1. Centre for Actuarial Research The Costing of the Chronic Disease List January 2003

2. Centre for Actuarial Research CDL Study Data  Data from Medscheme Data Warehouse  Data covers 2001 calendar year, extracted in August 2002  Data fully run-off, no adjustment for IBNR  46 options  27 schemes  16.103 million beneficiary months of data  Average exposure of 1,341,892 beneficiaries

3. Centre for Actuarial Research Cluster Analysis and Applicability

4. Centre for Actuarial Research Cluster Analysis  Distinct clusters:  High contains options with older, 'whiter' members with high utilisation;  Medium-older contains options with medium utilisation and older members;  Medium-younger contains options with medium utilisation and younger members; and  Low contains options with younger, 'blacker' members with low utilisation.  Additional not present in PMB study. Single large scheme where the ethnicity is predominantly so-called “Coloured”

5. Centre for Actuarial Research Cluster Analysis  Different clusters experience different benefit utilisation, costs and disease profiles. Provider behaviour differs by cluster, even within the same hospital facility.  Study contains more Low cluster beneficiaries than the industry.  For industry comparisons, use Weighted industry price.  This uses 50% of the costs of the Low cluster and 100% of the other clusters.  Low cluster is more relevant to the emerging low-cost option environment.

6. Centre for Actuarial Research Beneficiaries by Cluster Centre for Actuarial Research

7. Centre for Actuarial Research Age Profile by Cluster Centre for Actuarial Research

8. Centre for Actuarial Research Proportion of Options Covering the CDL

9. Centre for Actuarial Research Industry Benefit Study 2001 Source : CARE Monograph

10. Centre for Actuarial Research Proportion of Beneficiaries Covered for CDL

11. Centre for Actuarial Research Chronic Registrations by Cluster Q1 2002 data

12. Centre for Actuarial Research Chronic Registrations High Cluster Cluster Average 29.7% Q1 2002 data

13. Centre for Actuarial Research Chronic Registrations Medium-older Cluster Cluster Average 16.9% Centre for Actuarial Research Q1 2002 data

14. Centre for Actuarial Research Chronic Registrations Medium-Younger Cluster Cluster Average 9.3% Q1 2002 data

15. Centre for Actuarial Research Chronic Registrations Low Cluster Cluster Average 11.4% Centre for Actuarial Research Q1 2002 data

16. Centre for Actuarial Research Chronic Registrations Scheme H Q1 2002 data

17. Centre for Actuarial Research Prevalence of CDL Conditions from Registrations

18. Centre for Actuarial Research Registration of Beneficiaries for Chronic Medicine Other Chronic Conditions 22.9% CDL Conditions 77.1%

19. Centre for Actuarial Research Prevalence of CDL Registrations Centre for Actuarial Research

20. Centre for Actuarial Research Co-morbidity in Registrations As Co-morbidity 59.4% Single Disease 40.6% Centre for Actuarial Research

21. Centre for Actuarial Research Co-morbidity in Registrations Centre for Actuarial Research

22. Centre for Actuarial Research Co-morbidity in Registrations Centre for Actuarial Research

23. Centre for Actuarial Research Beneficiaries Registered for CDL Conditions

24. Centre for Actuarial Research Single Disease Analysis

25. Centre for Actuarial Research Registered Beneficiaries Claiming Centre for Actuarial Research Single diseases only

26. Centre for Actuarial Research Proportion of Total Drug Claims Centre for Actuarial Research Single diseases only

27. Centre for Actuarial Research Proportion of Total Drug Cost Centre for Actuarial Research Single diseases only

28. Centre for Actuarial Research Average Cost per Case Centre for Actuarial Research Single diseases only Centre for Actuarial Research

29. Centre for Actuarial Research Average Cost per Case Centre for Actuarial Research Single diseases only Centre for Actuarial Research

