1. The Council for Medical Schemes

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1 MediKredit Integrated Healthcare Solutions (Pty) Ltd Reg No : 1995/001794/ Jan Smuts Ave, Parkwood, Johannesburg, 2193 P O Box 692, Parklands, 2121 Head Office : Johannesburg Switchboard: Telkom: +27 (0) Neotel: +27 (0) Facsimile: +27 (0) / Call Centre: +27 (0) Cape Town Switchboard: +27 (0) Facsimile: +27 (0) TH September 2011 Dear Valued Client and Colleague Please find below a summary of the August 2011 industry news, happenings and regulatory matters for your attention. August month was dominated by the release of the NHI White paper as well as government s intentions for a zero percentage increase in SEP medicines in In the updates below, we have attempted to summarise the salient points of the NHI White paper and intent for you. This means that the update summary is somewhat longer than previous months, however I trust you find the information valuable to you. If you have any queries on the matters below, you are most welcome to contact your Business Operations Specialist, Relationship Manager or myself for further discussion or if you require copies of any of the publications, gazettes or CMS publications mentioned below. 1. The Council for Medical Schemes CMS Annual Report presentation The CMS has sent out an invitation to all Principal Officers and Trustees of medical schemes to attend a presentation and discussion of its latest Annual Report and industry trends for the 2010/2011 period: Cape Town: 8 September 2011 Johannesburg: 9 September CMS Circular 31 of 2011: Submission of Quarter 2 quarterly returns In the CMS Circular 31 of 2011 dated 16 August 2011, the Office of the Registrar has advised that the 2011 Quarterly Statutory Return online programme will be available on the CMS website from 16 August 2011 for submission of Quarter 2 of The deadline for the submission of Quarter 2 of 2011 is 16 September This deadline applies to the receipt of the signed documents by the office and not merely the electronic submission. Should a medical scheme fail to furnish the Registrar with the prescribed documentation as set out in this circular the scheme shall be liable to a penalty of R1000 for every day which the failure continues. Directors: Dr S C P Belamant; A W Brunyee; W J du Plessis ; H G Kotzé MediKredit is an ISO 9001:2008 registered company.

2 P a g e 2 2. Legislature Consumer Commission angers Medical Schemes The newly established Consumer Commission has alleged that many medical schemes are currently violating consumer-protection laws. The results of a recent investigation undertaken by the commission, has prompted the Council for Medical Schemes (CMS) to create a committee to look at possibly amending legislation. The commission's preliminary investigations into the medical schemes'rules agreements showed that: In certain instances, rules are provided to consumers only after the agreement is entered into; Schemes require applicants to consult a doctor nominated by them - which is contrary to consumers'right to select suppliers; The boards of the schemes may, in their sole discretion, impose a waiting period in respect of members or dependants, which might exclude members from accessing services, which, according to the Consumer Act, is discriminatory; Some schemes prevent women who fall pregnant within nine months of joining the scheme from claiming for the pregnancy even though they pay full premiums; Some schemes require that members give three months'notice when terminating their membership, whereas the act deems 20 business days to be reasonable; Members over 36 are penalised for being late joiners and pay higher contributions. The Registrar of the CMS, Monwabisi Gantsho, has come out strongly criticising the investigation, on the basis that the Commissioner does not appreciate the complexities of the industry and should rather focus her attention elsewhere. The commission, headed by Mamodupi Mohlala, has already attracted criticism from the telecommunications and property sectors, and more conflict is likely, as the commission is investigating the hospital industry, with work due to be completed in October. Government proposes zero percent increase for SEP in 2012 In the government gazette dated 19 August 2011, the Minister of Health published intent to introduce a zero increase in the SEP for the year 2012 given that the previous year yielded a negative increase. Interested persons may submit comments to reach the Director-General by 19 November MediKredit has been in consultation with various medicine manufacturers to establish their views on the publication. The general consensus is that although they are not pleased with the publication, it was not altogether unexpected. The manufacturers indicated they intend to comment, however it is not expected that the proposed value will be amended.

