Managed Care in South Africa  Where to now? by drdoc on-line

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In the 1970’s managed care rose to prominence in the United States of America with a realisation that health care costs were escalating uncontrollably. Over the next 20 years the reduction of health insurance premiums resulted in a surge in the industry, which posted record profits. However in the late 1990’s with the saturation of potential new clients and increased demand by patients for easier access to care, we are seeing a decline of the industry and the posting of losses by managed care companies. It was during the rise of the USA model that we saw the introduction of managed care into South Africa with the imposition of managed care models on providers in the early 1990’s. Managed care was perceived as an assault on the profession, as the managed care companies tried to impose reduction in fees for service, whilst at the same time imposing administrative restrictions on practices and threatening to remove the pool of patients accessible to these practices. The climate of suspicion resulted in a laager mentality. Co-operation with and by doctors was poor and as a result the industry has failed to meet the expectations expected of it. We now see the imminent sale of one of the major players – Southern JV and the posting by Sanlam Health of large losses.

However the concept of managed health care is not going away. It is going to restructure, and pursue its aims, as change is essential.
Let us consider a hypothetical solo-practice, specialist physician (internist) practice in this scenario.
Where does he fit into the picture?

PE00097A.gif (2204 bytes)The impact in the short term
Our practice must  realise that change has to occur, as the current situation of uncontrolled costs cannot be continued. South Africa has seen numerous changes over the last few years including tumultuous political change and a population growth with increasing urbanisation, unemployment and social instability. The economy has shown significant decline. This is in the context of a depreciating rand and rising costs with inflation. The Health Care Sector has been at the forefront of those difficulties and there are many discrepancies in the provision of health care.

Two systems are in existence:

  1. The Private Health Care System where the individual carries the responsibility of health care with assistance from various medical schemes.
  2. The State Health Care System: whereby the state provides health care for those unable to afford adequate medical cover. There is a scarcity of resources. This has seen a shift in focus from tertiary health care to primary health care, rationalisation of the academic institutions as well as reallocation of human resources to peripheral clinics.

In the private sector it is noted that patients want to receive the latest in health technology but are themselves unwilling or unable to pay for that facility. In addition health care providers hope to provide the finest health care, but the payors are unable to afford this. Over the years the cost of health care has outstripped inflation and the funders cannot afford this trend.

The main reason for the spiralling health costs have been:

1. Complications of the fee for service system with a lack of control of expenses by both health care providers and the patient population.
2. Increasing costs of sophisticated medical technology.
3. An increasing number of health care providers in the private sector
4. Inflation
5. The general aging of the population
6. Increasing use of special investigations for fear of malpractice suits.

Because of the spiralling health care costs, there has been an increasing need for revision of the Health Care System and following the American trend, we have seen the rise of the Managed Health Care Systems, with the ultimate aim of improving the use of scarce resources, whilst maintaining the highest quality of patient care.

This provides both threats and incentives for existing or emerging practices.
The current system consists of mainly fee for service – health care with largely guaranteed payment for services rendered under the Scale of Benefit rate as set by the registrar of Medical Schemes (RAMS). There is no restriction on utilisation and patients have free choice of provider. Payment for practitioners charging the Scale of Benefit Rate would be guaranteed payment by these Medical Schemes.

Under managed care members are generally restricted choice of health care provider to various degrees and through the "gatekeeper system", have restricted access to specialists and special investigations. Authorisation is required for referrals, tests and hospitalisation.

At this early stage, we must be able to deal with the coming changes.

The practice should gather data regarding practice profile.

Patient profile / referral pattern
Turnover / Income / Sources of income
Utilisation review – regarding investigations / procedures / hospitalisations.
Outcome measures

Only after this information is available can we enter into meaningful negotiation with managed care companies. This will enable us to determine procedure specific capitation rates as illustrated in table 1. We are then able to compare income generation from the current state to that projected by various managed care options.

We have to justify our effectiveness and be desirable partners on any future dispensation.

