Competition Commission of South Africa Market Inquiry into the matter of Private Healthcare Sector Hearing 4/Day 3 held at Cape Town International Convention Centre Cape Town on 10th of March 2016
Panel:
Justice Sandile Ngcobo Drs Cornelis Van Gent Dr Lungiswa Nkonki Prof Sharon Fonn Dr Ntuthuko Bhengu
Stakeholders:
Life Healthcare Holding Group Ltd Mediclinic South Africa (Pty) Ltd
Telabo Consulting Pty Ltd P O Box 12631, Die Hoewes 0163
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Transcriber’s Certificate 5
I, the undersigned, hereby declare that this document is a true and just transcription, in as far as it is audible, of the mechanically recorded proceedings in the matter of: Competition Commission of South Africa 10th March 2016
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.................................................... Transcriptionist:
Date: 15th March 2016
Editor’s Certificate 20
I, the undersigned, hereby declare that this document is a true reflection, in as far as it is audible, of the mechanically recorded proceedings in the matter of: 25
Competition Commission of South Africa
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.................................................... Editor: Zolani Mabele
Date: 15th March 2016
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JUSTICE NGCOBO Okay, ladies and gentlemen, welcome to these public hearings, which is the first set but the fourth public hearing on day three. Today we are going to hear oral submissions from Life Group Healthcare and Mediclinic. We were hoping to hear Netcare also as well, to the extent that we are able to finish earlier today, so that 5
we can have sufficient time tomorrow, but I gather that they are now not available for today. Are you ready to proceed?
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MR PYLE Chair, I think we are just waiting for a PowerPoint version. JUSTICE NGCOBO Okay, very well. MR PYLE For the streaming we sent a PDF version through which apparently there
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is a problem with the streaming. JUSTICE NGCOBO Yes, okay. MR PYLE Apologies for that, we didn’t realise.
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JUSTICE NGCOBO
Okay, well once that has been sorted out, you will indicate and
then we will start. 15
MR PYLE May I introduce you to who's here, just in the interim?
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JUSTICE NGCOBO Please go ahead. I think it will be helpful if you place everyone on record. Thank you. MR PYLE Yes, so, good morning, sir, my name is Adam Pyle, I am an executive of Life Healthcare, I look after a number of portfolios, including strategy, health policy 5
and business analytics. We have taken into account some of the sessions that have happened over the last few weeks and the questions have been asked so we have, I
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bought some of my colleagues along to help with the questions and on my left I have Matthew Prior. He is intricately involved in the negotiations with the funders, and just for the record, we use the term funder because we sometimes we are negotiating with
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the medical schemes, sometimes the administrators, sometimes the managed care organisation and as a hospital we just generally refer to them as funders, for ease. JUSTICE NGCOBO Yes, I understand. MR PYLE That's Matthew Prior on my right. We have Dr Steve Taylor, and he is our
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clinical director and then Dr Sharon Vasuthevin who is our executive for nursing and quality. JUSTICE NGCOBO
Yes, thank you.
We are ready when you are. You only
submitted one presentation, as I understand it, which is this one. 4|Page
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MR PYLE That is correct. JUSTICE NGCOBO We have a set which is printed different but there is just one oral submission that you made. MR PYLE Correct. 5
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JUSTICE NGCOBO Yes , very well, thank you. MR PYLE Sorry, Chair, may I suggest that we, I mean, we’re are happy to start, and we are sorry we didn’t realise that there had to be a PowerPoint version for the actual streaming. We had only sent a PDF. So I think there is a PowerPoint version being sent through. So I think we can start and then maybe in terms of streaming it catches
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up in terms of slides. Or do you want to wait? JUSTICE NGCOBO Yes, as long as that is going to be convenient for you, that’s okay with us, because we do have your presentation here.
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MR PYLE Then I think we should start. JUSTICE NGCOBO Yes, very well, thank you, go ahead.
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MR PYLE So just briefly in terms of this presentation we sent through, we have, so in terms of, sorry we have a few problems with changing these slides, is there a ...? 5|Page
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JUSTICE NGCOBO Could someone just assist us here and make sure that this thing runs smoothly? MR PYLE There we go. So we have taken cognisance of your schedule and the purpose of this particular set of hearings, and we have tried to do a sort of broad 5
presentation covering how we interact in the healthcare sector, and we have noted there are separate hearings going forward which will cover issues like market concentration,
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profitability returns, the regulatory environment, section 27 in far more detail so we have touched on these issues but we haven’t gone into them in great detail. Just in terms of the agenda, we give a brief overview of our business, we then look at
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the revenue drivers in terms of Life Healthcare from hospital side, the price, the utilisation. We touch on some of our cost drivers, some of the competitive dynamics that we have in this industry, what our relationships are with the doctors, our hospital equality, and then we briefly touch on some recommendations.
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The Appendix we won’t go through, that was just some slides showing just on the quality measures we have in our hospitals. Primarily our business is an acute hospital care business. We have 50 acute hospitals, nearly 8,000 beds. In addition to that we have a complimentary services business 6|Page
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covering primarily acute rehabilitation, mental health, renal dialysis, and a little bit of oncology, which is growing. In addition to that, what we don’t really go too much into, we have some healthcare services, businesses, it’s an occupational health business and a wellness business. In 5
addition to that we have a public/private partnership, it’s a company called Life Esidimeni which has 3,500 beds, give or take, and then we have an education business
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through our Life College of Learning, which is seven learning centres, and just a point that these are numbers as of our year end of 30 September last year. Just some key metrics; we admit nearly 600,000 people into hospitals every year. Our
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hospital, as we referred to as PPDs, its Paid Patient Days. So if you have an admission of, a person comes in for an admission of three days that would count as three PPDs. Our average length of stay is 3.6 days. We have an average occupancy of nearly 72%. We employ 14,000 people of which 9,000 are nurses and we have over 1,100 nurses currently in training.
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We just put some financial metrics there covering our revenue, the tax we pay, our vat and we have a capital expenditure of just over 1.1 billion. Just in terms of our geographic spread of facilities, we have, we are in seven of the nine 7|Page
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provinces and we cover a range of facilities from multidisciplinary acute care hospitals to smaller medium size community hospitals, and then specific facilities including mental health, acute physical rehabilitation, and we have three or four day clinics as well. 5
So that was just a very brief overview of Life Healthcare. I'd quite like to touch on some of the revenue drivers, and the next slide covers the increase in revenue across
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the hospital division over the last five years, and so you will see in 2011 we grew by 11.7% and then 11.5% in 2012 and 9.4% in 2015, and that revenue growth is split between the revenue per day increase and the utilisation increase, and the dark blue
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represents the revenue per day and you can see that’s ranged from 6.3% in 2011 all the way to 6.4% in 2015. That revenue per day is made up of two factors. It is made up of a price increase that we get from the funders and it is also influenced by any potential change in what we refer to as case mix. We measure the, primarily it’s just between two areas; there’s surgical cases and
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medical cases. We define medical cases as those cases which don’t go to theatre and there is a difference.
The revenue that the hospital gets from surgical cases is
substantially higher than a medical case because there is theatre involved etc. and so if we have an increase in surgical cases in a particular year it will result in higher revenue 8|Page
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per day. So that revenue per day number is made up of price and any change in the case mix. The utilisation number in terms of the light blue blocks is just the increase in, as I refer to, in PPDs. So we have more patients coming into the hospital or an increased length in stay that results in more days, and when you add the two together, 5
you get to an overall increase in our hospital revenue. Just in terms of the price, and with these slides we will go into some of the pricing
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models that Life Healthcare uses, and we will talk about the bargaining or negotiation process that we have. So I am not going to spend a lot of time on this slide because it has been spoken for about the consolidation, the medical schemes and the
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administrators, and we have seen over the years, particularly from an administrator side, because we do spend, most of our negotiations are with the administrators, there has been consolidation and we do think that as a result of that, it has increased their bargaining power. In addition to that, there has been an increase in the number of DSPs and that also has
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an influence in terms of the negotiation which happens on an annual basis. in terms of the bargaining power, our view is that it is, it is fairly dynamic between the funders and the hospitals, and we think that there is a fairly equal balance, it does vary depending on the administrator who we negotiate with but on an overall basis we think 9|Page
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that it is fairly dynamic and it has certainly changed over the last ten years, and I say that because a couple of things have happened. With the consolidation, administrators getting bigger, we find that there has been a much greater emphasis on their side in terms of looking at data, analysing that data, benchmarking, and comparing efficiencies 5
across hospitals groups, and that puts you in a much better position in terms of negotiation, if you at least arrive with a much better set of knowledge.
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The second fact has been the increase in DSPs, because a DSP is a simple thing where you, in exchange for volume you are giving a better price.
So it does give an
administrator or a scheme [indistinct 0.15.57] in terms of saying we want a better price 10
for increased volumes. We make the point there by Discovery and Gems. In Discovery, we put them there because Discovery is our biggest client from a Life Healthcare perspective, and certainly from our side they are the best administrator when it comes to data analysis. They have invested in systems, they have invested in people and they do have very
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good analysis in terms of hospital costings and understandings. As a result they have good size, they have been innovative, and they have rates where they pay doctors more, they have a, we call it Discovery Care Coordination programme which has resulted in us taking discounted rates in certain areas, and we have a DRG model with Discovery 10 | P a g e
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which has resulted in a lot more risk being put onto Life Healthcare. In addition to Discovery, some of the other administrators have increased their, like Medscheme have increased their analytical abilities over the years and they are also benchmarking with the groups in terms of efficiency. Gems has increased in size. The 5
model we have with them is still primarily a fee for service model, although they are starting to introduce fixed fees for a small range of procedures.
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Just on the right of my DSPs, I mean I think I’ve covered that, it’s quite a dynamic market in the sense that, with certain DSPs, like with Discovery Key Care and Delta, we are a core part of those networks, but it's competitive. We are not part of the
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Discovery Smart Plan, that’s a competitor of ours. We are a core partner in terms of Momentum DSP but we are not involved in the Bankmed DSP, Transmed DSPs or Medihelp DSPs, we win some and we lose some, and there is a process you go through. We would obviously like to win all the DSPs but we don’t, and we do see it from a Life Healthcare perspective that we think it brings sustainability and affordability to the
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market, and it is from our perspective it has certainly helped to allow us to grow as a business. Just in terms of the hospital tariffs. What’s included in our bill is quite simply the wards, the theatre the equipment, the nursing service that we provide, and all the stock, 11 | P a g e
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the drugs and consumables. What is excluded is obviously the professional fees, the radiology, pathology and some of the emergency services, which get billed through the [ANY] unit we run by independent practitioners, and there are different models in terms of billing. So the fee for service billing, so you bill for everything that is charged 5
and prior to 2003, nearly everything was in fee for service, not quite everything, we did have certain contracts which fell into an ARM but primarily most of the billing was dome through fee for service.
10 It does get a little bit complicated in terms of the process, but before, the Competition Commission, that consent order in 2002, because there was centralised bargaining 10
between the hospitals through the association, HAZA, they had a different name in those days, and the old BHF which was in [RAMS], and there was a fee for service model and tariffs and what’s happened from our side is that our current fee for service tariff schedule is based on the old fee for service, but it has been updated and adjusted compared to different schemes as negotiations have gone on.
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Within the fee for service tariffs schedule you have different components. You have got your ward, your theatre and your equipment tariffs. You have the drugs which are governed by the [indistinct 0.19.31] price. There is no dispensing fee charged and there is no margin made, and you have the surgical component to the bill where there is 12 | P a g e
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also no margin made on the surgical’s. Just in terms of tariff strategy, so going back to the late 1990's and early 2000, the view within the Life Healthcare Group was that fee for service in itself was a payment methodology which was not sustainable. It created the wrong incentives and our view 5
was that if you wanted the industry to be sustainable, we would have to switch way to a different pricing model where we focus more on cost containment. We also had a view
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that, because the market was going to grow into, we felt that the people that could afford private healthcare would have been covered and so it was going to grow into middle and lower income groups. Then the plans being offered by the insurers or the
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medical aids or medical schemes would have to be more affordable and we saw that one of the ways for this to happen was through the increase of DSPs. You know, we haven’t been wrong about the DSP growth but what we did get wrong was the timing of it. We thought it would happen a lot earlier, and be a lot more aggressive than it actually has happened, but in what that resulted though was a move,
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where within Life Healthcare from fee for service into what we call an alternative reimbursement model, an ARM, and simplistically that is just where we take more risk, particularly on the drugs and surgical’s and it comprises two types of billing; a fixed fee where there is a fixed fee for a particular procedure, or a per diem, which is a day 13 | P a g e
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rate, depending on whether the person is in ICU, general ward, high care, and within that we would take the risk on the drugs and surgical’s utilised. Just a very simple, I won’t spend long on this slide, in terms of risk continuum, so within a per diem we take risk on the pricing utilisation of the surgical’s used. We take 5
risk on the utilisation of the drugs. The price is governed by the SEP price. Within a fixed fee not only do you have the drugs and surgical’s covered like that but we take
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risk on obviously on the length of stay and the level of care of that patient. Then the continuum moves up. You have the hospital DOG where it is all linked to a GIG basket coding and then you have a global DRG which also incorporates the doctor
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billing which we don’t do yet, and then you have capitation risk. Just in terms of our negotiation process, and this happens every year between the months of September and I’ll say December but sometimes December 31, and what happens is that we would look at it as a group in terms of our cost, that we are experiencing, the cost to increases, we forecast what the increases, in terms of our
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labour costs are going to be next year, what’s happening with the rand, and the rand is problematic at the moment, in terms of how does it impact the cost of surgical’s. We then look at our cost base, and Matthew and I will get a mandate from the
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executive in terms of an increase that we would like to get from the funders, and then we go out and have the negotiations on an individual basis. The factors that influence whether we achieve our mandate or not and what type of increases we get depends on a whole range of factors, and some as quite simply as 5
what type of model is the administrator or medical scheme on, and there is a price increase, but what extent is that influenced by the savings that come out of our, from
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the previous year. So, for example, there is a, we share the savings that we make, or dis-savings that happen, so if there is a certain price level in terms of what we think the surgical cost will be and it comes in underneath that, then we share a portion of that
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back with the medical scheme, and it is not a money payment, it is a deduction off next year’s tariff. We look at the size of the scheme. There is the payment history, are they paying within thirty days or under thirty days. We look at whether there are DSPs, and then there is certain underlying factors that influence it. The business intelligence, the analytics ability of the administrator, and the negotiation ability, and at the end of it all
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we end up in agreement of some sort, and in terms of that agreement, just there's two important points, that agreement is then applied nationally across the group, we don’t have different tariffs for different locations, and there is no differential rate that we apply to PMBs. So there is a tariff price and it is applied nationally and a standardised basis. 15 | P a g e
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This is just a slide we have taken from Stats SA. We send samples through every quarter through to them and it is updated quarterly. So we take samples of medical surgical cases and maternity. We reprice on a quarterly basis and then send it through to Stats SA. This just showing that in terms of price increases that the hospital price 5
increases have, for the last, since 2009, have pretty much tracked CPI. [indistinct 0.24.38] enough in terms of the debate about price and utilisation, but from our side we do think that there has been, our price increases have been within CPI, CPI plus a half,
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for the last number of years. In terms of utilisation, and some of the drivers that we see increasing our utilisation,
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there are number of factors. Obviously we have had a growing medical aid population, or increasing medical aid population, is now stabilised, but over the last number of years it has increased substantially, and with that comes more people who end up going to hospital, but in addition to that we have seen a couple of interesting trends. The one is that the utilisation rate of people coming to hospital has increased. There is research
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done by Conex, I should note it’s a 2015 report that was put out, which measured the total admissions across the three main hospital groups and showed there was a 4% increase in admissions. It also looked at the length of stay and showed that there was actually a 12% increase in length of stay between 2006 and 2013, and we think this is primarily because of two reasons; there is deteriorating healthcare status amongst the 16 | P a g e
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population, we have seen an increase in chronic diseases amongst patients admitted to our facilities since 2003, there is an aging impact, which is interesting because we look at the numbers in terms of the overall medical scheme pool, the aging doesn’t seem to be varying that widely, but we have seen quite an impact in terms of aging on our 5
admissions, and the last point is just that we think there is a regulatory environment which potentially leads to an increase in utilisation, whether it’s through open enrolment or PMBs. Just in terms of aging, this is a figure from the UN population
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division about saying that between 2005 and 2030 we expect the population above fifty in South Africa to increase from 6.7 million to 10.4 million and with it comes, we
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know that when patients over fifty visit hospitals they tend to stay for longer, it is more complex and the cost per admission is higher, and if you look at the Life Healthcare PPDs for patients on all ages, between 2010 and 2015, what is interesting is that the number of PPDs that we have is fairly consistent until you start getting into about forty-five, and from fifty onwards the increase in the days we have had in our hospital
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between 2015 and 2010 has been for people over the age of fifty, and just in a summary so that in terms of PPDs we now have 45% of all PPDs are coming from people over the age of fifty and that represents 52% of our revenue. So you show that the older you are the longer you stay and the more expensive that admission is, and it is something
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that, it’s a trend which we have seen and we are not quite sure what the trend going forward is, but we don’t think that will change under the current environment. In terms of chronic diseases of lifestyle which we look at across our patients who are admitted to hospitals, and you can just see there is trend pretty much across the board 5
of any increasing diseases of lifestyle, and that does have an impact in terms of the cases that come to hospital and the increase, and we think it is one of our drivers of
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length of stay. The other factor which would lead to an increase in our days is the number of beds we have, and if we increase beds and we increase occupancies or maintain occupancies,
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then that would obviously have an impact in terms of the number of days. So what we have done, between 2010 and 2015, we have added and we have reached over 1,000 hospital beds and we have kept our occupancy fairly constant at around 72%, and these two factors are linked. We don’t, like any company we have Capex constraints, we look at how we spend our Capex, there have to be appropriate returns for that
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expenditure, and so for us to add beds, we would only want to add the beds if we were going to get patients into those beds, and so there is a very delicate balance between adding beds and maintaining occupancies, and we think we have got quite a good balance that we have shown over the last few years in terms of the number of beds we 18 | P a g e
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had and keeping occupancies at 72%. We also do look at very carefully what type of beds we add. So of those 1,000 beds there’s a combination of new hospitals being built, and in that time period there was only one hospital, a new hospital that we built. So most of the beds are extensions to existing hospitals, and in addition to that, the 5
third category would be in our mental health business we have added a range of mental health beds.
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Then just quickly in terms of, we do have a slide we go through the patient process coming through into our hospital, but there is a very close link between the funder management and the patient in hospital in terms of the journey, in terms of the case
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management, the authorisation, potential reauthorisations, and there’s, you’ve got the role, you have got the doctor, you’ve got the funder and then you’ve got the hospital role that goes with it. So you do have these three parties all involved in a hospital admission. Just in terms of a flow for a patient admission into hospital, it is a bit of a detailed slide so I’ll just spend a little bit of time going through it, and I’ll start on the
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left in the green block, in terms of how do patients come into a hospital. They can go to a GP for a consultation, and either the GP resolves the matter, there is no admission, the GP can refer that patient to a specialist or the GP in some cases admits the patient to hospital. The other way, the patient goes directly to a specialist, and again the specialist can either resolve the consultation with no admission or the specialist can 19 | P a g e
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come into the hospital and get admitted, and the third way would be through the emergency room, where the patient goes through a triage process, sees an ER doctor, the ER doctor then can either admit that patient to hospital if necessary or refer that patient through to a specialist. 5
Once the patients are in hospital and they are split between, we would classify as a patient belonging to a medical scheme, which in case you go through a whole process
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regarding the authorisation, which we get involved in. Sometimes we don’t receive an auth or there is an exclusion or there is pending auth which we try to resolve, in which case the patient may be treated as private. If there is an authorisation received and we
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go through that normal process then that is how it continues. If it is a private patient, then it falls into different categories. If it is an emergency, we admit that patient, and we treat the patient. If it is not an emergency, and the patient doesn’t want to pay or can’t afford to pay, then potentially that patient goes to a state hospital for admission. If it is not an emergency and we would assume that, and the state has no capacity, and
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he doesn’t want to come into a private facility then there wouldn’t be an admission. So you do have these different categories of patients coming through, and it’s not a, you would look and that and say well it’s not an efficient system and there probably are some changes which can talk about later in terms of how to potentially make this better 20 | P a g e
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and easier so that the patient comes and is dealt with differently at the point of entry. Just some of the cost drivers that we face within our business, and we have broken this down as that, and these are, we have used 2013 numbers because these are the numbers we had as part of our submission, so there were some [indistinct 0.32.18] to what we 5
submitted and with the slide, and apart from the numbers changed, the percentages don’t change between 2013 and 2015, and so we have a cost of sales which make up
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28% percent of our turnover, and there it is, 3 billion, our overheads at 4.8 billion, and those broken down between the labour and other, and labour makes up 65% of our overheads, and of that 65% percent, nursing makes up 81 percent of our labour
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turnover. So the biggest overhead is staffing and the biggest component of that is nursing. JUSTICE NGCOBO Can we just go back two slides before, the flow of patient admission? Yes. You referred to a cold case, a cold case.
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MR PYLE Yes. JUSTICE NGCOBO And then also to an emergency case. MR PYLE Yes. JUSTICE NGCOBO Alright, is the hot case? 21 | P a g e
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MR PYLE No, I’m afraid it’s probably an inappropriate term from our side on how we define the, how we call the cases, but we wouldn’t call there’s a hot case, no. JUSTICE NGCOBO Okay, are there cases in between cold case and the emergency cases? 5
MR PYLE No, I don’t think so, it’s just a, it’s simply where it’s an elective case or an emergency case.
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JUSTICE NGCOBO I understand MR PYLE So just in terms of how we look at our, how we manage our cost of sales, which are drugs and surgical’s we do have a procurement division which looks at
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negotiating with suppliers. We spend a lot of time in terms of trying to reduce the costs of drugs and surgical’s. We have, we look at the, obviously we look at the product, we looked at the quality of the supplier, and then we look at the price. In addition to that we have a process we try, we have a formulary, and that formulary incorporates
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therapeutic interchanges with a generic substitution. We have initiatives to try and get, to encourage conversion by doctors to the formulary. We monitor that across every hospital, and we continue to review in trying to improve the formulary, and in the third area we look at is, we look at various opportunities in terms of how to reduce costs. An 22 | P a g e
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example we use here is the blood gas testing. I know it has come up in previous hearings, simply it was a services offered by the path labs and the hospitals. What we have done is that we have standardised that across. We put our own equipment in, we use a pathologist on a consultant basis when necessary. We incorporate the blood gas 5
tests into our hospital fee and we think there have been significant savings to the funders because of that process.
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Just some examples in terms of the impact of formulary conversion. So we took the top seven drugs by percentage conversion in 2013 and from the originator’s side, the cost of that in terms of a hospital utilisation be 255 million. If there was a 100% switch
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to generic the cost would come down to 174 million, so an R80 million saving, give or take, and we achieve 55 million, and we didn’t achieve the other 25 million. It is a process to getting doctors to convert and we are not always successful and we have got two examples here. The example one is, over a period of time where we wanted to change from an originator to a generic and over a period of nine months of talking to
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doctors, and implemented, we finally got conversion and we can see the change in terms of utilisation between the originated drug and the generic. Example two is where we didn’t get any traction. You know, we sort of, a year later we are still stuck at pretty much the same percentage between the two. So the point what I make here is that we spend a lot of time talking to doctors to convert but the doctors don’t want to 23 | P a g e
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convert. There is nothing we can do to force them to convert. We do try and encourage them, but if they don’t want to change then don’t change. Here’s two slides, and the point we want to make here is that in terms of looking at the cost of drugs versus India, and it is not to say, well, what we benchmark ourselves 5
worldwide because we don’t, it’s just a opportunity we looked at and this is to say that what we pay for drugs here compared to a country like India, and there obviously are
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differences why prices are cheaper in India, we look at this and say, well if this is what we are paying for drugs in South Africa and there is another slide we took a talk about, [indistinct 0.36.54] we pay for surgical items. Then we look at it in terms of what
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ability do we have to reduce those prices in SA and use it in negotiation perspective, that this is what we paying, we know it’s getting paid in other countries at a cheaper rate, so how can we decrease the prices that we receive in this regard. In terms of nursing, so we know we have a shortage of registered nurses in the country, we know that there is a declining trend in registered nurses who are trained and
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registered in SA as a percentage in the total nurses registered and trained. We know our nursing population is ageing, and in addition to that we have a situation where the public sector have been giving increases to nurses above CPI for a number of years. The competition between private and public for nursing is intense and there is very 24 | P a g e
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little difference in terms of the salaries that one would receive in terms of public and private, and we think in some cases actually the salaries received in the public sector is higher than private, and because of this the salary increase that the state have got has put pressure on the private sector in terms of matching that. We can’t, I suppose we 5
could just sit back and not try match those salaries but when you have a shortage it results in nurses leaving and that would be a problem for us and our business.
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We also see across our business an increase in pharmacy costs and this is, it is a much smaller portion of our business, but we, you know we do see yet again that we have a shortage of pharmacists in the country. There has been, there was a period of time
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where we saw actually no increase in terms of a pharmacist that had been trained. We are glad that since 2012 the government have increased the number of students but in that process between 2009 and 2014, we have seen salary inflation for pharmacists increasing at an average of about 6% above CPI, and so over this period what we actually have seen is that the salary increases we give our nurses and our pharmacists
2015
are higher than what we achieve in term of price increases that we get from the funders. So in terms of just some of the, very quickly, how we are trying to address the shortage of clinical skills, we have a college of learning, we train over 1,000 students every year. We have trained over 10,000 since we started the college of learning, we also 25 | P a g e
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have been involved in training of pharmacists and funding bursaries, we are involved in the public health enhancement fund where we contribute financially, and then we have a partnership with the College of Medicines which we put money into the training of specialists and sub specialists for the College of Medicine. 5
In terms of some of the competitor dynamics that we have, we compete on numerous fronts; we compete with other hospital groups for specialists, we have a shortage of
10
specialists and there is intense competition for specialists amongst the groups, we compete on staffing, for nursing staff particularly specialised nursing, we compete on pharmacists, we compete on hospital managers, we compete against our competitors in
10
terms of getting volumes in terms of DSPs, and we compete in overall efficiency and price, because where we see the negotiations going and Discovery talking about relative efficiency, so what is your efficiency relative to your competitors, and if we are becoming inefficient and uncompetitive that will have an impact in term of our, not just our relationship with the funder but the ability to win further DSPs. We compete over
2015
hospital licences where we see gaps in the market in trying to build, improve your geographic spread. We compete with them in terms of who does the GP refer the patient to, and then I suppose we compete on quality, I’ll talk about quality in a bit more detail now.
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In terms of relationship with the doctors. So we have put up a couple of slides here about the link between hospitals and doctors, and I suppose the question, so what do we provide? We provide a facility, we provide equipment, we provide nursing, we provide a location, we provide doctors with assistance in terms of marketing to the 5
general practitioners, we, if we do a DSP, we would provide a channel for which they could see their patients, and we provide a structure which allows the doctors to do their job, basically. What do the specialists bring to us? They bring their expertise that
10
allows them to attract patients to the hospital. Referring doctors often refer because they know the specialist and they refer to that particular specialist. The anaesthetist
10
come in and work in conjunction with the specialists and the other supporting specialists in the hospital, such as pathologists and radiologists. So you have, I mean I refer to it as like an ecosystem, we have a hospital with the specialists and each part you bring various things to that relationship. In terms of our approach to, this has been raised in terms of the rental agreements. So
2015
we do have lease agreements. I think we have submitted some of those through in terms of information. The rentals are generally consistent across the doctors operating within the same hospital, or they may differ between differ between hospitals in different regions depending on the competitor dynamics within that region.
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Just a couple of points about the doctor rentals. We don’t, we have a policy that hospitals should not enter into lease agreements, the doctors that are conditional upon the admission rates of that particular specialist, and that the doctors, that the rentals should be openly available to other doctors [indistinct0.42.42] qualification across the 5
hospital. There is a debate about linking the rental the doctor pays to a market rate. I suppose
10
the market rate we use, we try and standardise that across our group because we would much rather have a standard rental, but I suppose the market we look at is the market for specialist rentals, and there probably is some debate about why don’t we refer to the
10
rentals across, what is a market rental for, in general, where you pay per square meter. I suppose we look at it from what a specialist in a region pay for a square meter in terms of rental. We also have a doctor shareholding model, around about half our beds have some form of doctor shareholding. We do like the doctor shareholding model. We think it creates
20 15
a sense of ownership amongst the doctors in that hospital. We think it builds a relationship between the hospital management and the doctors, and it allows us to focus on the hospital efficiency, the hospital quality, and the reputation of the hospital. We think that it allows for a much better relationship between the parties, and we also 28 | P a g e
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know that the competition for specialists is intense and we do think that it allows us to attract doctors and to retain doctors. I mean, it’s not, it’s a part of our, we need doctors as a business to run, and so we, one of the tools that we have to do this is a doctor shareholding model. We have a, typically what happens that the Life Healthcare will 5
have a majority stake. The doctors will operate through like a [doc co] and have a minority stake. We say they under 40%, they are typically in a range of 20 odd percent, and the doctors have a shareholding within that. There is a limit in terms of
10
what each doctor can own, it’s up to a 5%, but typically in terms of the [doc co] it typically sits at around, my guess an average of between 2% and 3%.
10
In addition to that the doctors would receive dividends and the dividends are paid out based on their shareholding. So if you have 1% or if you have 2%, your dividend is paid out according to your actual shareholding. It is something which, as I say, we have about 54% of our beds that we see, and the group have some form of doctor shareholding.
20 15
Just in terms of hospital quality. So the quality of care we give is a core value within the business and we focus on both the clinical quality and the patient experience, and we have developed a quality management system which is based on really consistent monitoring management measurement and then reporting, and we have a quality score 29 | P a g e
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card across, we measure across all our hospitals, and really the quality framework we have is split between three areas; there’s a clinical component, a patient-centricity component and there is accreditation and certification. So in terms of clinical there’s a focus on the continual improvement on clinical outcomes, and we have a process in 5
terms of what we do, how we benchmark. There’s a focus on improving the positive patient experience through our patient-centricity, and then there’s a combination of internal quality management system. Internal quality management, we have a process
10
of internal accreditation and external accreditation. So just in terms of some of the clinic outcomes, in our appendix there is a range of clinical quality outcomes we
10
measure. If there are certain instance, we do a recourse analysis, we do an instant investigation team and then we look at corrective action across all our hospitals. We measure clinical quality from both a patient experience perspective or a patient experience and from a patient instant rate, and then also we look at staffing in terms of incident, such as needle stick injuries, for example. We have, in terms of patient-
15
20
centricity, we have a upon discharge, we have a patient experience survey, where patients are asked to rate their overall hospital experience. We also have a comment card, which happens throughout the hospital and we probably get about 23,000 comment cards done every month, and that is very useful in terms of indicating both positive and negative trends, and we have introduced a care programme to try and 30 | P a g e
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improve the patient experience of the patients in our hospital. Finally we have an accreditation, which looks at, we have internal quality audits, we have, in addition to that, we have certain hospitals go through an ISO certification on an annual basis, in terms of ISO 9001/2008 certification. We also have a number of hospitals moving 5
towards ISO 14,000 and 1 2004 environmental accreditation, and then finally we have been engaged in the Department of Health in terms of the national core standards. We have assessed all of our hospitals in terms of those core standards. Our hospitals all do
10
well in terms of those core standards, and then finally what we end up with is a score card which we have which has, well the top block, the writings disappeared is the
10
clinical indicators, so, for example, our ventilators [indistinct 0.47.57], surgical site infections, going through to all your hot healthcare [indistinct] infection [raters]. We look at the patient incident rate, employee incident rate. We then have the patient experience scores and then we have, at the bottom line is an overall percentage attained on quality audits across the hospitals. This score card is done on a hospital basis. We
15
20
look at this on a monthly basis and what it does is it allows us to focus on continuously improving, if there are issues how do we sort those issues out and make sure that those issues don’t occur in other hospitals. Before moving on to recommendations, I do want to add that as a group we look at our quality and we say, well, we do all this clinical quality, we do the patient experience 31 | P a g e
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and so the question comes as to, so who do we tell about our quality outcomes, and I suppose we tell ourselves, we talk to the funders about the particular quality, but what we don’t do, is we don’t tell the patient or the consumer, and that probably is, I mean it is an omission because as a consumer you do want, I am a consumer for healthcare and 5
I would want to know in terms of which hospitals have good quality outcomes, which ones don’t, and so I mean, I do think we, that the hospital industry has been remiss in terms of not introducing standardised metrics across the board. You know it is, it’s a
10
competitive environment and to get your competitors around the table to agree on measures is not that easy, but anyway, I think it is something that should have been
10
done and I think that as a group we would be happy in terms of having a standardised set of metrics which would allow our consumers or patients to understand the quality of hospitals. We would want to understand, obviously you need to have a standard metrics, an agreement in terms of how those metrics are measured. We would want those metrics audited and then they should be published so consumers can see which
15
20
are the good hospitals and which aren’t the good hospitals, and that’s, in our view, quality. We all talk about how good our quality is but actually noone really knows about how good it is, and so that’s just our view in terms of view going forward in terms of quality.
