69890 HEALTH EXPENDITURE AND FINANCE IN SOUTH AFRICA Di McIntyre Gerald Bloom Jane Doherty Prem Brijlal Published jointly by the Health Systems Trust and the World Bank Published jointly by the World Bank and the Health Systems Trust. Durban. South Mrica 1995 Health Systems Trust World Bank 504 General Building 1818 H Street NW Cnr Smith and Field Streets Washington DC Durban 4001 20433. USA South Africa ISBN 0-9584027-2-8 Cover designed by Lucinda Jolly Printed by Kwik Kopy Printing. Durban FOREWORD The movement towards equity in health care provision in South Mrica must be underpinned by careful analysis of the existing situation. Without detailed quantification of health care financing sources and expenditure, reallocation of resources becomes a matter of guesswork. This review of health care financing and expenditure in South Mrica has involved extensive planning and activities over the past eighteen months. It has culminated in a publication which highlights the vast disparities in health expenditure between people who are relatively rich, and those who are poor. It also demonstrates the importance ofinvolving the private sector in our efforts to increase coverage and accessibility of health services, and gives further substance to the call for a greater commitment to primary health care. I would like to thank all those involved in this review, from everyone involved in data collection at facility level to those responsible for compiling the final document. In addition, I would like to acknowledge the technical and financial support provided by the World Bank and Commission of the European Union and Overseas Development Administration. I believe that this National Health Expenditure Review constitutes an important instrument in the restructuring of South African health services. DR N C DlAMINI ZUMA MINISTER OF HEALTH ii ~----- TABLE OF CONTENTS - - - - - - Page DRAFTING TEAM vi ACKNOWLEDGEMENTS vii UST OF TABLES AND FIGURES viii ABBREVIATIONS USED IN 1HIS REPORT xi EXECUTIVE SUMMARY xiii PREFACE xvii CHAPTER 1: Introduction 1 1.1 Purpose of Report 1 1.2 Outline of Report 1 CHAPTER 2: The Economic and Social Structure of South Africa 3 2.1 Introduction to South Africa 3 2.2 The Economic and Administrative Geography of South Africa 3 2.2.1 Patterns of settlement 3 2.2.2 Political and administrative structure 4 2.3 The Provinces of South Africa 5 2.4 Inequality in South Africa 8 2.4.1 Inequality between racial groups 8 2.4.2 The three broad income groups 8 2.4.3 Classification of magisterial districts by average income 8 2.5 Government Expenditure 11 2.5.1 Trends in government expenditure 11 2.5.2 Prospects for the immediate future 11 CHAPTER 3: Health and Health Care in South Africa 13 3.1 Introduction 13 3.2 The Health of South Africa's People 13 3.2.1 Deaths 13 3.2.2 Morbidity 14 3.2.3 Excess sickness and premature death in South Africa 15 3.3 South Africa's Health Sector 16 3.3.1 Overview of health sector resources 16 3.3.2 Distribution of health resources between provinces 17 3.3.3 The public and private health sectors 17 3.4 Inequalities in Access to Health Resources 19 3.5 Conclusions 20 CHAPTER 4: The Private Health Sector 21 4.1 Introduction 21 4.2 Private Sources of Finance 21 iii 4.3 Population Served by the Private Sector 24 4.4 Private Providers of Health Services 24 4.4.1 Private practitioners 24 4.4.2 Private hospitals 25 4.4.3 Non-governmental organisations 25 4.5 Trends in Private Health Care Expenditure 26 4.5.1 Trends in expenditure by medical schemes 26 4.5.2 Other emerging trends in the private sector 29 4.6 Government Financial Support to the Private Sector 30 4.7 Conclusions 30 CHAPTER 5: Public Sector Health Services 31 5.1 Introduction 31 5.2 Introduction to the Public Health Sector 31 5.3 Sources of Finance for the Public Sector 32 5.3.1 General tax revenue 32 5.3.2 Local rates, utility sales and taxes 33 5.3.3 User charges 33 5.3.4 Donor funding 33 5.4 Public Sector Health Care Expenditure 34 5.5 Distribution of Public Health Care Resources 35 5.5.1 Distribution by level of care 35 5.5.2 Geographic distribution of resources 37 5.6 Capital Expenditure and Investment Commitments 39 5.7 Reduction in the inequalities between provincial health budgets 41 5.8 A strategy for structural change 41 CHAPTER 6: Public Sector Hospitals 43 6.1 Introduction 43 6.2 Geographic Distribution of Public Sector Hospitals 43 6.3 Distribution of Public Sector Hospital Resources between Levels of Care 44 6.4 Efficiency within Public Sector Hospitals 47 6.5 Recent Trends in Hospital Expenditure 48 6.6 User Charges in Public Hospitals 49 6.6.1 Current levels of cost recovery 49 6.6.2 Private and insurance patients in public hospitals 49 6.7 Summary and Conclusions 51 CHAPTER 7: Primary Health Care in the Public Sector 53 7.1 The Primary Health Care Approach 53 7.2 Who Uses the Different Providers of Primary Care Services? 