Jul 07, 2021

Understanding medical aids and how designated service providers keep costs affordable

Article by Lerato Mosiah

CEO

Health Funders Association

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With healthcare inflation continually on the increase, medical schemes must find ways to keep contributions as affordable as possible for their members while still ensuring that they receive quality of care.  

One of these ways is through negotiation with groups of hospitals, doctors and pharmacies for better tariffs in return for directing members their way. These groups then become the scheme’s Designated Service Providers (DSP).  

The Health Funders Association explains the ins and outs of DSPs and why they are important to medical schemes and their members:

Medical schemes are not-for-profit organizations which provide a mechanism to assist medical scheme members in funding their healthcare providers for medical care rendered.  Medical schemes are similar to trust funds or stokvels, where members pool money which is then distributed according to need and the benefit plan chosen.  

Medical schemes, and by extension members, are more often than not price-takers as, in many instances, prices are not regulated or capped, and so healthcare providers can set their own rates.

Unbeknown to their members, medical schemes do a tremendous amount of work to contain healthcare costs in the best interests of their members, many of whom are struggling to afford medical scheme cover in these challenging economic times.  

This work has a direct impact on keeping medical scheme members’ contributions as low as possible, and without this work, contributions would be much higher for the same benefits.

Although there are limited mechanisms that medical schemes may use to protect member funds from excessive charges, they are legally required to cover prescribed minimum benefits (PMBs) at whatever rate is charged by the healthcare provider.

One mechanism that medical schemes may use to contain costs, is to establish designated networks of healthcare providers (for example, general practitioners, specialists, pharmacies, and/or hospitals).  

These designated service provider (DSP) networks are based on a contractual price and other requirements relating to the access to quality of care.  Healthcare providers are prepared to join these networks because it means that medical schemes usually direct more patients to them, so they get more business.  

As part of these arrangements, medical schemes can negotiate certain conditions for participation in the DSP network.

For example the healthcare provider may only charge specified amounts, and may not charge medical scheme members anything over and above these specified amounts; the healthcare provider must adhere to certain quality of care standards to ensure that medical scheme members are cared for within certain clinical pathways for comprehensive and optimal care; to use medicine formularies (another mechanism that schemes use to contain costs); and to reduce administration costs (which also affects cost increases for members).

Medical scheme members benefit directly from these DSP agreements being in place by paying less for medical scheme cover without a compromise in access to care or quality of care.  

Due to the benefits of these DSP networks, it is important that medical schemes are able to direct their members to the DSP networks wherever possible, and for this reason individual members may have to pay a co-payment if they choose to make use of a non-network provider, depending on which benefit plan they have chosen.  

While co-payments must be ‘reasonable’, it is important that price is not the only determining factor, but that quality, patient experience and other factors are also considered in the quest for determining a co-payment.

The regulations in the Medical Schemes Act regarding DSPs already stipulate that medical schemes must ensure that there is adequate access and that co-payments cannot apply when members are not able to access the DSP provider (for example due to an emergency or distance from a DSP).

Members who prefer not to be restricted to DSP networks usually have a choice of other benefit options or more comprehensive cover.  Restricting the ability of medical schemes to structure benefits that are more affordable, while still ensuring appropriate access, is not in the interests of the majority of medical scheme members.

Any limitation on the ability of medical schemes to contract at reasonable prices and to ensure that benefits are structured to support the viability of these rates through increased volumes, directly impacts the cost of healthcare and in turn the cost of medical scheme coverage for members.  

The proposed limitation essentially benefits those healthcare providers who charge higher rates, and the small number of medical scheme members who choose to access services outside of the contracted DSP network, at the expense of all members.  This would result in a higher cost of healthcare, and therefore an increase in medical scheme contributions.

HFA will be providing this input as part of the process to work with the Regulator in developing guidelines as set out in the Gazette issued in this regard.  This process needs to be focused on ensuring that members have access to quality and affordable care, and we recognize that the cost of cover is all the more important in these current challenging times.

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