The demarcation regulations, that draw a line between medical insurance products and medical schemes, came into force on 1 April 2017. Existing policies will be eliminated from1 January 2018. Limited “gap cover” and “hospital cash plans” are allowed, but primary healthcare insurance policies are banned, says a statement by the Free Market Foundation (FMF)

“Drip by toxic drip, government is destroying the private healthcare sector to prepare the ground for the full introduction of National Health Insurance (NHI). With the demarcation regulations, government is making a concerted effort to attack the medical insurance sector by marginalising the funding vehicles as a means of removing lower income earners’ access to insurance,” it says.

Health products amount to property

“Accident and health products amount to ‘property’ under section 25 of the Constitution, making these regulations potentially unconstitutional. No-one should be deprived of property except in terms of the law of general application – not by a law targeted at some medical insurance policyholders. And no one should be deprived of property arbitrarily without compensation – there is no recourse for anyone who has paid a short-term premium for the last 15 years and is now deprived of their existing cover,” says Bracher,

The FMF maintains that the demarcation regulations are government interference in mutually-agreed private contracts between freely-consenting adults and insurers to minimise their risks of huge medical bills when catastrophe strikes. “Despite clear evidence that South Africa cannot afford NHI and that government infrastructure, sufficient numbers of medical practitioners, and the ability to effectively manage NHI are badly lacking, health minister Aaron Motsoaledi is pressing ahead in the face of opposition. Treasury struggled to raise R28bn in this year’s budget, so the estimated price tag for the NHI of R369bn (in 2017 prices) is pure fantasy. Yet, the private sector continues to be marginalised.”

Low-cost medical scheme benefit options

The Department of Health has requested that the Council for Medical Schemes (CMS) grant a limited two-year exemption period for primary healthcare providers who submit themselves to regulation under the Medical Schemes Act before existing primary healthcare insurance policies are banned so that the department can conduct further research into the development of low-cost medical scheme benefit options (LCBOs). However, the proposals contained in the NHI policy paper restrict medical schemes to merely providing “complementary cover” and each medical scheme will be permitted to provide only one benefit option. This raises serious doubt as to whether an LCBO will ever be developed and contradicts the government’s stated objective of removing the so-called “two-tiered” healthcare system.

If actuaries are allowed to develop policies that are economically sound, however, it will not only increase access to quality healthcare for low-income individuals but also relieve a large burden on the state so that it can concentrate scarce taxpayer resources on the truly destitute.

Settas poses fundamental questions for the architects of NHI, including why is the right to private healthcare being abolished and why is NHI being driven through without waiting for the outcomes of the Competition Commission’s healthcare market inquiry?

For Settas, NHI does not only face a formidable challenge in funding, but there is a severe shortage of healthcare providers, a massive disease burden, and a blundering healthcare bureaucracy. By extrapolating the existing, very poor dentist-to-patient ratios in the state sector, a dentist will have capacity to see the same patient only once every 16 years.

“Government should not attempt to provide free cover for all citizens but should focus on those who cannot afford medical insurance and leave those who can afford it, to pay for their own healthcare arrangements,” he says.

CMS acting registrar Sipho Kabane said consolidating the industry was in line with the white paper on National Health Insurance (NHI).

Medical schemes with fewer than 6,000 principal members were targeted as they fail to meet the requirements of the Medical Schemes Act. The act says schemes must have 6,000 members to register.

Consolidation was necessary because fragmented risk pools were expensive and limited the scope for cross-subsidisation, said Kabane. “It isn’t just about noncompliance [with the act]. This is just the beginning. In NHI, we will have one risk pool: from 83 [medical schemes in SA] we will consolidate into one.

“We are going through a consultative process, to come up with a clear mandate on how this will be [achieved],” he said.

Insight Actuaries joint CEO Christoff Raath said: “These people won’t be able to get similar benefits on the open market and may get dumped on the state.”

Alex van den Heever, University of the Witwatersrand chairman of Social Security Systems Administration and Management Studies, said consolidation would harm consumers as it would limit choice. Closing small schemes due to their size was indefensible.