54 7.3 Primary Health Care in the Public Sector 55 7.3.1 Organisation of primary health care 55 7.3.2 Public primary care services in the nine provinces 56 iv 7.4 Shortfall in Public Primary Care Services 57 7.4.1 Availability of health facilities 57 7.4.2 Utilisation of public sector health facilities 58 '7.4.3 Availability of public sector health workers 59 7.4.4 Public sector health spending 59 7.4.5 Environmental health services 59 7.5 The Additional Cost of Providing Essential Primary Care Services 60 7.6 Potential for Limiting the Additional Cost of Providing Essential Primary Care Services 61 7.6.1 Potential savings on ambulatory care ' 61 7.6.2 User charges for primary health care services 62 7.7 Potential Roles for Private Sector Providers 63 7.8 Investment in Primary Care Facilities 63 7.9 Summary and Conclusions 65 CHAPTER 8: The Way Forward 67 APPENDIX A: Methodological Details 69 Al Public Sector Expenditure Review 69 A.l.l The ReHMIS database and its analysis 69 A1.2 Other public sector data collection and analysis 72 A.2 Private Sector Expenditure Review 72 A3 Other Data 72 APPENDIX B: Methodology for the Calculation of National Expenditure on Non-Hospital Primary Care 73 B. 1 Introduction 73 B.2 . The Allocation of Primary Care Costs Outside the Homelands 73 B.3 The Allocation of Primary Care Costs Inside the Homelands 73 APPENDIX C: Details of Expenditure Calculations 75 C. 1 Calculation of expenditure by source of finance 75 C.2 Distribution of health sector expenditure calculations 76 C.3 Expenditure on health research 77 C.4 Expenditure on the education and training of medical personnel 77 APPENDIX D: Overview of the Medical Schemes Amendment Act 79 APPENDIX E: The Process of Budgeting Public Health Expenditure 81 REFERENCES 85 v MEMBERS OF THE DRAFTING TEAM Di McIntyre Gerald Bloom· Health Economics Unit Institute of Development Studies Department of Community Health University of Sussex University of Cape Town Brighton CapeTown England Jane Doherty Prem Brijl31 Centre for Health Policy Department of Economics Department of Community Health University of Durban-WestVille University of Witwatersrand Durban Johannesburg vi ACKNO~GEMENTS----------- A large number of people contributed in various ways sources and greatly adding to the comprehensiveness to the Health Expenditure Review (HER) project. The of this report (Mark Blecher, Reg Broekmann. Ian drafting team would like to acknowledge the Bunting. Deloitte and Touche Management contributions of the following people and Consultants. Jane Doherty, Kobus Herbst, Barry organisations: Kistnasamy. Di McIntyre. Max Price. and Nicole Valentine) ; All the staff at the Health Systems Trust who provided invaluable administrative and logistical support. The reviewers of the HER technical reports who particularly David Harrison. David Mametja. critically evaluated much of the data contained in this Thembisile Mbatha.Jurie Naidu and Terence Nair; report Uoce Kane-Berman. Steve McGarry. Pundy Pillay. Alex van den Heever. J.P. de V. van Niekerk. The Mrican National Congress' Health Department Derek Yach. and Merrick Zwar~nstein). for their role in initiating the HER process. in particular Cheryl Carolus. Kamy Chetty. Ralph Mgijima The reviewers of the final draft. to whom the drafting and Ayanda Ntsaluba; team are deeply indebted for the excellent inputs which improved the style and the accuracy of the The Department of Health which lent considerable report (Peter Barron. Jonny Broomberg, Eric Buch. support to the expenditure review process and Judy Cornell, Nic Crisp. Andrew Donaldson. Keith provided information on the structure and financing Hansen, Joce Kane-Berman. Stephan Klasen. Reg of public sector health services; Magennis, Steve McGarry, Mike McGrath, Reiko Niimi. The Health Expenditure Review Reference Group who Peter Owen. Harm Pretorius, Coen Slabber, Alex van guided the entire HER data collection and reporting d~n Heever. Hans van Heerden,j.P. de V. van Niekerk. process (Nic Crisp - Deloitte and Touche; David Derek Yach and Merrick