3 P a g e 3 3. NHI NHI White Paper finally gazetted 12 August 2011 Below please find a summary of the salient points around the published white paper. The purpose of this White Paper is to outline the broad policy proposals for the implementation of NHI. Interested persons can submit comments within a period of 2 months from the date of publication. After the consultation process the policy document will be finalized. Thereafter draft legislation will be developed and published for public engagement. After public engagement the legislation will be finalized and submitted to Parliament for consideration. After Parliamentary approval, the Bill has to be approved by the President of the Republic. 1. To successfully implement a healthcare financing mechanism that covers the whole population such as NHI, 4 key interventions need to happen simultaneously: a. a complete transformation of healthcare service provision and delivery b. the total overhaul of the entire healthcare system c. the radical change of administration and management d. the provision of a comprehensive package of care underpinned by a reengineered Primary Health Care. 2. To change these types of systems will require transformation of the healthcare financing model, better regulation of healthcare pricing, improvement in quality of healthcare as well as the strengthening of the planning, information management, service provision and the overhauling of management systems. 3. In South Africa health care expenditure is currently derived from 3 main sources: a. public sector expenditures financed out of general revenue, b. private sector expenditures financed through medical schemes, and c. out of pocket payments. 4. NHI will ensure that everyone has access to a defined comprehensive package of healthcare services. The covered healthcare services will be provided through appropriately accredited and contracted public and private providers and there will be a strong and sustained focus on the provision of health promotion and prevention services at the community and household level. 5. The National Health Insurance will be guided by the following principles: a. The Right to Access b. Social Solidarity c. Effectiveness d. Appropriateness e. Equity f. Affordability g. Efficiency

4 P a g e 4 6. Objectives of NHI: a. To provide universal coverage (population coverage, service coverage and financial risk protection) b. To provide improved access to quality health services for all South Africans irrespective of whether they are employed or not. c. To pool risks and funds so that equity and social solidarity will be achieved through the creation of a single fund. d. To procure services on behalf of the entire population and efficiently mobilize and control key financial resources. This will obviate the weak purchasing power that has been demonstrated to have been a major limitation of some of the medical schemes resulting in spiralling costs. e. To strengthen the under-resourced and strained public sector so as to improve health systems performance. 7. Population Coverage: a. NHI will cover all South Africans and legal permanent residents. b. Short-term residents, foreign students and tourists will be required to obtain compulsory travel insurance and must produce evidence of this upon entry into South Africa. c. Refugees and asylum seekers will be covered in line with provisions of the Refugees Act, 1998 and International Human Rights Instruments that have been ratified by the State. 8. Primary health care (PHC) services shall be delivered according to the following 3 streams: a. District-based clinical specialist support teams supporting delivery of priority health care programmes at a district b. School-based Primary Health Care services c. Municipal Ward-based Primary Health Care Agents 9. Delivery of PHC services through private providers: a. In addition to the above 3 streams, PHC services will be delivered through accredited and contracted private providers practicing within a District. b. The salient feature of contracting private providers in the delivery of primary health care services will entail the specification of the range of services that will be provided. These may include services by the general practitioners to patients who must get the full range of primary care services required in one facility or comparable arrangement which does not inconvenience or require travel costs on the part of the patient. 10. Hospital- based benefits a. Services to be rendered at the hospital level will be based on a defined comprehensive package that is appropriate to the level of care and referral systems. b. NHI will provide an evidenced-based comprehensive package of health services which includes all levels of care namely: primary, secondary, tertiary and quaternary health care services. c. As part of the overhaul of the health system and improvement of its management, hospitals in South Africa will be re-designated as follows: District hospital; Regional hospital; Tertiary hospital; Central hospital; and Specialized hospital. 11. All health establishments (public and private) that wish to be considered for rendering health services to the population will have to meet set standards of quality.