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Just in terms of some of the recommendations on the regulatory side, and we only touch on these because we do know there is a subsequent hearing in terms of regulations. First one on licensing. There is a lot of debate about licensing, and we know that all hospitals require a licence and it is done on a provincial basis and some 5
provinces are different, and we do have challenges, and across different provinces there are different ways of interpreting the R158s, some provinces have made additions to the R158 where they don’t tell us what those additions are, so it becomes, it’s a bit of a
10
mine field at the moment, and just our recommendations in terms of, what we would like to see is a uniform licensing model across the country. We would like it to be
10
scientifically based, we would like it to be transparent and then consistently applied, because at the moment you can apply for licence and you will be rejected. There are no time frames across the provinces and sometimes you are given very good reasons why it’s declined, sometimes you are given no reason why it’s declined. Sometimes you’ll ask for fifty beds and you will be given twenty, and there is no reason as to why
15
20
you are given twenty rather than the fifty. So just in terms of our recommendation, if we could have some form of licensing system which is more scientific, transparent and consistent. And the same applies to our comments regarding, I suppose, certificate of need. I know the certificate of need is seen as coming and is replacing the existing licensing 33 | P a g e
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regime, and so our comment is, and this is from a hospital sideline, I think the certificate need from a doctor side is whole different issue, but certainly from a hospital side, and this comes back to, if you are going to have a certificate of need then we would like that to be done on a basis which is scientific, uniform, efficient, transparent 5
and consistent, and that these also take into account about, let’s just agree on the time frame for licences and just be sensible about that whole process.
10
In terms of doctor employment, I know that you hear from a doctor saying they should not be employed by hospitals, we would like to have the approval to employ doctors, that is not to say that we would go out and employ every doctor in our group, but we
10
do think that we would like to have the ability to employ doctors, we do think would have influence in terms of some of the qualities care, and the cost effectives of that care. As an example we would like to be able to employ doctors in our accidents and emergency units, you know that’s a key part of a hospital in terms of the reputation of the hospital, and it is now run by independent doctors, and for us, what we would like
2015
to do as a group is employ the doctors in the accident and emergency units, agree on a standard set of protocols in terms of treatment, agree on a standard set or pricing for the accident and emergency unit, so across the country there’s the same process. So we do think we would like to have the right to employ doctors and we understand that, we don’t mind there, in terms of parameters, in terms of how the employment contracts 34 | P a g e
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work. I mean they mustn’t result in incorrect or bad behaviour but we think that, to use it as an excuse as to why we shouldn’t employ doctors, we don’t agree with. The next point about doctor training. The biggest challenge we face in the industry is a shortage of healthcare professionals, and particularly we see it amongst the specialists. 5
We know our ratios of specialists per thousand are way lower than they should be and as a country we have a shortage. We have a better ratio of specialists per thousand
10
privately rather than public but the fact is that if we don’t increase the number of doctors we are training and increase the number of specialists we have in this country, then we are heading for a real crisis. The number of doctors we train at the moment
10
needs to be increased substantially, and so I suppose the point we are trying to make here is that there is a, we do see there’s responsibility on the part of private to be more involved in terms of the training of doctors, and we would like to be a lot more collaboration between public and private in terms of training, in terms of how do we actually fundamentally change the number of doctors that we are training in South
2015
Africa. Just the last point, also we would like to be able to try and make it simpler in terms of the process to bring in foreign doctors and alleviate where we have shortages. Then just the last two quick issues we are raising is medical aid regulatory form. I’m not going to, we made those points, there has been enough, I think, debate, long debate 35 | P a g e
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in previous sessions about that, and then the comment about coding and quality is that one of our suggestions is that there should be a standard DRG coding system across the country, and what that would allow for is a better benchmarking in terms of price and better benchmarking in terms of quality, and we think that if that if that was 5
encouraged and allowed to happen it would have a positive impact in terms of not just the cost but the quality in terms of private healthcare and public healthcare, because they should be the same standard across both. To do that is quite a complex process
10
and it needs resources and people to do it, but we think that is something that has been lacking and we would encourage to be introduced.
10
Then you have got the appendix slides but I won’t go through those.. That end our presentation. Thank you very much. JUSTICE NGCOBO Yes, thank you. Dr Bhengu. DR BHENGU Thank you. Thank you for your presentation, I just want to start with
20 15
market power between funders and facilities. Life has got a significant presence in the Eastern Cape, if not dominance in the region, is that the case? MR PYLE Correct.
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DR BHENGU Does this confer any advantages at all at negotiations when you talking tariffs or DSPs? MR PYLE I don’t think it gives an advantage in terms of tariffs in the sense that in the overall scheme of the country the Eastern Cape is relatively small in terms of medical 5
scheme numbers, and secondly the other areas of the country we don’t have a strong position, and also because we do the tariffs on a national basis. So I don’t think it
10
conveys any strength from that side. On a DSP side it certainly helps that we have a strong position in the Eastern Cape and so we, but within the DSP there will be other areas we don’t have strong presence in. So its a strength but it’s an overall scheme of
10
things, we don’t see it as a dominant position as such. DR BHENGU When you say it does have its advantages in DSPs, could it be in the context that, well, you can’t leave us out of any other province because then there will be, then we will not work with you in Eastern Cape where you actually have no alternatives. Could that be the type of advantage you are referring to?
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MR PYLE Look I suppose if a scheme wants country wide coverage in terms of DSP, they would have to look at, so what we do in the Eastern Cape, but there are DSPs where we are not the anchor of that DSP, but our hospitals in the Eastern Cape are in
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the network. We don’t go and say, well, if you do not include us in the DSP you will have none of the hospitals in the Eastern Cape. DR BHENGU Okay. So there is no leverage, that’s just beyond your presence in the region that you sort of extend in other parts of the country. That's what you are saying, 5
basically? MR PYLE Well, it certainly helps having a position where you have a strong position
10
in the region. DR BHENGU Okay. Now, still coming back to the issue of providers and how do hospitals attract specialists to practice from their premises, we have heard references to,
10
is it equipment, are there other inducements, a lot has been mentioned. Now, I don't know, are you familiar with the case of mass walkout, of I think cardiologists, from Westville Hospital to an NHN hospital nearby? MR PYLE Yes, I think it wasn’t only Westville. Steve, can you also intervene?
20 DR TAYLOR Yes, so, when the eThekwini Hospital was built, a number of our 15
doctors partners left from the Entabeni Hospital and from the Westville Hospital. It was primarily the Entabeni Hospital the suffered, but the Westville Hospital suffered, as did Mediclinic in Pietermaritzburg, if I am not incorrect. 38 | P a g e
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DR BHENGU Now, but if I recall it still was mostly the Life Group that suffered the most in that regard. MR PYLE I presume, I think so, yes DR BHENGU 5
Do you know what, because we are talking about independent
practitioners here, it’s not like they went for one practice, do you have an idea of what were the incentives?
10
MR PYLE I don’t know. Steve do you know? DR TAYLOR This is going back in time, when I was in my previous role. The doctors had got together and they wanted to have a heart, a dedicated heart hospital. They had
10
actually approached us and spoke about a dedicated heart hospital but we were in the planning of one, but it was taking time. We were looking at volumes where we space constraints and eThekwini arrived with a model of, they called it in fact, initially, I think the Durban Heart Hospital, and they were able to recruit top calibre doctors from
20 15
the various hospitals. So they really went, so they would be a big team of doctors, well a big team of cardiologists. Yes they did have the latest and greatest equipment, but I think the thrust there was that it was primarily to have the centre of excellence.
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DR BHENGU But, as you say, you think this is really, you didn’t try to counter the offer, whatever offer they had, you say. MR PYLE I mean we certainly want to keep our doctors, and so it was a, but the fact is we were unsuccessful. They had made their decision to move. They wanted the 5
heart hospital.
I don’t know what the, if there were or what the shareholder
arrangements were, but obviously it has a big impact when you lose a big portion of 10
your cardiology team from two hospitals. DR BHENGU So we can just put it down to, they were enticed by better equipment and we are not aware of any other reasons behind it?
10
MR PYLE I mean I don’t, I think there was the concept of the heart hospital and the equipment. There may have been a shareholding, I'm not sure, it was a shareholding model, they put in, I think there’s a bunch of factors, and I think that maybe as a collective they wanted to work together, you know, we tried to level best to keep the
20 15
cardiologists. It is not the first place we have lost doctors to competitors. JUSTICE NGCOBO Yes. Were you able to interview those doctors who left just to find out the reason why they were leaving?
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MR PYLE May I just confer? I suppose look, it wasn’t exact, I wouldn’t call it a formal interview, and I think there is an ongoing series or negotiations or discussions with the doctors. Once we found out the hospital’s opening we find out what the intentions were, obviously we were concerned that we would lose some of our doctors. 5
Then once we found out that there were a number of our doctors who were going to go to this hospital, there were discussions to why you are going, and what discussions come out from the doctor, and we don’t really know what, whether it’s the real
10
intentions, but they did speak about the fact that they wanted to, they wanted a dedicated heart hospital.
10
JUSTICE NGCOBO What you are telling us really is what transpired in the course of those negotiations. MR PYLE Correct. DR BHENGU Thank you. Moving on to the group growth, you have a slide here
20 15
from 2010 about hospital bed growth and occupancy. How has Life really achieved this growth? Is it through organic growth or mainly acquisitions? You are free to refer to an earlier period then 2010. MR PYLE Yes I think our growth has gone through various stages. So if you go back 41 | P a g e
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to sort of the 90's, maybe even the early 2000, a lot of that growth was through acquisition, but over the last number of years, the acquisitions have really stopped. I think our last acquisition was the Bay Hospital, which was probably in 2011/2012, around there, yes and then you’ve got, we acquired a small fourteen bed maternity unit 5
last year. Most of the growth over the last five years has been organic in the sense that we built one hospital, the rest have been [Bryanfield] expansions and then mental health.
10 DR BHENGU Okay. It was around 2001 when you acquired Amalgamated? MR PYLE I think it was, yes. 10
DR BHENGU And Wilgeheuwel, when was that? DR TAYLOR: When Life Health, what the history of the company was that it was a division of Afrox and then it became a listed company called Afrox Healthcare. When it became Afrox Healthcare we did a reverse listing into a company, it was then called
20 15
Presmed, and Wilgeheuwel was a hospital that was in the Presmed stable, so we acquired via that reverse listing onto the Johannesburg Stock Exchange. DR BHENGU And then Bayview was subsequent to that. MR PYLE Yes, correct 42 | P a g e
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DR BHENGU Okay. There may be others, I’m not so much interested in the detail, but at the time of acquisition, were these hospitals profitable in their own right? MR PYLE I think there would be a, yes, I think the majority were profitable. I don’t know about the profitability of the hospitals in the Presmed Group, the range of 5
hospitals, that’s before my time in the late 90's, the Emmaus Hospitals were profitable, Bayview was profitable, yes.
10
DR BHENGU Yes, among obviously when one acquires a company one expects that they would be changes at some level, operationally, but regarding tariffs in particular, how did these acquisitions affect the tariff structures of the target companies?
10
MR PYLE So let me answer from a, like the one I know about, for Bayview. So Bayview I would assume would have been part of the NHN. It would have been on their tariff structure. So once, when we acquire Bayview what would happen is that hospital would come onto our tariff structure and then you have to go through a process
20 15
in the hospital of changing from primarily, I would think, as a fee for service model into our ARMs, and then once it is all effective they come onto our ARM pricing structure. DR BHENGU
Which effectively is what?
Is higher or lower than the target 43 | P a g e
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company's structure? MR PYLE I suppose my guess is you would have to ask the funders for a true analysis in terms of procedures. I mean, we do, we spend and say, look, we've got the hospital, we want a particular hospital for a certain reason, we put them on to our tariff structure. 5
We don’t look at what their tariff structures are, because we are going to put them onto our model and our model brings us our own different benefits. I think the better person
10
to answer that would be a funder in terms of Discovery or a Medscheme or ... DR BHENGU Now, are you suggesting that it is possible that you could acquire a company and put it on your tariff structure and effectively reduce their tariffs? Are you
10
saying the panel must believe that that is a possibility? MR PYLE I suppose the process we went through with Bayview was that it went through the Competition Commission and there was a process in terms of, and I think they included, I’m pretty sure Discovery were part of that process, in terms of saying, if
20 15
Bayview goes on to Life is there any fundamental impact in terms of the price that Discovery would be paying, and that answer was no. So we may have a case where an independent hospital comes on to Life and there is a difference. Maybe it becomes more expensive, maybe it becomes cheaper. I don’t know.
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DR BHENGU We will come back to this but the problem with that is that it seems to suggest that your pricing is haphazard, there doesn’t seem to be a strategy behind it which I don’t know if I can believe at this stage, but I’ll take that. MR PYLE Doctor, I’m not quite sure why you would say that. 5
DR BHENGU I mean, you are saying you don’t know whether those, the effect has been to raise or reduce the prices at the target of the acquired company, but its fine.
10
Can we move on to your relationship with Joint Medical Holdings? What is the nature of that relationship or what was the nature of that relationship? JUSTICE NGCOBO I do think that if you do want to do so, please do so, comment on
10
the proposition that your tariffs are haphazard, if you so wish. MR PYLE Sorry, I am getting comments from both sides here. JUSTICE NGCOBO No, I understand. please do tell them that they are quite at
20
liberty ... MR PYLE They seem scared.
15
JUSTICE NGCOBO ... to speak for themselves, unless of course you want an
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explanation why there is the suggestion that your prices are haphazard. DR TAYLOR Perhaps that would be useful, but in order to understand the potential impact of the change in the tariff structure and level, we would be usually in the case of Bayview, they would be in the fee for service tariff environment. So when they came 5
onto an alternative reimbursement structure it might well be that you might be acquiring a company that is significantly more inefficient then the Life Healthcare
10
average, and so therefore there might be a decrease in the level of revenue that bring, the target company now has under an alternative reimbursement as opposed to in a fee for service model
10
DR BHENGU But the net result of this is that you are actually not sure, because the issue of what model you are using to pay, whether it is fee for service or an alternative, they may be different but ultimately the company will know what the bottom line impact is, whether it's, whichever payment system is used
20 15
DR TAYLOR So we certainly wouldn’t know the real impact of the company we are acquiring, given that we wouldn’t have the data in order to be able to take their tariffs through our models in order to know the actual impact of the tariffs on that company. DR BHENGU Alright, going back to Joint Medical Holdings, you were, I think, 46 | P a g e
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explaining what business relationship there is or there was in the past. MR PYLE Yes, so there's no business relationship now with JMH. Beforehand we had a shareholding within JMH and there has been a process with the Competition Commission but we no longer, we tried to increase that shareholding, went through a 5
whole process, it didn’t work, and now we have sold our shareholding, and we now have no relationship with JMH.
10
DR BHENGU Did the business relationship start at the point when you acquired shares or prior to that? MR PYLE Sorry, a lot of this happened before my time and they'd like to help me.
10
DR BHENGU I understand. MR PYLE So what happened was that Presmed had a 25% stake in JMH, so when we acquired Presmed through that reverse takeover, then what we did was we inherited the
20
25% stake in JMH, and there was a subsequent increase in that shareholding to 49%. DR BHENGU Okay. Still on the issue of tariffs. What does the impact at JMH level,
15
when you acquired and subsequently raised the stake? MR PYLE
I don't know actually, I mean, this goes back to, I think the initial 47 | P a g e
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acquisition happened when there was centralised bargaining happening, so that was in 1999. So I would expect at that point that there would be no change in terms of tariffs. DR BHENGU Is there any, okay no change, as you say but is there, there is an acquisition that Mpumalanga didn’t go through. 5
MR PYLE Correct. DR BHENGU Why didn’t it go through?
10 MR PYLE So this was an acquisition to acquire a single hospital in Nelspruit. The Competition Commission declined it, and they said one of the reasons given was that it would have a negative impact on competition in the area, and I think primarily because 10
they said that it would result in an increase in the tariff structures. That’s my guess what they said. We tried to appeal that, to take it through the tribunal, but the fact is that it just took so long that the seller in the process then changed his mind, and so then we didn’t follow through with the transaction.
20 DR BHENGU I suppose the point here is specifically about the potential increase in 15
tariffs. You haven't been able to give me a certain answer what happened to Bayview, and as well to Joint Medical Holdings, but the one specific example that we've got is where the Competition Commission says you are raising prices.
Now, am I 48 | P a g e
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unreasonable to sort of wonder, because we can obviously get to this in focused hearings, when we look at the tariff structures, now if it so happens that we find the tariffs were raised at the acquired companies, should we, okay, maybe let me not preempt it, but I just want to say that that would be a point of interest, because the concern 5
here would be the pricing? Is it really related to the cost of bringing service to the patient plus obviously a fair return, or you are pricing to the maximum that the market will bear? Because, that is the question that I am asking now. I want to link it to your
10
slide. MR PYLE I don't think we priced to the, we certainly don't price the maximum, but
10
look, I'm not quite sure what the maximum in terms of what the market could bear would be. I mean, in the case with Nelspruit, I suppose we didn’t get the opportunity in the tribunal to put our case forward in terms of why we would have been, we think more competition to the Nelspruit market in the sense that we would have invested some more money into that facility in terms of expanding it, we would have been able
2015
to try, if we think DSPs in a Nelspruit market, which would have resulted in prices coming down, but that’s hearsay because we never, that process never really happened, and I think once, we had this session on tariffs, models, returns, etc. I think some of this will come out. I just want to make the point that it is quite, you know, within [indistinct 1.17.25] we charge a fixed fee, so you have a fixed fee for a particular 49 | P a g e
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procedure. It’s quite easy then to benchmark what the tariff, what the overall prices for that procedure. In a fee for service environment we just charge for everything. It becomes quite do analysis in terms of comparison because it isn't up to what the doctors use and utilise, and then you just charge for it. So you have a whole range of 5
variation in terms of what a particular procedure’s charged for. So when you have, and also there is issues in terms of comparing data. So, you know, our views in terms of when we look at the hospitals, it’s, you know, it doesn't add to our geographic network,
10
and does it allow the group to grow. I mean, we certainly look at it as an asset in terms of returns and then we, once we acquire that asset it’s how we put that asset onto our
10
model, not from a pricing perspective, but in terms of an administrative perspective, and an HR perspective, and then we go from there. DR BHENGU Okay. JUDGE NGCOBO I think what would be helpful, indeed, is that if you would bear this question advice so that when we come to those sections, which would be
20 15
specifically devoted to probably these issues, you’ll be able to respond in a way that you would like to respond. I do understand what was conveyed to you as being the purpose of this section. MR PYLE: Thank you. 50 | P a g e
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PROF FONN Thanks very much for your presentation. At least partly what we’re trying to understand in these sessions is how everything works together, who does what, where, and for me, I'm trying to understand how it is that we have these different systems and they all work so collegially and nicely together, and you have these 5
different models and so there are cost savings, but the price that people have to pay for medical scheme membership just never goes down. So if there are these benefits that you’re passing on, where do they get lost? Why are medical scheme memberships
10
continuing to rise whereas you have these economies of scale and you absorb the prices and you don't pass on costs, and you don't do mark ups and you, why are medical
10
scheme membership fees not going down? MR PYLE I suppose I’ve answered in the sense that you’ve got two components to the expenditure in terms of medical schemes, and so there is the, and I have to put one side the utilisation component in terms of the increased utilisation. Then in terms of our pricing models, there are underlying cost drivers which we face. Our biggest costs are
2015
nursing and those costs are increasing at higher than CPI, substantially higher. We have impact in terms of the rand, in terms of our drugs and surgical’s. So we do have underlying drivers which are higher than inflation. In terms of the cost savings, they, in terms of models, we do look at driving efficiencies, and we do look at trying to keep our prices at a CPI type level, despite underlying costs, and the only way we can do 51 | P a g e
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that is by driving efficiencies. So there are savings which we pass back in terms of, we hope there are savings, it depends on how well we manage our surgical’s during the year, but I think the combination of the utilisation and the underlying cost drivers results in medical prices increasing. As a consumer we experience it, it’s substantially 5
above CPI. PROF FONN So then looking at utilisation, there are different ways of interpreting
10
the fact that more beds, constant utilisation, either as I think you were suggesting, that you manage this very well, or because there’s some supplier induced demand to keep utilisation at the same level in spite of increasing numbers of beds, because if there’s a
10
correlation between increasing beds and same level of utilisation, there are various possibilities of what makes that correlation, and so that then for me also raises a question around the shareholding of doctors and this alignment of interests. So you say the alignment of interests are about quality control or potentially getting them to use generics or whatever it is, but the alignment of interests could arguably also be around
2015
maintaining profit. Is that possible? MR PYLE It would be possible, certainly. You know, I do think, though, that with the specialist reimbursed on a fee for service basis, the model for a specialist, and it is more direct, that the higher your volumes, the specialist, the more you’re going to get 52 | P a g e
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reimbursed by a funder. So the direct incentive, as a specialist, if you wanted to earn more income would be do more cases, because straight away you’re getting a higher reimbursement for the extra volumes you’re doing, and I suppose you could argue that there’s an underlying that the shareholding fees, we think it’s far less directed, has a 5
much smaller impact and we do think that from our side that the way the shareholdings are structured, we certainly don't encourage inappropriate admissions, we certainly don't encourage increased length of stay from our doctors. In fact in certain cases, as
10
an increased length, they say it will cost us money in terms of our models. PROF FONN You don't have to encourage it, they might just be motivated to do it
10
themselves. MR PYLE Maybe. PROF FONN So we have information about the benefit of some form of negotiation around fees, and then the negative consequences of not being able to set those fees, but
20 15
everyone seems to refer to them anyway, so everyone says, oh, well, we use the reference price list and we just updated it, and so there’s some inconsistency in saying that if we could set fees it would be better, but actually we still use the fees. So in the hospital market, are you saying that in fact we are, it’s generally still using that same reference price list plus inflation that guides all the decision making? 53 | P a g e
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MR PYLE No. I can talk about, from our side, so the point we’re making is that there was, when there was collective bargaining you had a fee tariff structure but since then, from a Life Healthcare perspective, we've gone down our different models. I'm just saying that within a fee for service that the underlying structures remained but things 5
may have changed in terms of new coding, new technology, different prices, that’s changed. So I don't think the fee for service underlying model has changed much from before 2002, but from our models they have substantially changed in terms of the fixed
10
fees per diems, etc. PROF FONN Thank you for that explanation. In relation to the ARMs, we've also
10
been presented with some information to suggest that the carve outs are such that the ARMs in fact, that you presented us in one of your slides the increasing risk in relation to risk transfer, depending on the model and there has been information that’s been put in some of the submissions to suggest that the carve outs are such that the risk that you bear is in fact minimal because the carve outs are so significant. Do you have any
2015
comment on that? MR PYLE Yes, I do. I just want to check one figure. So there is certainly a debate on how much risk you take, and as an organisation, we would obviously only want to take risk that we think we can manage. Despite that we, in our contracts, 97% of what we 54 | P a g e
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build falls part of the [arium] and outside of the fee for service, and there are certain carve outs, but primarily we cover the vast majority of, it’s over 97% in terms of that. The risk transfer within that obviously varies in terms of whether it’s a fixed fee or a per diem, because the per diem, obviously we don't take length of stay risk or level of 5
care risk. So I'm not sure if I would agree with the risk transfer. We have been on a journey and we started, it was I think only 70% was per diem, so there were no fixed fees, we increased that and we increased the fixed fees and I think this journey
10
continues. We have a DRG contract with Discovery which places quite a lot of risk onto us in terms of, but there is a, it does vary in terms of the negotiations, and the risk
10
obviously does vary with that, within that. PROF FONN We always hear from the Big Three that you negotiate prices at a national level and so therefore the regional dominance doesn't actually matter because you always negotiating at a national level. Is it the case that in your contracts, all prices at all hospitals are the same?
20 15
MR PYLE I know they’re the same across an agreement. So, for example, if we agree with Discovery or Medscheme what that rate its, that that rate is then applied on a standard basis across all the regions, so the prices would be the same. So you may have, yes, they'd be exactly the same, we don't, and the reason we don't do it on a local 55 | P a g e
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level, because it would be, we have, I remember we had a conversation earlier about we’re in a strong position, Eastern Cape, so it would be quite tempting to say, well, on the Eastern Cape we want to have a different tariff level, but the fact is that there are far more regions in the country where we don't have a strong position and then the 5
opposite would apply. So it’s just been much easier for us and I think it’s correct approach in terms of saying if a patient comes in for a certain procedure from a certain scheme, whether they come into a hospital in Johannesburg, Cape Town, Durban, East
10
London is exactly the same tariff. PROF FONN There couldn’t possibly be a situation where you’re dominant in the
10
Eastern Cape and another group’s dominant in the Western Cape, and all this works very nicely for everyone because then you all have at least a dominance somewhere so that when you negotiate you say, well, you need us because we’re in the Eastern ... That couldn’t happen, could it? MR PYLE I think in terms of negotiation, look, there’s a negotiation which happens.
20 15
We’d far rather have the stronger position and the biggest cities rather than the Eastern Cape, just because of the size of the Eastern Cape, despite my colleague going from East London.
So it certainly is a strategy amongst the groups to expand their
geographic presence around the country, because it does lead into a position where you 56 | P a g e
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can go to a funder and say, look, we can cover this percentage of your members in terms of DSP, so let’s do a DSPAB because that allows, you get a better price, and we can increase our volumes, but the fact is there are no groups that can do that. There’s no group that covers the country, nationally, properly. In fact you would be hard 5
pressed to get two groups into a network only which could cover, give national coverage.
10
PROF FONN I suppose that’s my point, is that if you can at least have a foothold somewhere, you can then say you can't leave us out of anywhere else because we’ll withdraw from here. So it’s very nice if you’ve got the Eastern Cape and another
10
group’s got the Western Cape, and another group’s got Limpopo or ... MR PYLE I suppose our preference would be we’d like to be in a good position or regions, but your point is that certainly with, I think I covered earlier in terms of, you know, there are DSPs which we are excluded from but we do offer coverage in the Eastern Cape, and we do it on the basis that we hope that when it comes to the next
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round of negotiating the DSP, that we have an opportunity to negotiate and get back into that DSP. PROF FONN I'm changing subject.
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MR PRIOR Can I just a point? I think it’s important also to say that if we were exclude in a particular area and we wanted to make that up through charging excessive pricing within a particular region, for example, the level of charging that we would have to apply in order to make that up would be unrealistic. The Eastern Cape, for 5
example, is quite a small portion of our total beds and our total revenue so if we were excluded on a national basis and we only had the Eastern Cape in which to make up sort of revenue, we would have to charge exorbitant rates in the Eastern Cape in order
10
to make that up and we would destroy the relevance with that medical scheme or administrator forever. These are always long term relationships and partnerships and
10
so we would suggest that, you know, I think it would be different if we had complete dominance on two provinces or three provinces such as Gauteng and the Western Cape, but I don't think it’s like that. MR PYLE Just the point that Eastern Cape, I mean, I suppose our position is stronger in East London, in Port Elizabeth there’s very strong competition between ourselves
2015
and Netcare and so on. PROF FONN Do you own an ambulance service? MR PYLE No.
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PROF FONN
So the other groups do have ambulance services.
One of the
submissions, one of the interviews that we did indicated, from an independent hospital, that it was enormously difficult for them to, they started off opening a casualty and they had to close it because the ambulances drove past their hospital to their parent 5
body hospitals that were close by.
Do you have a similar experience, are you
disadvantaged, do you the other hospitals use this in a way that you have a problem?
10
MR PYLE You know, we did have a shareholding in ER 24 but we got out of that in, I'm not sure the exact year but my guess is around 2005, 2006. We had business reasons, also we didn’t like the business, we didn’t like the ambulance business and so
10
we haven’t, and so we were concerned that our two major competitors had an ambulance business and we don't, but we don't, we hear the stories that the ambulances drive past, you know, I’d be a little disappointed if I was picked up by a paramedic and the paramedic didn’t make the decisions based on what is the nearest most appropriate facility to take me and drove me past a certain hospital to take me to their hospital. I
2015
don't know, those are anecdotal. We haven’t really seen an impact in terms of our accident emergency units because of that. PROF FONN The non pharmaceutical supplies, in their submission to us and also in the public hearing, they told us that they were forced by the hospital groups to place on 59 | P a g e
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invoice inflated prices and then there were rebates that were paid. Do you have any knowledge of this, have you ever been engaged in such activities? MR PYLE It certainly wouldn’t benefit us now in terms of an ARM. Our objective, if we’re going to ask the questions, do we bully the suppliers into pushing their prices 5
down, you know, as our objective is to get surgical’s at the cheapest possible price. So in terms of the ARM we’re not making money in a fee for service environment. I think
10
you have to go back to the pre-2002, where there was a system where, as a hospital, you would buy a product at 100, you’d mark it up or you’d have a rebate and then you make money that way. In terms of our current model it’s all about how can we get
10
surgical’s at a cheapest as possible cost. PROF FONN So it’s not happening now but, in your knowledge, did it ever happen? MR PYLE My guess is there was a process going back to before 2003, 2002 in terms of how the hospital tariffs were structures, and so there was a system, a similar system
20 15
to that with the drugs, and those are processed with the surgical’s. I think with drugs that disappeared with SEP, and there was a process in 2006/7 where no mark up or margin we made in terms of surgical’s, you know, for us, most of that was in an ARM anyway, so we’re going down a process, but then even on a fee for service percentage then you wouldn’t have any margin on the surgical’s charged. So it certainly happened 60 | P a g e
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in the past. I don't know whether hospital groups are doing it now, certainly it wouldn’t be in our interest to do it. PROF FONN So ... DR TAYLOR Can I ... 5
10
JUDGE NGCOBO What is it that happened forcing ...? MR PRIOR Yes, I just wanted to ... JUDGE NGCOBO ... a pharmacist to inflate prices? MR PRIOR I just wanted to clarify. Certainly we have, we've never engaged in activity where we would force suppliers to up their invoice prices, their list prices.
10
PROF FONN So at the point that there were no mark ups on drugs, and then later when there was no mark ups on surgical’s, shouldn’t we have seen a drop in your income concomitant with these no longer mark ups happening?
20 MR PYLE Yes, but no. So what happened was there was a, and for both, a different time in terms of a process. So I’ll start with the surgical’s and work back to the drugs. 15
So with surgical’s, the vast majority of our tariffs were with an ARM, our pricing was with an ARM, and so how we looked at surgical’s, so when they said there’s no 61 | P a g e
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margin, surgical’s had no impact in terms of, you know, we still charge the same price for a hip replacement, and there’s, you know, when you feed back into the drugs, what happened, maybe I should have started the other way around, historically you have your tariffs, you have your drugs, and your surgical’s, and the way the old tariff 5
structure worked was that the hospitals made profits or margins on the drugs and the surgical’s and that subsidised some of the profits made on the wards and theatre, and so what happened was when the pricing was reduced in terms of the drugs, that was
10
transferred into the wards and theatre. That’s the process that happened on a cost mutual basis to the scheme. So there wasn’t a decrease in terms of hospital prices.
10
PROF FONN It’s a bit disconcerting from a consumer point of view that no matter how we can decrease costs in terms of input costs, the price for the consumer remains constant. Seems to be counterintuitive. MR PYLE I suppose we’d look at it in terms of saying, so that’s a snapshot in terms of the hospital, what the hospital bills in terms of there’s a component called drugs, so if
20 15
you, what you should do is go, let’s go down a proper process in terms of so what are the returns that hospitals should be making, and take the entire hospital bill, that's everything included, the wards, the theatre, the drugs, the surgical’s, and then work out what is an appropriate price or what is an appropriate methodology to bill, first of all, 62 | P a g e
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then what are our perfect prices within that methodology, and then say is it appropriate or not. I suppose the issue with SEP with drugs, those once that are saying now we’re going to reduce that, and that’s it. The fact is the margins made from drugs were involved in subsidising some of the wards and theatres. So my response is that there is, 5
we’re quite happy to go down a process in terms of saying, so, but look at it from a complete process in terms of what hospitals earn, what are returns, then the model and the pricing.
10 PROF FONN I suppose that’s why this market’s so complicated, because if I need a hip replacement I need a hip replacement, and whatever I have to pay I have to pay, 10
and quite how you make it up is your business. DR TAYLOR Can I just add? I suppose one of the place, for example, we have seen reduction in consumer pricing is where DSPs have come into play by the medical schemes. So we do have efficiency discounted options being developed by those medical schemes, the discount ranging between 10 to 20%, and certainly we would
20 15
suggest that the competition that happens around DSPs has driven those prices down. PROF FONN So DSPs have driven prices down but I'm still paying more and more every year for my medical aid membership.
