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Contribution inflation in Medical
Schemes
10 August 2016
by Charlton Murove
10 August 2016 1
OverviewI. Inflation & medical inflation as measure by Statistics South Africa
(Stats SA)
II. Contribution inflation in medical schemes
III. Drivers of contribution inflation
IV. Utilisation in 2014 & 2013
V. Contribution inflation measurement (prospective)
VI. Questions
2
Inflation - Stats SA
• CPI – general increases in prices of goods and services
• Rebased after carrying out Income and Expenditure surveys (IES) every five
years (may be reduced to 3 years)
Medical inflation from Stats SA
• Also includes medical inflation basket targeting healthcare goods and services
• Stats SA measures how the general prices of medical services increase from
year to year
• This is regardless of how much if these services are consumed from year to
year
3
Medical inflation - Stats SA
• Medical inflation measures how prices change over time
• The price measured is not affected by how much health services are consumed
• For medical schemes, its important how much health services are consumed
Just calculate the
increase in the price of
one egg. This does not
measure how many
eggs are consumed
over time
4
Medical inflation or contribution inflation• Contributions are used to finance both Medical services & goods and non health-care
expenditure
• It is important to measure how much cost of services change over time and how much
of the services are consumed over time for Medical Schemes
Even when the
price of eggs do
not change you
would need more
cash
5
Contribution inflation
• Contribution increases of medical schemes respond to a number of factors such as:I. General increase in price levels of medical goods and services
II. Increase in use of the medical goods and services (utilisation)
III. General increase in non-healthcare expenditure (NHE)
IV. Reserving requirements
• Industry technical advisory panel (ITAP) formula & work
Medical inflation = tariff increase + utilisation increase
Medical inflation = tariff increase + (demand side component + residual supply side effect)
Medical inflation = tariff increase + (plan-mix effect + residual demographic effect) + residual supply side effect
• ITAP led to the review of data collected by CMS so as to measure medical inflation more accurately
6
Contribution inflationEffect of demographic profile on cost of PMBs
7
-
100 000
200 000
300 000
400 000
500 000
600 000
700 000
800 000
900 000
< 1Year
1-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85 +
No
of b
enef
icia
ries
Changes in demographic profile from 2005 to 2014
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Contribution inflationEffect of demographic profile on cost of PMBs
8
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
< 1Year
1-4 5-9 10-1415-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85 +
Pro
port
ion
of b
enef
icia
ries
Beneferciary profile changes from 2005 to 2014
2005 2014
There were significant change with a higher proportion of beneficiaries in the older
ages and an increasing proportion of beneficiaries in younger ages
Contribution inflationEffect of demographic profile on cost of PMBs
• The change in beneficiary profile translates to an increase of 8% in the cost of PMBs from 2005 to 2014
9
< 1
Year1-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85 +
2014 Cost of PMBs pbpm
1 947 153 79 89 171 286 446 464 481 519 606 735 940 1 242 1 613 1 951 2 156 2 289 2 061
All Beneficiaries in 2005
127 763 420 470 575 877 615 955 600 673 440 336 436 872 569 258 596 517 582 196 508 188 386 104 316 477 222 694 162 136 115 329 81 920 48 340 28 516
All Beneficiaries in 2014
270 626 640 610 773 740 672 734 636 933 469 327 638 615 736 123 704 826 689 077 615 338 554 042 447 887 318 886 241 759 173 879 116 995 68 834 44 227
Cost of PMBs pbpm in 2014
582,96 *
Cost of PMBs pbpm in 2005
539,48
*The 2014 PMB cost pbpm is different from previous publication as a sample was beneficiaries was used in those publications
Contribution inflationEffect of demographic profile on cost of PMBs
• Cost of PMBs pbpm for 2014 was used to calculate the cost of PMBs using the beneficiary profiles of
the previous years
• If the profile had not changed from 2005, the cost of PMBs would be 8% lower
• In 2014 the effect of change in demographic profile was 0,94%
10
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
2006 2007 2008 2009 2010 2011 2012 2013 2014
% c
hang
e
Change in PMB cost over time (by changes in risk profiles)
Annual Change (%) Cumulative Change (%)
Contribution inflationEffect of demographic profile on cost of PMBs
• The impact of change in membership profile was mostly on open schemes
• If the profile had not changed from 2005, the cost of PMBs would be 14% lower on open schemes
• In 2014 the effect of change in demographic profile was 0,91% for Open schemes and 0,87% for restricted
schemes.