Zwarenstein); Harrison - Health Systems Trust; Shaheed Hassim - The Departments of Health. Finance and State Department of Health; Barry Kistnasamy - Department Expenditure which provided extensive comments on of Community Health. University of Natal; Steve the draft report to ensure that it accurately reflects McGarry - Commission of the European Union; Di the most recent changes in public sector structures McIntyre - Health Economics Unit, University of Cape and financing mechanisms; Town; Ayanda Ntsaluba - African National Congress Health Department; Max Price - Centre for Health Kobus Herbst who designed ReHMIS (Regional Policy. University of the Witwatersrand; and Veejay Health Management Information System). co- Ramlakan - Department of Community Health, ordinated an extensive data collection process, and University of Natal); devoted substantial periods of time to designing programmes for the analysis of this data in the formal The Commission of the European Union. Kagiso required by the drafting team - without this Trust, and the Overseas Development Administration information and Kobus' willingness to respond to (lUI' who provided substantial financial support; frequent requests for further analysis. this report wuuld The World Bank. in particular Reiko Niimi. Keith not have been possible; Hansen. Stephan Klasen and Zia YUsuf, who facilitated The numerous health personnel in all parts of South the initiation of this project. assisted in the study Africa who assisted in gathering and inputting data design, provided technical support and advice for the ReHMIS project; and throughout the project. and provided extensive comments on earlier drafts of this report; Kamy Chetty of the Department of Community Health (ucr) and Bupendra Makan of the Health Economics Gerald Bloomof the Institute of Development Studies Unit (UCT). who willingly made their datahases at the University of Sussex. Trevor Coombe of the available to assist with validation of the ReHMIS South African Education Policy Unit, Anne Mills of database, and Solani Khosa of the Health Economics the London School of Hygiene and Tropical Medicine. Unit (UCT) who assisted with validating aspects of the andJulia Watson of the aDA for technical inputs at ReHMIS data. the initial HER meetings; The Health Systems Trust wishes to thank the drafting The researchers who undertook studies commissioned team in particular for their time and effort in the by the HER, gathering valuable data from a range of publication of this Review. vii - - - - - LIST OF TABLES AND FIGURES - - - - Tables and Boxes Page Table 2.1 Indicators of South Africa's economic performance, 1981-1992 3 Table 2.2 Distribution of the population between economic regions, 1991 4 Box 2.1 Previous and present political administrative divisions 4 Table 2.3 Basic data on South Mrica's provinces 5 Table 2,4 A profile of the poor in South Mrica, 1993/94 10 Table 2.5 Classification of magisterial district by levels of average income 11 Table 2.6 Real annual rates of growth of government revenue, expenditure and GDP (constant 1985 prices) 11 Table 3.1 Data on health status in South Mrica, countries with similar GDPs per capita and weighted averages for countries organised into income groups 13 Table 3.2 Evidence of excess mortality and morbidity 15 Table 3.3 Data on health service provision in South Mrica. other countries with similar GDPs. established market economies and sub-Saharan Mrica 16 Table 3,4 Distribution offacilities and health personnel between provinces (1992-93) 17 Table 3.5 Sources of finance for the health sector (1992/93) 18 Table 4.1 Health expenditure funded from private sources (1992/93) 21 Table 4.2 Characteristics of different types of medical schemes 22 Table 4.3 Changes in membership of medical schemes reporting to the Registrar of Medical Schemes (total beneficiaries) 1982-1991 22 Table 4,4 Total beneficiaries of medical schemes and health insurance, or employees in industry with access to on-site health services (1992) 23 Table 4.5 Health personnel practising in the private sector (1989/90) 24 Table 4.6 Distribution of private hospital beds by ownership category (1988 and 1993) 25 Table 4.7 Expenditure by medical schemes reporting to the Registrar of Medical Schemes by service category (1992/93) 27 Table 4.8 Growth in annual medical scheme expenditure and contributions per principal member, 1982-1992 (Rands) 28 Box 5.1 The present structure of public sector health services in South Africa 