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DR TAYLOR I think if you move on to a an efficiency discount option you might pay less than last year. PROF FONN Okay. MR PYLE I mean, you’re right, but it is a complex market and I think part of the issue 5
is we probably make it too complicated. It’s difficult enough, I look at my personal, as a consumer, to understand what plan I'm on and the benefits I get from my plan, and I
10
have a knowledge of the industry, and the way hospital pricing is done is also complicated. What we try and look at is saying, so how do you, in terms of going forward, how do you set up a structure which allows funders, and I say the funders
10
because they would, in terms of transparency, allow them to measure the deficiencies of hospitals, which hospitals are good and bad in terms of cost, it allows them to measure hospitals across on a quality basis, and that’s why we do say there should be some form of standardised DRG coding which would allow that, and I say DRG because then that allows you to take into account, it’s an apples to apples comparison.
20 15
So you can't, you get away from I'm seeing a sicker patient or the hospital saying, oh, my patients are older, etc. and within that they need a pricing model which we do think should be more towards and area model where hospitals are incentivised to manage their cost, and if they do that they should be rewarded for it, if they don't, they 64 | P a g e
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shouldn’t be, rather than on an environment where you just charge for everything that you consume. PROF FONN So you’re suggesting that if I hang on long enough and DRGs come in, I can look forward to paying less and your shareholders are going to be happy because 5
they’re going to, I mean, someone’s got to, something’s got to give. MR PYLE Well, I think it would help drive efficiency within the system, whether that
10
makes our shareholders happy, I don't know, or whether we both hang on long enough to get price decreased, I don’t know, but it would certainly help in terms of that process.
10
PROF FONN I wanted to go on to the issue about providing attractive and good services so that doctors want to work where, in your hospitals. One of the issues that has come to our attention is around the issue of nursing, and there’ve been a statement that hospitals have decreased their absolute number of nurses per ward and it might not
20 15
be your hospital, I have no idea, that the level of qualification of the nurses has decreased, so we have more staff nurses rather than whatever, that prices, for example, for some product that you use in theatre have gone up because the people who supply it bring in their own nurses because the theatre nurses don't know how to use all these products, and so one of the consequences of that, we've heard from some of the 65 | P a g e
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practitioner groups, is that they will, after an operation, send a patient to high care or ICU rather than to the general ward, because you cannot trust the nursing the general ward. Is this a reasonable argument on the doctors’ parts and what implication does that have on your bottom line, given that your high care and your ICU are now being 5
more highly utilised? MR PYLE I’ll let my colleague comment on that. I’ll talk at the end a little bit about
10
the utilisation of ICUs. DR VESUTHEVAN Thank you very much. Just in terms of admitting patients to high care and ICU, that is doctor preference, that they would like their patients to be nursed
10
in those environments in the first twelve to twenty-four hours. In terms of the quality of staff that we have between our specialist units and the wards, obviously if it’s specialists units we have specialised nurses, we’re already in short supply in this country, and our nurse-patient ratios are much lower in specialist units. So I suppose there is an assumption then that your patients will get better care in those units. Our
20 15
general wards also have the same categories of staff, general nurses, our registered nurses, enrolled nurses and nursing auxiliaries, and our staffing of our general units and specialist units are based on a level of care, patient acuity and the activities. So obviously a sicker patient would need a higher level of care. Over the years I cannot 66 | P a g e
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say that we've reduced the number of nurses in our units. We also have to be mindful that nationally we have a shortage of registered nurses in the country and so you would use your nurses more appropriately but we would not run general wards without registered nurses. We may have fewer registered nurses but we do have registered 5
nurses and they are supported by enrolled nurses and nursing auxiliaries. JUDGE NGCOBO Just to make sure that I understand what your answer is, you see,
10
the questions that were asked were premised on the first proposition, and that is hospitals have decreased the number of nurses deliberately, for whatever reasons. So what do you say to that question?
10
DR VESUTHEVAN I say that the number of nurses have increased year on year. We have statistics to prove that. We do our staffing on an annual basis and we can show that there is an increase in the number of nurses that come on board annually. JUDGE NGCOBO So the short answer is you haven’t decreased the number of
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nurses. DR VESUTHEVAN No. JUDGE NGCOBO It’s simply because of the shortage of nurses.
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PROF FONN So the doctors are wrong, there aren’t fewer nurses, you can trust the general wards and they are admitting to ICU and high care because their patients are sicker or, I don't know, whatever constitutes doctor preference. MR PYLE I think there’s probably two components here, the one is the number of 5
nurses and I think we've dealt with that in terms of we’re definitely not deliberately trying to drive down our nurse numbers, and I think within that you’ve got a mix in
10
terms of your specialised nurses, and the second component then is in terms of quality, the nurses that you have, what is the quality like of those nurses. So our view with the specialists would be that they shouldn’t just be admitting to ICU or high care because
10
they have a concern about the quality of our nurses. If they do have a concern they should be addressing it with us as a group. We have no intention of trying to get patients into ISU, we have hospitals where we have full ISUs and we can't admit patients into the hospital because in case they need to go to ICU.
So certainly
wouldn’t, and in terms of our overall goal of trying to be on a relative efficiency basis, 2015
the more the doctors admit patients to ICU is the more inefficient we become in terms of the IS people, like Discovery. So we would be concerned that your specialists are doing that, and I think there have been discussions with specialists who at certain hospitals say, look, we are worried about the nursing in these particular wards, we want
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you to sort it out. I think that’s an ongoing discussion in every single hospital probably every single day. PROF FONN In one of the submissions in the last few weeks we heard that hospital managers, individual hospital managers have service level agreements with the group 5
and again this might not be your hospitals, I occupational therapy know, and that part of their service level agreements include a measure on occupancy rates and that these
10
proposal that was put to us was that the individual hospital managers would promote activities that would keep the occupancy rates as good as they could because that was part of their service level agreement. Does this make sense to you?
10
MR PYLE I suppose our hospital managers as employees reimbursed in a certain way and there are certainly are, in terms of remuneration strategies, they are measured on the performance of that hospital, and there are certain metrics, and I think, I'm not sure whether that agreements have been sent through, if not, we’re quite happy to send copies through to you, to have a look at, and they cover financial metrics, they cover
20 15
quality metrics, and they cover BEE metrics within that hospital. So I wouldn’t say there are per se you will achieve this in terms of occupancy, but occupancy is an important component because it shows the utilisation of the hospital. So if you have a lower occupancy, you’re not going to hit your financial metrics. So I suppose the issue 69 | P a g e
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for us is then, is the hospital manager doing the right things to improve occupancy rather than incorrect things? So the right things for us would be for the hospital manager to say, do I have a sufficient complement of specialists in my hospital, and do I have the right mix of specialists in that hospital, are the specialists in my hospital full 5
time, because you might have specialists there who are doing eighty percent of their work somewhere else and come in, so how do I encourage them to say, look, you’re here, why, is there a problem with the hospital, why are you only working one day a
10
week and not five days a week, is there something that we are doing that’s incorrect. We would look at it, saying is the accident emergency unit offering a decent service to
10
the community, are there GPs in the area you’re referring to our doctors, and if not why not, is there a problem, are we not, is there not enough information going back to them if they service issues.
So that’s fine.
If a hospital manager was saying to the
specialists, we want you to inappropriately admit patients into our hospital, inappropriately keep patients in for longer, that is something as a group we would not 15
20
tolerate, and I think if that happened, I have no recollection of it ever happing in terms of Life Healthcare, and I suspect that if a hospital manager went into our doctors and said this, they’d be kicked out of that office so quickly, and they’d be reported to us, you know, so it’s not, I mean, although it sounds a fine line in terms of driving
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occupancy for us, there’s quite a clear distinction between what is right and what’s wrong in terms of business practise. PROF FONN One of the issues that people have spoken about is the role of the private sector in terms of its responsibility in terms of access to care for, as a basic 5
human right, access to healthcare, and in relation to that one of the problems you brought up is the issue of the fact that we don't have enough doctors in the country to
10
service the entire population. To that extent, do you keep any data or any watch on doctors who are in full time employ in the public sector, but might well have ARUAPs agreements, and then work in your hospitals, do you know or do you have any interest
10
in watching that they are working the hours that they’re allowed to work? MR PYLE I'm going to ask my colleague, doctor, to answer that. DR TAYLOR Right. It’s important to understand that the context of ARUAPs. These doctors are employed by the state and when a doctor arrives at Life Healthcare and
20 15
wishes to have admission privileges, how does he arrive, or she. Generally it will be the existing doctors, there’s somebody retiring or they see that we've got the capacity and they would be recruiting the person, but if a doctor arrived, per se, and said I would like to have admission privileges, the first thing we do is we would check they have HPCSA registration, and it may sound very simple, but in fact a lot of doctors have, 71 | P a g e
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and I don't want to divert too much, but a lot of doctors have registration which will be for the public sector only. So we've got to, first of all, check that they are entitled to work in the private sector. If he comes via one of our own doctors, and he’s done a reference check we will probably accept that, but if it’s somebody who arrives and we 5
don't know this person we will phone, if he’s a new graduate, we will phone his ex head of department, we’ll phone colleagues, we’ll ask our own doctors from our medical advisory committees to get a reference check, to check that he is a high calibre
10
doctor. Then the question comes, a lot of these doctors will arrive and they will be working at multiple hospitals, and sometimes they work as many as four to five
10
hospitals. If he is part of a state contract, we’re not privy to this contract that he’s got with the state. I believe that some of the provinces even have variable types of how they do this. So he may be on a sessional basis, he may be on a five-eight basis, he may be on a full time basis, he’s got a hundred hours that he’s allowed to spend, and really we see that as duty of, you know, it’s for the state to manage that expensive
15
20
resource, which is under remuneration, work outside the public sector. So, no, we don't know always if he has got an ARUAPs agreement or not and we don't have the privilege of seeing those agreements. I think I’d stop there to say we don't know and it I a private matter between himself and the state. He may also not tell us that he’s got an ARUAPs agreement. 72 | P a g e
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PROF FONN You could ask. DR TAYLOR Yes, we could ask, and generally I think it would come out. JUDGE NGCOBO Thank you. DR NKONKI: Thank you. My question is more on your negotiations with funders. 5
In your written submissions as well as today you talk about one of your key strategies, of course, containments, which is the use of alternative reimbursement models. You,
10
in your written submission, make reference to GEMS, largely using their fee for service model, and you explained that you tried to discourage funders for opting for that model through lagging premium if they choose to do that. I’d like to know what
10
are the reasons that GEMS put forward for wanting to continue on using the fee for service model. MR PYLE Yes, I’ll start, you can come in. So I think when GEMS started, we can understand them wanting to stay in the fee for service environment because it’s about, I
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suppose they were growing and they wanted to collect as much data as possible, get an understanding in terms of the, I think get a record in terms of what is utilisation like with the membership, etc. So we can understand the starting in that environment. We had hoped that by now they would have been able to move across into a different type 73 | P a g e
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of model, an ARM type model. The reason, the comment you made about there’s a premium, it’s because we don't, in life we don't differentiate between whether a scheme is on an ARM or fee for service. So what happens is that then we go through a whole process in terms of procurement to try and drive down prices in terms of the surgical’s 5
and drugs, and we go through a process with the doctors then to switch product to try and make healthcare more affordable and to try and bring the cost down. In a fee for service environment, one hundred percent of that benefit goes back to the scheme,
10
whereas is an ARM environment we share those benefits between the scheme and ourselves, and so to discourage everyone going into a fee for service environment, we
10
say, look, if you’re going to benefit from all this, but we don't think it’s fee because your other schemes who are in the model don't get the full benefit. There’s a shared operation. So it’s why we have a different structure. I’d like to say that I don't think we were particularly successful in terms of having a premium in terms of the tariff or in GEMS, just the nature of GEMS and its size.
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MR PRIOR GEMS has started to develop some ARMs and we are now introducing some new fixed fees with them. I think the primary reason for them not going on was for them build up data around understanding the utilisation so that they could know that there was cost neutrality in moving across from fee for service as an alternative reimbursement model. 74 | P a g e
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DR NKONKI In both your written submission and today you have focused much on the larger schemes, that is on the open side, Discovery and GEMS and I’d like to know what, do you perceive yourself to be, to have power in regards to negotiating with the smaller medical schemes? 5
MR PYLE I think it would depend on the scheme. Certainly sometimes size helps you, sometimes it doesn't help. We have smaller schemes, they have choices, they can
10
go join a bigger administrator and get, if they want to, but sometimes we have small schemes who arrive and say, and it’s happened over the last couple of years where they’ve said this is the price we want and if you don't give us this price we’re going to
10
introduce the DSP and we’re not going to include you in the DSP, and we will actively drive members away from your hospitals, we will contact the doctors and that’s the process they go through, and so it’s a yes and no. If it’s small and it hasn’t done analysis, it doesn't have an idea in terms of benchmark, in terms of whether we are efficient or inefficient, then it’s to the scheme’s disadvantage, but if they are small and
2015
they had done that work, then it is less about size, it’s more about how they prepare for the negotiations, the information they have. Did that make sense? Sorry. DR NKONKI Yes, thank you. My second question is around your discussion of market dynamics influencing utilisation on private hospitals. On slide 18 you make 75 | P a g e
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reference to, as one of the explanatory factors, longer lengths of stay in hospital. In the very first set of the public hearings we had the World Health Organisation come to present their study benchmarking South African hospitals, and one of their key findings was that they were higher, on average, admissions were higher and their average length 5
of stay was lower in South Africa compared to the other OECD countries. I would like to know what your comment is, given that you here are stating that you have longer lengths of stay.
10 MR PYLE I think our comment here is that first of all is that the length of stay is increasing and it has increased from 2006 onwards. The OECD report is, we are not 10
economists, but we have asked, I can't remember, just have a look at the methodologies that they have used, we have general comments we don’t agree with, the fact that it refers to a GDP per capita and it refers to private here versus public and private in Europe, etc. and there potentially are other ways in terms of looking at affordability. Do you look at actually what does a case cost here versus Europe and on a case
2015
adjusted basis, and you introduce purchasing parity, all those issues. So I suppose the question then comes in to length of stays, first of all how you define length of stay because it does differ in countries, and secondly what is included in your length of stay, are day cases included or not? So it would be nice with the OECD, we actually would have liked to have had a conversation with them during the study, to say, what are you 76 | P a g e
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measuring, can we agree on a set of benchmarks in terms of how you define length of stay, what’s in and what’s out, so we can arrive at a research paper which then says, this is how you compare to the OECD countries in terms of admission rates, length of stay etc. So that is my comment in terms of length of stay. 5
The second thing about utilisation and admission rate, again it is quite hard to compare admission rate, private here versus public and private in Europe, but that is not
10
something which we drive, it is what the doctors, it is between the doctors and the funders in terms of is a person admitted to hospital or not. DR NKONKI Thank you, Chairperson. I've got no further questions.
10
DR VON GENT Good morning. Thank you for your presentation. I think you also did what we asked you to do and concentrate on global and overview of how you encountered the stakeholders, who your stakeholders are and that you left the deeper discussion to the next sessions that we will have on competitive dynamics in our
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regularity environment. So thank you very much for doing that. I will try also to confine myself to more high level discussion with you. I would like to raise one issue that you haven’t raised and one issue that you have raised and then maybe give the journalists some breaking news from your side on that. They’re all 77 | P a g e
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awake now. What you haven’t mentioned is, we in a submission before, we heard that, and that was at the association representing day hospitals associated with NHN, they mentioned that actually in theory about 75 procedures could be done on a day hospital basis. At the 5
moment that is 7%, I think, in South Africa and compared to other continents or other spheres it is actually very low, how the penetration of day hospitals into your arena has
10
taken place. One of the explanations that was presented to us was that, actually the big groups are not so much favouring day hospital because that would represent a lowering of their income, because these techniques are most of the time more cost efficient,
10
people get out of hospital per definition at the end of the day, and less costs means also less turnover for the hospitals. That was one possible explanation. When we asked they told us that there is a tendency, or they observed a tendency that the hospital groups buy day hospitals and close them down. My question to you is, have you done that before? Did you buy their hospitals from
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the areas where you are active and close them down? MR PYLE We certainly don’t go through a process of buying out, deliberately buying out day clinics just to shut them down.
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DR VON GENT So it hasn’t been happening in the history of Life. MR PYLE No, it is not our intention to do that. We certainly don’t do that. DR VON GENT My question is, has it happened? MR PYLE Well, actually thank you the question, sorry, it came down to when we did 5
the deal with Presmed in 1999, there was the reverse takeover of Afrox Healthcare and Presmed, and within the Presmed stable of hospitals, there were, I think it was 13 day
10
clinics which we took on. So I suppose the question is, what have we done with those day clinics and do we have them? I think there is probably 2 or 3 left out of the 13, and in terms of what has happened to 13, I did listen to that, I had to go and find out what
10
had happened, and we can send you a schedule per day clinic in terms of what has happened. It is a combination of we sold some because we didn’t get them to work, we closed some down. We have incorporated a couple into our hospitals. I suppose a general comment about Life Healthcare and day clinics, we do have a
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couple of day clinics and you are quite right, there is a much lower percentage of cases happening at day clinics in South Africa compared to elsewhere in the world, and I think some of it is down to some of the licensing, the fact that there are not a lot of day clinics around, although it is increasing. I think there is also a factor that doctors work 79 | P a g e
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in a hospital. There is a shortage of doctors, so for them to leave the hospital and go treat patients down the road in a day clinic and then come back and treat patients in hospitals is inconvenient. I am not saying it is a good reason, I am just saying it is potentially one of the reasons why you don’t have these cases happening at day clinics. 5
I think from a third perspective, from a Life Healthcare view, I don’t think we have been particularly good actually at running day clinics. Our day clinics we have in our
10
business don’t do that well and we have still got them, we try very hard to make them work. Maybe we are not good enough at it, maybe we are missing something. So to answer your question, we don’t deliberately go out to buy it. We certainly have
10
tight Capex constraints, our business we would much rather focus it on growing our existing business, and we would certainly like to be able to get to grips with managing the day clinics because we do see this as a trend going forward. We do see that as a trend with technology where things change and more and more cases will be happening in a day setting, as such.
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DR VON GENT I am from Europe and we see in Europe, especially where I come, from we see general hospitals also running day clinics from their hospital, from their own organisation, they set up the day clinics, they close down locations, for example, concentrate location and then use these locations to run the day clinics for quite a 80 | P a g e
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percentage of their turnover, so they do both. , of course, these techniques, these less invasive techniques of operating on people, new techniques operate and incentivise new forms of organisation. I was just wondering why has that not happened, and your explanation that doctors find 5
it hard to move from one to the other. There is another more positive element to it. On the nursing side people appear to be, they like to work in day clinics because they can
10
go home at four o’clock and don’t have these awkward times and disrupt the families and their social life, etc. So there is a lot to, for me, as a lay person, I am not a doctor, but there is a lot of pro arguments in organising a lot of, and of cost arguments, in
10
organising day clinics. MR PYLE Yes, I mean we do within our hospitals have a lot of day wards which I suppose are treated on the same basis of coming in and out, and certainly part of our strategy going forward, is we are looking at how do we increase the incidence of day clinics on sites next to our hospitals. So you take away the issue of the doctor travel,
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etc. you do more procedures in those day clinics. That is a process we are going down. Maybe we are being too slow in terms of that process. I mean some of it is a pull and push.
Technology changes and you can start driving it.
We clearly
understand that. As you go forward in the role of technology, a lot of the procedures 81 | P a g e
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are going to change and that you will have a lot more cases happening on a day basis and as a group we have to adjust and deal with that. DR VON GENT I think so. So we would appreciate what happened to those day clinics and also your strategic view on Life’s view on day clinics and prospects of day 5
clinics in South Africa, and its possible contribution in bringing down costs. Thank you very much.
10
Now up to the breaking news. You said, they add some quality, and I appreciate what you said on quality and also the openness and frankness in which you said, in my words, we actually should have done it. Am I right, that is about what you said?
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MR PYLE Correct. DR VON GENT Now, my question, of course, the starting question is, why haven’t you done it?
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MR PYLE I suppose there are a couple of factors. The first was that we have been our own quality journey. We have only really started, I mean there are certain things we
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have always measured within our business but the introduction of things like surgical site infections ventilated [indistinct 2.11.16] measurements, only really, really started
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doing it effectively, measuring across the hospitals from 2008. So I suppose it is fairly recent in our history we started these clinical measures, and you go down in journey. The second thing and I do think it is, I suppose you are asking ourselves to police ourselves in a sense that as a hospital group, you know, so we are going to put this out 5
publically, and I suppose we don’t do it at the moment because there is a bit of a vacuum.
10
So if Life Healthcare says, well, we are going to publish our quality
information, there is nothing still not really a comparative. We can say, well we can compare Life hospitals but we can’t compare Life to Netcare and so on. I don’t think there hasn’t been a, there is no real agreement amongst the groups in terms of, and even
10
the public sector apart from the core standards coming … DR VON GENT No, we will come to that, yes. MR PYLE What are those measures, how should we be measuring them and how do you communicate those measures.
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DR VON GENT I first want to understand why it is not, it is not a matter of blaming you or Mediclinic or Netcare or whoever not publishing this information, I just want to understand why, how the situation is such in South Africa, how does, what part of the context explains that you are not sort of obliged or incentivised to publish this 83 | P a g e
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information?
When I arrived in South Africa I said to my colleagues the only
explanation is then that consumers don’t matter that much. , of course, probably it will be on the first sentence of your strategic documents, the consumers, but in actuality, in fact during your negotiations with schemes you negotiate with schemes, you don’t 5
negotiate with consumers. My sense is that that will not be the first line during your negotiations, what consumers think of your hospitals.
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MR PYLE It is interesting because you are raising a sort of conundrum here that, because we do take the quality of care seriously. We do take the patient experience seriously, but we don’t communicate it to the consumer. So it does seem odd.
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DR VON GENT Do you communicate to the scheme? That was actually my … MR PYLE Oh, yes, we have reviews with the schemes and we sit and we say, look here are quality scores and here is our patient satisfaction, with the number of schemes, we actually break it down to their members only.
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DR VON GENT Are they interested? MR PYLE The interest varies across schemes. DR VON GENT Is that a diplomatic answer?
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MR PYLE Yes. Look it does vary. There are some who are very concerned about it and some have, they always have an interest, it is actually what you do with that interest. I suppose there are two things I would like to add. The first that, I suppose one of the reasons why we didn’t put it out publicly and we agree on it, is that we saw 5
at Life and maybe the other groups also, that the quality we would be going through in terms of our group and the measures we were doing would give us a competitive advantage, would help us get more DPSs. So therefore sitting with our competitors
10
and say, let’s agree on national standards around quality. DR VON GENT Let’s come back on that later. I first want to, you sort of explain or
10
try to explain why you haven’t been incentivised to publish them earlier, and the breaking news, of course, I am getting it, I am after it for the journalists is, when are you going to publish them as from now? So you can think about it already. That is going to be my last question to you. So what you said is that some schemes are interested but the majority is not interested in our story about our metrics, about what
2015
we measure in terms of quality. MR PYLE I think there is always an interest from the scheme. I think what we have seen recently is certainly a desire to say, listen this is more, especially with DSPs growing, I think there is now starting to get an interest by saying it is not just by price, 85 | P a g e
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it is about the quality that you are going to provide our members. I think part of the problem the schemes face is, a challenge we face, there isn’t standard metrics used by the three groups across measures. So they say, oh you arrive and we look at your quality stats, they look very nice but 5
actually how do we know they are actually better than your competitors because it isn’t a standard process.
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DR VON GENT Absolutely. So you want to go back to that point again and again and you are right. Very important of course, that the information and that the competition between hospital groups is not on the metrics, so they don’t use all their own metrics
10
and then we compete on the metrics, we should compete on the quality based on standardised, uniform, comparable and representative measures of quality. You are absolutely right, but now we are entering a minefield isn’t it, because you measure your own metrics at the moment, and with all respect I looked at them in the appendix, and they are good. I think there is only one really referring to clinical quality in the sense
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that it is the cardiac metrics.
They are, by the way, internationally comparable.
Everybody in the world uses the same metrics here on clinical quality on cardiac intervention. These are the standards [Yafs], taking them from the standard. MR PYLE Yes. 86 | P a g e
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DR VON GENT You could actually compare yourself to the United States and Europe on these metrics, isn’t it? MR PYLE Correct. DR VON GENT Do you do that? 5
MR PYLE We do and I am trying to remember the last time we compared and what the outcome was.
10 DR TAYLOR Our acute myocardial infarction bundle is really based on a European cardiologist’s [society 2.17.22]. I don’t know if I am speaking too much but, we compare our mortality rate by hospital with each other, and we sent it back to the 10
hospitals on a monthly basis, and it goes to the medical aid advisory committees on a quarterly basis. We do compare that to the international rate and we are below the international rate. We intensively look at the acute myocardial infarction bundle and that cardiac bundle. Now, that’s, the MI rate, as you would appreciate, it will vary
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from area to area, depending on the [indistinct 2.18.24] diabetics, the hypertensives and funnily enough sometimes the very best doctors have higher rates because they have been dealing with the most complicated cases. We really do go in to that intensively.
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There are some other measures. We have all these normal bundles, the [kortee 2.18.19] bundles, hospital acquired infection bundles which are really nursing driven and doctor cooperation. We do have other rates that we look at quite carefully, which would be perinatal mortality rates, the Vermont Oxford Network, which is for the panel. This is 5
an international measure of neonatal care and we do give outcome measures. It is a very, very positive system where on a quarterly basis we will get a report back. It is an international, it is an American based organisation, I think there is about 800 hospitals,
10
and then we would go through what went wrong. One of the outcomes, it is not an outcome, but what was the temperature of the baby when the baby arrived in the
10
neonatal ICU? Wow. Your rate is lower than the international average, so that is where we go back to international. Why was it lower? Then it goes through all kind of micro detail which I won’t bore the panel with, but it does mean that there is a, so we do that sort of, and then on DDTs and strokes, we have international bundles that we’re looking at and we compare ourselves with international outcomes.
2015
DR VON GENT I admire the set that you already have. , of course, you will appreciate it is still a limited set if you compare to some countries in Europe and the United States and England, where per DRG you can have sets of metrics defined, and that is quite an exercise, it might be worth your while but it is quite an exercise, but this is a good start. So I think it is a good start also to publish a part of what you are collecting here already 88 | P a g e
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over a number of years so it must be quite stable and comparable to international standards. So there is nothing wrong I think in publishing these in South Africa, Mr Pyle. MR PYLE I suppose the point is we, I mean we published them in our annual report 5
and they’re on our website, but it is on a group basis. DR VON GENT That’s right. That is not what I am getting at.
10
MR PYLE It is not on a hospital basis, and, look, it is a debate we have about, do we publish all these scores and put them on a per hospital basis and I suppose it’s question about, it is a concern, how does the consumer deal with it, is it seen as a good thing or a
10
bad thing when it is in a vacuum. Look, we don’t know the answers. DR VON GENT I know, nobody knows the answer but we have seen, of course, abroad, countries where this happens and has been happening already for sometimes seven, eight, nine years and nothing bad happened.
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I mean, people are able to
understand, to appreciable degree what is being published, especially if you publish it in a way that it is understandable and the right text around it where you explain what is this, but I agree that it would be much, because I saw your metrics and these metrics, of course, doctor just explained to me as well, are largely around what you as a hospital 89 | P a g e
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can influence. It is largely around nurses, medication, etc. etc. needle failures, etc. and it is largely not around what doctors can influence and, of course, quite a bit of the clinical excellence of our hospital depends on your performance and also the doctor’s performance, and the way they cooperate during the clinical path. 5
Have you been talking to your doctors on this, on cooperation between yourselves and your doctors on, first of all, agreeing on metrics which are meaningful and measuring
10
the data and the metrics and ultimately publishing them? DR TAYLOR We have a structure called medical advisory committees, and I could supply the panel with the constitution, but the prime aim, sorry just to labour on it, but
10
the prime aim of the medical advisory committee is to maximise cooperation within the hospital to ensure quality patient care. You have made the point. Person has an episode of disease, the doctor does the work up, the doctor does all the diagnostics, a lot of the expense, and there are a few frames in that picture where we come into the picture and then he goes out of that frame again. So to influence them in terms of the
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earlier frames and the post frames, now, as was stated earlier, yes, we do have discussions with our doctors but a lot of them at the moment are revolving around the crisis we are having in obstetric insurance, I am sure the panel is well aware of it, the R650,000 a year and the need for protocols which would start outside the hospital and 90 | P a g e
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end after the hospital. Remembering that if a patient is discharged from a hospital, we don’t know what happens to him afterwards. We don’t know whether he gets an infection, whether he has got a long term complication or in fact let’s be positive, the majority of them if they have had a fantastic outcome? 5
DR VON GENT That is again that is a different … DR TAYLOR So the idea of having a way of rating a doctor, who would we have to
10
involve? We would have to involve the regulatory body who is ultimate responsibility it is, the doctors and their groupings, the funders, the hospital groups and then most importantly, the patients.
10
DR VON GENT If you don’t do it, Discovery will. So the experience abroad is that there is largely three groups that have initiated these quite complex trajectories of getting to meaningful metrics of quality, clinical quality involving both the hospital side and the doctor’s side. If three parties can do it, abroad, the larger healthcare
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insurers have taken the initiative, and using their money to do that, leaving both hospitals and doctors not very happy most of the time. The state can do it, I have been responsible for that for four years, leaving all parties not really happy because they take the initiative and the initiative should, of course, be doctors and hospitals because they are responsible. 91 | P a g e
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Do you feel yourself responsible for clinical quality, also of the quality that is provided within your walls by doctors? DR TAYLOR Yes, we feel responsible for the clinical quality within our hospitals and in fact going further than that, but if I can just go back to the, in the event that we were 5
able to give doctors a choice to be employed by the private sector, obviously our ability to get together with that doctor as a partner and manage his quality would be enormous.
10
So if we had doctors we could then set down, these are the guidelines and so on and it would have to be international guidelines. DR VON GENT I understand that.
10
DR TAYLOR That would solve that problem instantly, and we did say initially that we don’t want to employ all doctors but let’s say the standard of care in A & E units, there was a complaint earlier in the commission that the doctors are very young and inexperienced, I think. Well,, we could handle that problem.
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In terms of doctors, overall, are we worried about that experience? You said are we worried about them before and afterwards? If we get anecdotal evidence that the doctors outcomes are poor, even though maybe technically his operation looked great, we will institute an inquiry via our medical advisory committees into the doctor’s 92 | P a g e
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conduct. DR VON GENT I understand. It is not the area that I want to go into. The area is do you feel responsible for the quality provided within your walls? Then the idea that doctors can’t be employed in South Africa, we are all aware of that factor and the 5
inquiry will look into that factor as well, but I don’t think it’s the major influence. I am from a country where hospitals can employ doctors, either employ doctors or contract
10
them like you do. Whether they are employed or contracted, the fact remains that you have to convince them to cooperate in providing clinical information on their services, and that is almost irrespective of whether they are employed or not. It is a matter of
10
convincing these people that you are responsible for what is happening within your walls, between your walls. So I am not accusing you, but you can’t use it as an excuse of not having that conversation, and very … DR TAYLOR Dr von Gent, I agree with you. We have a doctor partnership attitude, and as it starts to evolve, for those doctors to have the best possible outcomes is going
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to involve us involving them in discussions around the whole treatment path. DR VON GENT I think we could go on for half an hour here but I am actually still, and the journalists are waiting for the breaking news now, Mr Pyle, then when are you going to publish your data on quality? 93 | P a g e
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MR PYLE I don’t know. I mean, it is certainly something which … DR VON GENT That’s not a breaking news. MR PYLE No it’s not breaking news. My [indistinct 2.28.51] breaking news is that I might not have a job the next day. I don’t know but it is certainly something we are 5
going to have to, I think, rectify, as a group and the first preference will be that you have standards which the whole industry do, but if we can’t get that, because I don’t
10
know what our competitors think about our position on this. DR VON GENT Do you take this back to your board? MR PYLE Yes.
10
DR VON GENT What will your personal point of departure be? MR PYLE It would be we should actually, as a group, publicise and in the correct way the quality outcomes of our hospitals.
20
DR VON GENT Next year. MR PYLE I mean we could do it next year. I mean it’s, probably next year it will be
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better. JUSTICE NGCOBO It is a matter that you need to reflect upon, isn’t it? 94 | P a g e
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MR PYLE Yes. JUSTICE NGCOBO And then take a decision, right? DR VON GENT Maybe we should reflect during the break then, Judge. Maybe we should reflect you at the break and then come back on the issue. 5
JUSTICE NGCOBO Is there anything that you want to add to this question, to the answer?