30. Centre for Actuarial Research Multiple Disease Analysis

31. Centre for Actuarial Research Registered Beneficiaries

32. Centre for Actuarial Research Multiple diseases Registered Beneficiaries Claiming Centre for Actuarial Research

33. Centre for Actuarial Research Proportion of Total Drug Claims Centre for Actuarial Research Multiple diseases

34. Centre for Actuarial Research Proportion of Total Drug Cost Multiple diseases Centre for Actuarial Research

35. Centre for Actuarial Research Average Cost per Case Centre for Actuarial Research Multiple diseases

36. Centre for Actuarial Research Average Cost per Case vs. Sum of Single Diseases Centre for Actuarial Research Multiple diseases

37. Centre for Actuarial Research Prevalence All Diseases

38. Centre for Actuarial Research CDL Package by Age

39. Centre for Actuarial Research Age of Exposed Beneficiaries 0% 2% 4% 6% 8% 10% 12% 14% 0 1-45-9 10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-84 85+ Proportion of beneficiaries Centre for Actuarial Research

40. Centre for Actuarial Research Age of Claiming Beneficiaries

41. Centre for Actuarial Research Age of Claiming Beneficiaries 0% 2% 4% 6% 8% 10% 12% 14% 0-11-45-9 10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-84 85+ Proportion of Claiming Beneficiaries

42. Centre for Actuarial Research Age of Claiming Beneficiaries for Selected Diseases Centre for Actuarial Research

43. Centre for Actuarial Research Age of Claiming Beneficiaries for Selected Diseases Centre for Actuarial Research

44. Centre for Actuarial Research CDL Prevalence by Age

45. Centre for Actuarial Research CDL Prevalence by Age

46. Centre for Actuarial Research CDL Prevalence by Age 0 100 200 300 400 500 600 0-11-45-9 10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-84 85+ All ages Prevalence per 1000 beneficiaries

47. Centre for Actuarial Research Average Cost by Age

48. Centre for Actuarial Research Average Cost of CDL by Age

49. Centre for Actuarial Research Raw Price of CDL by Age Centre for Actuarial Research

50. Centre for Actuarial Research Raw Price of CDL by Age 0 250 500 750 1,000 1,250 1,500 1,750 2,000 2,250 2,500 0 1-45-9 10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-84 85+ All Ages Price per beneficiary pa

51. Centre for Actuarial Research Proportion of Price by Age Centre for Actuarial Research

52. Centre for Actuarial Research Raw Price of CDL by Wider Age Bands Centre for Actuarial Research

53. Centre for Actuarial Research CDL Package by Cluster

54. Centre for Actuarial Research Age of Exposed Beneficiaries Centre for Actuarial Research

55. Centre for Actuarial Research Age of Exposed Beneficiaries Centre for Actuarial Research

56. Centre for Actuarial Research Prevalence All CDL Diseases

57. Centre for Actuarial Research Prevalence by Cluster

58. Centre for Actuarial Research Prevalence by Cluster Centre for Actuarial Research

59. Centre for Actuarial Research Average Cost by Cluster Centre for Actuarial Research

60. Centre for Actuarial Research Raw Price by Cluster

61. Centre for Actuarial Research Raw Price by Age and Cluster

62. Centre for Actuarial Research Raw Price High vs. Low Cluster Centre for Actuarial Research

63. Centre for Actuarial Research High Price Relative to Low Price by Age Centre for Actuarial Research

64. Centre for Actuarial Research Average Cost of Hypertension High vs. Low Cluster

65. Centre for Actuarial Research Differences Between Clusters  Age profile differences explain roughly two-thirds of difference in raw cluster prices.  Other differences are probably due to a combination of “the four P’s”:  variation in Prevalence rates of important conditions;  Presentation or manifestation of conditions;  Provider choice (GP vs. specialist and the management or prescribing habits of each); and  benefits available within the health care Plan.