31 Box 5.2 Uniform fee structure for health services in South Africa 33 Box 5.3 Patients and services exempted from user fees 34 Table 5.1 Changes in public recurrent health expenditure (1983/84 -1992/93) 34 Table 5.2 Public sector health facilities by level of care (1992/93) 36 Table 5.3 Distribution of public sector health care personnel by level of care (1992/93) 37 Table 5.4 Public sector health care facilities in magisterial districts sorted by income per capita (1992/93) 38 Table 5.5 Public sector health personnel per 100,000 population by province (1992/93) 39 Table 5.6 Health workers per 100,000 population in the magisterial districts sorted by per capita income (1992/93) 39 Table 5.7 Public health care expenditure per capita in each province (1992/93) 40 Table5.S Reported estimated costs of planned projects for the development of public health sector-<:apital. 1993/94 -1995/96 40 viii Table 6.1 Indicators of availability and utilisation of public sector hospitals between provinces (1992/93) 43 Table 6.2 Percentage of beds in the different categories of acute care hospital in each province (1992/93) 44 Table 6.3 Distribution of public sector expenditure on acute care hospitals by level of care (1992/93) 45 Table 6.4 Indicators of acute public sector hospital utilisation by level of care 1992/93 (Average for all hospitals in category) 46 Table 6.5 Average cost of public hospital care per patient day by level of care (1992/93) 46 Table 6.6 Public sector hospitals sorted into quartiles on the basis of their cost per patient day (1992/93) 47 Table 6.7 Average cost per patient day for different categories of facilities and different occupancy rates (1992/93) . 48 Table 6.8 Trends in provincial hospital expenditure 1984/85 -1990/91 48 Table 6.9 Fee revenue as a proportion of recurrent expenditure at public sector hospitals by level of care (1992/93) 49 Table 6.10 Fees for inpatient services in government facilities in 1992/93 50 Table 6.11 Fees for private patients at private hospitals and at academic and regional public sector hospitals (1992/93) 50 Table 6.12 Potential sources of increased expenditure and savings by public sector hospitals 52 Table 7.1 Health service providers used during a reported episode of illness by households sorted into quintiles on the basis of the average income per adult equivalent, 1993/94 53 Box 7.1 Authorities responsible for the provision and financing of public primary care services at the time of the election of a democratic government 54 Box 7.2 Public health authorities involved in primary care provision in Greater Soweto, 1993 55 Table 7.2 Provincial distribution o( primary health care facilities in 1992/93 56 Table 7.3 Availability of public primary care services in the nine provinces in 1992/93 57 Table 7.4 Availability of public primary care services in magisterial districts sorted by income per capita in 1992/93 58 Table 7.5 Public sector health expenditure in 1992/93 in magisterial districts sorted by income per capita 59 Table 7.6 Average spending per person during 1992/93 on public sector health services in the poorest 150 magisterial districts !'m Table 7.7 Outpatient visits and their cost at government facilities I;~ Table 7.8 Fees for primary health care services in government facilities in 1994/95 I;~ Table 7.9 Inter-provincial distribution of IDT and CEAS commitments for primary care infrastructure development M Table C.l Sources of finance for the health sector (1992/93) 7!'l Table C.2 Distribution of total health sector expenditure (1992/93) 71i I. Maps and Figures Page Map 2.1 South Mrica: Provinces and homelands prior to the 1993 Constitution Bill 6 Map 2.2 South Mrica: New provinces following the 1993 Constitution Bill 7 Map 2.3 Distribution of magisterial districts within quintiles 1 and 2 9 Figure 3.1 Major causes of potential years of life lost in South Mrica (excluding ex-TBVC states), 1990 14 Figure 3.2 Distribution oftotal health sector expenditure (1992/93) 19 Figure 3.3 Distribution of health personnel between the public and private sectors in South Mrica, excluding the homelands (1989/90) 19 Figure 3.4 Health expenditure per person on members of medical aid schemes and residents of the 75 poorest magisterial districts 1992/93 20 Figure 4.1 Medical scheme expenditure per beneficiary at constant (1983/84) prices, 1983/84-1992/93 26 Figure 5.1 Sources of recurrent finance for public health services (1992/93) 32 Figure 5.2 Distribution of recurrent public