11
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
2006 2007 2008 2009 2010 2011 2012 2013 2014
% c
hang
e
Change in PMB cost over time (by scheme type)
Open Cumulative Change (%) Ristricted Cumulative Change (%)
Contribution inflationEffect of disease burden on cost of CDLs
• The change in disease burden translates to an increase of 19% from 2008
• This calculation is based on the cost of CDLs only
• The calculation excluded the less than 1 year old beneficiaries
• This calculation includes beneficiaries with multiple chronic conditions 12
< 1
Year1-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85 +
2014 Cost of CDLs per CDL meeting Entry and Verification Criteria
167 869 7 890 6 089 7 381 11 534 12 754 8 923 6 271 5 574 5 518 5 464 5 309 5 229 5 101 4 896 4 783 4 702 4 464 4 326
CDLs meeting Entry and Verification Criteria as a percentage of beneficiaries in 2008
0,1% 1,7% 2,0% 1,8% 1,8% 2,1% 3,0% 5,7% 10,0% 15,6% 25,6% 36,9% 52,6% 73,8% 93,0% 109,4% 119,2% 117,2% 104,1%
CDLs meeting Entry and Verification Criteria as a percentage of beneficiaries in 2014
0,1% 1,7% 2,3% 2,4% 2,3% 3,0% 4,5% 8,8% 15,2% 23,1% 32,8% 45,3% 59,6% 79,5% 99,7% 115,4% 127,1% 132,0% 121,0%
Cost of CDLs per CDL meeting Entry and Verification Criteria in 2014
6 477
Cost of CDLs per CDL meeting Entry and Verification Criteria in 2008 using 2014 CDL costs and beneficiary profile
5 266
All Beneficiaries in 2014
270 626 640 610 773 740 672 734 636 933 469 327 638 615 736 123 704 826 689 077 615 338 554 042 447 887 318 886 241 759 173 879 116 995 68 834 44 227
Contribution inflationEffect of disease burden on cost of CDLs
• Cost of CDLs pbpy for 2014 was used to calculate the cost of CDLs using the chronicity of beneficiaries in
the previous years – adjusted for changes in beneficiaries overtime
• If the chronicity had not changed from 2008, the cost of CDLs would be 19% lower
• In 2014 the effect of change in disease burden was 2,67% for all schemes
13
-5%
0%
5%
10%
15%
20%
25%
2009 2010 2011 2012 2013 2014
% c
hang
e
Change in CDL cost over time (by chronicity)
Annual Change (%) Cumulative Change (%)
Contribution inflationEffect of disease burden on cost of CDLs
• The impact of changes disease burden was higher on restricted schemes
• If the disease burden had not changed from 2008, the cost of CDLs would be 12% lower on open
schemes and 27% lower on restricted schemes
• In 2014 the effect of change in disease burden was 0,64% for open schemes and 5,24% for restricted
schemes
14
0%
5%
10%
15%
20%
25%
30%
35%
2009 2010 2011 2012 2013 2014
% c
hang
e
Change in CDL cost over time (by scheme type)
Open Cumulative Change (%) Ristricted Cumulative Change (%)
Utilisation
Data Collected
15
Data TableFields collected
Option level for financial years 2013 & 2014
Adjustments /
Quality of data
A2No of beneficiaries at the end of each month in the financial
years 2013 and 2014.None / good quality
B1No of visits to the various providers and the total cost of such
visits
None / good quality
Providers
• Consultation code was used to identify each visit
• Providers included GPs, Specialists Supplementary& Allied providers
• Table B1 data was collected by discipline code
UtilisationProviders
16
Category Average Cost “Tariff”
per event
Utilisation
pabpm
Sub-category
Providers
(43,7% of total
benefits paid)
Each visit paid for by the
schemes
No of visits
In-Hospital
&
Out-of-Hospital
• This calculation included benefits paid from Risk and the member savings accounts (MSA)
UtilisationProviders
17
2013 2014 % change pabpm
Providers
Number of visits 68 824 388 71 435 900 2.7%
In-hospital 17 340 663 18 428 527 5.2%
Out-of-hospital 51 483 725 53 007 373 1.9%
Average cost per visit (R) 689.13 744.05 8.0%
In-hospital (R) 1 103.59 1 184.16 7.3%
Out-of-hospital (R) 549.53 591.04 7.6%
• Utilisation of providers increased more for in-hospital visits
Utilisation
18
• A hospital GP visit
costs more than
double an out-of-
hospital visit.
