case Management

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Practical examples which indicate where
negotiating averages lie

• Impact of MHC
• We still do not have
• Guarantee of payment (reversals)
• A significant improvement in debtors days
• We still have
• A long list of items to be preauthorized

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Practical examples which indicate where
negotiating averages lie

• Impact of MHC
• A strong networking power balance would have
• ensured that MHC would be less intense
  frustrating due to credentialing
• Fees structure

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Practical examples International

• Impact of MHC from an International Perspective
• MHC worldwide has pressurized medical
  practitioners to implement new technology
• Moving work to one day setting (endoscopic etc.)
• No recognition in terms of tariff of the increase
  in intensity of nursing

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Practical examples which indicate where
negotiating averages lie
Changes in Inpatient Length of Stay and RN
Nursing Hours per Patient Day
Source AMA 2005 annual survey, U.S DHHS 2004
(HRSA, n.d.)
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Practical examples which indicate where
negotiating averages lie

• Impact of the Administrator in the Power
  Relations

• Benefit Design
• MHC
• Administrator

Hospital
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Practical examples which indicate where
negotiating averages lie

• Impact of the Administrator in the Power
  Relations
• Consolidation in the Administration Market
• the oligopoly argument

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Practical examples which indicate where
negotiating averages lie

VS
Source CMS Annual Reports 2001-2006
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Practical examples which indicate where
negotiating averages lie

• Impact of the Administrator in the Power
  Relations
• Introduction of Visible networks
• Members sold options indicating admission to
  non-network hospitals will be paid, where
  network coverage is weak.
• Hospitals added / omitted without prior agreement

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Practical examples which indicate where
negotiating averages lie

• Impact of the Administrator in the Power
  Relations
• Schemes change administrator / system with little
  or no notification to providers
• Payment delays
• Process Changes
• No compensation
• Insider knowledge of schemes financial status,
  yet no reporting to providers

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Practical examples which indicate where
negotiating averages lie

• Impact of the Administrator in the Power
  Relations
• Use of CMS ruling of CPIX 3
• Cap hospital increases to CPIX Maximum
• Little or no recognition that impact on nursing
  salaries is a significant factor in hospital
  costs
• Effort to improve communication with members
• Hospital Rating
• Newsletter
• While providers are kept out of this loop

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Practical examples which indicate where
negotiating averages lie

• Impact of the Administrator in the Power
  Relations

Source US Advisory Board
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Hospitals do not have the negotiating power often
alluded to

• Hospitals do not make super profits

Source PwC Analysis
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Hospital Leverage

• Hospital Leverage falls into two categories
• As a counterbalance to the administrator
• As a counterbalance via the members

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Hospital Leverage

• As a counterbalance to the administrator
• DATA
• Profiles of scheme utilization
• Case mix reports
• Price Transparency
• Net acquisition pricing of Pharmaceuticals
• ARM largely developed by Hospitals not funders
• Hospitals take on risk which is often not
  entirely in their area of control

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Hospital Leverage

• As a counterbalance via the members
• Code of Ethics
• Reputation value
• Member satisfaction
• To be the caregiver of choice
• Enhanced Services
• Continuity of care

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Future of Power Relations

• Both Funders and Hospitals have real, unique
  problems
• Funders
• Affordability
• Hospitals
• Upward pressure of salaries due to shortage of
  professional staff

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Future of Power Relations

• Only when a program is developed and implemented
  which yields mutual benefits instead of divide
  rule, will we go forward

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Future of Power Relations
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Future of Power Relations
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Future of Power Relations
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Future of Power Relations
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Thank you

• Questions???