5 P a g e Payment of providers under NHI a. At the primary care level, accredited providers will be reimbursed using a risk-adjusted capitation system linked to a performance-based mechanism. The annual capitation amount will be linked to the size of the registered population, epidemiological profile, target utilization and cost levels. b. At the hospital level, accredited and contracted facilities will be reimbursed using global budgets in the initial phases of implementation with a gradual migration towards diagnosis related groups (DROs) with a strong emphasis on performance management. c. In preparation for contracting with private providers, mechanisms for achieving cost efficiency will be investigated including international benchmarking from countries of similar economic development that have successfully implemented such processes. 13. Healthcare Coding systems and reimbursements: a. NHI will adopt a coding system that allows providers to uniformly report on the services rendered or goods provided for the purpose of reimbursement. b. The coding system must allocate a code relating to a particular service so that the NHI would be able to reimburse for the service with a full understanding of the service delivered or goods supplied. c. The coding system must also provide the necessary health information on the burden of disease for the purposes of planning and decision making. d. The reimbursement system for inpatient services will be according to disease related groups. e. A case mix or grouper system will be adapted for the South African environment drawing on good practices that are internationally accepted and have been successfully implemented in other jurisdictions. 14. Principle Funding mechanisms for NHI a. Universal coverage to affordable health care services is best achieved through a prepayment health financing mechanism. b. To achieve universal coverage, pooling of funds requires that payments for health care are made in advance of an illness, and these payments are pooled and used to fund health services for the population. c. The funds can be from a combination of sources (e.g. the fiscus, employers and individuals). The precise combination of these sources is the subject of continuing technical work and will be further clarified in the next 6 months in parallel to the public consultation. d. An important consideration is that the revenue base should be as broad as possible in order to achieve the lowest contribution rates and still generate sufficient funds to supplement the general tax allocation to the National Health Insurance. As the National Health Insurance matures, consideration will be given to the alignment and consolidation of health benefits offered by other relevant statutory entities. 15. The role of co-payments under NHI: a. Ordinarily universal coverage does not encourage co-payments. b. However, there are instances under which NHI may be forced to impose co-payments, and these may include amongst others: i. Services rendered not in accordance with the NHI treatment protocols and guidelines; ii. Health care benefits that are not covered under the NHI benefit package (e.g. originator drugs or expensive spectacle frames) iii. Non-adherence to the appropriately defined referral system iv. Services that are rendered by providers that are not accredited and contracted by NHI v. Health services utilised by non-insured persons (such as tourists)

6 P a g e The establishment of the NHI fund a. The NHI Fund will be established as a government-owned entity that is publicly administered. b. It will be a single payer entity with sub-national offices to manage nationally negotiated contracts with all appropriately accredited and contracted healthcare providers. c. The covered services will be defined as a comprehensive package of services that includes personal care, health prevention and promotion services. d. The main responsibility of the NHI Fund will be to pool funds and use these funds to purchase health services on behalf of the entire population from contracted public and private health care providers. Nonetheless, a multi-payer system in a NHI Insurance will also be explored as an alternative to the preferred single-funder, single- purchaser publicly administered Fund. e. The NHI Fund will be an autonomous public entity reporting to the Minister of Health and Parliament. f. It will be governed by the relevant statutes. g. The Fund will be established through the passing of enabling legislation and supporting regulations. h. The Minister of Health will have oversight of the NHI Fund. i. The Department of Health will continue to play its overall stewardship role of the health system, such as development of overall health policy, planning to meet changes in the country s health care needs as determined by changes in population demography, epidemiological profile, health technology and any other relevant developments. j. The Department of Health will also remain a major provider of services through its national, provincial and district level structures and facilities. k. At the national level, the NHI Fund will be managed by a Chief Executive Officer (CEO) who will report directly to the Minister of Health. The CEO will be supported by a competent Executive Management Team and specific technical committees including the technical advisory committee, audit committee, pricing committee, remuneration committee, benefits advisory committee and others. l. The NHI Fund will be advised by a technical advisory committee made up of experts in health care financing, health economics, medical and nursing services, pharmaceutical services, public health planning, research, monitoring and evaluation, public health law, labour, administration of public insurance schemes, actuarial sciences, information technology and communication. 17. The role of Medical Schemes: a. Membership to the NHI will be mandatory for all South Africans. b. Nevertheless, it will be up to the general public to continue with voluntary private medical scheme membership if they choose to. Accordingly, medical schemes will continue to exist alongside NHI. c. However, there will be no tax subsidies for those who choose to continue with medical scheme cover. d. The exact form of services that medical schemes will offer may evolve to include top-up insurance. e. However, no South African and legal permanent resident can opt out of contributing to NHI even if they retain their medical scheme membership. f. There is existing expertise residing in the health sector in the area of administration and management of insurance funds. Where necessary and relevant, this expertise may be drawn upon within the single payer publicly administered NHI, to ensure that adequate inhouse capacity is developed.