• The assumed
increase in GPs’
tariffs was 6,6%
Utilisation
19
•There is a very
significant increase in
utilisation of medical
technology especially
in-hospital.
•The average cost per
event is also much
higher in-hospital
Utilisation
Data Collected
20
Data TableFields collected
Option level for financial years 2013 & 2014
Adjustments /
Quality of data
A2No of beneficiaries at the end of each month in the financial
years 2013 and 2014.None / good quality
B2Total amount spend on medicines and consumables outside
hospital and the no of items dispensed
None / good quality
• NAPPI code was used to identify medicines and consumable (first digit of the NAPPI code is less or
equal to 7, product is classified as medicine and the remaining products were classified as Consumables)
• Was also collected by discipline code of the provider dispensing medicines
Medicines
Utilisation
21
Category Average Cost “Tariff”
per event
Utilisation
pabpm
Sub-category
Medicines
(16,6% of total
benefits paid)
Each item dispensed and
paid for by the schemesNo of items dispensed
Consumables
&
Medicines
Medicines
• This calculation included benefits paid from Risk and the MSA
UtilisationMedicines
22
2013 2014% change
pabpm
Medicines
Number of items dispensed 212 366 520 223 161 203 4.2%
Consumables 14 752 285 15 063 860 1.0%
Medicine 197 614 235 208 097 343 4.2%
Average cost per item dispensed (R) 88.69 92.18 3.9%
Consumables (R) 66.38 72.25 8.8%
Medicine (R) 90.36 93.62 3.6%
• The increase in average cost per item dispensed for medicines was lower compared to consumables
UtilisationData Collected
23
Data TableFields collected
Option level for financial years 2013 & 2014
Adjustments /
Quality of data
A2No of beneficiaries at the end of each month in the financial
years 2013 and 2014.None / good quality
B3Hospital admission data for beneficiaries: no of admissions,
admission type and no of days spent in hospital
Adjustments to length of
Stay for some options /
reasonable quality
B6Hospital admission data for beneficiaries: no of admissions,
admission type & category and no of days spent in hospital
None / reasonable quality
Hospitalisation
Utilisation
24
Category Average Cost “Tariff”
per event
Utilisation
pabpm
Sub-category
Hospitalisation
(37,6% of total
benefits paid)
Each hospital admission
paid for by the schemes
Each day spent in-hospital
paid for by the schemes
No of admissions
No of in-patient days per
admission and is not
calculated pabpm
In patient days <24hrs “Short
stay”
&
In patient days >24hrs “Long
stay”
Hospitalisation
UtilisationHospitalisation
25
2013 2014% change
pabpm
Hospitalisation
Number of admissions 2 506 398 2 540 535 0.3%
Day case 756 185 769 764 0.7%
Long stay 1 750 213 1 770 771 0.1%
Average cost per admission (R) 16 606.88 18 331.34 10.4%
Day case (R) 6 545.34 7 213.98 10.2%
Long stay (R) 20 953.99 23 164.12 10.5%
Number of inpatient days 7 494 131 7 904 851 4.1%
Day case 756 185 769 764 0.0%
Long stay 6 737 946 7 135 087 4.7%
Average cost per day (R) 5 554.14 5 891.50 6.1%
Day case (R) 6 545.34 7 213.98 10.2%
Long stay (R) 5 442.90 5 748.82 5.6%
UtilisationHospitalisation - No of admissions per 1 000 beneficiaries (all admissions)
26
0
200
400
600
800
1 000
1 200
Lessthanoneyear
1-4years
5-9years
10-14years
15-19years
20-24years
25-29years
30-34years
35-39years
40-44years
45-49years
50-54years
55-59years
60-64years
65-69years
70-74years
75-79years
80-84years
85years+
Hos
pita
l adm
issi
ons
per
1 00
0 be
nefic
iarie
s
2013 Males 2014 Males 2013 Females 2014 Females
UtilisationHospitalisation – Average Length of Stay per admission (In patient > 24 hours)
27
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
4,5
5,0
Lessthanoneyear
1-4years
5-9years
10-14years
15-19years
20-24years
25-29years
30-34years
35-39years
40-44years
45-49years
50-54years
55-59years
60-64years
65-69years
70-74years
75-79years
80-84years
85years+
Ave
rage
leng
th o
f sta
y pe
r ad
mis
sion
2013 Males 2014 Males 2013 Females 2014 Females
Utilisationmajor take-away
I. no of admissions increased marginally while length of stay increased at 4%
I. (it would be more helpful to unpack utilisation in hospital more)
II. utilisation of providers increased most in-hospital 5,2% compared to 1,9% out-of-
hospital
III. average cost per event is higher in hospital for a number of disciplines
IV. the increase in average cost of medicines was 3,6% - probably due to single exit price
and use of generics
28
Contribution increase measurementContribution allocation in Medical schemes
29
Non Healthcare Expenditure Medicines
Providers &Hospitalisation
Need to determine:
• What proportion of
contributions goes
towards NHE & HC
costs?