Any decision as to which direction to go depends on the availability of data on the practice. Various options exist:

a) Continue on a fee for service basis
b) To explore avenues with the HMO organisations
c) To be proactive and pursue contracts with managed care organisations.

Table 1







Rand value

Expected daily frequency

Total procedure charges

Total procedural charges

Estimated average monthly enrollment

Procedure specific capitation





sama - value

per unit

estimated per day

presume 15 days / month

rate per month

code number


code number

Joint/ligament/tendon injection


For negotiation

0661+ 0201


R 200.00



R 600.00

R 9,000.00


R 1.80

New consult 3/4 - 1 hr


For negotiation



R 347.76



R 1,043.28

R 15,649.20


R 3.13

Follow up office 25 minutes


For negotiation



R 231.84



R 463.68

R 6,955.20


R 1.39

Follow up office 15 minutes


For negotiation



R 231.84



R 1,159.20

R 17,388.00


R 3.48

New consult hospital


For negotiation



R 128.80



R 128.80

R 1,932.00


R 0.39

Follow up consult hospital


For negotiation



R 128.80



R 515.20

R 7,728.00


R 1.55


R 3,910.16

R 58,652.40

R 11.73


BS00847A.gif (3051 bytes)The impact in the medium term.

In the medium term we need to assess the different options available in managed care and establish communication with the managed care organisation. Several managed care options exist and caution must be exercised regarding entering into agreements without adequate study. The instinct to panic and to sign the first contracts rendered must be avoided at all costs. Consultation with necessary legal or financial advice must be considered.

The dilemma remains for individual specialists who want to support their colleague’s collective best interest, but do not want to be left behind as the process of managed care evolves.

The threat exists that the specialist will have to participate in managed care schemes or risk loosing access to the growing number of patients enrolled in these schemes. The referral base will shrink and practitioners outside the system may ultimately be forced to compete for a shrinking pool of self-funding patients. Primary care physicians (PCP’s) will be employed by the management organisations to act as "gatekeepers" aiming to reduce access to potentially unnecessary services. In addition there is reduced freedom to provide follow up care, admit patients to hospital or prescribe medication freely. Late entry to the schemes will allow for managed care to control costs by aggressive negotiation of specialist payment arrangements. Limited place will be available to be appointed to panels. Increasing competition from other providers will take place – including that from general specialists, physical therapists, chiropractors and primary care practitioners.

Managed care utilises a variety of organisation controls to achieve cost, volume and quality objectives.

This includes:

Discounted prices in exchange for a guarantee of volume.
Encouraging cost effective providers by clinical audits of practice.
Gatekeeper control limiting access to the provider.
Use of cost effective medical services and practice guidelines, which restrict practice managements.
Required authorisation of medicines, procedures or investigations or referral to other practitioners.
Shifting of financial risk to the provider through capitation schemes.

Hence there is a transfer of financial risk to the caregiver in varying degrees.

The economic incentive of manage care therefore may lead to reduced access to care - potential under treatment of patients and hence there is a concern regarding deterioration of medical care quality.

Because of erosion of autonomy and potential income – it is important at this stage to assess the appropriate type of organisations to join or associate with. It is important not to over-restrict practice at this time.

Involvement can be either:

a: Open panel – where the practitioner can participate in more than 1 scheme and can maintain his existing private practice patients within his own rooms
b: Closed panel - where the provider contracts to the managed care organisation and is not allowed to participate in other schemes or practice.

The practitioner should avoid taking excessive financial risk, as managed care payment methods will attempt to shift the risk from the payers of health care to the provider.  Various payment methods exist and generally those schemes with highest risk have the potential for greater compensation.