Discovery Health CEO Jonathan Broomberg said “the legality of forcing small schemes to close” was an issue, while there were “concerns about the impact on the members of many small schemes”.

Medscheme CEO Kevin Aron said an attempt by the CMS to deregister medical schemes was likely to be met with legal and constitutional challenges.

The two may be reluctant but important bedfellows

The NHI white paper, released in late June, envisages that under the new scheme the government will become the single largest purchaser of health services for all South Africans and that medical aid schemes will provide “complementary cover”. Although details are still emerging about the future role of private schemes, the idea is that a smaller number of medical aids, providing fewer options, will exist when the NHI comes into being.

Matsoso says the department will first have to ensure that all the country’s 83 private medical schemes are operating lawfully. In the meantime, it is working with private medical aids to reduce the number of benefit options on offer to members – to bring the services in line with the complementary cover principle.

Law is to blame for medical aid costs

Barry Childs is the chief executive at Insight Actuaries and Consultants. He argues that the way the law currently regulates benefit options, coupled with the large number of medical aid schemes in South Africa, makes the schemes unsustainable.

The Medical Schemes Act prevents medical aids from pooling funds between benefit options or other schemes, he says. In other words, each benefit option must sustain itself and this pushes up premiums, Childs argues.

Poorer South Africans have borne the brunt of premium increases. Research has found that middle-income households with medical aid spend about 20% of their household income on fund contributions, compared with the wealthiest households, which use about 7% of their income on monthly cover.

Childs says regulations contained in the Act are to blame: “There is no other way medical schemes could look, given the regulatory pathway we followed.”

The Medical Schemes Act is one of almost a dozen acts that must be amended to introduce the NHI. Prema says the Council for Medical Schemes aims to finalise all NHI-related legislation by 2020.

Private sector not cooperative in information sharing

But for now, the health department will seek to work with – and learn from – private medical aids and administrators.

Matsoso explains: “Existing medical schemes and administrators look after millions of South Africans – that capacity does not yet exist in the public sector.

“The role of medical aids will only be changed when the NHI is fully matured. Only once we have tangible results to show South Africans will we decide how existing medical aids will change.”

But the private sector has been less than cooperative in the past, says Gavin Steel, chief executive of sector-wide procurement at the health department. Steel says the department struggled to find corporate partners to help to develop its electronic database of essential medicines in 2013. The system will now become the heartbeat of the NHI, he adds.

He explains: “We will soldier on. The question is whether the private sector has the appetite to partner with us – and can they keep up?”

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Single payer fund

In terms of the single payer fund, the white paper believes that the NHI can use bulk purchasing power to drive down the price of healthcare services. However, it then simultaneously declares that it will accredit medical service providers – public and private – and then set the prices at which they can sell their services to the NHI. It specifically states that it will deploy a “uniform reimbursement strategy” and that accredited service providers will not be allowed to deviate from that.

This raises a fundamental question. If the NHI is going to regulate the price at which the services are being procured, why does it need to use the bulk purchasing power of a single fund to reduce prices?

Nationalising private service providers

The white paper also declares that medical schemes will not function in parallel to the NHI, but will only be permitted to offer “complementary services” that are not available under the NHI. This will destroy the current medical scheme market and effectively nationalise most private service providers, since they will have no choice but to contract with the NHI for the defined services at regulated prices.

In a further contradiction, the white paper states that citizens will not be forced to use NHI services but if medical schemes cannot co-exist with the NHI, how will this choice be achieved?

Consequences

The two fundamentals of removing competition between funds and service providers will have disastrous consequences. Quality will suffer and the ultimate long-term impact will be higher prices – it’s the undisputed consequence of removing competition from a market.

As the Department of Health currently operates, it’s effectively a single payer fund. Citizens who cannot afford medical aid cover, have no choice but to receive their healthcare from state-funded public health facilities. The obvious quality problems that currently beset the public system are exactly what will transpire under a single payer NHI.

Value-based health systems

The best option would be to allow multiple paying funds – similar to medical schemes – that compete with each other on the price, quality and efficiency of their service. Prices for medical services should also not be set. These multiple funds should be allowed to freely contract with any provider – public or private – based on the quality of their clinical outcomes, rather than on the price they charge. This structure would ensure competition between funders as well as providers.