66. Centre for Actuarial Research Adjustments to the Raw Price of the CDL Package

67. Centre for Actuarial Research Adjustments to Raw Price  Haemophilia  Removal of three diseases from final Regulations  Cost of diagnosis and medical management  Adjustment for compliance  Adjustment for limits  Adjustment for co-payments  Costs of chronic medicine management programme  Costs of administration  Reduction for cost of delivery in the public sector

68. Centre for Actuarial Research Haemophilia  Patients do not register for chronic medicine. Covered by ‘Blood and related products’ benefit, not Medicines.  Haemophilia Society estimates 2000 patients in SA, which suggests prevalence of 1/20 000.  220 people claiming ‘Blood and related products’ benefit; estimate 67 are haemophiliacs.  Average case cost of R2 500 per month (R30 000 p.a.) for ‘Blood and related products’ benefit.  But majority are renal failure patients, erythropoietin for treatment of chronic anaemia.  Recommendation: use estimate of R0.50 pbpa

69. Centre for Actuarial Research Removal of Diseases from Final Regulations  Anti-coagulating Therapy: 0.7% of total cost  Cushing’s Disease: 0.0% of total cost  Osteoarthritis: 3.1% of total cost  In total, 1.8% of people excluded from any CDL benefit  12.7% now excluded from partial CDL benefits  Recommendation: reduce raw CDL price by 3.7%.

70. Centre for Actuarial Research Cost of Diagnosis and Medical Management  Prescribed Minimum Benefit:  “diagnosis, medical management and medication, to the extent that this is provided for by way of a therapeutic algorithm for the specified condition, published by the Minister by notice in the Gazette”.  Need to determine and finalise therapeutic algorithms.  Process requires full study of cost implications.  Recommendation: use initial rough estimate of R130.00 per beneficiary per annum.

71. Centre for Actuarial Research Cost of Diagnosis and Medical Management

72. Centre for Actuarial Research Adjustment for Compliance  Longitudinal study of new applications with follow-up for one year. 27% of beneficiaries classified as non-compliant used only 28% of the value of the medicines authorised.  Scheme only experienced 71% of the potential cost of the medicines authorised.  Recommend stress-testing price through adjusting margin for compliance.  Recommendation: add margin of 20% of raw price of CDL package for possible increase in compliance in a mandatory environment.

73. Centre for Actuarial Research Adjustments for Limits  Design of project to attempt to obtain full cost of the CDL conditions without constraints:  Relatively generous chronic medicine limits in schemes.  All members can select option with chronic medicine.  Extracted both chronic and acute usage.  Full tariff amount of item prescribed, not amount paid.  But need small margin where beneficiaries stop claiming during the year because limits have been reached.  Recommendation: add margin of 5% to raw price of CDL package for effect of removing all limits in a mandatory environment.

74. Centre for Actuarial Research Adjustments for Co-payments  Design of project:  Full tariff amount of item prescribed, not amount paid.  Could be small increase in usage of Primary CDL-NAPPIs relative to Secondary CDL-NAPPIs in mandatory environment, with member co-paying difference in price.  Potentially an increase in usage because full benefit will be paid without constraints from pooled benefits.  Recommendation: add margin of 5% to raw price of CDL package for effect of removing co-payments in a mandatory environment.

75. Centre for Actuarial Research Medicine Management Costs

76. Centre for Actuarial Research CDL Administration Costs

77. Centre for Actuarial Research EDL State Tender Price Compared to Private Sector Price Source: Rothberg and Walters (SAMJ 1996)

78. Centre for Actuarial Research Savings for Switch to EDL Medicines at State Tender Prices Source: Rothberg and Walters (SAMJ 1996)

79. Centre for Actuarial Research CDL Cost in the Public Sector  1995 Committee of Inquiry’s estimate of a 50% reduction in private sector costs is achievable for primary health care medicines.  Access to Essential Drugs List medicine at State tender prices is a potential policy option.  Recommendation: use estimate of 50% saving in cost of CDL package when delivered in public sector. As policy unfolds, so this estimate can be further refined.

80. Centre for Actuarial Research Full Price of the CDL Package

81. Centre for Actuarial Research Full Price of CDL Package  Four components:  Medicine component, based on full data in study (high degree of certainty)  Portion of price for which uncertainty exists until package is fully defined and allowance for impact of package being mandatory  Amount added for medical management costs  Non-healthcare costs.  Note: Prices should not be used blindly in pricing work. Contact a professional for assistance.