7 P a g e Registration of the Population a. NHI Fund will only deal with registered citizens as provided by the Department of Home Affairs. Only those registered will have access to the defined comprehensive package of services. Accredited and contracted health providers will provide services to the registered population. b. A NHI card will be issued for the registered population and it will allow for ease of access to patient information and for the portability of health services. c. The NHI card will be the same for the entire population, regardless of their contributory or other status, in order to avoid the stigma that may be associated with subsidised households and individuals. 19. Information systems for NHI a. The NHI information system will be based on an electronic platform, with linkages between the NHI membership data base (with updated contribution status) and accredited and contracted health care providers. b. The information system will need to be adequately budgeted for in the initial stage to help ensure effective implementation. c. Developmental work will be conducted on a National Health Insurance patient card and supporting information platform. 20. Migration from the current health system onto the NHI environment a. The transitional process from the current to the proposed NHI environment requires a well-articulated implementation plan. b. The implementation of NHI will be done in a phased and systematic manner at both the national and sub-national levels. c. The migration period will occur in three phases over the fourteen years of implementation. d. Development of a strategy e. Development and implementation of a comprehensive plan for quality improvement, assurance and compliance for all providers f. Determination of a transition and long term plan for addressing the current Human Resources (HR) shortages in the health system g. Conducting real-life demonstrations and pilots h. Assessment of existing health infrastructure i. Implementation of hospitals management reforms j. Development of a plan that informs the processes around implementing innovative purchasing and procurement processes k. Development of an integrated plan to support processes around population registration l. Further refinement of the financial resource envelope m. Refinement of the revenue mobilisation strategy and pooling systems n. Refinement of the provider payment mechanisms strategies and implementation of interim mechanisms o. Development of a detailed transition process p. Review of existing legislative and regulatory laws q. A National Health Insurance Conditional Grant will be allocated to the National Department of Health.

8 P a g e Piloting of the NHI a. 10 districts will be selected for piloting during b. After the initial 10 districts, additional districts will be determined on an annual basis for inclusion in the roll out. c. The first 5 years of National Health Insurance will include piloting and strengthening the health system in the following areas: i. Management of health facilities and health districts ii. Quality improvement iii. Infrastructure development iv. Medical devices including equipment v. Human Resources planning, development and management vi. Information management and systems support vii. Establishment of the National Health Insurance Fund 4. General ICPA to take Schemes to the Consumer Commission over use of DSPs The Independent Community Pharmacy Association (ICPA) has indicated that they plan to approach the National Consumer Commission over medical schemes'use of courier pharmacies for the delivery of chronic medicines to patients. The ICPA argues that these designated service arrangements restricts the consumer s choice. Many of the large medical schemes have appointed courier services as designated service providers to control/manage costs. Patients who voluntarily elect not to use a scheme appointed DSP pharmacy often face co-payments. The association has already brought the matter to the attention of the Council for Medical Schemes and Health Minister Aaron Motsoaledi, however the overall response was that schemes were within their rights to use designated service providers. Kind Regards Matthew Dijkstra Head of Clinical and Client Management MediKredit Integrated Healthcare Solutions (Pty) Limited Direct Number: Cell Number: matthewd@medikredit.co.za