Value-based health systems are growing in popularity and success in many countries around the world. By sharing clinical data, treatment methodologies and health outcomes, these value-based systems are achieving superior clinical outcomes at lower costs. It also allows consumers freedom of choice and leads both funders and providers to focus not on revenue generating, but on the clinical outcome of the patient. Competing on the quality of the health outcome results in a win-win situation. Costs are controlled and quality rises.

Further consequences of what NHI is proposing will be a brain drain, as doctors emigrate to friendlier markets, and corruption is virtually certain to be endemic in a state-run NHI fund that, in today’s value, will turnover in the region of R400bn annually.

Last year Bonitas identified over R79 million in irregular claims involving medical practitioners. Money which could have been used to pay for around 57,000 more GP consultations or eight lung or liver transplants. “It’s a travesty that greed ultimately denies others the opportunity for quality healthcare,” says Van Emmenis.

The private healthcare funding industry spent over R150 billion on private healthcare in 2016. Of this a staggering 10-15% of these claims contained elements of fraudulent information – adding an estimated R22 billion to the annual cost of private healthcare in South Africa.

Who are the culprits?

The culprits are not just medical practitioners. Guilty parties are found all along the healthcare delivery chain – from medical practitioners through to employees, service providers and members. There has also been an increase in collusion between members and healthcare providers.

The trends

Van Emmenis says fraud may not necessarily be on the increase but the high-level analysis means medical schemes are uncovering substantially more fraud than previously.

Identity fraud: Current trends seem to be ‘bogus doctors’ who submit claims, using another doctors’ practice number.

Time-based health practitioners: “2016 data revealed a massive increase in costs for allied/auxiliary service providers,” says Van Emmenis. “These are your dieticians, physiotherapists, psychologists and most time-based non-surgical healthcare practitioners. Using big data analytics, we are now able to identify these culprits much sooner, some of whom claim as much as 50-60 working hours a day!”

Other fraudulent activity

Waste and abuse is far higher than fraud and is more easily quantifiable in terms of values as it is usually a clear contravention of tariff codes or a rule that exists. Most of the common practices include:

1. Billing for services not rendered (over billing).
2. Using incorrect codes for services (at a higher tariff).
3. Waiving of deductibles and/or co-payments.
4. Billing for a non-covered service as a covered one.
5. Unnecessary or false prescribing of drugs.
6. Corruption due to kickbacks and bribery.

Economic downgrade

When the economy is bad, people including medical practitioners and suppliers can get desperate. There are so many ways in which the system can be manipulated. For example, if a doctor does not get enough patients to cover his expenses he may well resort to abuse or fraud. If a member has used all their out of hospital expenses, a doctor might admit the patient to hospital just to access more benefits. If hospital occupancy is low, the hospital may well extend the stay.

Who pays the price?

As medical aid schemes became acutely aware last year during the increased tariff period, everyone suffers, including the general public. Schemes have to introduce double-digit increases which are sometimes unaffordable. This forces members to buy down or leave the medical scheme and join the public healthcare sector. This not only creates an additional burden on the state where they are already under-resourced but medical schemes start to stagnate if they are losing members and the vicious cycle of premium increases continues.

What is the best deterrent?

“In our experience, the biggest single deterrent to fraud, waste and abuse is making it known that we are actively investigating every suspicious or unusual claim or activity. Education in terms of the relationships with medical aids, their members and the healthcare providers goes a very long way in curbing the abuse of medical aid benefits and, as such, our approach to fraud management speaks to this education component in all the matters we deal with.”

We believe in ‘prevention is better than cure’, and encourage the members to participate in the process. For example by checking their accounts and questioning strange or unfamiliar claims.

Collaboration

Van Emmenis believes that working together is the only way to combat this scourge in the industry. To this end SA Fraud Prevention Services (SAFPS) is encouraging all the roleplayers to come aboard its new initiative. This is a listings database where details of reported and investigated cases are captured to enable all members of the initiative to mitigate their risk with the sharing of information and identifying serial abusers or fraudsters.