10 MR PYLE Just the point you made about, and it is a point that in Europe that the funders have, or the insurers have been driving it and so as a point from us is that if we don’t, as a hospital with the doctors, do it ourselves, it is going to be imposed upon us 10
by the insurers or the funders. JUSTICE NGCOBO
Okay the time now is eleven o’clock. Would this be the
convenient time to take a break, a tea break? It has been a long morning. Yes, indeed, 20
thank you.
15
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Session 2 JUSTICE NGCOBO Yes, sir, I wonder if it would be convenient to resume the proceeding, Mr Pyle. MR PYLE Certainly. 5
JUSTICE NGCOBO Yes, very well. I just wanted to pick up on the conversation that you had with my colleague, von Gent. Now, we were told last week by Discovery that
10
at some point an attempt was made to consider publishing information often concerning the quality of the services that’s being performed at facilities, but that the reaction of the Hospital Groups was that that shouldn’t be done and as a consequence
10
of that, they stopped. Are you aware of that initiative? MR PYLE I am, yes. JUSTICE NGCOBO You are?
20
MR PYLE Yes. JUSTICE NGCOBO
15
Could you perhaps indicate to us precisely what were the
reasons for objecting to that?
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MR PYLE
Yes, I think the objection was less about the publication of that
information, and was more about the accuracy of the data that fed into it. It was quite a complex exercise Discovery undertook because they were taking doctor coding and hospital coding and combining it and then delivering efficiencies our outcomes, and 5
our view was that there were a number of cases, I even remember there was a Carte Blanche example about one of our hospitals given, which was shown as been completely out of line in terms of pricing, but actually what had happened was that
10
there was incorrect doctor coding fed into it. So the reaction from the hospitals, I think, was twofold, if you’re going to do this, you need to do it properly and it needs to
10
be accurate. JUSTICE NGCOBO Yes. MR PYLE Discovery have now have gone down the route. They’ve started on the patient satisfaction. There was an engagement, certainly with us and I presume with other hospitals in terms of doing it. They now publish the patient satisfaction scores
20 15
and Dr Broomberg at the hearing also mentioned that they are now looking at doing the clinic outcomes, and I am pretty sure it will be a process in terms of talking to us, and then they will, as discussed earlier, they are going to do it.
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JUSTICE NGCOBO There wasn’t any objection, in principle, but it was really in relation on how you do it. Is that an accurate way of putting it? MR PYLE Yes, that is accurate. JUSTICE NGCOBO Or is it both? 5
MR PYLE A little bit of both, because I suppose it’s somebody else telling you this is publicly, this is how we’re going to be doing, and it does come back to the point where,
10
well, maybe you should be doing it, we should be doing it ourselves. JUSTICE NGCOBO Okay. Now what has brought about this change of mind now? MR PYLE I think there’s a journey you go on, and we really have, as a group, since
10
2008, been focused on driving some of the quality outcomes in our group, and we have had lots of debate internally about should we release this information. I suppose what really got the debate going within us is when Discovery got back to us last year and
20
said, we are going to release the patient satisfaction scores from the hospitals and we’re going to do it publicly, and then there was a discussion, if they were going to do that,
15
then the question, should we be doing that, and then should we also be doing not for patient satisfaction, but should we doing it across on a clinical basis. So that was probably the vent which got us thinking again about publicising the quality data. 98 | P a g e
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JUSTICE NGCOBO Yes, but I understand that you going to take the issue to the board. Is that what you said earlier today? MR PYLE Yes. We will take it back to the executive but there is a discussion going on at an executive level. 5
JUSTICE NGCOBO Are you saying that there have been ongoing discussions on this particular issue?
10
MR PYLE Correct. JUSTICE NGCOBO And, since when? MR PYLE You know, I suppose these discussions have happened since 2008 on a
10
haphazard basis, on an executive level. I suppose it increased intensity in terms of frequency and intensity since the Discovery ratings. JUSTICE NGCOBO I think the issue that I’m really focusing on is making the
20
information available to patients, I think that’s really the issue that I’m focusing on, that the discussion on whether the information pertaining to the services or the quality
15
of the services at the facilities should be published and should be made available to patients. Have you had the debate before?
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MR PYLE Yes. JUSTICE NGCOBO Okay. Is that a discussion that commenced in 2008? MR PYLE Yes. JUSTICE NGCOBO So, today, you telling us that you will now take the matter back 5
10
to the executive. MR PYLE I think the comment is that, I think, we made is a couple of things, first of all I think we are remiss in terms of not publicising this information earlier, and secondly there is a process will be going down, do we actually start releasing our data and how do we do it?
10
JUSTICE NGCOBO Yes, I think what I’m really trying to find out is that when we consider this issue, if it becomes necessary to do so, what are the obstacles that we should keep in mind which prevented your hospital from publishing this information in
20
the past so that we can put in place mechanisms that would make sure that that doesn’t happen. So that is why to find out whether, what makes, what is the explanation for
15
this change in attitude. You are aware that since the beginning of this hearing, in particular with the funders, one of the issues that has become somewhat prominent, is the issue of information and the quality of the services being made available to the 100 | P a g e
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funders, and we were told by all that they don’t publish that information and they all suggested to us that they think they should, at least some of them did say that. Now,, I just want to find out whether whatever may have prevented you in the past from publishing this information has since been removed. 5
MR PYLE I think there’s two components here, so I may answer it, in terms of so what may be the ideal world, and the ideal world would be where there is agreement in
10
terms of the quality metrics across the country, I wouldn’t just say private, also public, and there is core standards, but I think what we would recommend in saying more than the core standards. You have agreement in terms of metrics, you have agreement
10
amongst the hospitals and docs, but how you measure those metrics and it’s standardised, and then there is a publication with that it’s done, and an appropriate, and then there is auditing and it’s done appropriately, that would be in an ideal world. The world we are in now, that doesn’t exist. So our challenge, so the question, how do we get there, I suppose you can say let the private health care groups do it themselves and
2015
that hasn’t happened in the past, the question will it happen in the future, I’m not sure. Maybe if the groups take the initiative and Life says, well, you know what we are going to publish our data anyway, and maybe that forces or encourages the other groups to do so and then you start going down the road in terms of agreement and metrics. 101 | P a g e
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JUSTICE NGCOBO Yes, I think the issue of who has to do it is not so much my concern. The really, is for me is the principle of it, why has it not been done in the past. Other factors that prevented it from being done in the past, have those been removed so that the way is now clear for that to be done? It may well be that it’s 5
something that never crossed your mind. MR PYLE Look, no, I don’t think the obstacles have been removed. So if Life takes a
10
stake and says, right we are going to publish our data, we still have concerns that the data goes out and it’s really in a vacuum. So, when you look at it and you go, that Life Healthcare Hospital, I don’t like their quality metrics so I’m not going there, but you
10
have no comparison to a competitor hospital, and so maybe it’s an advantage, maybe it’s a disadvantage. We are quite conservative with this, so maybe we should just take the leap and do it and see what the outcome is, but I might have a hard time persuading my colleagues, the execs to do that. So I think the obstacles haven’t gone away, it’s a question whether we are sort of brave enough to do it.
20 15
JUSTICE NGCOBO You see, it may somewhat help though, if one focuses for a moment on the consumer. I mean, our consumer is entitled to know the kind of quality of service that’s performed by different hospitals. MR PYLE I would say, yes. 102 | P a g e
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JUSTICE NGCOBO I mean, for obvious reasons that information is vital for them to make an informed choice as to which hospital to go to in the event they fall sick. MR PYLE Correct. JUSTICE NGCOBO Now, and if that factor is uppermost in the mind of hospital 5
group, then why is it, I think, has that not been done? MR PYLE I can’t comment on other hospital groups, but we do agree with the
10
principle that a patient or a consumer should have better information about a hospital and about doctors, and should be able to make a more informed choice in terms of their choice of which hospital they go to. So the question why hasn’t it been done, I think
10
we have addressed some of those issues in terms of standards, etc. JUSTICE NGCOBO It is understandable that there may be a reluctance on the part of a hospital to publish information that, oh, by the way, we had an operation last week and some object was left in the stomach of a person in the course of the operation,
20
15
because that would undermine profits, would it not? MR PYLE It may, yes. I think there’s a, certainly there would be a concern if you said let’s take the 60 odd hospitals in Life Healthcare and we publicise and we rank them, and there’s certainly a concern that if I’m the hospital manager of the, because there 103 | P a g e
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has to be ranking them in terms of their performance, there’s always a hospital at the bottom, whereas performance if you're benchmarking it, there are hospitals that do better than others, but I think that’s part of the process if you want to improve your quality, you want to improve, then you do need to go down that process. 5
JUSTICE NGCOBO I can understand the desire on the one hand to want to improve the quality by publishing this information or making it available, but at the same time,
10
ensuring that in making this information available, this will not adversely impact on the business. MR PYLE Yes, and I think that the, so what’s important is that the information that
10
goes out, is appropriate, correct information which allows consumers to make an appropriate decision, and which, and if it's all correct and done appropriately, that’s fine. I mean, I suppose the real challenge in all, it’s how you do it so that consumers don’t make an inappropriate decision or hospitals or businesses aren’t unfairly influenced or rated because of a score which is interpreted wrongly.
20 15
JUSTICE NGCOBO There is a shortage of nurses, you’ve been alluded to that fact, is that right? MR PYLE Shortage of nurses, yes. 104 | P a g e
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JUSTICE NGCOBO And there’s also a shortage of specialists. MR PYLE Correct. JUSTICE NGCOBO And you have to compete to attract those to your facility. MR PYLE Correct. 5
10
JUSTICE NGCOBO Now, in relation to specialists, do you offer them any incentive to come to your facility? MR PYLE I think there’s, in the documentation we’ve submitted, there’s, I think there’s a process in terms of maybe a reallocation of allowance if they are coming from a different area, there may be ….
10
JUSTICE NGCOBO Shareholding. MR PYLE Sorry?
20
JUSTICE NGCOBO Shareholding. MR PYLE Yes, depending, depending on, there could be shareholding, which they buy into. There could be …
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JUSTICE NGCOBO Subsidising rooms. MR PYLE There’s a rental which would, it depends whether, you could say, well is it a subsidised rental because it’s not truly market related or whether it’s …. JUSTICE NGCOBO What’s your real interest in specialists? 5
10
MR PYLE Well, I suppose without the specialist you don’t have a hospital business. JUSTICE NGCOBO Yes, and there is an expectation that if you have these specialists with you, people would follow those specialists. MR PYLE Correct. JUSTICE NGCOBO For treatment.
10
MR PYLE Correct. JUSTICE NGCOBO So there is an expectation that they will bring patients, they will
20
attract patient. MR PYLE Yes. JUSTICE NGCOBO Yes. Now, do specialists have a say in who are the additional
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specialists who might be offered admission facilities? MR PYLE They generally would have a say, the process would be that the hospital manager would, say discussions, so there’s wanting an orthopaedic surgeon and there would be discussion with the existing orthopaedic surgeons about bringing additional 5
doctor and then also discussions about the particular doctor coming. JUSTICE NGCOBO So you would expect this, for example, orthopaedic surgeons to
10
decide whether or not an additional orthopaedic surgeon is necessary. MR PYLE I mean, we do involve them in the discussion. I think the end of the day the decision is ours because you do have different dynamics.
10
You might have an
orthopaedic surgeons saying, we don’t want you to bring in more surgeons because it’s going to take business away from us. You do have a dynamic where it could be, we do want you, you need to bring in another surgeon because we are doing all the cover work at the accident emergency unit, and we’re not going to do it every weekend. So
20 15
you do have a different dynamic. JUSTICE NGCOBO
Yes, we were told earlier on in these proceedings that a
psychiatrist was offered admission rights at one of the facilities, but that one of his colleagues objected to this physiatrist being granted admitting rights to this particular 107 | P a g e
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facility, as a result of that objection, management change its mind. Does that happen, it could happen? MR PYLE It could happen, it may happen, it probably, sometimes it probably does happen. 5
JUSTICE NGCOBO And the effect of that is that a specialist is now prevented from enjoying admission rights at the facility.
10
MR PYLE I think the admission rights, it could be about having rooms at the facility. JUSTICE NGCOBO Yes, that’s right. MR PYLE So, you may have a situation where a doctor is prevented from having
10
rooms at the hospital and it could be because the hospital is full, it could be because there is a lack of demand, but you right, there could be a position where a specialist doesn’t have, get rooms at a particular hospital.
20
MATHEW PRIOR Admission rights. MR PYLE Sorry, yes, clarity, as Mathew said, that you may not have rooms but you
15
still have admission rights, I mean, sometimes it’s a bit …
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JUSTICE NGCOBO The nurses, there is a shortage of nurses, you’ve have told us about that. Is that right? MR PYLE Correct. JUSTICE NGCOBO How do you cope with that? 5
10
MR PYLE May I ask my colleague; Sharon, to answer, in charge of nursing. DR VASUTHEVA Thank you, so we train our own nurses, as a group so we have the Life College of Learning and we train both preregistration and post basic nurses. We also are currently for our specialist nurses, we train a number of them at the university, so we sponsor their training, and also furthermore we’re also embarked on foreign
10
recruitment where we ... JUSTICE NGCOBO Those that are being trained and who qualify, those are recent trainees or graduate nurses, they don’t have the kind of skill that you would require at
20
an intensive care unit, is it? DR VASUTHEVA The newly qualified ones, no, not, they won’t have it.
15
JUSTICE NGCOBO Okay. I am concerned at the moment with the skills that you require at this, I think the term that they have used here is, high care facility, high care 109 | P a g e
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unit, is it, is that the term? DR VASUTHEVA Yes. JUSTICE NGCOBO Okay, is it the intensive care unit? DR VASUTHEVA Well, we have intensive care units and high care units. 5
10
JUSTICE NGCOBO Oh, what’s the difference between the two? DR VASUTHEVA The more critically ill patients go to intensive care units and they could be ventilated and non ventilated and then those that are critical but just need observation, we could keep in a high care unit. JUSTICE NGCOBO Okay, now, do you have sufficient skilled nurses to look after
10
the patient at intensive care units, high care facilities? DR VASUTHEVA We do not.
20
JUSTICE NGCOBO You do not. Now, how do you cope? DR VASUTHEVA We use a number of approaches, one through training, training more.
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JUSTICE NGCOBO Yes. DR VASUTHEVA Secondly through foreign recruitment, we are recruiting specialist nurses from India, as a group. It is a very long process but we continue to persevere on that, and then we also use agency staff to also staff both our specialist units and the 5
wards. JUSTICE NGCOBO But when you say you are experiencing shortage of nurses at
10
these high care facilities, high care units and intensive care unit, I just want to know; how do you cope with that? Do you put in people who are less skilled because you want to cope with the shortage whilst you are training others or recruiting? How do
10
you manage the situation, the need? DR VASUTHEVA So with the agency staff, so we staff our units up to, for 75% occupancy and we have a flexible component of 25% and that’s the 25% if our units progress beyond 75% occupancy, we will draw in from the agency and that is how we
20 15
would staff up. JUSTICE NGCOBO
Does it happen perhaps that you have less skilled nurses
working at these units?
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DR VASUTHEVA I wouldn’t say that there are less skilled, we would have a balance between qualified nurses, those that have actually done the speciality and perhaps experienced nurses who would work in conjunction with the qualified nurses. JUSTICE NGCOBO Yes. 5
DR VASUTHEVA So, they would operate at that level. JUSTICE NGCOBO Yes. There is a term that one sometimes hears about, called
10
moonlighting. What does that mean? DR VASUTHEVA Well, I think moonlighting is something that nurses do as part of earning more income, they would seek employment, temporary employment in other
10
facilities outside of their permanent employ. JUSTICE NGCOBO Yes, so they would work for two facilities, or maybe three. DR VASUTHEVA Yes.
20
JUSTICE NGCOBO How does that impact on the quality of care? DR VASUTHEVA I think that it does an influence the quality of care. The quality of
15
nursing care has been an issue in the country and I think in both the public and private sectors, and I think a number of initiatives have been pursued in terms of addressing 112 | P a g e
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the quality of care, and I think the whole issue of moonlighting is an age old problem in nursing, where we don’t seem to have sufficient mechanisms in place to ensure that we have this continual movement of nurses from the public sector into the private, and private nurses work in public through the agency agreement. 5
JUSTICE NGCOBO I mean, does it happen, for instance, that a nurse would work at one facility during the day and then in the evening work at another facility?
10
DR VASUTHEVA Well, not to our knowledge where we had to deal with it directly, but there is a lot of anecdotal evidence to that effect, that nurses try to keep two jobs to augment their salaries, they could work in two facilities. I have to say from my point
10
of view and Life Healthcare point of view, if we identified something like that we would deal with it directly. The challenge we have is that most of time, the nurses, we do not contract with those nurses who work overtime, we only contract with our own staff who work overtime in our units. The rest of the nurses come through an agency, and so we have service level agreements with our agencies, and so we would depend
20 15
on them to kind of do that contracting. JUSTICE NGCOBO Are there any mechanisms that you’ve put in place to ensure that you don’t have a situation where a nurse works in one facility during the day and then in the evening goes to another facility to work? 113 | P a g e
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DR VASUTHEVA Not directly with the nurses but through the agencies we have a service level agreement, we expect them to be, they register the nurses on their system. We also enquire from them that, well expect from them to know whether these people are in full time employ in the public sector or with any other group, and they should 5
keep a record of that. JUSTICE NGCOBO But other than the service level agreement with the agency, is
10
there any other mechanism? DR VASUTHEVA None, not necessarily. JUSTICE NGCOBO Okay, have you considered that?
10
DR VASUTHEVA Well, it becomes more and more necessary as we hear about the moonlighting and as it influences the quality of care, and so sometimes, you know, for me it seems like it’s a national problem, it needs both the public and private sector to put their heads together to come up with an intervention that will resolve this so that we
20 15
can actually get to a point where we can manage this. Also in terms of our nursing resources, are we training sufficient nurses because as long as we’re in this demand and supply mode we are going to have nurses rotating through the different sectors and this needs to become a national priority that we drive jointly to address the issue. 114 | P a g e
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JUSTICE NGCOBO Is there any limit on the nurses that you can train per year? DR VASUTHEVA Yes, there is. JUSTICE NGCOBO Is it what, thousand, one thousand, how much, how many? DR VASUTHEVA Our college is accredited by the South African Nursing Council 5
and they will put a limit in terms of the number of students you can take per program per clinical facility.
10 JUSTICE NGCOBO I understand. DR VASUTHEVA And that is based on the clinical learning opportunities in those facilities. 10
JUSTICE NGCOBO Okay, right, but does that work? DR VASUTHEVA It works.
20
JUSTICE NGCOBO Does that work? DR VASUTHEVA It works for us. We are a permanently requesting additional training positions from the Nursing Council if we want if we want to increase any
15
particular program.
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JUSTICE NGCOBO
Yes, what has been the impact of the closure of nursing
colleges? DR VASUTHEVA I think that the closure of some of the public nursing colleges definitely did impact the shortage of nursing in the country because prior to the 1990’s, 5
even the private sector was dependant on the public sector to supply nurses right up to now the nursing colleges, the public nursing colleges supply at least 75% of the nurses
10
for this country. So you would see a number of the private groups then embarked on getting their own training institutions in place.
There is a lot of bureaucracy
surrounding the accreditation of the facilities but I think that they persevered. So today 10
we have all of the hospital groups, most of them participating in the training of nurses, as well as there’s a number of independent private nursing colleges also in place. JUSTICE NGCOBO And the nurses that you train, they are not obliged to work at your facilities, are they?
20 15
DR VASUTHEVA
Well, we train our own staff as part of their own career
development, and they are obliged to stay with us for post training. We also have external students that train with us and they are offered positions on completion, and some of them choose to stay with us, others would like to continue with other programs
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or work through an agency, it’s, it’s really up to them, but we do make employment available to them. JUSTICE NGCOBO Pyle, you make the point in your presentation that the certificate of need is not the answer. What’s the difference, as you understand it, between a 5
certificate of need and a licence to, they’re not being issued at the moment? MR PYLE Yes, I think the point was just about [indistinct 0.29.37] need doctors
10
[indistinct] to be in the right in terms of how you allocate doctors around the country. I’m not sure whether we would agree with that, but in terms, I think the point that I am trying to make in terms of licensing was that, if they do bring a certificate of need in
10
terms of how you determine licensing, because they just have a system that sits behind it which is scientifically transparent, uniformly applied and has proper measures, which we understand and can apply to. I suppose those are our comments in terms of the certificate of need.
20 15
JUSTICE NGCOBO But you are aware though that the National Health Act does set out some of the factors that should be taken into consideration in determining whether or not a certificate of need should be issued. MR PYLE Yes, we are, we are aware of that. I suppose it’s how its applied across the 117 | P a g e
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provinces is different. JUSTICE NGCOBO
And of course the problem is that there is no regulatory
infrastructure for the application of the provisions of the Act at the moment. MR PYLE Correct. 5
JUSTICE NGCOBO Yes, okay. In relation to the negotiations with the funders, one of the factors that you mentioned which influenced the price is the size of the scheme.
10
How does that influence the size, the price? MR PYLE Yes, I suppose some of it is subtle, in the sense that the bigger the administrator in terms of the number of members, the more resources they’ve got to
10
invest in analysis, reporting, systems, people, and so they generally tend to be more prepared or better prepared when it comes to negotiation.
They have done data
analysis in terms of efficiencies of hospital groups, they have a better understanding in terms of the contracts where they want [her 0.31.39] so from that prospective there is, 20 15
we think that the bigger they are, the size tends to help the negotiation process, because it allows them to invest more in the underlining systems and people. Sometimes if there is size and they use their size to say, look, we going to introduce a DSP and here’s the component that you’re potentially going to lose, obviously gives them some 118 | P a g e
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negotiating power. JUSTICE NGCOBO
Does the size the you have in mind include numbers of
members? MR PYLE Yes. 5
JUSTICE NGCOBO Okay, so if a scheme has more members, does it have more power of influence?
10 MR PYLE I suppose it comes down to how they use that power potentially, yes. JUSTICE NGCOBO But the power is there. MR PYLE Potentially, you know, and I said potentially because we have smaller 10
schemes who are, but they have more potential. JUSTICE NGCOBO Yes, okay. The negotiation ability, what does that mean, the extent to which one can outwit the other team?
20 MR PYLE Yes, there is an element of that in every negotiation. JUSTICE NGCOBO 15
Yes, okay.
The employment of doctors., I think I've just
forgotten the name of the gentleman next to you, what’s his name? Dr Taylor.
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MR PYLE Dr Taylor. JUSTICE NGCOBO Yes, you mentioned that if you were empowered to employ doctors, that would give you more power in terms of the quality. I can’t recall the context, but I made a note here. The note that I have made here is, how does it impact 5
the quality of care, the employment of doctors by a facility? DR TAYLOR Judge, if we could employ doctors in certain areas, let’s say accident
10
and emergency areas, units, we could determine that the qualifications that those doctors should have and we could also determine the protocols, the clinical protocols that they would have to use. Now, clearly if we employ doctors, they would be
10
reporting to other doctors. I am not suggesting they'd be reporting to a businessman, they will be reporting to a doctor who would be using the best based evidence based medicine to ensure that these protocols were complied with, and I think that not only would they increase, improve the quality, it could also improve the efficiency.
20 15
JUSTICE NGCOBO I think this will serve the context of having a say on how, on the quality of the services or the quality of the output. I suppose the question really that I have is, why should your control over the quality of healthcare services be dependent upon whether or not a doctor is employed by you? I would have thought that as a person who owns the facility, you will lay down the rules, if you work here, if you have 120 | P a g e
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admission rights here, if you use our facilities, these are the rules, just like you tell us when we go to hospital, switch off your phones. DR TAYLOR Judge, I agree with you. In terms of the small period of time that those doctors are in our facilities we can enforce standards of care, ethical standards, and so 5
on. The context that I was really putting it in was the overall quality of care of doctors, of indexing doctors. Now, if you looked at a hospital, where, let’s say, that there is a
10
dermatologist and a paediatrician on one side and on the other side there is a cardiothoracic surgeon and an orthopaedic surgeon, the paediatrician, and the dermatologist may see a lot of patients but only admit a few of them and they will be
10
using different disease protocols or guidelines, and obviously we don’t see any of that. When we get on to the surgeons and say the cardiothoracic surgeon, obviously we will be seeing a lot more of him, because he is admitting a higher proportion of patients. JUSTICE NGCOBO If I can just go back to the issue of information to patient, one of the other aspect to it is, if you have this information that’s made available to the public,
20 15
to the patient, the other aspect is, how does one ensure that they make use of that information? Because invariably the tendency is to have these on the website, but not everyone has access to website, or sometimes there is a brochure that’s just next to your bed, but depending on your condition when you get into hospital you may never 121 | P a g e
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read that brochure, and someone never draws your attention to it sometimes. How does one make sure that once the information is available, the public is able, uses that information? DR TAYLOR Sorry, Judge could we clarify the question? Are we talking about 5
educating the patient around his episode? JUSTICE NGCOBO Quality, quality.
10
DR TAYLOR Okay, we talking about his quality. I think I’d mentioned earlier on that the conditions that would be required to have quality metrics that were comparable between groups and the state, I think there should be a single group of metrics. In my
10
experience it’s in most advanced countries, economically advanced countries, the USA and the UK that are able to rate doctors, and okay, the doctors do have a way of, where they are being rated and ranked, and I know that within departments in say the UK, in the National Health Service, a doctor would be told if his results are continually poor
20 15
he would be removed from being allowed to operate or some remedial action would be taking place. It’s very easy for the doctors to use that data amongst themselves, and clearly if we were allied to them we could do that as well. In terms of getting that information out to the public, at the moment there are only websites and obviously in
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the UK there’s a tabloid press. It’s a challenge in our society to get this information out to all users and I’m talking about public and private sectors. JUSTICE NGCOBO I suppose the greatest challenge that you will face as you consider this, is how much of information should be disclosed without undermining the 5
good name of the particular hospital, because I have no doubt that you are in this business not as charitable organisations but to make profit. To what extent do you
10
disclose information that would undermine your ability to earn more profits by telling the public and everyone that you have got bad doctors and that your services offer poor quality?
10
DR TAYLOR I’d like to say, from the Life Healthcare perspective, if we have got what you would call a bad doctor and he comes to our attention either through our alert system, our patient incident system or his colleagues write to us or his patients write to us or more generally the nursing staff who are the advocates of the patient would say, this doctor is starting to show some poor outcomes, that we would peer review that
20 15
doctor and we have peer reviewed doctors, we did supply the commission with a list of doctors that we have taken action against and the bad doctor, I would like to think that we would term, well I wouldn’t like to think, I know we will terminate his admission privileges, we will report him to the HPSSA, and hopefully they will have an inquiry 123 | P a g e
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and they will put it on their public website. JUSTICE NGCOBO The last question, hopefully, depending on the answer, what impact, if any, does the prevailing situation for the issuing of the licences have on your ability to expand? At the moment you’ve got, you don’t have a national order that 5
gives you these licences, you have to apply it to each province, under regulation 158, I think it is, and you have told us about the lack of uniformity, and we were told last, this
10
week also that there were problems with the criteria, some of the provinces are still working out on what is the criteria. What impact, if any, has that have on your ability to expand?
10
MR PYLE The current situation certainly does have a negative impact on our ability to expand. We have a number of applications where we haven’t received feedback or they have been declined, we go and appeal it, it just takes a long time to get feedback. So it’s, without a uniform, standardised system it does have an impact in terms of how we want to grow, in terms of our ability to grow, and it’s not just about, you know,
20 15
you’re just going to go build hospitals everywhere where we can, but the ability to expand hospitals which are full, the ability to add, for example, mental health units where we can see a demand, so the process and the timing does negatively impact our
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ability to grow. JUSTICE NGCOBO Thank you. Is there anything that you have set out to tell us about but which you have not had the opportunity to tell us about? MR PYLE No 5
10
JUSTICE NGCOBO I can understand, you’re anxious to leave. PROF FONN I just wanted to understand something about this shortage of doctors, and the relationship between new facilities and doctors and having to attract. So are we not just rearranging the deckchairs? So, I mean, where are all these new doctors coming from for all these new facilities that you being stopped from, that you might
10
want to expand, where are they coming from? MR PYLE I mean, most of the, it is a problem in terms of some of it is rearranged the deckchairs, you take specialists from other hospitals to pull them in. The majority of
20
growth that we look at is expansion to existing facilities and sometimes within that you don’t need additional doctors, either doctors are saying, your hospital is full, we don’t
15
have enough beds in terms of our patients, and yet we can’t grow the hospital. So it is a combination of, with the ]Bryanfield 0.44.14] expansion, so the mental health expansion, but you quite right. It’s one of the reasons why we look very carefully 125 | P a g e
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about building new hospitals which, because where exactly are we going to get the specialists, where we going to get the nurses, and so it’s probably one of the reasons why our growth going forward is moved more towards expansion existing facilities rather than building new facilities. 5
PROFFONN
And particularly in KwaZulu-Natal they told us that there were a
number of hospitals that were approved but not being developed. Are any of these 10
yours? MR PYLE Not that I am aware of, no. JUSTICE NGCOBO See, unless you stand up and go I can no longer protect you.
10
MR PYLE Sorry, sorry Judge could I raise one, one issue which came up earlier? JUSTICE NGCOBO Yes, I understand, yes. Thank you. MR PYLE Thank you, Judge, it was the issue around the doctor who was refused
20
admission privileges in Rustenburg. Now, I don’t know the details of that, what I would like to say there is, where we have capacity, a doctor applies for admission
15
privileges, now, in the one side its comfortable, there’s a surgical practice, the old guy’s retiring, they bringing in someone else, they’ve got their practice management and it’s generally how its working, but where, and they doing their, they’re making 126 | P a g e
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sure that he fits in and so on, but where a new surgeon or a new orthopaedic surgeon applies to do, to get admission privileges and we have the capacity, and let’s put it at, I don’t want to be not generous but let’s say there are some elderly doctors there who are trying to protect their turf, you know, so they would then refuse us permission to grant 5
this man or lady admission rights, and we have it very carefully written out that they may not unreasonably refuse admission, and certainly in the last year I think you would find in Life Healthcare more unhappy doctors where we have given doctors admission
10
rights over the objections of the existing doctors, then doctors that are unhappy cause they weren’t given admission rights.
10
JUSTICE NGCOBO But if all of the orthopaedic surgeons at one of your facilities say to you, if you bring in another one, we will go, what would you do? MR PYLE This hasn’t happened. JUSTICE NGCOBO I know.
20 15
MR PYLE But there was an example quite recently were that did happen and we brought in the new doctors, and they had to stomach it and we’ve been giving them the monthly figures to show because we knew that was under utilisation. So we then do take our chances that they may leave but generally the reasons why they are not 127 | P a g e
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granted rights would be that we either don’t have capacity or there will be an individual doctor who will have looked at this doctor’s track record and advised us, we only want the highest calibre doctor. Thank you, Judge. DR VON GENT I want to come back to quality, my favourite subject. In your replies 5
to me and to the Judge you actually explained quite clearly that you’d prefer to publish but you referred to, what I briefly note down, as a prisoner’s dilemma. We publish and
10
the competitors don’t publish than in certain regions on individual hospitals we might look like we provide inferior quality, whilst the other colleagues do not publish and sort of benefit from that. It’s a prisoner’s dilemma, isn’t it?
10
MR PYLE Correct. DR VON GENT That’s correct, and then you mentioned, but we might still do it provided we’re brave enough, that’s the words that you used MR PYLE Yes, yes.
20 DR VON GENT Or self confident enough. 15
MR PYLE Yes, yes. DR VON GENT That’s right. I understand, I fully understand. It is more complex 128 | P a g e
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than my initial trying to lure you into giving us a commitment, it’s more complex than that, I understand that, but a prisoner’s dilemma needs to be broken, isn’t it, it needs to be broken by a collective action, that’s what the solution to a prisoner’s dilemma is. My question to you is, what is your own role as a group in breaking that prisoner’s 5
dilemma, in getting to collective action? What will your actions be to break that prisoner’s dilemma and what is the possible role of your associations or the HASA association I am thinking of?
10 MR PYLE Yes, we answered this. I think that our role going forward should be, my guess would be a proactive one in terms of putting out quality data, but I do think the 10
role of our association is a key one and I think the association should be actually playing a more proactive role in terms of quality in terms of saying, this is the hospital association, we going to agree to quality metrics, this is what we think you should do and if you either in or you out, and I think what we have to do, as a member of the association I think we should be forcing I reckon more proactively and aggressively
2015
within that association. DR VON GENT Yes, because you’re an important player in this in this organisation. Will you put it on the agenda?
