Healthcare: its importance in the economy Melanie Da Costa Outgoing Chairman

Private sector operates in a constraining legislative framework Medical Scheme Membership: 80% of people in households earning >250K p.a. 1. Council for Medical Schemes

1. Insight Actuaries

R180bn spent on private health per annum Private sector operates in a constraining legislative framework Economy-wide contribution of the private hospital sector Hospitals comprise 30-35% of spend Result of listed hospital group’s spend throughout the economy = R55.5 billion to GDP Employment = 248 504 Econex Mulitplier Study: conomic contribution of the sector is calculated on the basis of the three corporate hospital groups which comprise approximately two thirds of the sector. This is calculated on the basis of the Social Accounting Matrix compiled by StatsSA

Healthcare plays a much larger role in our economy… Healthcare plays a much larger role in our economy….it serves to ensure a productive workforce

Policy uncertainty and investment outlook

Uncertainty a function of declining 5 year capex forecasts Rbn Excludes forecasts for +/-8000 bed licences in issue to independent groups Source: Econex

Uncertainty will at best lead to a stagnant investment and employment outlook Policy uncertainty Lack of clarity on the future role of the private sector leads to uncertain return on investment in the sector Contribution to GDP if “baseline” level of investment continues Contribution to GDP under lower levels of investment Regulatory requirements under NHI: Benefits, pricing and funding arrangements for private facilities and the services they will be required to provide under NHI are unclear HMI recommendations to address “perceived” concentration in private hospital sector: Divestiture and moratoriums have severe consequences for investment sentiment Jobs supported in “baseline” level of investment continues Jobs supported under lower levels of investment Source: Econex

Policy developments in healthcare = uncertainty Legislative and policy changes have important ramifications for planning and investment Publication of the NHI Bill on 21 June 2018 Publication of the Medical Schemes Amendment Bill (MSAB) on 21 June 2018 Health Market Inquiry’s (HMI) Provisional Findings and Recommendations Report on 5 July 2018 The Bills are inconsistent or contradictory Uncertainty arises from multiple sources: Medical schemes and the private hospitals – never the twain shall meet MSAB: Medical schemes cannot offer benefits offered by NHI (assume its Prescribed Minimum Benefits) NHI Bill: NHI Fund will not contract private hospitals but rather these will be provided EXCLUSIVELY by the public hospital sector HMI’s recommendation to remedy levels of concentration amongst private hospitals, which have not raised any competitive concerns, is a 20% on market share (divestiture and licence moratoriums).

Policy uncertainty and investment outlook In the absence of clarity around the role and composition of the private hospital sector, investment and capital expenditure are forecast to decline 2 scenarios illustrate the economy-wide macroeconomic impact of different policy paths: These scenarios are illustrative and depict high-level macroeconomic outcomes associated with different policy scenarios. Extensive macroeconomic modelling will be required to assess the full economic impact of any healthcare policy change

Economy-wide multiplier effect on private sector Scenario 1: Complementary (“top-up”) medical scheme cover Economic impact of Scenario 1 This scenario depicts the high-level impact of combining the provisions of the NHI Bill with those of the MSAB. The NHI fund in this scenario can only purchase from public hospitals. We use CMS¹ estimates of PMB² expenditure proportion to estimate the proportion of expenditure that will shift from private to public sector 1. Council for Medical Schemes 2. Prescribed Minimum Benefits : 2017 expenditure of R79.2 billion / total healthcare expenditure of R160.8 billion = 49.3%)

Economy-wide multiplier effect on private sector Scenario 1: Complementary (“top-up”) medical scheme cover Economic impact of Scenario 1 This scenario depicts the high-level impact of combining the provisions of the NHI Bill with those of the MSAB . The NHI fund in this scenario can only purchase from public hospitals. We use CMS¹ estimates of PMB² expenditure proportion to estimate the proportion of expenditure that will shift from private to public sector 99 600 jobs lost (28%) (55%) (40%) Overall impact: Decrease in income: R24.6 billion Reduced impact on GDP: R31 billion 99 600 fewer jobs in private sector 1. Council for Medical Schemes 2. Prescribed Minimum Benefits : 2017 expenditure of R79.2 billion / total healthcare expenditure of R160.8 billion = 49.3%)

Economy-wide multiplier effect on private sector Scenario 2: Unrestricted medical schemes but NHI benefits at regulated prices Economic impact of Scenario 2 This scenario depicts the impact of allowing medical schemes to provide the same benefits are those covered by the NHI Fund plus, but at regulated prices NHI Fund does not purchase from private hospital sector It assumes regulated prices capped at 23%¹ below current prices 1. Based on Deliotte exercise in 2010 on DOH Reference Price list vs market related priced

Economy-wide multiplier effect on private sector Scenario 2: Unrestricted medical schemes but NHI benefits at regulated prices Economic impact of Scenario 2 This scenario depicts the impact of allowing medical schemes to provide the same benefits are those covered by the NHI Fund plus, but at regulated prices NHI Fund does not purchase from private hospital sector It assumes regulated prices capped at 23%¹ below current prices 132 000 jobs lost (46.6%) (43.0%) (46.9%) Overall macroeconomic impact: Contribution to production decreases by 46.6% Contribution to GDP decreases by 43% Contribution to employment decreases by 46.9% 1. Based on Deliotte exercise in 2010 on DOH Reference Price list vs market related priced

Thoughts on improving health access Civil servants and dependents Formal sector employed and dependents (large business) Formal sector employed and dependents (SMME) Informal sector and dependents Individuals in households with no income 5.5 million 12 million 6 million 6 million 24 million Domestic workers Hawkers Taxi industry Casual labourers Elderly Children School kids (12m) Unemployed “The central philosophy of NHI is to bring ‘into fold’ those people who are not insured” Only 8.8 million out of 23.5m have private medical aid Source: DoH CEO Public Health Enhancement Fund meeting July 2017

How many more people can the private sector cater for? Overall weekday occupancy is 70% on average, while weekend occupancy is 52% Based on public sector admissions rates and 85% occupancy current capacity can cater for a maximum 7.7 million additional people¹ With an additional 8 000 beds coming on stream, mainly independent hospitals, potential for private sector to cater for another 14 million population 1. Insight Actuaries, October 2018. Private hospital occupancy analysis

Thoughts on improving health access Medical Scheme risk equalisation and mandatory health cover for formally employed Low cost medical schemes (basic benefit design) Private medical school or Include private hospitals Dr education Lift limits on private nurse training Lift restriction on corporate ownership of pathology and radiology practices Allow flexibility in Dr contracting by private facility

Melanie Da Costa