1. The BHF Southern African Conference 22-25 July’07 Sun City Health Sector Reform in South Africa ~ focus on the ‘Supply Side’ issues Dr Brian Ruff MB.BCh.; FCP (SA)

2. The BHF Southern African Conference 22-25 July’07 Sun City Agenda Introduction to health sector reform Supply side issues Possible responses ~ reform experiences

3. The BHF Southern African Conference 22-25 July’07 Sun City Agenda Introduction to health sector reform Supply side issues Possible responses ~ reform experiences

4. The BHF Southern African Conference 22-25 July’07 Sun City Intro: Health Sector value 3 critical measures: Access: Equity: Efficiency: For society, there are always trade offs between these. Economics 101: Demand: control varies from being in individual consumers hands or may be concentrated in organisation or state hands Supply: of services is either private / independent or by the state This paper explores these variables in regard to the SA private health sector.

5. The BHF Southern African Conference 22-25 July’07 Sun City Definitions: Access: ability of a sick person to gain entrée to the system to establish a diagnosis & plan therapy. Also the ability to move between differing levels of the system i.e. primary care to specialist / highly specialised care. Funding is critical. Equity: provision of the same care based purely on their medical problem – unaffected by income or influence. Success is achieved when the demand side is controlled by structures / processes ensure effective demand. I.e.: Unnecessary care is denied (3 rd party funding issue) Necessary care is provided (both supplier induced demand, and denial of care is avoided) Evaluation at an individual level is required. Intro: Health Sector value

6. The BHF Southern African Conference 22-25 July’07 Sun City Efficiency: two definitions concern us: financial efficiency i.e. relative cost / price quality They may be combined as ‘ value’. On the Supply side, there are: ‘trade offs’ between cost and quality but in healthcare, over time, good quality is more cost effective than bad quality, since unresolved problems recur and incur new costs Intro: Health Sector value

7. The BHF Southern African Conference 22-25 July’07 Sun City Seven principles: from McKinsey The McKinsey 2007 No.1: Universal principles for health care reform To facilitate decisions that promote equity, quality and cost effectiveness, and service sustainability, a health care system leader or intermediary must: …actively manage demand for the healthcare products and services …ensure that healthcare supply matches quantity, quality and price demanded by the market Principles 6. Promote sustainable financing mechanisms to collect and redistribute funds 7. Build and organise capabilities of intermediaries to enable them to effectively manage the system 1. Prevent illness and injury 2. Ensure value conscious consumption of services, treatments 3. Promote efficient creation of capacity for labour, infrastructure, innovation 4. Safeguard the delivery of quality by providers 5. Promote cost competitiveness

8. The BHF Southern African Conference 22-25 July’07 Sun City Principles Demand: 1.Prevent illness and injury: Promote wellness and safety 2.Value conscious consumption : Information / flexibility: support rational choice ~ current transparency re price and quality not sufficient Overcome 3 rd party funding problem by increase consumer accountability 7. Build and organise capabilities of intermediaries to enable them to effectively manage the system 2. Ensure value conscious consumption of services, treatments 3. Promote efficient creation of capacity for labour, infrastructure, innovation 4. Safeguard the delivery of quality by providers 5. Promote cost competitiveness 6. Promote sustainable financing mechanisms to collect and redistribute funds The McKinsey 2007 No.1: Universal principles for health care reform 1. Prevent illness and injury

9. The BHF Southern African Conference 22-25 July’07 Sun City Principles: Supply: 3.Analyze capacity ~ under / over? Physical capacity and capital Skills & labour supply Technology 4.Quality of suppliers: Clinical practice standards Available information re organisational performance Risk based monitoring & audits, including supplier self reporting 5.Cost competitiveness: Enhance productivity (but not by excess capacity & over servicing) Purchase effectively 7. Build and organise capabilities of intermediaries to enable them to effectively manage the system 2. Ensure value conscious consumption of services, treatments 3. Promote efficient creation of capacity for labour, infrastructure, innovation 4. Safeguard the delivery of quality by providers 5. Promote cost competitiveness The McKinsey 2007 No.1: Universal principles for health care reform