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MR PYLE Yes, and I think that there’s certainly discussions that are at a HASA level, that it has been raised, it’s on the agenda but I think it’s a question of how hard you push it. DR VON GENT That’s right, that’s right and you push hard. 5
MR PYLE Self and Dr Taylor. DR VON GENT Thank you very much, thank you very much.
10 MR PYLE Thank you. JUSTICE NGCOBO Well, this is it, now whatever. Thank you. MR PYLE Thank you 10
JUSTICE NGCOBO Well, thank you very much indeed for the presentation and for sharing with us, Life Healthcare’s experience in these matters, I think in particular, for being so candid with us in terms of where you failed and what steps you’re going to
20
take in order to correct that, we appreciate that and we looking forward to a further engagement with you when we begin to deal with these issues more deeply, but thank
15
you very much indeed. MR PYLE Thank you very much. 130 | P a g e
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Session 3 JUSTICE NGCOBO Gentlemen, good afternoon. MR PRETORIUS Good afternoon, Chairman. JUSTICE NGCOBO Just indicate to me when you are ready. Very well, yes would 5
you please indicate to us who is going to lead the discussion and then perhaps place your names on record? Thank you.
10 MR PRETORIUS Thank you, Chairman, good afternoon and good afternoon also to the distinguished members of the panel. My name is Koert Pretorius. I am the chief executive officer of Mediclinic Southern Africa. With your permission, Chair, I would 10
like to take the panel through the presentation that we prepared and I will be supported by my colleagues, and I would like to introduce my colleagues to the panel. I must just find the right button. There we are. On my right we have Braam Joubert, he’s our chief financial officer.
20 15
On my left is Roly Buys, he’s our strategy development
executive and then we are also joined by Schalk Burger who’s a senior counsel from Cape Town. So that is our team, thank you. JUDGE NGCOBO Thank you.
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Chair, with your guidance, our understanding of the purpose of the presentation is firstly to use this first round of public hearings to inform the public about the business model of Mediclinic and to explain how our model works. This will provide insight on the interaction between Mediclinic and various stakeholders in the private healthcare 5
sector. I think that was a specific brief for this first round, and then we will also use this opportunity to provide some regulatory context which was also specifically asked for during this round.
10 Chair, the scope of the presentation will therefore firstly cover and provide a broad outline of Mediclinic’s business, we will be using this opportunity to set the scene for 10
further engagements, and we understand that there might be three or four further rounds of engagement where we will delve deeper into specific issues. It’s also worth pointing out, Chair, that at this point in time we still await the outcome of the data, information and profitability analysis, so we cannot deal with the outcome of those issues in detail at this round of discussions.
20 15
The specific outline that we want to use for our presentation is as follows: We firstly want to start with a brief introduction to Mediclinic, we will then cover the business environment by providing some regulatory context, then we will discuss the Mediclinic business model, and in the next section we will then specifically highlight our 132 | P a g e
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interactions and relationships with firstly the most important stakeholder in our world, namely our patients. From patients we will move to our important partners, the healthcare professionals, where after we will deal with medical schemes, administrators and managed care organisations. We will also briefly touch on our relationships with 5
suppliers and support services. Once we’ve covered all the interactions with the other players in the industry we will
10
focus on two very pertinent issues regarding this inquiry, namely expenditure on private hospital services, and then also from our own perspective, price and input cost increases at Mediclinic’s hospitals. After all of this, Chair, with your permission we
10
would like to wrap up with some concluding remarks. I will then move on to the first section, namely an introduction to Mediclinic. As you can see from this slide Mediclinic started way back in 1986 when the company was listed on the Johannesburg Stock Exchange in South Africa.
The company was
actually started in 1983 in the Western Cape in the town of Stellenbosch but we only 20 15
listed three years later in ‘86. Over many years we were able to grow the business in South Africa by developing new hospitals but also, as you can see from the slide, acquiring other hospital groups. Way back in 2005 we decided to expand geographically into other markets. The reason for 133 | P a g e
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the international expansion was basically that growth opportunities in the South African context were limited. We were still able to grow incrementally over time but we were not able to make a quantum leap in terms of growth. We prefer to our stick to our knitting and what we do is provide acute care hospital services, and we decided that 5
we would look for other opportunities to manage acute care hospitals in other countries.
10
In 2006 we bought a minority stake in a group in Dubai in the United Arab Emirates. In 2007 we increased our shareholding to a majority stake, and recently we concluded the transaction to acquire the Al Noor Group with a strong presence in Abu Dhabi.
10
The Al Noor Group was listed on the London Stock Exchange and the transaction was structured as a reverse takeover which means that our primary listing is now in London.
We still, however, have secondary listings on the Johannesburg Stock
Exchange and also on the Namibian Stock Exchange. In 2007 we also acquired the biggest group in Switzerland, namely the Hirslanden Group, at that stage they had 2015
thirteen hospitals, today they have sixteen hospitals.
We also made a minority
investment earlier in 2015 in the Spire Group in the UK, where we own 29.9%. All these international expansion opportunities were funded by raising additional capital from our shareholders and by incurring debt in those different countries.
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The assets in South Africa are ring fenced and there is no recourse to assets in Southern Africa. We funded all those overseas opportunities by incurring additional debt in those specific countries. We have a very supportive major shareholder, the Remgro Group, who facilitated these transactions and who supported us to do this international 5
expansion. Today we operate seventy-three hospitals, thirty-five clinics and we have a presence in
10
five countries. Moving back closer to home, in Southern Africa we have three listed private hospital groups. You can see the number of beds on the slide. Mediclinic is the smallest of the
10
three listed groups but we are all very committed players in the South African context. Looking to the right of the slide, you can see the market share of the different players and you can also see that NHN and independent hospitals still have a sizable market share. I think NHN at the moment actually has more beds than both Mediclinic and
20 15
Life Healthcare. If we look at our geographic footprint we currently own and operate fifty-two hospitals in Southern Africa, that is now South Africa and Namibia. In South Africa we have forty-nine hospitals and in Namibia we have three hospitals. We have a very good 135 | P a g e
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cover in terms of our geographic footprint but unfortunately we were never able to really develop hospitals in the Eastern Cape. We have applied for licences but we were not successful. This provides an operational overview of Mediclinic Southern Africa, as mentioned we 5
own and operate fifty-two hospitals, we have close to eight thousand beds. We have the support of two thousand ,four hundred and fifty-one admitting doctors and we
10
employ approximately sixteen thousand, five hundred employees. We recently opened two new day clinics, one on the same premises as Mediclinic Durbanville, and then also another day clinic three hundred and fifty meters from
10
Mediclinic Limpopo in Polokwane. We believe in the future of day surgery and we have a strategy to develop further day clinics on a collocated basis. We believe the collocation model will be the most efficient in the South African context because there are many advantages to having the day clinic preferably on the same premises as the hospital or just across the street. It is a safer option and it’s more convenient for both
20 15
doctors and patients. On the right hand side of the slide we give an overview of our main disciplines that we offer. I think it’s quite significant to note that our biggest discipline at the moment is
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internal medicine, which is a reflection of the burden of disease and the type of patients that we admit in our hospitals in South Africa. The way we describe our core business, this is now what we do. We manage acute care, specialist orientated, multi-disciplinary hospitals and we also provide some 5
related service offerings. We have three subsidiary companies. The one is ER24. ER24 was initially formed as a joint venture by Mediclinic and Afrox Healthcare
10
which today is Life Healthcare. Secondly we have a nursing agency called Medical Human Resources, they provide 90% of the agency staff that work at our hospitals. We started this business approximately twenty years ago because of the shortage of
10
nurses, and to enable us to recruit nurses to work through an agency. We also have a very small equipment manufacturing company called Medical Innovations, they import certain medical equipment and certain consumable items. We also invest heavily into nurse training; we have six training schools throughout South Africa and they are all higher education accreditation facilities.
20 15
Chair, that covers the brief introduction to Mediclinic. Moving onto the regulatory context, from our understanding there will be a separate session in the oral hearings where this will be discussed in more detail, but just to make some initial contributions on this subject, we want to refer you to slide 13. Firstly, 137 | P a g e
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Chair, it is important to note that we operate in a highly regulated sector and on this slide we mention various pieces of legislation and regulation that impact on our business. Firstly, the most important, the constitution. In this regard Mediclinic accepts that the 5
constitutional right of access to healthcare is at the heart of this inquiry. Mediclinic recognises its constitutional and statutory obligations. The precise nature of those
10
obligations will be addressed in a separate submission that we would like to file with the panel, and our advocate, Schalk Burger, has prepared a document in this regard. So with your permission, Chair, we would like to submit the document.
10
JUSTICE NGCOBO When? MR PRETORIUS Schalk? Chair, by Friday. JUSTICE NGCOBO Okay, all right.
20
MR PRETORIUS Which is tomorrow, yes, this week Friday. Secondly, the National Health Act, obviously a very important piece of legislation.
15
The National Health Act provides the framework for the newly established Office of Health Standards Compliance, this office will, in broad terms, monitor clinical quality
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of all facilities, both public and private, and as we understand the attention will accredit facilities for inclusion as service providers in the envisaged National Health Insurance. The Competition Act is obviously also very important for us and also the Medical Schemes Act. The development of the legislation in this regard has led to unintended 5
consequences for the private medical industry. This is now specifically referring to the Medical Schemes Act. A proposed five pronged reform stopped short of introducing
10
compulsory membership for the employed as well as a risk equalisation fund. This has led to anti-selection and a deteriorating risk profile of the medical scheme population. Then as far as regulatory authorities are concerned, the HPCSA’s ethical rules inhibit
10
the development of fully integrated delivery models. In this regard we are not only referring to the employment of doctors but also to global fees and fee structures where fees can be shared between healthcare professionals and hospital groups. The South African Nursing Council has been slow in developing the scope of practice
20 15
for nurses and thus the implementation of training curricular has been hampered, also slowing down the training of much needed new nurses. We suggest that the work of the Nursing Council also receives attention from this panel and that the training needs of the country be addressed. We were not able to do a new intake of nurses at our six
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nursing schools this year because the new dispensation has not been finalised, formalised and implemented. As far as provincial departments of health are concerned, each provincial department follows its own approach using different criteria to evaluate applications to establish a 5
new hospital or to expand or change existing hospitals. It’s not only about new facilities, it’s also about expanding and changing existing facilities. The criteria that I
10
used are not transparent and not consistent. Chair, I am sure during the next couple of months we will debate these issues a lot further.
10
Then, moving on to our Mediclinic business model, we think for this round it is very important to stick to the fundamentals and to try and explain and inform how our Mediclinic business model works. JUSTICE NGCOBO Perhaps before you go there, I was hoping to interrupt you at
20 15
some point. The document that will be submitted later, can we just mark it so that we don’t lose track of additional document that will be submitted in? Shall we mark that BJ1, the document that deals with the … MR PRETORIUS Constitutional issues. 140 | P a g e
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JUSTICE NGCOBO … with the legal framework? MR PRETORIUS Yes. JUSTICE NGCOBO Yes, which is going to be here by tomorrow morning. MR PRETORIUS By tomorrow morning, yes. 5
10
JUSTICE NGCOBO Tomorrow morning. Half past eight? MR PRETORIUS By tomorrow. My learned friend … JUSTICE NGCOBO Mr Schalk Burger, please do not allow him to push you into a corner. Yes, very well, thank you. So we will mark that document BJ1. Thank you. MR PRETORIUS Thank you, Chair. If we may then, Chair, with your permission,
10
move onto the next section. We now want to talk about the Mediclinic business model and specifically the provider environment. Now, the way the current model works is that our hospitals provide certain facilities and services. We provide infrastructure,
20
land, buildings and equipment, the capital component of our investment. We also provide clinical services which are focused around nursing and pharmacy. We have
15
support services, we have technical, administration, financial and other support
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services and for all of this we render a separate account. Then we have our admitting doctors, they admit patients. They are in charge of the management of the clinical process and they also submit separate accounts for the services that they deliver. 5
Then we also have radiologists, pathologists and allied healthcare professionals. They act on instruction from referring doctors and they also submit separate accounts, so the
10
key takeaway from this slide is that we have a fragmented delivery model in the private sector in South Africa, and we can understand why patients find it difficult to understand the system which is very complex and to navigate this system is not easy
10
for any patient. How do we as Mediclinic make a living? I referred to the separate account that we send to patients. The composition of a typical Mediclinic hospital account will look as follows, this is just an illustrative example. The first important component on the
20 15
account is the fee income.
Under fee income we can have various types of
accommodation charges, for instance, for a general ward or an ICU we will have a specific tariff code and price for that item and we will multiple that tariff or price by the volume or quantity or the number of days, in this case, that the patient stays in hospital. This will then give us the total accommodation on the hospital bill. 142 | P a g e
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The second important component is the theatre charge. Once again we have a tariff code at a specific price times quantity or volume which will be the number of theatre minutes in this case. Thirdly, on the fee income we have equipment. Once again various tariff codes, 5
various prices and then the number of times the equipment was used. All of this, accommodation, theatre and equipment will add up to the total fee income.
10
The next important component of our hospital account consists of the pharmaceutical items. Pharmaceutical items are divided into two specific categories. We have the ethicals, once again a tariff code and a price per item times quantity, and then the
10
second important component, surgical’s, we there also have tariff codes and prices times quantity or volume. That will give us the total pharmacy component of the bill. If you add up those two main components, the total fee income and the total pharmacy income, you will get the total account which normally includes Value Added Tax.
20 If we analyse this into more detail and we look at the composition of the account it is 15
interesting to note that fee income, in other words ward, theatre and equipment will make up 73%, in the case of Mediclinic, of our hospital bill. The pharmacy side makes up 27%, that 27% is divided into two portions, two thirds of the 27% goes towards 143 | P a g e
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surgical’s or medical devices which is then 18% of the total account, and 9% makes up the ethical and the medicines, sorry, the other third of the 27% goes towards ethical and medicines which is then 9% of the total account. So fee component 73%, pharmacy 27%. 5
If we analyse the pharmacy component further we have these two major
groupings, on the left hand side, ethicals and medicines. The prices of these products are regulated by the single exit price dispensation and at Mediclinic we don’t charge any dispensing fee on these items.
10 On the right hand side we have the so called consumables or surgical’s or medical devices. These items are not regulated by single exit price. These items, in the case of 10
Mediclinic, are billed at cost. We call this model the Net Acquisition Price Model. Mediclinic introduced this model in 2003 before the SEP was introduced on ethicals or medicine. At that point in time in our industry, pharmacy inflation was running away. Pharmacy inflation was extremely high and our company was of the view that those price increases would not be sustainable. So we negotiated with the medical schemes
2015
that we will move the profit that we made in pharmacy at that point in time towards our fee income. We did that on the ethicals as well as the surgical’s, more than a year before the SEP legislation was introduced in 2004. As a consequence, we made less profit in the following years, but our view is that long term sustainability is much more important to us than maximising profits in the short term, so we fundamentally 144 | P a g e
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believed we needed a tariff structure where increases on tariffs would be closer related to CPI, and that the system will not be able to afford the runaway inflation that we had during those days that we had on the pharmaceutical component. Having covered how we make a living and how we charge for our accommodation, 5
theatre and pharmacy items, we now want to explain how our input costs work. Firstly, it’s important to note that hospitals are highly labour and capital intensive
10
facilities. Capital costs are not directly factored into the tariff escalation calculations. When we negotiate with medical schemes on an annual basis we motivate our increases by referring to increases in operating costs, not increases in capital costs, but it is
10
important that our tariffs should be sufficient for the replacement of capital items and the opportunity cost of the capital employed. Chair, at this point in time I’m just explaining the model. I’m not going to spend time in this section on drivers on input cost. We have a separate section where I will deal
20 15
with that in detail. If we look at breakdown of our operating costs, on this slide, please take note, input cost has a percentage of operating cost which excludes the pharmacy component of our business. In our world pharmacy is [a past] centre,, we make no profit, we get no 145 | P a g e
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rebates on pharmacy so we exclude that. We focus on the tariff component of our business. By far our most important input cost is nursing salaries. It ranges between 47 and 51% of our total input cost. Then other salaries that’s now for admin, pharmacy and technical staff makes up between 14 and 18% of our input cost, repairs and 5
maintenance, between 4 and 6%, electricity and water has been on the increase in recent years, it is now between 2 and 4% of our total costs. Rates and taxes have increased to between 1 and 2% and then catering, laundry and cleaning is between 7
10
and 8%.
We also have other expenses like information, communication and
technology expenses, audit fees, insurance, consultancy fees, legal fees and all the 10
others that make up between 16 and 20%. Moving over to capital costs, as you know we develop specialised buildings according to regulations. To develop these buildings are very expensive and I will come back to that later on. We also purchase specialised medical equipment, mainly imported and complying with European and American patient safety and quality standards. We
2015
don’t have a dispensation in South Africa where these pieces of equipment can be accredited. So at Mediclinic we will not use medical equipment unless it has the European CE quality mark or unless it’s been approved by the FDA in the United States, because in our world, patient safety is our most important value and goal. We
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do not compromise on patient safety and we will not use medical equipment unless it meets stringent patient safety and quality standards. Technology innovation plays a role and is normally linked to new types of treatment and to better clinical care that can be provided to patients. 5
Now that I have explained the business model of Mediclinic and how we charge for our services and what our most important cost items are, Chair, with your permission I
10
would like to continue to the next section where we will now explain how we engage with different stakeholders in our business environment. We will start with patients. As I have mentioned this is our reason for being, this is our
10
core business, and this is how we make a living, by caring for patients. Our most important strategic objective is to put patients first at Mediclinic. Over time in our thirty year history we went through different development phases and all over the world reference is often made to so called putting the patient at the centre of what we
20 15
do, and patient centricity, but during a recent visit to the United States we actually learnt that the right thing to do is to put patients first, otherwise you may have a situation where patient centricity, patients at the centre, but doctors first.
Our
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The way we deliver our service and the way we look at our service offering is by way of this value equation. It has three important components. Firstly, superior clinical quality, then maximising the patient experience and thirdly, managing cost efficiencies or so called cost per event. Now, in the value equation you can increase the value 5
proposition to your patient by increasing your clinical quality and your patient satisfaction or by decreasing your cost per event or by doing both, and we have various strategies regarding each of these important components of the value equation.
10 Communication with patients, obviously very important. We have a website where patients can access a whole lot of information. We are just mentioning some examples 10
of this slide. Patients can access a pre-admission form and they can do their admission before they arrive at our hospital. There’s a whole explanation of the hospital billing process and how that works. There is a private tariff schedule that is published. Please keep in mind that due to our negotiations with all the individual medical schemes the tariffs do differ between schemes, so we don’t have a tariff list per scheme. That is
2015
part of the contract that we negotiate with the scheme, but we have a general private tariff schedule. There is also a function where patients can search for doctors or hospitals within the Mediclinic group. Patients that don’t have access to a website can get this information 148 | P a g e
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from our hospitals. They can either visit the hospital or they can phone the hospital but they can also access this information. We also have nurse driven pre admission clinics at our hospitals and we provide information to our patients on the medical schemes benefits that they will be able to 5
access. We also communicate with medical schemes on behalf of patients.
10
Many times
patients need to do pre-authorisation, they need to, the case needs to be case managed during the patient’s stay in hospital so we act as an agent on behalf of the patient to engage with the specific medical scheme. We also have a patient complaint and
10
compliment system in place. There are various ways in which patients can access the system, they can either write to us, they can phone us, they can visit the hospital, they can send an email or they can use our patient satisfaction system to initiate either a compliment or a complaint.
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Healthcare is about clinical quality. We have various clinical quality initiatives in place. These are normally organised around three main headings, namely structure, process and the measurement of outcome. We have a strong focus on all three of these components and I want to elaborate on what we do regarding each of these.
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Firstly, our hospitals are accredited by Kusasa, Kusasa is the only independent accreditation authority in South Africa that has been accredited by ISQIH, the Institute for Quality in Healthcare. We also have annual Department of Health inspections where they make sure that our facilities and equipment and all of that are up to 5
standard. We are keenly awaiting the finalisation of the national core standards by the office of the Health Standards Compliance and in our company we have a well functioning integrated clinical department as part of our organisational structure and
10
we have started with a process now to appoint clinical managers at hospital level. These clinical managers are qualified medical doctors and their role will be to support
10
our hospital managers, who are normally general managers, and to make sure that patient safety receives the necessary attention, and also to engage with our supporting doctors regarding quality initiatives. So we do a lot to put the necessary structure in place. As far as process is concerned, we have a tool within Mediclinic, the Cura tool, we use
2015
this to keep our clinical risk register up to date. Hospital management teams do control self-assessments, and then we have audits that are conducted by our clinical department to make sure the quality at hospital level receives the necessary attention. As other players in the industry, we are also involved in the Best Care Always project, 150 | P a g e
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and it’s important for us to ensure compliance and I think our industry, both public and private sector, has actually made good progress due to the Best Care Always initiative. It is one of the success stories in our industry as far as quality improvement is concerned. 5
Our company also at big cost implemented the ICNet surveillance program which is a software program from the United Kingdom that links your hospital directly to
10
pathology groups.
All our supporting pathology groups are now on the ICNet
software. It tracks infections in your hospital, flags possible risks and gives you the results immediately. So that is another very important initiative as far as process is 10
concerned. Over time we’ve developed many clinical care performance indicators. Way back in 2008 we were the first hospital group to publish our clinical key performance indicators at a group level as part of our integrated annual report. This information is available on our website.
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As far as outcome databases are concerned, we have implemented quite a number of initiatives. We subscribe to the Vermont Oxford database which measures the quality of care in neonatal intensive care units. We also implemented the Apache database
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which measures quality in adult ICUs and we have a cardiothoracic database as well to measure outcomes at our heart units. We also have a hospital events management system where events are reported and graded according to the severity of the event, in different levels, from one to four, and 5
we use these reports, together with legal reports to evaluate trends in our company, to look at problem areas and to make sure that we initiate quality improvement initiatives
10
to address shortcomings. The next slide is just an example of some of the clinical quality initiatives that we measure and that we publish in the annual report as part of the clinical services report.
10
The top section deals with anti-microbial utilisation indicators, this is our information over the four years, from 2012 to 2015, and on the bottom part of the graph we have device associated infections in Mediclinic Southern Africa from 2012 to 2015. We obviously have this information available per hospital and at the moment we actually have a clinical performance indicator dashboard with twelve important indicators that
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we measure. This information is shared with our supporting doctors who have a clinical hospital committee per hospital where this information is discussed per hospital amongst the doctors, and we also share some of this information with medical schemes.
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Our thinking about the future is to move away from negotiations that only take cost into consideration. If you think back about our value proposition, we think when we negotiate with funders we should talk about value and not cost only. We should include quality and also patient experience. 5
MR PRETORIUS
Moving
from the clinical quality to the patient experience
component, Mediclinic, after many months of research, decided to implement the Press 10
Ganey patient experience system. Press Ganey is a US based company. They are considered to be a world leader in managing patient experience. This system has now been implemented at all Mediclinics platforms, not only in Southern Africa, but there
10
are many advantages to the Press Ganey system. They have a very scientific way in which to measure patient satisfaction and they also make recommendations on how to improve. It was quite an onerous task to roll this out, but since 1 September 2014, we’ve had twenty-five patient voices heard at Mediclinic. We don’t do a sample. This survey is
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sent to every Mediclinic patient either by way of email or by post. Unfortunately, with the strikes in our post office, that component didn’t work so well last year in South Africa, but patients who don’t have access to email can complete the questionnaire in a paper based
format.
The average e-survey response rate is 21%, remember, all 153 | P a g e
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patients receive this survey, and we’ve identified ten improvement opportunities for every hospital to make the biggest impact on the patient’s experience where it matters most. The big advantage of this Press Ganey system is that it does not only give you feedback 5
on the patient’s experience, per question it makes recommendations on where to improve if you are not satisfied with your result.
10
Our results are then benchmarked against more than 1,800 hospitals globally. These hospitals all take part in the Press Ganey survey and are mainly in the United States, and probably deliver the best patient experience because they have been part of this
10
Press Ganey system for approximately twenty-five years and we are fairly new. If we look at our actual results, these are our actual results for 2015. On the left hand side, we have the survey section, then we have the average mean score for Mediclinics Southern Africa, and then we have the Press Ganey average mean score, which is the
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average score for the 1,800 best hospitals in the world. So we compare ourselves to a very high benchmark. We are not satisfied with where we are. We want to improve, we really want to be world class, but for a company that only started with this survey in 2014, we are 154 | P a g e
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satisfied with the performance and the improvement in this short period of time. You can see on many of the items we are close to what we use as a benchmark for ourselves, but on others we have more gaps and more work to do to get to be the best. As a company, we have made an in principle decision that we want to publish this 5
information. This information at the moment that you see is at group level, but obviously once again, we have this information available at hospital level. We just
10
have to finalise the date by when we will publish this, Dr von Gent. DR VON GENT At the hospital level. MR PRETORIUS Yes. We believe it’s an extremely powerful tool to use not only to
10
measure where we are, but to help us to improve. The third component which deals with the third component of the value equation is the so called cost per event. Now, this is one example after we implemented an innovative
20
knee replacement product, where we work together with our supporting orthopaedic surgeons in an integrated manner, which is not the norm in our industry, but here we
15
can see the improvement, the observed over expected bed days, pharmacy prosthesis and theatre minutes for genetic drugs, theatre time and length of stay, and we can see the reduction in the cost per event after we engaged with our doctors on these issues. 155 | P a g e
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In other words, Chairman, focusing on our patients, measuring quality, measuring patient experience, addressing cost efficiency is what our strategy is about. Moving on then to healthcare professionals. Firstly, we want to give some perspective on the shortage of healthcare professionals. If we look at doctors, GPs and specialists 5
per 100,000 people in South Africa, you can see where we rank against other countries in the world, the orange bar in the top section of the slide. We have the same
10
information for the number of total nurses per 100,000 people and once again, we can see where South Africa lies. Now, there is a detailed study that was done by Iconics and it was submitted as part of
10
our comprehensive submission. The important point is to keep in mind that we operate in a context where we have a shortage of healthcare professionals. So how do we develop our relationships with our supporting doctors? Firstly, our doctors have clinical and business independence. The doctors who admit patients to
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Mediclinic are clinically independent and they decide why and when to admit the patient, what the treatment should be and when the patient is ready for discharge. The same applies to the independence of his or her business interests. Each doctor practises for his or her own account and generates his or her own income, as I explained previously. 156 | P a g e
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As far as recruitment of doctors are concerned, Mediclinic or a group of doctors already practising at the hospital, may identify practice opportunities based on the needs of the community or the practise requirements of the doctors, where after the recruitment of another doctor will be initiated. It is a complex process, it is not only 5
doctor driven, it’s also not only hospital driven, it’s done in conjunction with our supporting doctors but the final decision is made by the hospital.
10
Both GPs and specialists may have admission privileges, although it is generally found that in the urban hospitals we have more specialists and less GPs admitting patients, but at some of our rural hospitals, we have GPs who are in the majority. The privileges
10
are based on the needs for the discipline, qualifications and registration at the Health Professions Council and are subject to the availability of beds, theatre time and the need of the community. The most important aspect that we have to offer a doctor is a viable practice opportunity. We will never recruit a doctor to set a doctor up for failure. If we can’t
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accommodate more volumes, we can’t recruit another doctor and if there’s no need in the community or market that we serve, we will also not recruit an additional doctor. We provide consulting rooms at most Mediclinic hospitals, there are a number of consulting rooms which are available for rent by doctors and other healthcare 157 | P a g e
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professionals. Doctors who do not have consulting rooms may also have admission privileges. At some of our hospitals, we have no consulting rooms and at other hospitals there is a shortage of consulting rooms.
So it’s not a prerequisite for
admission privileges to have consulting rooms. 5
Then, as far as shareholding is concerned, we have various shareholding models at our hospitals and the details thereof have been provided to the technical teams.
10
We
actually provided detail on our recruitment policy, admission privileges and consulting rooms as well in our detailed submissions. I just want to elaborate on the shareholding aspect. We inherited various models with
10
historical takeovers, as I showed on the slide that covered our history. We took over many groups since 1986 when we started or when we were listed, and at most of those hospitals there were different shareholding models in place, but we also initiated a new shareholding model in 2012 and we basically did that because the experience at the other hospitals, where we had the shareholding in place was so positive. So the
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rationale for the new 2012 shareholding model initiative is; firstly to establish a partnership with supporting doctors through co-shareholding, secondly, this ensures formal and structured participation in hospital management. We believe it’s very important to increase quality and decrease cost by a closer working relationship 158 | P a g e
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between the doctors and our hospitals and this is a vehicle to facilitate that closer relationship. This leads to joint accountability by hospitals and doctors to manage the value proposition for the patient, in other words, to manage quality and cost efficiency. This supports our ultimate vision to put patients first at Mediclinic. This is one of the 5
offerings used to attract and retain doctors to our hospitals. An individual doctor’s shareholding is capped at 2% of the particular hospital and doctors may hold up to an
10
aggregate of 25% of the total shares in the hospital. The shareholding model is an arms length transaction. Doctors pay for the shares at market value and shareholding is not in any way linked to any incentives of increasing
10
patient admissions or turnover. In setting up this new 2012 Mediclinic shareholding initiative, we ensured compliance with the ethical rules of the Health Professions Council, they have strict rules governing shareholding. Now, that we’ve covered healthcare professionals, we will move over to medical
20 15
schemes administrators and managed care organisations. Our tariffs are negotiated on a national basis. 90% of our revenue is attributable to patients belonging to medical schemes. The negotiation process is very robust, it is not perfect, but it works. Medical schemes have countervailing power through their size, 159 | P a g e
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through their comprehensive access to data, not only about hospitals but also about doctors and other provider groups and network arrangements.
In our tariff
negotiations, there is absolutely no distinction between prescribed minimum benefits and non PMBs. We charge the same tariff irrespective of what type of procedure it is. 5
It’s also important to note that we don’t only engage with medical schemes to negotiate tariffs. There’s a lot of information sharing happening as well. We talk about quality initiatives, we talk about patient experience, we talk about managed care issues. We
10
normally have to get pre-authorisation before we admit a patient, and once a patient has been admitted, case management needs to take place and we support our patients and
10
we act as an agent on their behalf to engage with the medical schemes. Then moving briefly to suppliers and support services. For us to be able to deliver our service, we procure pharmaceutical and medical equipment supplies which are mainly imported goods from various suppliers. I explained earlier that most of these items are imported in South Africa.
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When it comes to catering, laundry, cleaning, security, medical waste management, these services are normally outsourced. The main reason why we outsource is that we are not specialists in running these types of services. We prefer to outsource to specialised companies who have the knowledge, firstly, and secondly who have 160 | P a g e
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economies of scale to do these types of services more efficiently than what we can do. That enables us to focus on the clinical business of treating patients. Chair, we’ve now briefly covered at a high level, our engagement with our most important stakeholders in our business environment, and we would now like to move to 5
the last two sections, which we feel are at the heart of this Health Market Inquiry. In the first section, we will look at expenditure on private hospital services. If we say
10
expenditure on private hospital services, we mean from the point of view of medical schemes and patients who pay for our services. Now, we’ve identified in our business, three drivers of expenditure. Firstly, price will
10
obviously play an important role, and in this context we have to refer to price of the hospital services, the fee component as well as the price of pharmaceuticals, secondly, the quantity of medical services or the volume of services that are provided and thirdly, the intensity or acuity of the medical services used.
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All three of these play an
important role in driving total expenditure by medical schemes on private hospitals. So we will deal with each one of these in a little bit more detail during the remaining slides in this section. To start with, we have a breakdown of Mediclinic’s increase in revenue by source. 161 | P a g e
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This covers the period 2010 to 2013. If you look at the bar charge, you will see the area in green indicates our price increases on an annual basis. This is now revenue per bed day, which includes the fee component as well as the pharmacy component. The quantity is indicated in orange, and the intensity of care is indicated in grey and on the 5
left hand access, you can see the annual percentages. So all three play an important role.
10
What are the drivers of expenditure? Price, as you saw on the previous slide, is slightly above CPI, but the volume and the intensity is where the real challenge lies. So if we look at our own Mediclinic data and we look at age band, for a very long
10
period, from 2002 to 2013, we can see the percentage increase in the number of admissions by age band. So it is very clear that neonates, right on the left, the age less than one year, increased more. Then during a patient’s healthy years, the increase in admissions were a lot less and then later on in life, the rate of the increases picks up again. So this is the increase in the number of admissions by age band.
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On the next slide, we have the cost of a Mediclinic inpatient admission by age. Once again we can see patients younger than one year, very high cost, mainly neo-natal patients and then a big dip and then later on a big increase again in the cost of the inpatient admission once a patient is older than fifty years, which is still young. 162 | P a g e
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If we look at another important factor, burden of disease. This indicates the percentage of inpatient admission admitted to Mediclinic with diabetes, hypertension or hyperlipidemia for the period 2010 to 2013, and we can see that the percentage of inpatient admissions grew over time due to the fact that, or the number of patients that 5
we admitted with these comorbidities increased over time from 2010 to 2013 and the trend is obviously continuing.