• How does NHE &
HCE increase over
time?
• How does the
utilisation of HC
change over time?
Contribution inflation measurement
• Assumptions / objectives
1. By analysing the industry wide revenue account of medical schemes – one has in
actual fact considered all drivers of contribution increases (tariff +utilisation)
2. Understanding and measuring utilisation does not require us to determine how
much each individual component of utilisation contributes – over time with more
data this maybe possible
• The following method is a mirror of contribution assumptions methodology; it does not
specify how each individual component of utilisation contributes to total contribution
inflation
30
Contribution inflation measurement
• Actual expenditure is used – true reflection of how contributions are spent
• Basket of items is rebalanced every year
• Utilisation trends would be easily calculated from the data
• For years 2014 and 2015, total healthcare expenditure can be analysed by
age – we can accurately determine the demographic component
Actual increase in contributions
32
All Schemes
Weight in
Index
Tariff
(cost per event)
Utilisation
(no of events pabpm)
Overall
Increase
2013 2 013 2 014 % Change 2013 2014 % Change
Non
Hea
lth-C
are
Exp
endi
ture
Administration Expenditure 7,84% 12 932,55 13 810,05 6,79% - - - 6,79%
Managed Care 2,68% 4 412,06 4 711,41 6,78% - - - 6,78%
Brokerage 1,33% 2 186,76 2 347,33 7,34% - - - 7,34%
Other Expenditure -2,78% -4 588,60 -4 757,50 3,68% - - - 3,68%
Sub-Total 9,06% 7,82% - - - 7,82%
Hea
lth-C
are
Exp
endi
ture Day Admission 4,17% 6 545,54 7 214,21 10,22% 1,051 1,057 0,60% 10,87%
Long Stay Admission 30,92% 5 437,57 5 741,91 5,60% 9,373 9,811 4,67% 10,53%
Medicines 15,05% 90,44 93,63 3,53% 274,422 285,736 4,12% 7,80%
Consumables / Medicines 0,82% 66,40 72,26 8,82% 20,481 20,684 0,99% 9,90%
Providers In-Hospital 16,13% 1 103,91 1 184,19 7,27% 24,089 25,306 5,05% 12,69%
Providers Out-of-Hospital 23,84% 549,34 590,93 7,57% 71,545 72,803 1,76% 9,46%
Sub-Total 90,94% 6,31% 3,66% 10,19%
Grand Total 100,00% 6,45% 3,33% 9,98%
NHE was
assumed to
increase at
6,1% in
2014
Assumed
Utilisation
increase was
2,3% &
overall
increase was
9,2%
SEP was 5,8% for
2014
Actual increase in contributions
Contribution increase including NHE
• In 2014 tariff increase = 6,45%
• In 2014 utilisation increase = 3,33%
Increases in Healthcare Expenditure (excluding NHE)
• In 2014 tariff increase = 6,31%
• In 2014 utilisation increase = 3,66%
• Effect of demographic change (2014) = 0,94%
• Effect on increasing disease burden (2014) = 2,67%
• Unexplained utilisation (2014) = 0,05%
All Schemes summary
This assumes the effect
of demographic &
disease burden for total
healthcare is similar to
PMB experience
Actual increase in contributions Open Schemes
34
Open Schemes
Weight in
Index
Tariff
(cost per event)
Utilisation
(no of events pabpm)
Overall
Increase
2013 2 013 2 014 % Change 2013 2014 % Change
Non
Hea
lth-C
are
Exp
endi
ture
Administration Expenditure 9,25% 16 262,19 17 135,61 5,37% - - - 5,37%
Managed Care 2,74% 4 812,26 5 075,67 5,47% - - - 5,47%
Brokerage 2,17% 3 809,99 4 066,59 6,73% - - - 6,73%
Other Expenditure -2,28% -4 001,83 -4 676,49 16,86% - - - 16,86%
Sub-Total 11,87% 3,44% - 3,44%
Hea