10. The BHF Southern African Conference 22-25 July’07 Sun City Principles 6.Improve finance mechanisms Efficient financing mechanisms match supply and demand Align reimbursement mechanisms with providers that best manage risk ~ DRGs; capitation Pay suppliers for performance – cost and quality 7. Build and organise capabilities of intermediaries to enable them to effectively manage the system 2. Ensure value conscious consumption of services, treatments 3. Promote efficient creation of capacity for labour, infrastructure, innovation 4. Safeguard the delivery of quality by providers 5. Promote cost competitiveness 6. Promote sustainable financing mechanisms to collect and redistribute funds The McKinsey 2007 No.1: Universal principles for health care reform

11. The BHF Southern African Conference 22-25 July’07 Sun City Principles 7.Implementation: Build awareness – align consumer and supplier interests; or Provide financial incentives – assumes non alignment; or Impose mandates - if awareness and incentives fail 7. Build and organise capabilities of intermediaries to enable them to effectively manage the system 2. Ensure value conscious consumption of services, treatments 3. Promote efficient creation of capacity for labour, infrastructure, innovation 4. Safeguard the delivery of quality by providers 5. Promote cost competitiveness 6. Promote sustainable financing mechanisms to collect and redistribute funds consumer ism incentives regulation consumer ism incentives regulation More nuanced view…. The McKinsey 2007 No.1: Universal principles for health care reform

12. The BHF Southern African Conference 22-25 July’07 Sun City Agenda Introduction to health sector reform Supply side issues Possible responses ~ reform experiences

13. The BHF Southern African Conference 22-25 July’07 Sun City GDP PPP $5 000 - $10 000 SA supply / 1000 population: GP: 0.34 Specialists: 0.15 Beds used: 2.8 Discovery research: Monitor database Low versus peers 2.86 - also ‘pipeline’

14. The BHF Southern African Conference 22-25 July’07 Sun City Medical Education

15. The BHF Southern African Conference 22-25 July’07 Sun City The supply of Medical Professionals in SA Nurses: “Production of new nurses has failed to keep up with the increase in population, let alone with the shortages created by the emigration exodus and the need for new nurses as a result of the HIV pandemic.” Medical Education: Medical schools enrolments unchanged: 1996 – 2003; except Limpopo ++ Demographics of 2003 enrolment: Black 41%; White 34%; Indian 18%; Coloured 7% 54.6% female ~ worldwide phenomenon and issue re Specialisation :  Prof Carol Black; President of Royal College of Physicians: noted that female graduates tended to specialise in areas such as geriatrics and palliative care and avoid cardiology and gastro because of their long hours.  Others identified that women are deterred from hospital practice by its “inflexible training and practice”  UCT case study 2003: undergrad = 63%; MMed = 37%;  favoured Paediatrics; Anaesthetics; Psychiatry; O&G; Public Health. Doctors in a Divided Society (HSRC): Breier & Wildschut

16. The BHF Southern African Conference 22-25 July’07 Sun City Structural issues

17. The BHF Southern African Conference 22-25 July’07 Sun City GDP PPP > $20 000 Similar supply Different demand Discovery research: Monitor database Within income stratified countries, supply numbers alone don’t predict utilisation patterns. V low US beds after 25 years of DRGs

18. The BHF Southern African Conference 22-25 July’07 Sun City Discovery Health Is there a relationship between supply of beds in a region and complexity (case mix) of cases admitted?

19. The BHF Southern African Conference 22-25 July’07 Sun City Pretoria hospital – top 20% of admissions by volume Discovery Health Top 5 admission types – unusually low complexity; and significantly more costly than expected

20. The BHF Southern African Conference 22-25 July’07 Sun City SADFM study 2004 24 acute public hospitals; alpha and beta functional scores applied to 5,243 inpatients Results: – 34% required acute care –43% sub acute care –9% rehab services –5% palliative care –10% home care Dr H Loubsher SADFM Structural issue: absence of facility alternatives

21. The BHF Southern African Conference 22-25 July’07 Sun City Supply side summary Hospital beds: –selective oversupply e.g. Pretoria, JHB = supplier induced demand –dearth of day hospitals; step down facilities (structural issues) Professionals supply norms low in SA overall: –Underinvestment & inadequately managed demographic transition is leading to an undersupply of doctors and specialists –Worrying number of older specialists, not enough younger specialists in practice ~ also effects mentoring –private sector now has growing waiting lists Inefficiently structured referral system: –care delivered at inappropriately costly levels (especially hospitals) –health professional practice highly individualistic; rarely in teams e.g. –senior specialist supervising GPs; clinical nurses with a doctor –‘fee for service’ remuneration incentive to perform high priced services