10
On the next slide, we have the percentage of Mediclinic inpatient admissions with multiple chronic conditions, as identified by the chronic disease list. So we can clearly see that the patients that we admit with four chronic conditions in 2013 is 5%. In 2010
10
it was only 3%. Patients with three chronic conditions increased from 5 to 6% and patients with two chronic conditions from 7 to 8%. So this clearly illustrates our experience in terms of the burden of disease. On the next slide, slide 44, the cost per inpatient admission by the number of chronic conditions prevalent. It is clear that the more chronic conditions the patient has, the
20 15
higher the cost of the admission will be, and it is actually significantly higher. If you compare the bar chart on the left, patients with no chronic condition or one chronic condition, it’s 50% per admission of patients with four chronic conditions. This is an interesting example of hip replacements, once again, Chair, based on our actual 163 | P a g e
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Mediclinic information. If we use patient A as a base case, in other words, patient A, a fifty year old patient with normal body mass index, no underlying chronic conditions, the expected account excluding the prosthesis for a hip replacement will be a certain cost. If we do exactly the same procedure on a seventy-two year old patient that is 5
severely obese, with diabetes, the expected account once again, excluding prosthesis, will be R7,600 more than for patient A. Patient C in our real life example is an eightyfive year old patient, morbidly obese, with diabetes and hypertension, the expected
10
account will be almost R29,000 more than for patient A. So, this illustrates the impact of both age and burden of disease on the cost of treating the patient. So what we are
10
saying, Chair, is that we are admitting more older and more sicker patients. That’s why price inflation is higher than consumer price inflation in the hospital context. Now that we’ve looked at drivers of increases in expenditure by medical aid schemes on private hospitals, we want to look at our own in-house Mediclinic situation and we will deal with price and input cost increases at Mediclinic hospitals.
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Our hospital tariff increases are based on our input cost increases. Hospital input cost increases are above CPI. The most important cost item, nursing salaries, this is the largest operating input cost with high inflation due to mainly two reasons; the critical shortage of nurses, and the competition for nurses with not only other private groups 164 | P a g e
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but also the public sector, and ten also electricity and food show increases consistently above CPI. On the right hand side, we just replicated the earlier slide where we looked at the most important input costs as a percentage of our total operating cost. 5
This slide gives perspective on cost increases and tariff increases compared to CPI. We developed this on an index basis, going back to 2006. If you look at the graph, the
10
black dotted line right at the bottom or the lowest graph represents normal CPI over that period from 2006 up to 2013. The blue line represents the increase in food cost, the green one right at the top is electricity and the purple slide, which is higher than our
10
tariff increase and CPI represents the weighted nurse basic salary increases. You can see the Mediclinic tariff increase is the orange line, which is higher than CPI, slighter higher than the increase in food cost, but lower than the increase in nurse salaries and also lower than the increase in electricity.
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Moving over to capital expenditure. This slide shows the growth in the BER, Bureau for
Economic
Research,
at
the
University
of
Stellenbosch
business, building cost index, thank you Braam, and the depreciation of the rand against the euro over a five year period. You will see that the cumulative impact from
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2009 to 2014 for the building cost index is 30% and the rand-euro exchange rate is 32%. We pay for most of our imported equipment in Euros and not in dollars. We have to make provision for future capital expenditure. The development cost for a new hospital today, depending on what type of hospital you develop, will be between 5
R2.5 and R3.5 million per bed. Our newest hospital that we opened was in March 2015, the new Mediclinic Midstream. It’s a 176 bed hospital with a heart unit, two
10
cath labs, and the development cost was R3.2 million per bed. We also have to make provision for replacement of equipment which costs us 2.5% of revenue per annum. If we look at the Mediclinic situation and our increases in occupancy rates. On the left
10
hand access we have the occupancy rate and you can see that since 2008 our occupancies increased from 63% to 67% in 2013. Today our occupancy rate is at 73%. The reason why we were able to absorb those above CPI cost increases was because our occupancies increased and it made us more efficient. It’s not because our tariffs
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were adjusted in line with the increase in the input costs. We clearly saw on the index slide that our own tariff increases were less than the increases in many of our input costs, specifically the nursing costs. The black line represents our IBDR margin, which you can read on the right access and 166 | P a g e
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you can see, we were not able to increase our margin even though we had significant volume increases because of the input cost pressures. Our margin remained stable. So what we actually say with this slide, is that fixed cost efficiency was passed onto medical scheme members because we were not able to increase our tariffs in line with 5
the increase of our input costs. Another important component that we have to focus on when we look at factors
10
driving our price increases is the pharmaceutical cost. Just a reminder that in our world, pharmaceutical cost is a cost item, it’s not a profit centre. So as far as surgical and medical devices are concerned, those prices are not regulated.
10
We negotiate these prices with suppliers but we sell these items at the net acquisition price, in other words, at cost, the unique model we introduced way back in 2003. As far as ethicals and medicines are concerned, these items are regulated by the SEP Dispensation. There are no negotiations with suppliers, but, Chair, SEP does not mean
20 15
prices in South Africa are sufficiently contained. On the next slide we have an example of a study that we conducted within the Mediclinic International Group. As I mentioned earlier, Mediclinic has hospitals in Dubai and Switzerland. This has enabled us to do comparative price studies and we 167 | P a g e
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used 76 ethical items that are the 76 items that we use the most in South Africa, it’s also the highest cost items. All ethical items are regulated by SEP. The study found that on a weighted average basis, the price of key products is between 22 and 92% lower in Dubai, and between 27 and 61% lower in Switzerland. 5
One has to be careful not to jump to conclusions because this is not a comprehensive study of all the pharmaceutical items. It’s a study conducted by Mediclinic on 76
10
items that we use in our hospitals, the top value and top volume items, but we have access to information in Dubai and Switzerland and we were able to compare these prices for these items.
10
In our written submission, Chair, a further interesting comparison between SEP and South African state tender prices has been undertaken, based on information that was available in the public domain. An analysis of price differentials on selected antibiotics medicines indicates that private sector acquisition costs as per SEP, are on average 254% higher than public sector products of identical brand name and active
20 15
pharmaceutical ingredient. So we want to raise a flag. This raises the concern that the private healthcare market may be cross subsidising the pharmaceutical costs of the public healthcare market. A system of cross subsidy would be a key factor in driving
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private costs. We also conducted two additional exercises to check for the reasonableness of prices in the private sector. This is, as far as we know, the only study that has been done in this regard, and this information was presented at one of our hospital association 5
conferences. This is a comparison of average cost per admission for private hospitals and public hospitals. The public sector average cost per admission, in this study, also
10
based on information available in the public domain, is R8,775 and in the private sector, average cost per admission worked out to be R9,284. This goes back to 2010, so obviously those numbers are not in today’s terms, but the ratio of average cost per
10
admission worked out to 1.058 between the private and public sector. So what this slide indicates is that based on this study, the cost of admission in private hospitals is only 5.8% higher than the cost in a public hospital. Obviously during this study, adjustments were made for differences in pharmaceutical cost between state tender price and the private sector and also the impact of Value Added Tax was
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eliminated, because in the public sector no Value Added Tax is charged on hospital services. Chair, we did another very interesting exercise, and to me, this is the most powerful slide on reasonableness of price. If you look at medical schemes and total benefits that 169 | P a g e
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were paid out in 2014, private hospitals received 37.6% of the total expenditure. Other expenditure worked out to 62%. Now, I showed earlier an overview of a typical hospital account of Mediclinic. Our fee income worked out to 73%. Now, if we give on our current tariff component of our bill, remember we don’t make profit on 5
pharmacy. If we give a 15% discount, it will reduce our IBDR margin by 50%. We will go out of business. We will not be able to attract capital. For a 15% discount on price, we will reduce our profits by 50%. This will lead to 4% once off reduction in the
10
contribution rate of the typical medical scheme member. According to the Council of Medical Schemes, the average contribution per beneficiary
10
per month worked out to R1,410.
In other words, medical aid members per
beneficiary, will save R60 per month and we will be out of business. This clearly illustrates that the problem with expenditure in our system does not lie with prices at private hospitals. If we want to save money in the system, we must address the quadruple burden of disease that we have in this country, we must keep patients out of 2015
hospital. Once they are in hospital, it costs money. The provision of healthcare, unfortunately, in the public sector and in the private sector is expensive, the capital investment is expensive, the pharmaceutical items are expensive, the equipment is expensive. So if we want to save money and if we want to curtail increases in healthcare expenditure to normal CPI, we have to address the increases in utilisation. 170 | P a g e
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JUSTICE NGCOBO If we keep patients out of hospital, it will drive you out of business. MR PRETORIUS It will, Chair, but we must still find the magic touch to do that. The problem is in South Africa with TB, HIV, violence, lifestyle diseases, unfortunately we 5
see the impact of the burden of disease, and it’s difficult to curtail the admission rate at hospitals.
10
JUSTICE NGCOBO It becomes a matter of choice whether you are driven out of hospital via the discount or via keeping patient out of hospital. MR PRETORIUS Chair, we have to find a balance somewhere in between.
10
JUSTICE NGCOBO I understand, yes. MR PRETORIUS This is basically the last slide, Chair, before I wrap up with closing remarks.
20
We received a copy of the OECD and World Health Organisation report. We’ve asked economists to study the report on our behalf, specialists to advise us, but we want to
15
make some initial comments, but I don’t think it’s really appropriate to discuss it in detail because we are not prepared for this at the moment.
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We believe the samples that were used are not comparable, the purchasing price parity adjustments are insufficient, the growth and demographic profile of medical scheme beneficiaries was not adequately controlled for in the study, patient profiles specific to the sample was not controlled for, and conclusions are unsubstianted due to flawed 5
analysis. These are just some preliminary remarks. JUSTICE NGCOBO But used elite advice from your analysts.
10
MR PRETORIUS We got this from them already, but before we go into this in further detail … JUSTICE NGCOBO I understand.
10
MR PRETORIUS ... we want a full report. These comments, Chair, are based on their initial feedback. Thank you Chair. I will make concluding remarks, if that is in order. Thank you.
20
JUSTICE NGCOBO Yes, thank you. MR PRETORIUS Chair, increases in expenditure by medical schemes on private
15
hospital services cannot be benchmarked with reference to CPI. Our input costs do not track CPI for various reasons. Increases in expenditure are driven by increases in hospital price, but more importantly, by increases in utilisation. Increases in hospital 172 | P a g e
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prices are marginally above CPI due to above inflationary increases in significant input costs, and due to the counter, the balance of power between the hospitals and the medical aids, we can’t pass on the increases in our input cost to our prices. Increases in utilisation are driven by, amongst others, the aging patient profile, burden 5
of disease and anti-selection. On the right hand side you will see the total expenditure by medical schemes which is made up of all three blocks, comprises CPI plus then the
10
above CPI increase in our tariffs which is then the hospital price, driven by our input cost, but the big component at the top, the utilisation is really the difficult one to address.
10
In terms of recommendations, in order to ensure a sustainable and more efficient private healthcare market, the focus must be on, firstly, regulatory reform aimed at ensuring the stability and viability of the medical scheme risk pool. I referred to this, I referred to the fact that the risk equalisation fund and compulsory membership were not introduced.
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We have to remove barriers to develop integrated delivery models. This relates to global billing, global fees between hospitals and doctors as well as employment of doctors. We don’t believe employment of doctors is a prerequisite for us to work closer together with our doctors, we have to do it any case. 173 | P a g e
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Effective and accessible training facilities for nurses and doctors, we have a problem in that regard, and obviously a more effective public healthcare sector will also support the bigger healthcare system. Chair, I also want to add that the whole discussion around licensing at provincial level, 5
which we raised on the regulatory context, I think should receive attention going forward as well.
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Chairman, with that I want to say thank you very much. JUSTICE NGCOBO Thank you.
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Session 4 JUSTICE NGCOB Okay, I think, we must get ready to start. If we can all get seated please. Can we start with you, sir? DR VON GENT Mr Pretorius, you know what I will be going to ask you, of course, 5
again, breaking news. No, serious. Yes, I ooze with interest of course. I listened to your presentation and it is precisely our expectation, in the sense you give us a global,
10
an overview of who you are and where you are, and we will be able to meet several times during this inquiry on more specific issues, and drilling down on specific topics related to prices and volume, etc. and competition, competition dynamics, profitability,
10
but on the equality thing, which is quite important for us, information, of course, in this system is vital, particularly in a market driven system is vital, and, I think, we must agree that the information available to consumers at the moment is not as it should, and you’ve taken us through a number of initiatives, both on the clinical side and the patient report, the patient experience. Can you answer the same question that I asked
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your colleague before, that is, why is it that this information is not yet available to consumers? MR PRETORIUS Dr von Gent,, I think, the reason why hospital groups are hesitant to publish the information is because with regard to the publication of information we 175 | P a g e
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operate in a vacuum. There is no regulatory context. We need a central independent body to determine standards, to develop a methodology according to which we should measure and then we should have guidance on how to publish. If some group takes the lead now it will be very difficult for other companies to publish comparable 5
information, because our clinical KPI dashboard with the twelve clinical indicators that we’ve developed might look different to what the other groups have developed, and, I think, people are hesitant to publish if information cannot be compared if apples cannot
10
be compared to apples. So, I think, we really need and we will definitely support and work together to establish at an industry level a body that can take this whole process
10
forward. DR VON GENT I fully understand. It’s the logic of collective action, isn't it. You can't, actually, well you can do it on your own and can and you will, you told us this morning, publish on your own maybe what is less sensitive from a competition point of view, so your comparison to the 1,800 hospitals, which is courageous because I fully
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agree if you do this as from 2014 you are bound to see results that you wouldn’t like to publish, but if you do it anyway with the explanation, I’m sure the public will understand what is happening here, but yes, the more structural solution is a collective solution on some respects, of course, on the standardisation, agreeing on what clinical indicators and what patient reported methodology to arrive at, and there are different 176 | P a g e
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players here that could play a role. It could be HASA, it could be HPCA, I don’t think you are waiting for that, it could be schemes, it could be a collective of schemes, government and, and, and hospitals and doctors. I personally elect an initiative in the Netherlands for four years, on that collective effort, but it can’t be without collective 5
action, isn’t it, and my question to you is, my impression is that all parties are waiting for one another at the moment and you need not necessarily wait for government or a governmental organisation to start an initiative. You could as hospital groups, I mean
10
it’s not price coordination that you are proposing, you are proposing coordination on standards which is a completely different issue from a competition point of view, as the
10
senior counsel will confirm. So is it, are you waiting for one another and is there an initiative to be expected from you to cut through the prisoner’s dilemma? MR PRETORIUS Doctor, as a company, we have been discussing this whole issue for many years and as I mentioned earlier in 2008 we already published a clinical services report in our annual report, but that is aimed at shareholders, it’s not directly aimed at
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patients, but we took the bold step in the absence of a regulatory context, to publish the information.
Since then, at a hospital association level, we have a quality
subcommittee. This committee has engaged actively over the past five years at least with government, and the recently established office of Health Standards Compliance. We really want to compliment government for taking that initiative, that is a step in the 177 | P a g e
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right direction, and the fact that they have the vision to say that those standards must apply, not only to the private sector but also to the public sector, we think is very positive and our quality subcommittee at an industry level has been engaging with the office of Health Standards Compliance for many years to work on detail, to comment 5
on draft standards. Unfortunately Dr Carol Marshall who spearheaded this initiative retired recently, and, I think, we lost a bit of momentum but we know that our national Minister of Health is very passionate about quality healthcare. We share that vision
10
and passion, and we will definitely, at an industry level, take this further and from our side we will initiate a further action at an industry level to give this the necessary
10
attention. DR VON GENT Can you let us know what is happening at the industry level before they enter this inquiry because we might want to take it on board in our report? It’s a very important topic,, I think, for South Africa and for the inquiry, and then, of course, thank you very much, and then, of course, as a topic of cooperation with the doctors
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because the doctors have a special position in this, we all acknowledge it, I think, and it’s a sensitive one but it’s a vital one, so you have to, hospitals and doctors need to, as my question this morning was, you are responsible for what is happening within your four walls, and left or right that includes also what happens at the doctor’s level. Isn’t
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it? How do you look at that, the prospects of cooperating with doctors, with your doctors? MR PRETORIUS Doctor,, I think, you raise a very important point because the private sector model in South Africa, as I pointed out, is actually a fragmented model. 5
Fragmented healthcare models do not really support optimal quality and cost efficiency.
10
So we cannot improve the value proposition to our patients without
involving the doctors. Healthcare is essentially a team sport and we all have to work together and when doctors are trained in the academic sector, they play in a team and when they move into the private sector, they work in silos in the individual private
10
practices. So we have to change that model. All of us have to work together to put patients first and to support the quality and the cost initiatives in our hospitals. So as a company we have established clinical hospital committees at all our hospitals, and the sole purpose is to engage with our supporting doctors on issues of quality and patient experience, as well as the cost per event. So we have to do it in a cooperative way by
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sharing the information with the doctors and we give every doctor a profile of the work that they do at our hospitals so that they can see, and we benchmark them against their peer group, and obviously most doctors don’t want to be outliers, so if they see where they lie in relation to their peers, they make plans to improve the situation, and the example that I showed on the knee replacement, we didn’t force the doctor to do 179 | P a g e
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anything, we just showed him he is an outlier and he made plans to improve the situation. DR VON GENT There is excellent research in the United Kingdom on this, on if you show doctors the results they will improve. In the same research it is shown that it is 5
one thing to show them and to benchmark them, it’s another thing to publish. If you publish the incentive to improve, is a multi-fold of what is happening, if you just show
10
them. See what I’m getting at? I want that breaking news,, of course, from your side, but going back to your value proposition, and can I take a step further, because these are, with all respect, Mr Pretorius, nice words, I'm not in your daily practice and how
10
you daily translate that in your practice but these are nice words and people will write it down, we saw it and it makes sense, the clinical quality the patient report of quality and the cost part, and then looking at your admission of what is it, 2,500, 2,400 medical specialists in your hospital, and we have talked about shares and the 2% and the 25% etc. etc. and you assured us there is no incentive in these contracts anymore or
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especially not, you’ve talked particularly about the new 2012 rules, to either guarantee volume or whatever, but wouldn’t it be concrete, to make it concrete for the doctor to adhere to this value proposition that when he or she is being admitted in one of your excellent hospitals, he or she has to abide by a certain number of rules, for example, make available a number of data points on, in during the treatment process, of which 180 | P a g e
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you can derive metrics that could be more meaningful than the metrics hat you have at the moment. MR PRETORIUS Doctor, I agree,, I think, that is ultimately what we want to achieve, and the metrics that we measure are all influenced, not only by what we do at the 5
hospital level, it’s obviously also influenced by what the doctors do. So we have to work together as a team. If we want to improve our mortality index, we can’t do it in
10
isolation, we have to do it together with the doctors. We have to discuss it at the clinical hospital committees. We need the whole team to be involved DR VON GENT Can I …? These again, Mr Pretorius, are memorable words, of
10
course, but now about practise, can you in practise require from the doctors that you admit or that you already admitted to make, you know, subscribing to the value chain i.e. providing clinical information, you know, in cooperation, of course, with you, yourselves maybe scientific organisations that design these metrics for the South African environment and the doctor’s organisations? Could that be a concrete next
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step in your …? MR PRETORIUS Doctor, it can be a next step. Obviously to require from doctors where you don’t have an employment relationship is difficult. You can’t force it onto the doctors, but our experience has been that most doctors, by far the most of them 181 | P a g e
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want to do the right thing. Most specialists are academics. To become a specialist, you have to be interested in academics because you study for many years, and all our engagements on these quality indicators and practice profiles that we’ve shared with our supporting specialists have been positive. 5
They are really interested in the
outcomes and the cost and they want to improve. So we don’t have it as a requirement in our rental agreements, but we think we will be able to convince the doctors that it is the right thing to do. They will share that strategy or that vision, and in time it will
10
become a requirement, but it’s a process. Remember, we can’t just from tomorrow say it must now be a legal requirement or in the legal contract. We have to convince them,
10
we have to build a relationship, we have to get their support, which we don’t think will be a problem to get over time. DR VON GENT Well, if you look at the Health Professions Act and also the National Health Act, you see there is a requirement in these acts that at a global level refer to the obligation of everybody providing healthcare service, to provide the right information
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to consumers, to make a choice that could include quality information. So there’s a, I mean, there’s also an obligation, I think, of everybody engaged in the healthcare sector to just do that. So, I’m not really fully convinced. I understand and I hear what you say and I know things can’t be changed overnight, but I do think something really needs to change in South Africa and every player, main player, in the market must 182 | P a g e
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make it a sort of personal crusade to do that, because you shouldn’t, I think, you shouldn’t wait for public organisations or maybe even the other side of the market, the schemes and administrators to force it upon you. MR PRETORIUS I think, doctor, the challenge is that if you want to do all of what 5
you propose, and if you do it where the playing field is not even, it becomes difficult. It should be a requirement nationally that quality and patient experience should be
10
published by all players.
In other countries where we operate hospitals it is a
requirement and everybody has to do it.
So the sooner you put those type of
regulations in place the quicker providers will get their act together. If you do it 10
voluntarily you rely on people that share the same passion and the same vision which, I think, can work but it will take longer. So we in South Africa need a very strong independent authority that will develop the standards that will develop the methodology to measure, and we should all be forced to publish. DR VON GENT My experience and also experience that I saw in Australia and in the
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United States that if doctors in hospitals take the initiative, the quality of the information is better and it can work faster as well. If people have the commitment to do it instead are forced to do it, look at your children, then it could work the other way around. So I challenge you to think about it and to take the initiative, also the 183 | P a g e
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collective initiative, I think. We heard your competitor, Life, actually not being far off from what you just told us. They have the same vision, I think, so I could imagine there’s grounds to cooperate at this particular point in time. MR PRETORIUS Doctor, we will continue our own efforts within Mediclinic. We 5
will, from our side, and I heard the commitment from Life as well, give this industry initiative more impetus, but I think ultimately we need a change to the regulatory
10
environment as well, but I agree with you, we shouldn’t wait for that. In the meantime we must do it and the further we get with our own initiatives the better the cooperation will be. I fully agree with you.
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DR VON GENT Now, can we go to the breaking news, Mr Pretorius, and that is when will you publish the experience data pro hospital on your site? MR PRETORIUS Yes, doctor, our vision is to do that within the next year. DR VON GENT Very good. That’s been noted. Can I just briefly take you to another
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question that I asked already this morning, because I knew that Mediclinic has an active policy, it’s about day hospitals, and you told us you have two, you just recently opened two day hospitals on a sort of collocation basis. I agree and I think this morning I already alluded to that sort of model without using your word. Can you tell 184 | P a g e
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us a bit more about your strategy on reading? I read a document that you wrote to your doctors on this particular issue. Tell us a bit more about initiative. Why do you think it’s important, why maybe you think it is important for South Africa in general? MR PRETORIUS 5
Yes, doctor, we think that the out migration of care from
multidisciplinary acute care hospitals is a reality. It’s happening all over the world. Due to technological advancements in the field of anaesthesiology, many day surgery
10
procedures can be done safely in a day clinic environment. The inherent cost structure of a day clinic is a lot cheaper, the development cost as well as the operational cost, because these facilities typically function during working hours from Monday to
10
Friday. So you can do a lot of the work that we currently do in big hospitals, our own type of hospitals, you can do that work very efficiently in a day clinic environment, but the market in South Africa interestingly enough has evolved over time. I worked for the Presmed Group who was the biggest owner of day clinics many, many years ago. The company was taken over by Life and many of those day clinics don’t exist, but I
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remember in the early 1990’s, medical aid schemes did not channel or incentivise day surgery to be done at day clinics.
Doctors who have their rooms at the
multidisciplinary hospitals were not keen on travelling to these day clinics, it’s inconvenient. So the initial round, during the initial round day clinics in South Africa were, so were to say, ahead of their time, but times have changed. The pressure is on. 185 | P a g e
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Costs are increasing. We need cheaper alternatives. So we believe the best strategy is to, where your capacity is under pressure, instead of building traditional wards, traditional theatres, rather do a collocated day clinic on your premises. It is very convenient for the doctors. They don’t have to travel. It’s very convenient for patients. 5
It’s very safe if something happens to the patient the big hospital with the ICU is close by, and you can share certain of the costs between the day clinic and the hospital because you don’t need an additional technical team, you can share the administrative
10
functions. That’s why we are now busy with this so called collocation model. There are many advantages, and we have six licenses to develop more of these facilities. We
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already opened two during last year, as I mentioned. JUSTICE NGCOBO In the document, just to assist you, the document that is being referred to here, it’s a document which was issued by Mediclinic on the 20 th of May which has Mediclinics, day clinics, doctors information sheet. It was distributed, as I understand
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it, on the 20th of May.
It was made available to us by one of the day clinic
representative. You may just want to have a look at it. MR PRETORIUS Chair, I have a copy of the document. Yes, thank you
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DR VON GENT My last question on this issue and then I will give the floor to my colleagues, is so you made a strategic decision to do this and to, as I read, make IT a real effort to start, I think two hospitals per year or two day clinics per year. There was some reference to a quantitative goal here as well. Is there anything in the commercial 5
environment also referring to your negotiations with schemes that would keep other companies, you, yourself or other companies from this strategy, and if I read or if I remember well the organisation that gave us this information talked about a 7%
10
penetration now, where it would theoretically be possible to have 75% of procedures, whether it’s 77, but it’s an amazing figure that could be done on a day care basis. Is
10
there anything in the commercial environment including the demand side that would keep you from moving fast in that way? MR PRETORIUS Dr van Gent, our experience in our own hospitals is that we can do a lot of surgical cases on a day basis in day clinics. It’s not as high as 75% but it is a big business. It can be viable, definitely. The only possible obstacle is the awarding of
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licences. I heard that the day clinic association made a strong case to say licences should not be issued to the hospital groups if they want to develop day clinics. I actually found their argument very strange because they argued that it’s already difficult to compete with the hospitals, and if the hospitals now develop their own day clinics it will be even tougher to compete, but I suppose that is what competition is 187 | P a g e
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about. So we obviously don’t support their view that it must be made difficult for hospital groups to develop day clinics. I don’t see why. I think, hospital groups, if they want to establish a new division or a new department to develop these day clinics, they have the same right as the other players in the market who also want to develop 5
day clinics, except for possible licensing issues at provincial level, I’m not aware of other commercial obstacles. Where we have opened these facilities, we were able to negotiate tariffs with the medical aid schemes, so we will get support from doctors,
10
we’ll get support from patients and the medical schemes will pay for our services. DR NKONKI Thank you for your presentation. My first question is around the tariff
10
schedules. In the beginning of your presentation you showed us how you communicate your tariff schedules to patients. In your written submission you do raise an issue about the need for medical schemes to contain costs, and how they do that at times is through the use of formularies. You also go on then to explain that that then incurs copayments on the side of patients, and often decisions on whether one is going to use
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formularies or not is taken perhaps at a time when the patient is not able to give consent to that, and therefore would not know what they are financially liable after going through a procedure. So I would like to know, first, how prevalent is this in your hospitals, the use of non-= formularies and why that is the case
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MR PRETORIUS Doctor, thank you. In this area where you talk about formularies and tariff schedules, our expert in the field is Mr Roly Buys.
He heads up the
department that does the negotiations with the medical schemes.
So with your
permission I’m going to hand over to him on this question. Thank you. 5
MR BUYS Good afternoon, doctor. No, I think to put some perspective to it, I think, if you looked at our submission we gave you an indication of what we also called, out
10
of pocket expenditure, and you would have seen it’s round about 2 to 3%. That 2 to 3% includes the deductibles, the co-pays where the funders also want us to collect some money, so specifically on their non PMB cases you often find a medical aid says
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for a dental procedure, for example, there’s a R4,000 deductible. It’s their rules, it’s their requirement, and so that would be part of the 2 to 3%. So the rest of the 2 to 3% is then these formulary issues.
The formularies are developed by the individual
administrators or medical aids. We have no input in the design of the formularies. We are not involved in deciding whether it’s right or wrong. Clearly, what happens is 2015
when the patient comes in is that we are not able to decide beforehand exactly what is going to be used every time, and so that’s where this dilemma comes in, that the patient may receive the surgical or this particular item while they are under anaesthetic, and that requires or that then becomes the dilemma that the patient faces afterwards. I must also clarify, though, that at the time that we did the submission there were some 189 | P a g e
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significant formularies that were quite problematic, in terms of this, for one or two of the schemes. In the process of last year’s tariff negotiations we engaged quite robustly with that particular administrator and that formulary has been dramatically reduced from like 7,000 items down to 700 or 800, so significant change, and so to a large 5
degree the issue that we raised has gone away. The formularies do remain. They allow part of the funder’s right to manage but they become a lot smaller than what we intimated in the submission at the time.
10 JUSTICE NGCOBO Just for the record ,that was Mr Buys speaking, is that right MR BUYS That’s right. 10
DR NKONKI Okay, thank you for that response. So even though you do mention that it is within the range of 2 to 3%, the reason I was raising it is that it is a co-payment that a person would not be aware of before, and we’ve had submissions, we’ve had patients talk about their experiences of not knowing what they are liable for, in
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particular within a hospital setting. So I’ll move on to my second question, which is also around the issue of negotiating tariffs with administrators.
Again, in your
submission, you raise an issue that has not only been raised by you, I think, NHN, yesterday raised the issue, I think, as well as Life, that administrators now do negotiate
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on behalf of several medical schemes and at times negotiating a similar rate. So what is your issue with this? Do you feel that it is illegal, inappropriate conduct or …? MR BUYS I don’t know that it’s necessarily inappropriate conduct. I think what we were trying to indicate that there is a variety of negotiating forums, so there are single 5
administrators that talk exclusively on behalf of their medical schemes, and consequently you get the result that there is a single percentage tariff increase that is
10
negotiated, you get the same set of benefits that get given to the schemes etc. etc. We then have other medical aid administrators that negotiate collectively, in a sense, but with some degree of individual discussion with the medical schemes. The problem
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around some of this is that innovation largely gets stifled in an environment where the single rule gets applied consistently across an administrator. So you would find that we would go to some of the smaller administrators or the smaller schemes and actually find them that they’re very open for innovation and actually they have an interesting view on changes. So we have, for example, small schemes with 2,000 or 3,000
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members that have developed alternative reimbursement models, that have put networks in place and are looking for change, which you find then runs down when you’re in the bigger administrator that is very regimented, you find you had to apply
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the same rules for all of the schemes. I do believe it is something that needs to be noted from time to time, because I think what’s interesting and very important is that we see an incredible amount of amalgamation in the funder market. I think in our submission we show you that the 5
hospitals consolidated up until 1998 but since then we’ve seen a huge consolidation on the medical schemes and specifically in the administrative, and so suddenly now we
10
find ourselves in a situation where if we were to analyse our hospital market at a hospital level and we decided to ask ourselves if we took the two biggest schemes, what percentage of the market they take, then you would find that in 40 or 45 of our
10
hospitals it’s 50%. So clearly there’s a huge degree of amalgamation that’s happening on their side and consequently we want to understand that there’s a forum for innovation that still exists afterwards. DR NKONKI
Thank you and, I think, my last question is on the purchasing of
equipment, and so, I think, in your earlier slides you showed us how you purchase 20 15
equipment and the standard that you use. It has been argued by several stakeholders that hospitals compete for specialists, and how they do that is through the purchasing of equipment, and so I missed in your presentation how you make decisions about what
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equipment to purchase and to what extent do your doctors influence that process. MR PRETORIUS Thank you, doctor. Yes, we have quite a rigorous process in place before we buy equipment and our philosophy has always been not to necessarily be the leaders when it comes to new technology. 5
We have a philosophy not to buy
technology that has not been proved to give the necessary benefits, but Braam Joubert, our chief financial officer, heads up our procurement function and maybe he can just
10
quickly summarise the process to answer your question. MR JOUBERT Thank you, doctor. I think from our side we can’t just waste capital on things that does not create any return for us. We don’t have an unlimited pool of
10
capital that we can spend. So many years ago, actually our philosophy is centralisation and standardisation. We believe that worked very well for us. So we’ve got a centralized capital procurement department.
All capital procurement are done
centrally. So all motivations coming from hospitals, doctors, motivations go through hospital managers, hospital managers motivate to the central procurement department. 20 15
We’ve got committees in place discussing it. Now, technical equipment, medical equipment is very technical, so we believe you have to pool that knowledge at a central point. So we’ve got knowledgeable people in our corporate office. They evaluate new technology with the input of our clinical department to look at clinical reasons, that is 193 | P a g e
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one component of evaluating equipment, but we also evaluate the subsequent cost of maintaining equipment, with what partner should we buy this equipment? How does the after sales service look, etc.? So there’s a host of things that needs to be addressed before we introduce a new piece of equipment. Obviously if we already have gone 5
through that process with another hospital, it is much easier because you already did that homework.