Reimbursement may be through:

a. Fixed salary with incentives for lower utilisation built into the contract.
b. Fee for service with negotiated fee schedules
c. A capitation fee where a fixed amount is paid per member of the scheme to each health care provider regardless of utilisation. The latter effectively places maximum risk on the health care provider as the provider may be held responsible for any additional costs, including ancillary investigations and hospitalisation costs. Therefore Insurance Schemes are required for the protection of the doctor in the event of isolated high cost events where a single patient might drain all the resources of that provider through one illness event. Alternatively the use of "risk pools" may require to be established - where funds are set aside by categories of practitioners and administered by a Managed Care Plan as a protection against such events. Any surplus at the end of the year may then be channelled back to the relevant provider whereas short falls are met from the pool and contributions required to make up any negative balance.

Choice of managed care schemes:

The commonest and most established and successful organisations that have evolved in the USA are:

1) The Health Maintenance Organisation HMO
– Here there is an arrangement between the organisation and the provider of health care to deliver health care to a specific subscribed population.

In the staff model HMO – the HMO owns the hospital and employs its own doctors who are usually salaried, but have bonus incentives for cost cutting. These constitute closed panel organisations.

The group model HMO consists of a practice or group of practitioners contracted by the HMO to provide part or all of the clinical services to its subscribers. Under this system there is a negotiated rate and the group generally compensates its participating providers accordingly. The practitioners may or may not be allowed to see non-HMO members and private patients in the Independent Practice Association – IPA model. The HMO contracts with an independent association of practitioners to provide health care services for a negotiated rate. Those practitioners in the IPA may continue to see there own patients and maintain their own offices and staff. In addition providers may negotiate separately with other managed care plans and may accept private patients.

The network model HMO - a group may contract with an HMO to be part of a network and is responsible to provide medical services to HMO members assigned usually on a capitation based system to that group. However a group practice is financially responsible for ancillary investigations, referrals and hospitalisation.

The direct contract model - the HMO contracts directly with individual practitioner either on a capitation or a fee for services basis with the practitioner usually able to maintain his private patients and see non-HMO patients.

2) The Preferred Provider Organisation – PPO. In the PPO there is a contract with providers of medical care. Patients are usually allowed to see other practitoners, but receive incentives to use the preferred providers. Panels of providers are drawn up with negotiated payment rates usually at a predetermined fee calculated as a discount from the standard service rates. Payment mechanisms to the provider are usually direct and rapid. Patient turnover is maintained because of referrals by the PPO, but utilisation restriction is required.

It is this model that I would at this stage suggest our specialist join, as he is free to operate his practice on the side and can be part of other panels and organisations. Negotiation strength by allying with fellow colleagues becomes important to ensure higher consultation fees, but peer review and utilisation review is essential.
The introduction of CPT4 charging systems will ensure time based fees and control abuse of services.
The monitoring of ICD-10 diagnostic codes will check that charging is appropriate to diagnosis category.

3) Exclusive Provider Organisations EPO. These are similar to the PPO, but in general payment is not provided for the subscriber to attend providers not in the system.


AG00066_.gif (6936 bytes)The impact in the longer term.

Our specialist is likely to come under increasing pressure to limit fee levels either through fixed fee schedules or capitation contracts. However he will have accumulated considerable knowledge about his practice profile and will be secure in his cost effective practice methodology. It is at this stage that he can either chose to continue with the low risk PPO model or consider high-risk capitation schemes. These are inheritantly dangerous for the specialists in therapy of chronic disease as they allow over utilisation by the patient. Protection mechanisms outlined previously must be built into any contract and the contract must have a built-in termination time for renegotiations. Legal and accounting professionals must be consulted prior to signing the contract.

It must be remembered that any "goodwill" held by a practice will disappear when the referral base is lost to the managed care company as managed care plans divide and conquer the status of the physician.

Despite the overall threats of managed care, various opportunities exist and restructuring of the practice is required. This includes a review of staff, or sharing of staff with colleagues in groups.

The long-term impact presumes that managed care becomes viable and our practice either stays separate from it or joins in a mutually symbiotic relationship. The latter constitutes the best outcome, as only in this way will the whole system survive.


Dr David Gotlieb

Cape Town
August 1999

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