lth-C
are
Exp
endi
ture Day Admission 4,41% 6 443,88 7 281,14 12,99% 1,204 1,214 0,82% 13,92%
Long Stay Admission 30,71% 5 967,22 6 177,69 3,53% 9,052 9,567 5,69% 9,42%
Medicines 13,75% 115,59 111,55 -3,50% 209,183 232,647 11,22% 7,33%
Consumables / Medicines 0,76% 81,89 81,71 -0,21% 16,227 17,054 5,09% 4,87%
Providers In-Hospital 16,33% 1 181,96 1 268,39 7,31% 24,301 25,583 5,28% 12,98%
Providers Out-of-Hospital 22,17% 569,68 609,98 7,07% 68,426 69,533 1,62% 8,81%
Sub-Total 88,13% 4,47% 5,20% 9,78%
Grand Total 100,00% 4,34% 4,58% 9,03%
Actual increase in contributions
Contribution increase including NHE
• In 2014 tariff increase = 4,34%
• In 2014 utilisation increase = 4,58%
Increases in Healthcare Expenditure (excluding NHE)
• In 2014 tariff increase = 4,47%
• In 2014 utilisation increase = 5,20%
• Effect of demographic change (2014) = 0,91%
• Effect on increasing disease burden (2014) = 0,64%
• Unexplained utilisation (2014) = 3,65%
Open Schemes summary
This assumes the effect
of demographic &
disease burden for total
healthcare is similar to
PMB experience
Actual Increase in ContributionsRestricted Schemes
36
Restricted Schemes
Weight in
Index
Tariff
(cost per event)
Utilisation
(no of events pabpm)
Overall
Increase
2013 2 013 2 014 % Change 2013 2014 % Change
Non
Hea
lth-C
are
Exp
endi
ture
Administration Expenditure 5,84% 8 831,59 9 667,33 9,46% - - - 9,46%
Managed Care 2,59% 3 919,15 4 257,63 8,64% - - - 8,64%
Brokerage 0,12% 187,50 205,60 9,65% - - - 9,65%
Other Expenditure -3,51% -5 311,30 -4 858,42 -8,53% - - - -8,53%
Sub-Total 5,04% 21,57% - 21,57%
Hea
lth-C
are
Exp
endi
ture
Day Admission 3,83% 6 720,30 7 096,86 5,60% 0,862 0,862 -0,03% 5,57%
Long Stay Admission 31,20% 4 833,09 5 228,47 8,18% 9,769 10,115 3,55% 12,02%
Medicines 16,92% 72,18 78,88 9,28% 354,774 351,871 -0,82% 8,39%
Consumables / Medicines 0,92% 54,37 64,29 18,26% 25,721 25,206 -2,00% 15,89%
Providers In-Hospital 15,84% 1 005,88 1 076,68 7,04% 23,829 24,960 4,75% 12,12%
Providers Out-of-Hospital 26,24% 526,60 569,46 8,14% 75,387 76,877 1,98% 10,28%
Sub-Total 94,96% 8,17% 2,34% 10,68%
Grand Total 100,00% 8,84% 2,22% 11,23%
Actual increase in contributions
Contribution increase including NHE
• In 2014 tariff increase = 8,84%
• In 2014 utilisation increase = 2,22%
Increases in Healthcare Expenditure (excluding NHE)
• In 2014 tariff increase = 8,17%
• In 2014 utilisation increase = 2,34%
• Effect of demographic change (2014) = 0,87%
• Effect on increasing disease burden (2014) = 5,24%
• Unexplained utilisation (2014) = -3,77%
Restricted Schemes summary
This assumes the effect
of demographic &
disease burden for total
healthcare is similar to
PMB experience
Conclusion
• The objective is to have a way of understanding and measuring proponents of
contribution increases
• Its important that this is measured for all schemes and is based on data that is
readily available
• The proposed method may be improved to in cooperate other details
/indicators and we would be keen to work with stakeholders on this
• Contribution inflation and what drives it has been very topical and there are
many views of what is driving it – let's work towards telling one story based on
global evidence and what is measurable
38
Questions
39
Thank You
40