10
Now, from our point of view, there’s two reasons why we buy equipment. One is if it’s additional work the doctor can do with that equipment that we haven’t done in the past, so a new tool for the trade for him to be able to do a certain procedure, that is one
10
component of it, and then the second way what we do and evaluate equipment on is if it’s clinical enhancement of what we’ve done in the past. So both won. In the past, there probably wasn’t a piece of equipment that did it. For instance, in the past we washed scopes by hand, now it’s instrument washers. It’s clinically proven that it is cleaner and better. It’s an advancement you can’t ignore for better clinical outcomes.
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That’s only one example of it. So you gradually introduce that for new technology that increases the quality of patient care over a period of time. So on those two basis we evaluate equipment, new equipment coming into the business. PROF FONN Thank you very much.
I was reflecting on your comment about 194 | P a g e
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keeping people out of hospital, and I also noticed a very significant partner of yours is Remgro, tobacco, wine, spirits, processed foods. Maybe you can influence them to decrease the hospital intake. I also see, and what I find difficult and maybe you can help us with when you come later, is I see that your operating income before interest 5
taxation depreciation, amortisation, increased by 11% last year. What I can’t work out from this webpage is the comparator for your other operations in Abu Dhabi and the UK and, I think, the UK one is reported yet, but the Switzerland, and it would be nice
10
to be able to have the same group operating in different environments, how does that work. So if we could ask you for when we do that more focussed investigation, if we
10
could have some comparators with your other groups, because here it’s presented before, and here after and so I simply can’t compare them. So I think, that that would be useful. One of the issues we are confronted with is these big groups and these big groups offer economies of scale, and I keep looking in every instance for where these economies of scale are passed on to medical scheme members. So if there are no
15
20
economies of scale, then you can’t be doing your job very well, or you’re not passing them through in your relationships with the schemes or administrators, or they aren’t passing them through, and we need to understand that. So I don’t know if you have any particular comment on that now or if you’d like to speak to that later as well, but is there any comment you have on that? 195 | P a g e
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MR PRETORIUS Thank you, professor. We will definitely come back on the other issues that you’ve raised, during the next rounds, on profitability and the increase in our profit, and how that compares to the other platforms, but just a few comments on the economies of scale. 5
Firstly, it’s very important to understand that in the hospital business, there are not a lot of economies of scale because the two biggest cost items are variable cost items,
10
namely nursing cost and pharmacy procurement. In other words, if we don’t admit a patient we save by far the biggest portion of the cost, 49% of total cost in terms of nursing and then 28% of revenue in terms of pharmacy. So in healthcare like in other
10
service organisations you have this Baumol effect, where you can only increase productivity up to a point but you have to make sure that you have enough staff to provide quality care to your patients. So, I think, that’s a very important concept to keep in mind. Where you do get economies of scale is on your back office functions, like centralising financial services, centralising administration services, and those
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efficiencies are in the system. The reality is that if the economies were not there, the price would be even higher than what it is today. The biggest problem that we have with expenditure on healthcare in the South African context and probably all over the world, is the usage.
The usage is driving increases in expenditure at the higher rate
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those factors. It is unfortunately the reality. I made a tongue in cheek remark earlier about keeping patients out of hospital, but we’ve seen models in the United States where a fully integrated model that is operated by Kaiser Permanente, they admit a hundred and eighty patients per thousand of their insured population. In South Africa, 5
Roly, I think, we are at two hundred and fifty admissions per thousand of the population. So the admission rate to hospitals in South Africa is very high, and I think that message has been reinforced by various previous stakeholders in the bigger
10
healthcare context who also presented to the panel on that matter. PROF FONN So let’s look then at nursing costs and then we will come to the
10
admission rates. You run your own nursing agency so that’s an in house system. Can’t you charge yourself less for that? MR PRETORIUS I’m not sure I follow your comment. PROF FONN Well, my understanding about the idea of having an in house nursing
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agency, so that you don’t always know, because your bed occupancy varies, you don’t always know who you need when but if you’ve got a captive pool of workers you can distribute them as you need them, and for other hospitals who don’t have this kind of benefit, they either can’t find them or they pay a premium. So your nursing costs to some extent are controllable by yourselves because you do have this facility. 197 | P a g e
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MR PRETORIUS Professor, I understand what you mean. This nursing agency that we have, they don’t only provide nurses to Mediclinic, they also provide to other hospital groups and the public sector. It is a wholly owned subsidiary, but it is a standalone business and they do business in an arms lengths ways. So they charge 5
Mediclinic the same that they would charge other hospitals who make use of the services, but that business is not a very profitable business. It washes its own face. The main reason why we started the agency was not to make profit. The main reason
10
was, as you described, was to create an in house company that can assist us with attracting nursing staff from various sources to be placed at our hospitals.
10
PROF FONN The other, and this is questions I’ve asked the other people, the other issue around nursing and you have addressed it to some extent, is the decreasing nursing ratios and patient to nurse ratio and the decreasing level of care, and then the apparent preference by doctors to not admit to your general wards because they don’t trust the quality of nursing in those wards, and then the same question, does this
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happen at your institution and what is the effect on your bottom line? MR PRETORIUS Professor, we have no evidence that this is a general occurrence at our hospitals. We’ve heard anecdotal feedback about cases where it happened. We are not aware that it is happening at our hospitals but we obviously face the same 198 | P a g e
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challenges than the other groups. There is a shortage of nurses. The quality of training in the country is of concern to most players in the hospital industry. Nursing ratios in our company have remained fairly stable over a very long period of time. In fact we actually embarked on a specific project which we called, the integrated staffing model, 5
where we, over a period of more than a year, developed a very scientific methodology by which we allocate nurses at ward, ICU and theatre level. This model was developed by specialist nurses in their different fields, theatre, ICU, emergency units. It’s actually
10
quite complex and takes a lot of time, but for every patient they have a questionnaire, I think at the moment there are 25 questions by which they actually evaluate the acuity
10
of every patient, and according to a formula, nursing staff are allocated. Not only the number of staff but also the mix between professional nurses and the sub professional categories.
So we follow a very, very scientific approach in terms of allocating
nursing resources to the different wards, but it can happen, at the specific day on a specific shift that we battle to find a nurse to work in the ICU, but that is the exception 15
20
and not the rule, and, I think, it does happen at all the hospitals in the country, unfortunately. PROF FONN Anyway, we carry on asking all this question of all the players, but so far everyone tells us there’s not enough nurses and everyone tells us that their nursing ratio to patients have been stable over many years, and these two things, this one and 199 | P a g e
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one does not seem to add up to two. Is it possible for you to tell us the proportion of your discharges from theatre? What proportion of them go to ICU, by category of whatever, if it’s a hip op or knee op or whatever. What percentage of them go to ICU, what percentage of them go to high care and what percentage go to a general ward? Is 5
it possible to give us that data? MR PRETORIUS Professor, we have the data, unfortunately I don’t have it with me
10
today, but we will definitely gather the information and share it with you. What I can mention, in general 10 to 11% of the bed days that we sell are normally ICU or high care beds, and if you look at that ratio over time, it has remained fairly stable.
10
Sometimes it goes up a little bit, sometimes it goes down a little bit but there’s no strong trend of big increases in the more acute wards, because that would indicate that doctors are now just admitting to high care and ICU and those beds will be full very quickly, and the wards will be empty. So we haven’t seen anything like that on a big scale at all.
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PROF FONN So given this very sophisticated and impressive sounding model of how to allocate nurses, you could actually give us a sort of like almost a graph of where your nurses over a period of time. MR PRETORIUS We can do that. We have that type of information available. 200 | P a g e
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PROF FONN That would be nice to see. Thank you very much. I want to understand something. You said that you’re working in a highly regulated environment and you also said that in fact there’s a lack of regulation around transparency, particularly in relation to quality, and there might be some issues, maybe it relates more to doctors 5
than to hospitals around pricing.. Do I understand you to say that you are not against increasing regulation around at least these areas?
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MR PRETORIUS Professor, our view is that increased regulation in terms of quality, sharing of information will actually be good for the industry, as a whole. If we do that, we will be following what’s happening worldwide. I think today it’s accepted that
10
healthcare should be transparent, and having the advantage of operating hospitals in different countries, we get to learn a lot about measuring quality, measuring patient experience and sharing information. So we would certainly support that but on certain conditions. We definitely feel that the body that makes those regulations should be independent, it should apply to the public and the private sector, the methodology
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should be transparent, the methodology should be scientific, and the rules should apply to all players, the playing field must be level, but in principle we support it. However we do not think that prices should be regulated. I heard that you specifically talked about prices as well, but that’s a different debate for another day.
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PROF FONN I want to explore again in a bit more detail the question that Dr Nkonki asked you in relation to acquisition of technology. So there’s certainly across the world, not only in South Africa, been the accusation that technology often drives costs, and my question is, you mentioned a new tool for the trade, and you mentioned 5
evidence based in your decision making, deciding on what to do. Currently in South Africa we do not have any method of saying whether it’s a protocol for treatment or whether it’s a particular technology guiding us in terms of some normative sense of,
10
one, does it really work or not, does it improve outcomes, might improve diagnosis, but makes no difference to health, and whether as a country we should be investing in it, in
10
other words, what the cost effectiveness is and the cost benefit is. Do you do any kind of health technology assessment in house? Do you make that available to anybody? If you do it, would you be willing to share it and what is your view on some kind of national body that advises on these kinds of new investments? MR PRETORIUS Professor, in Switzerland, for instance, highly specialised medicine
2015
is regulated because not only the investment in technology is important, but also the fact that to deliver those type of services, you should adhere to specific quality standards, and it has been proven in healthcare that the more volumes you do of specific procedures, normally the better the quality and the outcome. We actually have studies that confirm that. That’s why if we develop new types of disciplines at our 202 | P a g e
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hospitals, if we establish a new heart unit, even if we think that it can be financially viable, we look at the clinical assessment as well. For instance, in a cardiac unit, it’s accepted worldwide that you should do at least 150 open heart cases per year otherwise you can’t deliver acceptable quality. So we take that into consideration. We won’t 5
invest in new technology just from a financial perspective, but
Braam, health
technology assessment I know is done to some degree in our procurement world. and our holding company, Mediclinic International is now establishing a full time function 10
to perform exactly what you are talking about, not only for South Africa but for all our operating platforms. I don’t know, do you want to add, Braam?
10
MRJOUBERT No, I think, from our side its mainly in house. We don’t publish it outside. It’s not clinical trials that we do. We analyse current literature around the, that’s the main source that we use. So it is literature available at other countries sometimes very limited. So sometimes you access the technology on a very small scale, so only at one hospital, and then you re-evaluate later on to see if it was
2015
successful or not, without going it and say this technology needs to be implemented in all the hospitals. So it is not an exact science. We’re not purporting to be the expert in deciding if new technology is the right thing or not. We try to use existing literature, read up, talk to doctors, get as much information around the technology as possible, but it’s not an exact science. 203 | P a g e
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PROF FONN It can be an exact science. Would you support a body, that was my last question, if we had a national body that did do that, would that be something that, one, you would be in support of, two, would you be willing to assist funding such a body, and three, would you follow its guidance? 5
MR PRETORIUS Professor,, I think, in healthcare we need that type of function to be performed. If we can share it, if, once again we can establish an independent body to
10
do this type of assessment and give guidance, I think it will be a positive development for the industry. So in principle we will certainly be willing to look at that and to support it.
10
PROF FONN I want to go onto the doctors’ stories and the utilisation, both in the reports of your results and in everything you’ve told us, the increase in income comes from the increase in utilisation, and so that’s good for the bottom line, isn’t it, I mean, that’s where you are deriving your growth.
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MR PRETORIUS That’s correct. It’s good for the bottom line but as I mentioned during my presentation, there’s no sense in increasing the bottom line in the short term. For us, we want to be here in a hundred years’ time and long term sustainability is more important than short term profit. You can see from our own margin that we performed well but we were not focussed on improving the margin only in the short 204 | P a g e
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term. We reinvest in technology, we upgrade our hospitals, we make sure we have adequate staffing in our hospitals, so a sustainable long term business is more important, because from an investment perspective, we also think that’s an attractive case for the suppliers of capital because of the defensive nature of the industry. We 5
sell a service that people need on a daily basis. PROF FONN And then the other thing that, of course, drives your utilisation is
10
doctors’ admissions, doctors’ behaviour. So there seems to be a, and, you know, they might have a short or long term view, we don’t know, and I’m sure there’s a range among them, but there’s a coincident interest in increasing utilisation, for whatever
10
reasons. So then I find it hard to understand if, doctors want to admit more and they want to play with new toys that are there to be played with, and you need to keep your bed occupancy rates up, how then would you employing doctors bring down any of these utilisation rates? MR PRETORIUS I think, Professor, we have to realise that in dealing with doctors
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we deal with professional people. All our supporting doctors are registered with the Health Professions Council, they have ethical rules in place and what we have seen in our business over time is that the increase in utilisation was driven by, firstly over time, growth in medical aid scheme membership, especially GEMS during the last few years. 205 | P a g e
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We were able to add beds to our hospitals because of the growth in the medical aid scheme membership, and obviously we were then able to recruit more doctors to service those patients. Then if you look at the type of patients that we admit, they are older more older patients, sicker patients. 5
This technology that we have been
discussing makes it possible to do procedures that have not been possible before. So it’s a combination of factors that drive this utilisation. Very difficult from the provider side to curtail the growth because the funding side of the business is responsible to
10
manage hospitalisation of the membership. We need national campaigns to improve healthcare, that’s why as an industry, we want to congratulate our Minister of Health
10
for the role that he played in the introduction of the sugar tax. If we can have less obesity in the country, if we can have people with lower cholesterol, with less diabetes, I’m convinced a healthier population will require less hospitalisation. In our country, our national Minister often reminds us of the quadruple burden of disease. We have HIV aids, we have TB, we have a very high level of violence. If we look at our ICU’s
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20
at many of our hospitals, we admit many patients through our emergency units that were injured in accidents, or wherever. Our medical discipline is the highest discipline because of the burden of disease that we face in this country. So those are the types of changes that we need, to curtail the growth in the burden of disease.
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PROF FONN I suppose I’m sort of lost because if everything has to do with the burden of disease, then we should just close down the inquiry. Is that your position? MR PRETORIUS If we look at the information that has been presented to the panel, if we look at the presentation from Discovery Health on where they find the drivers in 5
utilisation, look we have price increases in line with CPI. Our information confirms that many of the other presenters confirmed that tariffs in the private healthcare
10
industry in South Africa is not the issue. The issue is the total increase in expenditure, and there’s at least a 4 to 5%, I think, according to Discovery’s information a 4.5% increase above CPI in terms of the expenditure, and that 4.5% is due to utilisation.
10
There are demand side factors, there are so called supply induced factors, but over a five year period a 4% increase in utilisation annually will give you 20% more expenditure on healthcare costs. That, to our mind, is definitely the biggest challenge. I’m not saying it’s the only challenge. We have many other challenges, like you’ve pointed out. We have a fragmented model in the private sector. We need to cooperate
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closer with our doctors to address issues of quality, of patient experience, of cost per event and all of those will contribute to more efficient and more effective healthcare delivery, but purely from a volume perspective, the demand and supply side factors driving utilisation, I think, are the biggest issues that we face.
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PROF FONN I suppose that’s it, is how much of that utilisation is supplier induced demand. In one part of your presentation you said you act as the agent of the patient in facilitating their access to their benefits so that you can, so they can have their care covered in your hospital, and I’m sure they appreciate it because it’s very hard when 5
you’re in hospital to be doing those things on your own behalf. Do you agree that it also serves your own interests?
10
MR PRETORIUS I think it serves the interests of the patients primarily because we don’t just phone the managed care company or the medical aid and they give us permission to keep the patient a day longer. There must be a very good clinical
10
indication before extended length of stay will be approved.
Before a patient is
admitted in the first place, we have to get permission or the patient actually has to get permission. Many medical schemes don’t accept, or managed care companies, Roly don’t accept if the hospital phones on their behalf. The patient has to get the initial permission, but obviously while the patient is in hospital the patient cannot always 2015
engage the medical scheme or the managed care company and then we do it on their behalf, but they have very strict protocols, they have very good data, they will not give you permission to keep patients longer unless there are very good clinical reasons to do so.
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PROF FONN I’ve got one, two other questions, just so you know I’m getting to the end. You said that you had you were speaking about your relationship with doctors and you said something that you had a very positive experience of your shareholding arrangements and then you extended it, and again this makes me wonder to myself 5
about the notion of supplier induced demand, whether it is overt or simply a background factor. Can you tell us more about this very positive relationship and what you think it is that’s so positive from your point of view and the doctors point of view?
10 MR PRETORIUS Professor, I will answer your question. I just want to quickly refer to the supplier induced demand. From Mediclinic’s perspective it’s very difficult to 10
quantify. We only deal with information that we get once we have admitted a patient. We can see the drivers, the ageing patients, the burden of disease, but we don’t manage a fixed population or a membership group like a medical scheme would do. So they have more information available to distinguish. When it comes to utilisation they are able to distinguish between so called demand side and supplier side and Discovery is
2015
probably the scheme with the most information in this regard, and if I understand their information correctly the demand side plays by far the biggest role, the supply side is not the major driver of the utilisation. So I just wanted to make that comment. In terms of doctors shareholding, what we find, the biggest challenge to improve our so called value proposition to the patient is that you need team work and you need 209 | P a g e
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alignment of interests between hospitals and doctors.
The best way to get that
partnership going is co shareholding, because then you have a trust relationship between the hospital and the supporting doctors. Let me give you an example, we moved to the net acquisition price model way back in 2003, we don’t make profit on 5
any pharmaceutical item. We’ve told that to the whole world including our supporting doctors, we still have doctors who don’t believe us, but if a doctor is a shareholder, if a doctor serves on a board of directors at the specific hospital, he gets hard information,
10
he gets financial statements, he understands the business. So the participation in management is at a different level because of that trust relationship, because now the
10
hospital and the supporting doctors have the same interest. That’s why we found the development of relationships to be a lot stronger, the understanding of the hospital is a lot better, the alignment of interests happens a lot better when you have these models in place, but normally for most of our doctors if not all of them who are shareholders, the shareholding and the income from the shareholding is a lot less than what they will
15
20
ever make from their own practice income. We specifically capped it to be in line with the HPC rules in terms of what is acceptable for shareholding schemes. PROF FONN They might have a touch of brand loyalty. The last thing is around this international patient survey which, if I look at your indicators, are patient satisfaction indicators, did you like the food, did you like, was the nurse nice to you, did you like 210 | P a g e
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your doctor, and so on. So are you aware of the sort of state of knowledge around patient satisfaction surveys? MR PRETORIUS Professor, if you say state of knowledge around patient satisfaction surveys, do you mean different type of models? 5
PROF FONN Well, the degree to which, let me put it to you this way, there has been a lot of research on this issue and patient satisfaction surveys, particularly exit surveys
10
are notoriously poor in actually telling you very much about quality, and even when we do patient satisfaction surveys out of our public hospitals, we probably get really good rating. So they are pretty poor, and so much as I agree that this is a really good step in
10
the right direction, I would suggest that even if this is internationally benchmarked and everyone is doing it, everyone is then relying on pretty poor quality data, and what has been postulated as something a little bit more objective and more reliable is health outcome data, and would you be similarly willing to get involved in a process that rather measures some hard outcome data rather than things like satisfaction surveys.
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JUSTICE NGCOBO I think you should deal with the first question, with the first proposition that was put to you, and that is patient satisfaction surveys are generally poor. What do you say to that?
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MR PRETORIUS Thank you, Chair, I will respond to that first. I agree. Generally, professor, they are poor. We had an in house Mediclinic patient satisfaction survey system when I joined the group seventeen years ago. The questionnaires were handed out by our own staff while patients were in hospital and all our hospitals scored 5
between 95 and 99%. Then we decided that’s not a realistic feedback mechanism. So we outsourced it to a local company. We still performed well and when we expanded internationally we decided Mediclinic International now has to look for a truly
10
scientific tool on which you can rely. According to our research, there are only two companies in the world currently that can provide that. The one company is Press
10
Ganey, which is a US based company. If you tour hospitals in the US, I think ] more than 50%, 60% of the hospitals use Press Ganey, the other company is Picker, they do the patient satisfaction research for the NHS in the UK. After a very long request for proposal process, we decided to go for Press Ganey. This survey is only done after patients have been discharged because generally patients don’t want to complain while
15
20
they are in hospital because they are concerned that they might be victimised. So we never give these questionnaires while patients are in hospital. We do it after discharge. Press Ganey has a very scientific methodology. Under each of those components that we showed on the slide there are various questions. I think our questionnaire has about eighty questions. You can drill down in each area to each question to really understand 212 | P a g e
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what the problem is, and then they also make a recommendation as to steps that you can take to improve your situation. So from all the research that we did, it sounds as if I am now promoting Press Ganey, but really at the moment in the hospital industry, we believe it is the most scientific tool. Coming back to your comment about rather using 5
clinical outcomes, we fully agree with that. The clinical outcomes is about our core business, that’s how we make a living, that’s our reason for being, and our research once again has indicated that only a weight of 30% in the value equation is normally
10
allocated to the patient experience part. 70% of the value equation should be based on the clinical outcomes. So we would be very supportive, as I mentioned previously to
10
work together with authorities through our hospital association to establish a nationally independent body to measure the clinical outcomes. That is by far the most important, but patient experience cannot be ignored according to our view. PROF FONN Thank you. DR BHENGU Thank you, Mr Pretorius and the rest of the Mediclinic team. My
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questions almost all have to do with hospital, doctor relationship, specifically various to entry.
Now, regarding your process to award practice rights, whether it’s
admissions, treatment or even allocating rooms, how transparent is this process? Is it
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well known to your internal partners or anyone who wants to come into the hospital? MR PRETORIUS Thank you, doctor. Our process that we follow is known at hospital level to management and to our supporting doctors and normally when we want to recruit a doctor, we follow a specific approach. Firstly we must have capacity 5
in the hospital because the most attractive proposition that we can offer a doctor is a viable practice opportunity. We can’t recruit doctors if they will not be able to admit
10
their patients due to a lack of beds or we can’t recruit doctors if there is no theatre time available. So we have to have capacity in the hospital. That’s the first point. Secondly we look at the mix of specialities at the hospital as well as the number of
10
doctors per discipline.
If we already have four gynaecologists at Mediclinic
Stellenbosch and they all make a good living and they deliver a good service, we will not endeavour to recruit a fifth gynaecologist. Sometimes without us proactively recruiting an additional doctor, we are approached by doctors who qualify newly, and then if we believe we have an opportunity, there is a need, the current doctors cannot 20 15
meet the demand, we have capacity, then we will first discuss this new possible doctor with the specific discipline group to get their guidance, and then we will refer it to the clinical hospital committee who will do reference checks, who will make sure the doctor is registered at the Health Professions Council. So we have a fairly robust 214 | P a g e
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process in place and it involves consultation with the existing doctors. DR BHENGU But just to be sure, a question Judge asked the other group is that the final decision, though, rests with the hospital, not other specialists deciding who they bringing in or who doesn’t come in. 5
MR PRETORIUS That’s correct, doctor, yes. DR BHENGU Now, still along those lines, would you say there is a hierarchy of
10
preferred disciplines? What do I mean? If there is just one more vacancy, everything being equal, would another orthopaedic surgeon have an advantage over a dermatologist? My question basically says, I understand that you have a business
10
model to follow but that needs to be balanced, of course, with the desire to have as broad a spectrum of services available. So my question is, is there a hierarchy of disciplines that you work along? MR PRETORIUS Doctor, there’s not an official hierarchy. It is a reality that doctors
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who admit patients obviously will make a bigger contribution to any hospital than doctors that don’t admit patients, but our first and most important objective is to have a full scope of services available, because we understand that doctors need colleagues to refer patients to, and if you have a gap in your profiles of the disciplines that you 215 | P a g e
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offer, it becomes problematic for the specialists’ colleagues. So we try to offer the full scope.
Our four main disciplines are general surgery, orthopaedic surgery,
gynaecology, internal medicine and paediatrics. Those are the five disciplines that we basically have at all our hospitals, except the very small rural ones. At our twenty bed 5
hospital in Otjiwarango, we only have seven general practitioners but we try and aim for the full spread, and then we are very careful when it comes to highly specialised medicine. We don’t’ establish neurosurgery or heart units at every hospital. There are
10
very strict criteria before we will recruit those type of disciplines. DR BHENGU
10
In your presentation you made reference to general practitioners
aggregating towards rural hospitals as opposed to, is this really just a function of maybe there maybe being more available in rural areas or there’s, I mean if there is a general practitioner who is experienced and in surgical discipline within appropriate scope of practice, with a portfolio to show, would that general practitioner have a chance, as fair a chance as anyone to get into your hospital?
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MR PRETORIUS In general I definitely think so, doctor. We do find, however, that in the urban areas, general practitioners seldom admit patients. They prefer to refer patients and they are normally very busy in their own practices. So they don’t always have time to do the surgery themselves even if they can, or to treat medical patients. 216 | P a g e
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They do, however, often support and assist the surgeons in our theatres, but we don’t have a policy to say that they are not allowed, and in many of the rural towns and bigger rural towns, general practitioners do admit patients, they do certain surgical procedures, they give anaesthetics to patients, so there’s not a policy to say they not 5
allowed to do it. DR BHENGU I suppose the, some of the issues that we come across is whether they
10
don’t admit much because it is a question of them not being welcome or, as they say, is it because they have no interest? I asked this question to one of the general practitioner leaders earlier in, as to whether the reducing share in the rand is because they are just
10
no longer interested in doing procedures that they qualified for. So I’m noting your question here. The next question, I would like you to listen to me carefully because it’s very easy to sensationalise it, but it’s a genuine question. What I want to know is this, when you talk of barriers entry, is there a race consideration from Mediclinic’s side in awarding rights to establish rooms within a hospital?
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MR PRETORIUS Dr Bhengu, there’s definitely no race consideration. We don’t look at race at all when it comes to appointing people or allowing doctors admission rights, definitely not.
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DR BHENGU
But, Mr Pretorius, isn’t that the problem that there is no race
consideration? Isn’t that the problem? I’m saying that just before lunch, I just went into your website, I went to three hospitals, Morningside Mediclinic, of the a hundred and forty one doctors that are here, I found seven African ones. We can argue that how 5
do I know, but by in large the surname I’m talking here [Mbofu, Dube, Makosi, Mathlang] so it’s quite clear, but give or take two, and out of the seven, some of them are actually in sessional rooms, which is really not a proper appointment, you know.
10
Now, the question here, why I’m saying, I don’t want this to seem like a negative question when it actually is a positive one, because what do I mean, I mean, I do not or
10
rather I would hope, it’s not a question that if you're black you may not get in but by not considering race, isn’t that the issue that Mediclinic, one of our best exports, is missing a chance to contribute towards transformation? Because Sandton Clinic is the same thing. Out of a hundred and twenty-four, I found four Africans. In Constantia Kloof, Constantia Berg, what is it?
2015
MR PRETORIUS Constantia Berg DR BHENGU Out of ninety-eight possibilities I’m finding one, and this one is a pathologist, which very likely came in as part of a group practice. So my question is,
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isn’t that a problem that you do not take race into our account when awarding rights? MR PRETORIUS Dr Bhengu, when I said we don’t take race into consideration, I mean there is no discrimination against any person or doctor, based on the race. I can refer you to Mediclinic Limpopo, where you will probably find a hundred doctors and 5
more than 50% will be black doctors. I can refer you to Mediclinic [Lekgae] where I think you will battle to find a white doctor amongst the supporting doctors. I can refer
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you to the Mediclinic heart hospital where we might have two or three white doctors. I can refer you to Mediclinic Medforum where there are hardly white doctors. I can refer you to Mediclinic [Muelmed] where you will hardly find a white doctor. We
10
have many hospitals that are dominated by black doctors. DR BHENGU Mr Pretorius, I was hoping you wouldn’t use those examples. There is a reason there is 100% of black doctors in Limpopo and there is a reason I asked in the centre of Sandton, I asked in the centre of Morningside. Now, as I said to you I’m not honestly believing that people are unnecessarily prejudiced because they’re black and
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getting rights. I’m just asking if Mediclinic is aware that like all of us in terms of positive discrimination we have an obligation to drive transformation in all our corners, and Mediclinic is a big player. That’s the context in which I’m asking. It’s not that I’m saying you don’t want black doctors in yours. You’ve given me examples but I 219 | P a g e
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can say the reason because Limpopo, however I look at it, it’s entirely black, but as I say the issue is just to raise and sort of saying, it’s a question I couldn’t escape when I’m finding not fifteen African doctors in three hospitals, but its fine, we can move. I get the point. It’s just one that is meant to be raised in the context that in terms of 5
various re-entry we need to be sure there aren’t different levels of barriers. MR PRETORIUS Doctor, I want to assure you that from our company’s perspective,
10
we don’t have any policies that would determine black doctors are more welcome than at other hospitals. The examples that you mentioned, we will have to understand what’s happening there, what are the dynamics. Are there black doctors who have approached
10
us who have been turned away, or are there not black doctors available who want to set up practice there, but I understand your comment in a positive light. DR BHENGU I appreciate that. MR PRETORIUS The reason why I mentioned those other examples was just to make
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the point very clearly that we don’t have a view or a policy that black doctors are not welcome at Mediclinic hospitals because that is not the case at all. DR BHENGU I wouldn’t have expected differently. Thank you very much, sir, for answering. Now, in your submission you didn’t necessarily refer to it here, you made 220 | P a g e
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reference to the Dubai hybrid model where about 70% of the doctors you work with are employed. Are there lessons for the South African market here, because what I would like to know is, for example, where you have employed doctors, which departments are likely to be staffed by employed doctors, are you seeing differences in clinical 5
outcomes between employed and independent doctors, are you seeing differences in profits from Mediclinic side, From the group that’s employed from the group’s that’s not employed? Is there anything you can share with us?
10 MR PRETORIUS Dr Bhengu, that’s a very interesting question. The model in Dubai is completely different to the model in South Africa because if you want to stay in 10
Dubai, you must have a sponsor, in order words, you must be able to prove that you have a job, you are employed, otherwise you can only remain for sixty days as a tourist. So we are basically forced to employ doctors. There is a model where they allow some independent doctors but generally we have to employ the doctors. There are many advantages. The one positive aspect is that it is easy to develop protocols for
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the clinician’s to follow. All those hospitals that we have, have so called medical directors that are in charge of the doctors and the medical doctors report to the medical director. I Mentioned earlier that we now also want to appoint medical directors and we have started the process at our hospitals in South Africa. We don’t employ the other doctors so they won’t report directly, but this medical director will fulfil the same 221 | P a g e
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function. So that’s one example of what we learnt from the model in Dubai. It is easier for obvious reasons in an employment model to get compliance to protocols, to develop those protocols, and I don’t want to use the word, enforce, but to get compliance from your workforce. On the income or profit side, their tariff structure is 5
totally different, because once you employ the doctor you now also bill for the services of the doctor, the hospital tariffs and the professional fees are put together into one pool of money, and then you pay the doctors a salary, but employment has advantages as
10
well as disadvantages, from a clinical and from a business perspective, but we believe there are more advantages that we’ve seen, and we actually feel quite positive about the
10
model in Dubai. DR BHENGU Thanks. This one is really about the question in your business units, whether currently or in the past, where Mediclinic has worked and provided a service of assisting specialists with billing in terms of claims. Is this the business that’s still a part of Mediclinic or not, if not, what lessons, what drove, what was the thinking
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behind it., any lessons there? MR PRETORIUS Yes, doctor. You referred to a business that we started a couple of years ago to assist doctors with their administrative function. We believe we have a lot of expertise in back office functions, billing etc. and that business actually requires 222 | P a g e
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unique skills that we don’t really have in terms of doctors billing, because that’s quite different to hospital billing, but Braam was very involved in the company and maybe he can share some of the learnings. DR BHENGU Thank you 5
MR JOUBERT In conclusion, we don’t have that business anymore. We actually closed it down. The reason, it’s quite complex. The billing rules around the different
10
disciplines is quite complex. If you only focus on a specific discipline you can learn all the individual nuances in that discipline, how to bill, but as soon as you do it for all disciplines it becomes very cumbersome. So there’s a lot of challenge, a lot of low
10
value, high volume items that you need to collect, which makes it very difficult to do it. There is other businesses in the market who help
doctors in billing, probably
successful businesses, some probably less successful, I don’t know how the business model for those work. For us it wasn’t really our core business. When we embarked on it there wasn’t a, to our knowledge, really people in the market who focussed and 20 15
helped doctors with that. Subsequently there’s been new businesses that came up to do that for doctors, so doctors had more choice in the market if they felt they couldn’t do it themselves. So from our point of view we actually exited out of the market. It was always, it was never from a making money point of view, it was always for helping 223 | P a g e
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doctors, collecting money, trying to be more efficient. DR BHENGU No, certainly with more, one can understand that it’s more a service to the doctors, but from our perspective as well one has to say, even though this wasn’t the intention, is there a likelihood that there might be concerns arising purely from the, 5
I’ll give you an example, one of the easiest ways to see if there is a degree of claims fraud out of theatre, would be to see what the anaesthesiologist claims as theatre time.