Bonitas actively participates in industry initiatives including the SAFPS, The Healthcare Forensic Management Unit (HFMU) and Association of Certified Fraud Examiners (ACFE) as well as a range of associations focused on preventing fraud.

Another important aspect of this initiative is the coordination of collaboration among healthcare insurers, where knowledge, skills, operating structures and many other important aspects can be shared.

Who deals with the perpertrators?

The only body who can deal with this is the Health Professionals Council of SA (HPCSA) or the Pharmacy Council. There is no one monitoring the hospitals. The Medical Schemes Act states that it is a criminal offence but, due to volumes and complexity, it is difficult to prove intention beyond reasonable doubt. A more effective measure is to stop payment.

“We believe the HPCSA are too lenient on offenders. According to Section 66 of the Medical Schemes Act, medical aid fraud, committed either by a member or a healthcare practitioner, is a criminal offence which carries a fine or imprisonment or both,” says Van Emmenis.

Fraud and abuse is committed by a small number of healthcare providers but is a major cost driver in terms of financial impact. Bonitas is leading the way in effectively detecting and preventing the fraud because substantial losses are suffered and it adds between R192 and R410 per month to every principal member’s medical aid contributions.

In conclusion Van Emmenis says it will take a combined effort of the regulatory bodies, the professional associations and the medical schemes to raise the necessary awareness and stop fraud, waste and abuse going forward.

Prosecution and consequences

A member found guilty of committing fraud will have their membership terminated. All fraudulent claims submitted will be reversed and the member will be liable for them. A criminal case will also be opened. In addition, members who commit fraud may also have their employment jeopardised – especially in cases where their medical aid contributions are subsidised by their employer.

In instances where a healthcare provider is guilty of committing fraud, all fraudulent claims will be reversed. The provider will be reported to the relevant regulatory body and a criminal case will be opened.

Examples of medical aid fraud, waste and abuse
Psychologist billing for extra hours

A psychologist was investigated after his claims were analysed. It was found that he was claiming for services, rendered to Bonitas members, for durations up to 57 hours per day, which is impossible. The psychologist was operating a sole practice and did not employ any additional psychologists and services and claims are hour-related.

After an investigation was conducted it was established that the psychologist submitted false claims and used the following methodology:

• In some instances the psychologist was not known by the members, but had obtained their details fraudulently.
• Claiming for services not rendered could be cancelled retrospectively upon discovery of the fraud, leaving them in financial distress should they or their dependants subsequently had being hospitalised for genuine treatment. They also face criminal prosecution that will not only impact themselves but also their employment, as longer hourly sessions were claimed.
• Some members consulted once but the psychologist submitted claims on a monthly basis.

A criminal matter was lodged and the psychologist was prosecuted for fraud.

Pharmacies approving claims for non-medicinal items
Information was received that several pharmacies, in a specific area, were supplying members with cash, toiletries and groceries. The pharmacist then submitted false claims to cover the costs for the non-claimable articles.

Upon further investigation, it was found that pharmacists of six pharmacies were operating in conjunction with several GPs to carry out this scheme. The following modus operandi was uncovered:

• The members will receive non-claimable articles such as toiletries, cash and groceries.
• The pharmacist submits false claims for high-cost medication to cover his expenses.
• The pharmacist obtains a false prescription from participating GPs to cover for claims submitted for scheduled medication.
• The GPs then also submit false claims for consultations without consulting with the members.
• Allowing other people to use your medical aid card.

A full-scale investigation in conjunction with the SAPS was lodged and an undercover operation was conducted, pharmacists from six pharmacies and several GPs were arrested and prosecuted successfully for fraud.

“These examples paint a very gloomy picture,” says Van Emmenis. “They reveal not only how our own members were involved but also how their fraudulent actions quickly spread to allow further fraud against the scheme in their names. These members also clearly did not realise the extent of the impact of their fraudulent actions on themselves. Their membership employers usually subsidise contributions.”

If you suspect any medical aid fraud, contact our independent Whistleblower Hotline on 0800 112 811.