22. The BHF Southern African Conference 22-25 July’07 Sun City Measures: Access: –good access ~ for those who can afford it –unmanaged access to beds = wasteful oversupply + over-servicing –specialist numbers ~ in transition; declining = long waiting lists Equity : inequitable ~ by affordability; not need. –historically benefit packages vary greatly; especially access to new Rx (PMBs, Circular 8 may be address this) –managed care links patient to needed care ~ costly to administer Efficiency: –fee for service: over servicing & high cost –high quality care, but expensive Structure is wasteful, with excessive services delivered at inappropriate and unnecessarily sophisticated levels of care. Supply side summary

23. The BHF Southern African Conference 22-25 July’07 Sun City Agenda Introduction to health sector reform Supply side issues Possible responses ~ reform experiences

24. The BHF Southern African Conference 22-25 July’07 Sun City ‘Unfettered’ MarketContract for ValueRegulation The McKinsey 2007 No.1: Universal principles for health care reform McKinsey: Implementation choices:

25. The BHF Southern African Conference 22-25 July’07 Sun City ‘Unfettered’ MarketContract for ValueRegulation The McKinsey 2007 No.1: Universal principles for health care reform McKinsey: Implementation choices: consumerism incentives regulation More nuanced view….

26. The BHF Southern African Conference 22-25 July’07 Sun City Increase value by making the market work: Supplier transparency : throughput; prices; compliance with evidence; quality and outcomes Tariff reform to fairly reward efficiency, especially promoting appropriate referral arrangements, e.g.: –Same tariff for same service; or lower tariffs for ‘below scope’ procedure by a clinician? –Generous ‘team’ codes: encourage team leadership e.g. specialists manage team of GP surgeons, GPs manage clinical nurses and pharmacists Supply side structural reforms: 1. Unfettered Market ~ Fee for service; Managed Care

27. The BHF Southern African Conference 22-25 July’07 Sun City Interactions between member and Scheme administrator: Fee for Service vs. Contract for Value Contract annualised; expert opinion “Arms length” Managed Care is costly to administer

28. The BHF Southern African Conference 22-25 July’07 Sun City Rigid regulation may result in unintended consequences? –Further distort referral chain – undermine quality or drive inappropriate care –Indication ‘creep’ re billing Helpful regulation in areas of ‘positive externalities’ which market won’t / can’t address: –Mandatory cover for employed –Preventing monopoly behaviour By creating framework, may be enabling of market and contracting: –Mandate transparent; minimum level reporting on results of contracts Supply side structural reforms: 3. Regulation

29. The BHF Southern African Conference 22-25 July’07 Sun City Aim: to promote selective contracting to bring value to the system: Selectively increase beds in strategic areas: –Day and Step down facilities –Licenses –Sell some Public hospital stock? Clinician supply ~ HPC(SA): –create transitory increase in specialist supply, promote entry for foreign specialists –permit hospitals to selectively employ doctors in strategic areas to improve efficiency – ICU; ER; night cover etc Pay for performance – quality and cost Supply side structural reforms: 2. Purchaser / Provider contract for value:

30. The BHF Southern African Conference 22-25 July’07 Sun City Purchaser / Provider ‘contract for value’: Competent authorities purchase services from independent providers on a capitated basis for a contracted period. Model represents the consensus of international reform efforts. Demand side reform: based on a limited number of large efficient purchaser funds, whose available funds are population risk adjusted i.e. link overall need to funding. purchaser role is to: –purchase services from suppliers on a capitated / budget basis –provider funding linked to predicted need of population segment to be served – constant measurement & robust management of contracted independent providers of care to meet budget and quality aims –supplier failure = contract termination; replacement of managers / providers purchasers must be: –sufficiently large to deploy predictive data tools ; and manage contracts – sufficient in number to compete ~ on value (price and quality) for members –mandatory environment but choice of fund; with transparent tools e.g. HQA Making risk profit – attract brightest minds