82. Centre for Actuarial Research Full Price CDL Package

83. Centre for Actuarial Research Full Price PMB Package

84. Centre for Actuarial Research Non-Healthcare Expenditure Well below Registrar’s benchmark of 10% of total expenditure

85. Centre for Actuarial Research CDL Package Relative to Medicine Expenditure Centre for Actuarial Research

86. Centre for Actuarial Research PMB Package Relative to Benefits and Contributions

87. Centre for Actuarial Research Conclusions

88. Centre for Actuarial Research Preliminary Conclusions on Affordability  CDL package, both in basic form and with added margins for change in claiming behaviour when mandatory, appears to be affordable compared to medicine benefits.  PMB package (including CDL) appears to be well covered when compared to total benefits and contributions in the industry.

89. Centre for Actuarial Research Price in Mandatory Environment  Expect change in member and provider behaviour from existing environment.  Uncertainty exists in price until package is fully defined.  Have included an effective 30% margin on medicine component of CDL package.  Consortium opinion that collective margin of 30% on medicine component is sufficiently conservative to cover this uncertainty in the pricing.

90. Centre for Actuarial Research Need for Mandatory Package Community rated price

91. Centre for Actuarial Research Need for Mandatory Package  Real danger that open schemes will pursue more aggressive self-seeking behaviour and limit chronic medicine benefits to discourage older members and improve their community rate relative to their competitors.  Substantial broker activity and churning of members worsens this incentive.  A mandatory minimum package of chronic medicine and management benefits is essential for reducing opportunistic behaviour by some schemes.

92. Centre for Actuarial Research Further Policy Issues  Membership of medical schemes needs to be compulsory, rather than voluntary, for medium to higher income groups to stabilise the system.  A risk equalisation system between medical schemes, based on the Prescribed Minimum Benefit package will reduce the opportunistic profiting from risk selection still further.

93. Centre for Actuarial Research Composition of the CDL List  Brief did not extend to consider diseases outside of the draft list and whether any should have been included.  Need for a process of chronic disease prioritisation in medical schemes in order to inform the rationing process in future.

94. Centre for Actuarial Research Definition of CDL Package  Draft of Treatment Guidelines for Chronic Disease List Conditions  Based on Standard Treatment Guidelines and Essential Drugs List published by DoH in 1998.  Appoint task team for documenting and maintaining treatment algorithms for CDL conditions.  Actuarial and pricing expertise to estimate the price of the algorithms. Iterative process of refining algorithms.  Project manager to ensure process completed in time for pricing in August 2003 if implementation is 1 January 2004.

95. Centre for Actuarial Research Complementary and Traditional Medicine  Serious concerns about the implications of legislating the algorithms for CDL conditions.  Only one approach to treatment will receive funding from medical schemes: entrenchment of an allopathic approach to treatment, largely based on drug interventions.  Hard won legal freedoms to operate must not be negated by preventing funding of complementary medicine and African traditional medicine for CDL conditions.  Allied Health Professions Council with 11 modalities.  Consumers will increasingly question health plans.  Inclusion unlikely to be simple and debate will be vigorous.

96. Centre for Actuarial Research Chronic Medicine Management Programmes  Medicines management is essentially divided into rules- based formulary management and clinically-based member management.  Experience with a large membership base shows that there is no question that a combination of the two yields the best results.

97. Centre for Actuarial Research Further Research  Combine with PMB study to obtain total expenditure on CDL conditions. Aid in setting industry priorities.  Range of costs for each condition, rather than average costs.  Understand price difference between High and Low clusters.  Current prices of EDL medicines at State tender prices compared to medicines used by beneficiaries in this study.  Costs of treating CDL conditions in the public sector.

98. Centre for Actuarial Research A Research Unit of the University of Cape Town (CARE) Centre for Actuarial Research A Research Report Prepared Under Contract for the Council for Medical Schemes