10
The relevance is where that doesn't tell you with what the hospital claims as theatre time. So the concern would be, without knowing from outside, is this where there is synchronisation of that type of information for a submission to be claimed, but I accept
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that that’s not intention, it’s the service issue, and it’s a question that’s relevant only if it’s provided by a hospital for its specialists. I think, thank you very much for responding. Thanks for the presentation. Thanks, Judge. DR VON GENT I get a second chance because I was first in the line, and left a lot of question that I didn’t ask and I waited for. Mr Pretorius, I want to take you back to
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what you said. You said that if you want to cut back costs, we must keep people out of the hospital and I want to allude to the fact that in South Africa the OCD study showed that, but before that has been shown several times, that we have internationally speaking, quite short length of stays, although they are getting a bit longer, and 224 | P a g e
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internationally speaking quite a high admission rates. Can you tell us what, to your appreciation, is the connection between the two, and what the background is of these two? MR PRETORIUS Dr von Gent, I don’t think there is a connection. From our 5
perspective, and I’ve been in the industry for twenty-five years, the length of stay came down over time, I think, mainly due to two reasons. Firstly, the introduction of new
10
technology over time. I mean anaesthesiology today doesn’t have nearly the same impact on the patient than twenty-five years ago. So patients recover quicker. Medical technology made it possible.
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DR VON GENT And quicker than in the US and in Europe? MR PRETORIUS No, but I don’t think we are in front of the US. In the US they do much more advanced procedures in day clinics today than what we do in South Africa. DR VON GENT Your length of stay is much shorter internationally.
20 MR PRETORIUS The first reason was the introduction of medical technology, and 15
then when managed care was introduced into our market, the medical schemes with their managed care rules also managed the length of stay down, but I don’t think there’s a specific correlation between the lower length of stay and the high admission 225 | P a g e
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rate. I think the high admission rate is driven by the other factors that we have discussed earlier today, but I would like Roly Buys also to respond, doctor, if you don’t mind, because he was also involved in all of this over many years. MR BUYS Yes, it’s actually a very interesting question, and it’s not something which 5
is unique in this, it’s not the first time it’s come up. In fact we’ve known about this phenomena for quite a few years. Possibly about eight or nine years ago we had a chap
10
called Van Eck and a lady called [Bess Isar] that did an evaluation for the first time between South Africa and the United States to try and understand this phenomena, what’s actually happening. So the first thing, I think, that is important to understand is
10
how do we count, and so, for example, in South Africa we count maternity cases as if a woman and the little baby that’s born we count as one, in America they count as two. The only time we count the baby as a separate patient is if there is a complication. So first of all you have to make an adjustment for that type of counting. The second thing, in America when they talk about an admit ratio of a hundred and fifty per thousand,
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you have to take out the age groups, so all the over 65’s are part of a different pool, all the under insured are part of another pool, so you need to look only at the insured people, a specific age group of people. Clearly within that there is another counting error that you have to take into, not an error but a factor you have to take in. The Americans take all cases under twenty-three hours, when it comes in this morning, it 226 | P a g e
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goes out tomorrow, as a single day case, they’re called ambulatory. In South Africa when we developed the hospital billing system we created a day case rate within the hospital rate. So we have a rate for a normal general ward but we also have a rate for a day case, which is why we didn’t have the development of the day case industry, the 5
day clinic industry, per say, but if you take out the admissions of our day case submissions you would drop our admission rate by 30%. So you need to make these counting adjustments, first of all. Secondly if you want to make the comparison about
10
the length of stay between South Africa and the OECD countries, you need to take the demographics of the South African medical aid population. You can’t compare the
10
total population with the total population in Finland or in England. You need to compare the population group that we have with those people so you can understand the differences. So, for example, if you look at the age, just purely age, you will find that we have a high children component, in other words young people under eighteen, very much higher than the OECD countries. If you come to the older population you
15
20
will find it is much lower. So the length of stay is when you get older, if you have children going into hospital, they have short lengths of stay. So we actually can explain all of this, and we actually have two papers, the one by Van Eck and [Bess Isar] and the one by Insight, an actuary organisation was done for HASA about two
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years ago. I’m pretty sure that both of them were actually submitted as part of our submission, but if they’re not we’re more than happy to send them to you. DR VON GENT Very interesting. Thank you very much. I’ll look into it again because I read a lot and I remember I read Insight, your submission on Insight, but I do 5
think, so in the internationally OCD and WHO studies, this is a consistent [indistinct 1.45.13], this is a consistent images painting of what is happening in South Africa. I
10
will have a look in it because, I think, it is important for our inquiry to get the truth here, and what is actually happening. One explanation that has been given consistently also to us, is that is, it is connected to the hospital centric character of the PMB system
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in South Africa, so that people who get into hospitals in South Africa that actually shouldn’t be in, but should be treated in primary care. So that could explain also the connection between the two, Mr Pretorius, people get in too healthy and get out earlier but we’ll have to … MR BUYS If we going to respond to that, I think, that Mr Pretorius has been at odds
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today to actually explain that we think that the admission rate is probably too high. There is adequate research to show if you monitor a diabetic patient properly through primary healthcare that the admission rate will be lower. So we expect that to happen. That is exactly what Mr Pretorius has been trying to say the whole day. S, we expect 228 | P a g e
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that the current 250 or 260 per thousand which it is at the moment would come down if that kind of management system, the integrated system was in place. However what we suggest to you is there is these further counting adjustments that need to be made if you want to make these comparisons. 5
DR VON GENT We fully in the same sheet. Thank you very much. Now, can we maybe get onto the same sheet on the next topic, Mr Buys. On the issue of collective
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bargaining of a number of administrators, in contrast to other administrators that do not bargain collectively but assist individual schemes to bargain with you and your preference to deal with individual schemes for the reason that you gave, innovation but,
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I think there must be more reasons that you, then on the question whether this would constitute a competition issue, you said I’m not sure. Can I, of course, I am not dealing with your delegation but I think we have Mr Burger on the table, who is an expert, and Mr Burger, would this be an issue that constitutes or that affects competition. MR BURGER Well, there’s always a possibility of an exemption being granted, and
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we’ve already seen that in the industry, but as I understand my client, we’re satisfied with the system as it is now. It needs tweaks from time to time, but the post 2004 system is preferable to the pre 2004 system.
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DR VON GENT Yes, but do you agree that negotiating for a collective of schemes is a matter that should be tested under the competition? MR BURGER
Its problematical.
Without an exemption it will probably be
problematical. 5
DR VON GENT And there is no exemption at the moment, if I'm [indistinct 1.48.20]. That brings me to the second question on this, Mr Pretorius, maybe. After being here
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for two years and listening to the hearings at the moment, I find the atmosphere between the hospital groups and particularly the larger administrators quite agreeable. It sort of, I mean it must have been a subject of your executive talking about this
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practise of some of the larger, particular Discovery, it negotiates on behalf of its schemes, isn’t it. The impression I have is that there is a live and let live type of relationship between the hospitals and the larger scheme, particularly Discovery. Can you comment on that?
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MR PRETORIUS Doctor, I‘ll comment but Roly is responsible for those negotiations, but I can assure you that those negotiations are extremely robust. We are often not satisfied with the outcome. We lost a contract recently from a medical scheme who moved their membership over to Discovery, and they immediately demanded a lower rate from us, because when we negotiated individually with the scheme we had a 230 | P a g e
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specific tariff in place.
Now, that Discovery took over the administration, they
immediately demanded the lower tariff for their new client and we said we’re not going to give the lower tariff, reason to believe that the current tariff is actually appropriate. So we have a workable relationship which I think is rather positive, because in our 5
country we firmly believe we have to move the debate from cost only to value. Discovery shares that same vision. We want to contract on value. We have to look at clinical quality, patient experience and cost. We can’t keep on focussing on cost only.
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Then it is good to have a good working relationship, but we have many robust negotiations and settlements sometimes happen very late in the year. In our country
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the practice developed over many years for tariffs to be increased on the first of January every year, and Roly can never go on leave before Christmas because he is still battling to finalise the negotiations. So the negotiations are very robust but we still have a workable relationship. Would you like to add, Roly? MR BUYS Yes, I think, it’s not just about the negotiation platform. You must
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understand we live within a framework where we have to look at the benefit designs as well, and so I would suggest to you that the negotiation framework is equally difficult for us with a small scheme, especially if I say to you that they want to put in a network and we will not be that network. So we have a tiny little scheme up in Mpumalanga where we were arbitrarily told that we are not the network, and consequently that 231 | P a g e
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business is lost to us. So in the hospital business, as Mr Pretorius, explained the focus for us has to be volume first rather than price. So we have to keep that delicate balance. So we are looking at every single medical scheme to see how we can fit the need and how we can measure. The circumstances are also complicated by the fact that 5
a hospital cannot go into a tariff negotiation arbitrarily just thinking about themselves. At the end of the day we also have doctors that work with us, and so you can imagine for a moment if we decided that, you know, we didn’t like this particular medical aid,
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we didn’t like their offer at all and we wanted to tell them to go and play in the sandpit next year, that’s possible for us to do, but what will happen to the doctor, because the
10
doctor will see that patient, and now suddenly that patient is in a hospital and we tell him, well, we’re not, you understand. There’s this intricate relationship that we have to keep in mind. So It’s more than just that. So it’s about the benefits, about the doctor, about where do we want to go, and I think our colleague, Adam Pyle, expressed it here. We have a long term relationship. At the end of the day hospitals get billed with a
15
20
thirty, forty, fifty year old lifespan. They are not in the business just for next year. So you are actually thinking towards a longer term deal, a two, three, four year plan ahead of you, it’s not just about a chess board right now. DR VON GENT Thank you very much for your answer.
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PROF FONN We were told by the South African, SAMED, South African Medical, anyway, the suppliers, medical devices that both you and another big hospital group have an inventory system, and they have to be paid to be part of that system, and that the amount you are required to pay depends on the volume that you purchase from 5
them. Now, I suspect there’s nothing particularly illegal about this but it might be an expression of market power because they have to sell to someone, they want to sell to big players. So do you have any comments on this?
10 MR PRETORIUS Professor, I’ll ask Braam to comment. MR JOUBERT Professor, yes. The pharmacy world have thousands and thousands of 10
items. All those items are billed through NAPPI codes. All NAPPI codes need to be vetted from is it a valid medicine, the prices are attached to that, etc. So all our hospitals procure on a daily basis, medicines. We use a switch which we call, it’s a third party product. We decided we can’t do all that interaction and buying, etc. with a manual paper based system. We have to have a computer system that can track the
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prices, that can track the orders, the volumes we receive. So if a, we have contracted with this third party called Order Wise, it is basically a switch. Our system talk to that switch and all the suppliers systems then need to talk to that switch, otherwise we have to integrate our system to all the different pharmaceutical companies. So this switch do 233 | P a g e
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different things. It makes that our system talks to the pharmaceutical supplier, it vets the prices so when we contract with the suppliers the system checks that the supplier charges us the contracted price. So there’s a lot of functionality in this so called switch. We pay also for that switch and we expect that if a supplier do business with 5
us they work through the switch for efficiencies. We get efficiencies, the supplier gets efficiencies. The supplier do not pay us. The pricing structure is such that the smaller player with lesser volumes pay less and the player with higher volumes that do more
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business pay more to make the switch more affordable. PROF FONN They do experience that particularly for new and local companies as a
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barrier to entry. MR JOUBERT There is a system where they teach you how to make it. The small companies pay R400. PROF FONN Maybe they’re very small. The other question, I’m sorry, I forgot to
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ask was the same question that I’d asked the other company, and that is the shortage of doctors, and the fact that the private sector, as much as all of us have a responsibility for people to realise their right to healthcare, and in that regard we are aware that doctors who are in full time, sometimes part time, but it’s the full time doctors in particular, employ of the public sector, in some cases have agreements to work in the 234 | P a g e
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private sector, and that many of them might do this exactly correctly, but some of them might in fact be working in the private sector when they should be working in the public sector, and I know different provinces have different rules but there are provinces that only allow this out of working hours, and if I’m correct that is the 5
Western Cape, but I’ve been out of those discussions for a while so I’m not sure. So in terms of your own operations, if you are operating in a province where its only out of normal working hours and they’re going to operate in your hospitals, it means your
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hospitals have to run your theatres, for example, either very early or very late or on weekends for them, otherwise by definition they are defrauding their employer. So are
10
you aware of this? Do you monitor it? Do you consider it your responsibity to monitor it and is it included in any of your discussions around licensing or licensing agreements with the provinces? MR PRETORIUS Professor, we are aware of the whole ARUAPS dispensation and all the problems around this whole concept and we have been approached by various
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provinces to assist them to monitor the hours that ARUAPS doctors work at the private hospitals. It’s not discussed as part of the licensing regime, but what makes it very difficult for us in the private sector is that we don’t have the information of what is allowed for this specific doctor. We can also only monitor work that is being done at a Mediclinic hospital. So if a specific academic doctor is allowed twenty hours work in 235 | P a g e
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the private sector and the doctor works fifteen hours with Mediclinic and fifteen hours at Netcare and fifteen hours at Life Healthcare, we won’t know. So generally we don’t have the correct information. We firstly don’t know what is permissible, secondly we can’t monitor the work in the private sector, and thirdly we don’t have any legal right 5
to intervene or to monitor because there’s a very specific employment relationship between the government or the group province and this specific doctor. So strictly speaking the responsibility to monitor the hours of which the doctor should work at the
10
state hospital is the employer’s responsibity . PROF FONN I agree it’s the employer’s responsibility and I’m not asking you if you
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monitor what the doctors do outside of Mediclinic. All I’m asking is, do you ever ask for proof of their ARUAP agreement and do you monitor the hours and would you be willing if requested to provide that information? MR PRETORIUS I will have to check at the different hospitals but my perception is that we don’t ask for that information and we don’t monitor it, but if we are asked to
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assist with the part that we can, we will be willing to do so. PROF FONN Maybe, Mr Burger, you can just help me. If I’m committing this fraud, I think, it’s fraud, and I’m committing it on somebody else’s premises, does the person
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who allows me, is it only my responsibility or is it a legal issue for the person who allows it to happen? They're complicit? MR BURGER Well, not if they not aware of what’s happening. In a constitutional setting, I think, because we dealing with health rights, that’s a right affecting both 5
private citizens and the state, socio economic rights, so we’ve got certain responsibilities, as a private citizen, and if we wilfully take part in that we might well
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be guilty of negatively infringing the citizens’ right to health services because they take out of the public centre a utility which should be in the public centre. This is typically a private employment contract and personally I would think it’s maybe awkward for
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Mediclinic to ask a specialist for his employment contract with the province to monitor whether he is not stepping out of line. I’ll take umbrage to that if I were to be the specialist, but then I may be oversensitive. JUSTICE NGCOBO It has been a very long afternoon indeed, Mr Joubert. It is an afternoon which is about to come to an end. Subject of this one or two questions, and
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the answers one gets, as is always the case in matters of this nature, but let me first of all assure you that the stakeholders views on what drives the cost is not going to end this inquiry. Our task goes far beyond just determining what drives the cost. We have a far more important task than that. I should make sure that you understand that. Let 237 | P a g e
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me pick up on this last point. Does it happen that these doctors or specialists would work at a state facility during the day and then in the evening they come and work for you? MR PRETORIUS Chair, that can happen, yes. 5
JUSTICE NGCOBO So that doctor would have been working more hours than one would have expected of a doctor, would he?
10
MR PRETORIUS
I think that will depend on the situation, because the way I
understand ARUAPs is that even during normal working hours the doctors are allowed. JUSTICE NGCOBO No leave aside ... 10
MR PRETORIUS Spend a certain percentage of time on private … JUSTICE NGCOBO No, leave aside ARUAPs, I’m just talking about this individual doctor who would have been working at a state facility during the day and then in the
20
evening goes to Mediclinic facility to work another couple of hours. He would be tired, wouldn’t he?
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MR PRETORIUS It could be, Chairperson.
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JUSTICE NGCOBO I mean does that not put the life of patients at risk, though? It doesn't? MR PRETORIUS Chair, that will depend on the situation. We have doctors in the private sector that work long hours. Most of the doctors don’t only work from eight to 5
five and I think the ability of doctors to work long hours also differ between individuals, and it’s very difficult for us to monitor that for our own private doctors as
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well as the one who work in the public sector. JUSTICE NGCOBO I understand that, I do understand that doctors might be held up in some complicated operation for four hours, but I’m just talking about this doctor
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who has two jobs, one at a public facility who works during the day and then in the evening goes to Mediclinic, starts another job where he has to keep a couple of hours. So what I’m asking you is, in those circumstances if you have a doctor who works those long hours, does that not put the life of patient in danger?
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MR PRETORIUS The way you describe it, Chair, it could definitely happen. JUSTICE NGCOBO But unfortunately you have no mechanism for monitoring what the doctor has been doing during the day. You don’t look at their conduct, from what you said. Are there any mechanisms that you have put in place just to make sure that 239 | P a g e
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doesn’t happen? MR PRETORIUS Chair, we don’t have a mechanism in place at the moment because we don’t have that information and we don’t know how many hours the doctor has worked already during the day. 5
JUSTICE NGCOBO But to the extent that it is a possibility don’t you think you should perhaps put some measures in place?
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MR PRETORIUS I think we should, ye. JUSTICE NGCOBO I understand. You mentioned that you engage with medical schemes on behalf of patient. That’s a laudable conduct on your part, and that you, in
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actual fact you act as their agent, right. We’ve been told, for example, that, I think it was yesterday or the day before yesterday, I’ve just lost count of the days, but what we were told, for example, is that there were members with severe injuries, and who required some medical attention who had been pleading with a medical scheme for
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over two, three years getting them to pay. How successful are you in getting the medical schemes to pay? MR PRETORIUS Chair, I think, we deal with those type of cases from time to time,
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and Roly is sometimes personally involved to get accounts paid, so with your permission may I ask Roly to respond? JUSTICE NGCOBO Yes, certainly. MR BUYS I think we just have to put context to it. 5
interview, I think, that many of those accounts that were paid were from private practitioners, physiotherapists and the like.
10
I think, I listened to that
They were individual practices that
submitted accounts. Very different from … JUSTICE NGCOBO No, let me refresh your memory of the facts. The claim was lodged with the medical scheme in September of 2012, nothing happened, they didn’t
10
pay. In September 2013 the matter was reported to the Council for Medical Schemes. It took eleven months for the Council of Medical Schemes to resolve the matter. There was an appeal after that, which was withdrawn in July 2014 or 15, I think, it was. MR BUYS Let me start again. With respect to hospital accounts we have a very fast
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and efficient system between some of the administrators, less efficient between others, we call it business to business, and a business to business and client, so with the biggest administrator we have the business to business, which is an automatic system. We will update it in terms of preauthorisation, in terms of length of stay, level of care. 241 | P a g e
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We have criteria for ICU which we agree with them and which we send the messages. The moment the patient is discharged in our system we will final bill and send that account to the administrator. In this particular case, I have seen accounts that within a four or five seconds and possibly even a minute come back to us and give us a clear 5
indication whether there any items on the account that they don’t like. In other words we have an adjudicated account. So if I look at ...
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JUSTICE NGCOBO I understand. All I want to find out is how successful are you in acting as an agent for your patient to get medical aid to pay, so that we can see whether whatever tactic do you use can be used by the members as well. We not suggesting
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that you should do this for everyone else, we just want to make use of your expertise MR BUYS Sure, I understand. I think the tactic is what I described. The result of that is that our debtors get paid almost within two or three days. With many of the medical aids we get paid at least twice a week, we manage our debtors days constrictively in the company and we look to have our debtors days somewhere between sixteen and
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twenty-five. So we’re very efficient. As I explained to your panellist on your right hand side that the amounts of money that we have in dispute are about 2 to 3% at the maximum and normally those are deductible. So we do not have the same kind of problem that you speak of. We have our accounts paid and we certainly don’t have a 242 | P a g e
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waiting period of two years. JUSTICE NGCOBO I have no doubt you don’t have that problem but all I was trying to find out is what are the tactics, but anyway, let’s leave that aside. Does an issue such as this come up in the negotiations? 5
MR BUYS Yes, it does, it’s very much part of the negotiations. In medical aids that are that efficient with us, we are prepared to look at the relative value of tariff. We also
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have settlement discounts in place with medical aids to ensure that they pay promptly and fast. We have penalties if they don’t. So it’s a very important part of our process of negotiation.
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JUSTICE NGCOBO And what’s the attitude of the schemes? MR BUYS The settlement discount and the, most of the medical schemes like it. They use it as a mechanism to manage their administrator, because they want to see the discount coming to their books, they don’t like to see a penalty coming their books, and
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so when they see that change in their financial statements they’re very quick to manage their administrator. JUSTICE NGCOBO The penalty, is it something that is built into their agreement? MR BUYS That’s correct. 243 | P a g e
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JUSTICE NGCOBO If I can just draw your attention to slide 25 and 26. I think, this is where you talk about clinical quality information, I think, it is. MR PRETORIUS That’s correct, Chair. I’m not sure whether I can go back on … JUSTICE NGCOBO It may be complicated. Let me tell you what the slides are 5
about. MR PRETORIUS I’ve got it in front of me.
10 JUSTICE NGCOBO Yes, okay, very well. it’s about clinical quality initiatives. MR PRETORIUS That’s correct, Chair. JUSTICE NGCOBO Now, you told us that the results of these initiatives are shared 10
with the doctors. Is that right? MR PRETORIUS That’s correct.
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JUSTICE NGCOBO And then you went on to say some of the results are shared with the scheme, not all the results. MR PRETORIUS I actually meant that the results are shared with some of the
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schemes.
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JUSTICE NGCOBO I understand, you’d shared those results with the schemes you have an agreement with, I understand. Now, but this is not what you would share with patient. MR PRETORIUS At the moment we share these results at an aggregate level for the 5
group in our annual report, which is also available on the website.
That’s the
discussion we had about making this more patient friendly, for patients to understand 10
and making it available to the patients. JUSTICE NGCOBO It was only in 2014 that you started conducting surveys on patients, is that right?
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MR PRETORIUS Chairman, we started conducting surveys many, many years ago. We first did it in house then we outsourced it to a local South African company, and then our international group took the decision to move to Press Ganey, so Press Ganey was only implemented in 2014 but we always had systems before Press Ganey.
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JUSTICE NGCOBO The results of those surveys are not shared with the patients. MR PRETORIUS It’s not shared at the moment but that’s where, I also refer to the fact that our executive in Mediclinic Southern Africa has already made a in principle decision that we are going to share it and I gave a commitment, within the next year. 245 | P a g e
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JUSTICE NGCOBO When was that in principled decision made? MR PRETORIUS
Probably four or five months ago at one of our executive
committee meetings. JUSTICE NGCOBO What was the reason for the change in attitude? 5
MR PRETORIUS We believe that it is the right thing to do. We’ve always felt that the information should be available to patients, but as we discussed earlier the context
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must be so that everybody feels safer about sharing information, that it is comparable, but we decided even if there is not this safe context from a regulatory perspective it is the right thing to do, and we want to do it and we are going to do it in future.
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JUSTICE NGCOBO I want to understand whether, firstly, what were the obstacles that prevented you from sharing this information with patient? You’re saying that you’ve always believed that this is the kind of information that should be shared, but nevertheless you didn’t do that. So what I want to find out is what was the motivation
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for the change in attitude which occurred about a couple of months ago, what made you to change? MR PRETORIUS Our strategy about putting patients first, because fundamentally we believe it’s the right thing to do 246 | P a g e
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JUSTICE NGCOBO I understand. MR PRETORIUS And we believe healthcare must be more transparent and patients must have access to information, and we believe if we can share this type of information it will show that we are serious about our strategy, and it will enhance our 5
relationships, not only with patients, but also with the supporting doctors and the medical schemes who will hopefully acknowledge our improvement in quality and
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patient experience when it comes to tariff negotiations. JUSTICE NGCOBO Are there any factors that operated to influence you not to share this with patient previously?
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MR PRETORIUS Chair, there were no specific factors. JUSTICE NGCOBO So we can attribute it to a change in strategy. MR PRETORIUS
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From Mediclinic’s perspective, we focussed our strategy on
patients first and one of the building blocks to support patients first is to provide patients with information. So it was an internal decision that we took in terms of the
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strategy. JUSTICE NGCOBO And now you’re now going to make this available but, of course, you still reflecting on this. Specialists, other specialists are consulted, are they 247 | P a g e
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not, when a decision is made whether or not to grant another specialist admitting rights? MR PRETORIUS That’s correct, Chair. JUSTICE NGCOBO You were present when I drew attention to the experience of that 5
psychiatrist who was initially granted rights by the facility, but when a colleague objected the manager withdrew those rights. You are aware of that. How do you feel
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about that? Isn’t it too much to expect of specialists to say that they must decide whether or not to allow more competition? MR PRETORIUS I think, Chair, as I explained earlier, the final decision is the
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decision of the hospital, but we believe that the specialists in the discipline must be consulted. It is responsible to get their views and input because they are the experts in the field. I think in the example you mentioned it was not handled correctly because you cannot allow admission rights and then take it away after other specialists object
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afterwards.
The consultation process in this specific example was probably not
followed correctly. The consultation must first take place and then a well informed decision has to be taken before the new specialist is informed. JUSTICE NGCOBO So you make a decision after consulting that expert, you do not 248 | P a g e
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make a decision in consultation? Mr Burger, will explain that to you. MR BURGER Yes, we go through the process of consultation and the referral to the hospital committee to check the credentials as well, and then we make a final decision. JUSTICE NGCOBO Yes, and then in relation to information on private healthcare 5
services, you mentioned that what is required is an independent body that will be responsible for regulating the collection, the dissemination of this information. Are
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you aware that the National Health Act make provision for collection of information, as well as the, and what needs to be done? The first provision that deals with matter is section 74 of the Act which says, the national department must facilitate and coordinate
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the establishment., implementation and maintenance by provincial department, district health council and private healthcare sector of health information system at national, provincial, and local level, and then it goes on to say, the Minister may for the purposes of creating, maintaining and adapting database within the national health information system contemplated prescribe categories, the kind of data for submission and
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collection and the manner and format in which and by whom the data must be compiled or collated and must be submitted to the national department. Are you aware of the provision?
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MR PRETORIUS Chair, I was not personally aware of the provision, but I’m sure my colleagues who deal with the legal matters are aware. JUSTICE NGCOBO And then, of course, this section 74 must be read with section 90 subsection 1 (U) which now empower the Minister to make regulations which will deal 5
with the collection of this information in terms of the format.
Would that be
satisfactory for you? 10
MR PRETORIUS Chair, is this actually part of the scope of the office of Heath Standards Compliance? JUSTICE NGCOBO No, it’s a provision in the National Health Act
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MR PRETORIUS I think we will have to study those requirements because our view on the collection of data for purposes of reporting publicly is that it should be done independently, independent of the Minister and independent of the private sector. In other countries, these bodies who ensure quality are often totally independent. They
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don’t fall within the jurisdiction of the Ministry of Health or the Department of Health. So, I’m not sure in terms of the Health Act what the purpose for the collection of information is that you are referring to. If it is for us all to report on the same methodology with a view of publishing, I think, the best option would be to have a 250 | P a g e
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totally independent body, to develop the standards, to do the inspections and the accreditation, to develop the methodology for reporting, and also then to govern the way in which the information is then reported. JUSTICE NGCOBO 5
And what this provision also contemplates is that the
information so collected will be published in the public interest. So It contemplates that the information or some of the information will be published in the public interest,
10
and presumably that's so that the public as well as the consumers might have access to that information, but you haven’t applied your mind to those provisions. MR PRETORIUS Chair, we will go back and we will apply our mind but the one
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aspect that we have applied our mind to is the fact of independence, because if the scope of the Act is covering public and private sector but the authority to collect the information and to publish the information is within the public sector, it might create a conflict of interest.
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JUSTICE NGCOBO Well, I think, it does contemplate that there will be a particular format that’s being, presumably there will be draft regulations which will be published which will describe how the information will be collected, and then, of course, that will be the opportunity, as I understand it, for the stakeholders to comment on the methodology and whether or not they consider that methodology to be the kind that is 251 | P a g e
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acceptable to them. So perhaps you may want to apply your mind to that particular profession MR PRETORIUS We will do so, thank you, Chair JUSTICE NGCOBO The other matter that I wanted to raise with you, it really relates 5
to the licensing. At the moment we know that each province considers whether or not to grant licence, and you’ve mentioned the different criteria applied by some provinces.
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To what extent does that impact on your ability to expand? MR PRETORIUS Chair, it does impact. We looked at our licence applications in one province over the last five years. We had twenty four applications and, I think, five or
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seven applications were approved unconditionally, another eleven were approved conditionally, and the others that we took on appeal, I think two or three were approved. So we have a situation where some licence applications are not approved. Having said that, if you look at the healthcare market at the moment in the South
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African context, there are not many new hospitals that are being developed. The market is mature, the economy is not growing, the medical scheme population is not growing, but at the moment where we have more problems is where we want to change existing hospitals or where we want to expand existing hospitals. We don’t have plans in the immediate future to develop many brand new hospitals because the market 252 | P a g e
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simply is not there at the moment, but I think the system has to be corrected so that there is consistency in the application of the criteria and the interpretation of this question of whether there’s a need for the additional beds or not. JUSTICE NGCOBO We had conflicting views from the provinces, in particular on 5
the issue whether or not they have the power to amend regulation 158. Other provinces took the view they have the power to do so while others took the view they don’t have
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the power to do so. So, I think it is one of the issues that might require your attention. MR PRETORIUS Chair, at the moment eight of the provinces still apply regulation 15 (a) but the Western Cape developed their own regulations, R187, so I’m not sure
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whether they have the power or not, I don’t know, we will have to ask our legal experts. JUSTICE NGCOBO It’s a very complex question, Mr Schalk Burger, isn’t it, because these are powers that were assigned to the provinces under the interim constitution, and
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I can’t recall whether or not once those legislations have been assigned, they have the power to amend those laws, but KwaZulu-Natal, for example, told us that they don’t think they have the power to amend those regulations whereas the Western Cape took a different view.
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MR BURGER It may also be an attitude that our 158 has been repealed in 1977, so you don’t have to amend it. There’s nothing to amend. JUSTICE NGCOBO When was it …? MR BURGER I think it was repealed with the Act in 1977 5
JUSTICE NGCOBO No, but it is the regulation that is currently in force which is supplied by the provinces in deciding on the licences, so that’s the position as it stands
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at the moment. I think, the last time it was amended, it would have been sometime in March 1993, I think, it was, just before the advent of the new Constitution. MR BURGER Yes, but that regulation was promulgated under the 1977 Act which
10
was replaced by the National Health Act. JUSTICE NGCOBO
But it was assigned under the interim constitution for
administration by the provinces and from that date until 2003 when the National Act 20
was promulgated, there were no regulation and therefore it would continue to apply, and then which is why at sections 36 through 40 of the National Health Act were
15
brought into operation on the 1st of April 2014 in circumstances where there were no regulatory framework. As a result the Constitutional Court struck the bringing of that into operation invalid, reverting the situation back to the regulations. So that’s why 254 | P a g e
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they, I believe they are adhering to those regulations with these conflicting results. I think, it’s a matter that you would have to look into. Is there any other matter that you had set out to draw to our attention which perhaps you have not had the opportunity to do so? 5
MR PRETORIUS Chair, there are no further matters that we wanted to discuss during this round. With your permission I just want to use the opportunity to thank the panel
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for allowing Mediclinic the opportunity to do the presentation. We experienced the engagement as positive. I think the bigger healthcare industry in South Africa needs this type of dialogue. There are many issues and I think Dr von Gent highlighted the
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fact that as a collective we will get more done than individually. These issues of making information available, publishing quality and patient experience results, I really think requires a collective effort from the whole industry, because the whole industry, not only the providers, the funders, everybody, the doctors, should think about putting patients first and if that is the mindset with which we approach these discussions, I
2015
think, we will be able to find solutions. So thank you very much for affording us the opportunity to be here. JUSTICE NGCOBO We are also grateful that you were able to come here and share with us how Mediclinic operates and some of the challenges that you face in the course 255 | P a g e
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of interacting with other stakeholders. Thank you very much indeed. Thank you. I think we will meet tomorrow at the same time, at 8.30 in the morning.
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