31. The BHF Southern African Conference 22-25 July’07 Sun City Contracting includes: Evidence based medicine: –identify which procedures (drugs, surgical interventions, processes of care) produce best results relative to cost –reward those procedures with providers. Appropriate level of skill: –Service rewarded at appropriate expertise level i.e. move patients down skill gradient: Specialist to GP to nurse, as necessary. Process redesign / reconfiguration: –reward integrated service delivery (team approach) –incentivise a new model of primary (first contact) care with bigger practices, more specialists, more equipment –encourage the transfer of ‘inpatient’ functions to primary care –separation of emergency and elective / chronic care (different specialisation mix requirements)

32. The BHF Southern African Conference 22-25 July’07 Sun City Purchaser provider contract for value: Measures: Access: good ; may use selective co-payments Equity: – Provider links services to individual need ; supported by adequate funds –Incentives: deliver appropriate type & volume & quality of services within framework Efficiency: purchaser / supplier separation is most successful in producing efficiency: –Purchaser tools link funds to efficiency + quality, as their major managerial concern (i.e. not running services) –Provider / supply side is internally incentivised to primarily respond to the customers (market competition) equity, efficiency and quality needs. –Managers know that their available funding is population risk adjusted i.e. under spending implies denial of care; and over spending implies wastage.

33. The BHF Southern African Conference 22-25 July’07 Sun City Comparing Structures ~ Measures: Purchaser / Provider Contract: Access: –good; selective co-payments Equity: –Provider links illness to services; adequate funds available –appropriate type & volume & quality of services Efficiency: –most successful in producing efficiency Commonest reform structure Current Structure: Access: –good access based on affordability; but cost increases mean real decline in % South Africans covered –access also being compromised by supply issues; including inefficient referral arrangements Equity : –benefits based on affordability, and drive access to services; not illness –costly managed care links patient to needed care Efficiency: –high quality care, but expensive Wasteful structure

34. The BHF Southern African Conference 22-25 July’07 Sun City US experience: Doctors coordinating care Medicare pilot: By coordinating care and keeping their patients out of hospital, doctors can help reduce overall health care spending, Medicare officials said yesterday in announcing the results of an experiment that allowed doctors to share in cost savings. New York Times 2007 Comparison UK NHS with California Kaiser Permanente: Similar per capita cost but Kaiser far better comprehensive and convenient primary care; and access to specialists and hospitalisation. Age adjusted hospital admissions 1/3 lower than NHS Kaiser / 1000 supply: OH specialists double; no GPs in single practice, most in large group practices Kaiser performance underpinned by good integration; efficient hospital use; benefits of competition, investment in IT. BMJ January 2002

35. The BHF Southern African Conference 22-25 July’07 Sun City Contracts Success factors in Contracts Incentives provided by payment mechanisms Adequacy of the accompanying monitoring and information systems Readiness and suitability of the service; the market and the key actors Public Purchaser-Private provider Contracting for Health Services: Inter-American Development Bank Preconditions for market mechanisms in Hospitals: Funding related to patients treated – incentive to be productive Selective contracting i.e. feasible alternatives with capacity exists Hospital information to measure cost and quality Anti-competitive issues include: –Mergers; planning licenses; system wide negotiation; joint hospital and physician negotiations; hospital exclusive / favoured supplier contracts Competition in the provision of hospital services: OECD Oct 2006

36. The BHF Southern African Conference 22-25 July’07 Sun City Risk adjusted purchasing: DRG implementation by country: –USA 1983 –Sweden 1985 –Finland 1987 –Portugal 1989 –Canada 1990 –UK 1992 –Australia; Ireland 1993 –Italy; Belgium 1995 –France 1997 –Denmark; Norway 1999 –Singapore early 2000’s –Netherlands; Germany; Japan 2003 Others countries with pilots or investigations: –China; Russia; Brazil etc Analysing Changes in Health Financing Arrangements in High Income countries: Busse et al 2007 World bank HNP:

37. The BHF Southern African Conference 22-25 July’07 Sun City Predicting outcomes 1 star 2 stars 3 stars Discovery Health

38. The BHF Southern African Conference 22-25 July’07 Sun City ?

39. Summary: health sector reform in SA Align supply with need – supply is both capacity and how the system is structured NB of separating procurement from supply NB to manage and incentivise providers to balance quality and costs Need tools to monitor and manage the balance

40. The BHF Southern African Conference 22-25 July’07 Sun City Thank you