sector health expenditure by inputs (1992/93) 35 Figure 5.3 Distribution of public sector health care expenditure by level of care (1992/93) 37 Figure 6.1 Differences in the numbers of nurses and doctors per bed in different categories of public sector hospitals 45 FigureA.1 ReHMlS Facility Classification Algorithm 71 x ABBREVIATIONS USED IN THIS REPORT--- CEAS Central Economic Advisory Service CPI Consumer Price Index CSS Central Statistical Service DNHPD Department of National Health and Population Development (now the national Department of Health) E.Cape Eastern Cape E. Tvl Eastern Transvaal GDP Gross Domestic Product GNP Gross National Product HER Health Expenditure Review HIV Human Immunodeficiency Virus HMO Health Maintenance Organisation HSL Household Subsistence Level IDT Independent Development Trust IMR Infant Mortality Rate IPA Independent Practitioner Association MMR Maternal Mortality Rate MPI Medical Price Index N.Cape Northern Cape NGO Non Governmental Organisation N. Tvl Northern Transvaal N-West North-West Province ODA Overseas Development Administration OFS Orange Free State PDL Poverty Datum Line PHC Primary Health Care PYLL Potential Years of Life Lost R Rands RAMS Representative Association of Medical Schemes RDP Reconstruction and Development Programme ReHMIS Regional Health Management Information System SAMDC South African Medical and Dental Council SARB South African Reserve Bank SHI Social Health Insurance TBVCstates The former 'independent' states of Transkei. Bophuthatswana, Venda and Ciskei UNDP United Nations Development Program VAT Value Added Tax W.Cape Western Cape WHO World Health Organisation KZ-N KwaZulu-Natal xi South Mrica spent over 30 billion rands on health The public sector services in 1992/93. This amounted to 8.5 percent of its Gross Domestic Product (GDP). Its numbers of The public health services are financed almost entirely hospital beds and health personnel relative to out of general tax revenue. However. th(!re are severe population are average or only slightly below average constraints on increasing tax-funded health care for a country with its GDP per capita. However, the spending. This is related to the low rate of (!<:onomic accessibility and quality of health services vary growth, the need to repay government debts. the enormously across the country, with the poor, most of pressure to reduce government spending. and the whom are Mrican, receiving vastly inferior care. competing claims for public resources by other social services. The government has announced its intention to restructure the health services. The aim of this report The public health services are biased towards curative. is to provide the information on health finance and hospital-based care. Acute care hospitals spent over expenditure that it requires to manage the process of 76 percent of total recurrent public health expenditure structural change. It is not a planning document, nor in 1992/93. Academic and other tertiary hospitals does it attempt to make policy recommendations.. The alone accounted for 44 percent of total recurrent report focuses largely on public sector health services, public health expenditure, while non-hospital primary and in particular on the needs of the poor. care services accounted for only 11 percent. Public health care resources are not distributed The private sector equitably between provinces or between regions within In spite of the fact that only 17 percent of the the provinces. For example, the public sector in the population are members ofa medical scheme and only richest magisterial districts employs 4.5 times more 23 percent use private sector health services on a general doctors, 2.4 times more registered nurses, and regular basis, the private sector has a substan tial share 6.1 times more health inspectors than in the poorest of total health care resources. Almost three-fifths of districts. Average public expenditure per person on total health expenditure is on private sector services. health services in the richest districts is 3.6 times more Approximately 62 percent of general doctors. 66 than in the poorest districts. These data under-state percent of specialists. 93 percent of dentists and 89 the differences since a significant proportion of the percen t of pharmacists practice in the private sector. residents of rich districts depend upon private sector Nearly two-thirds of private sector health care spending providers. was funded through medical schemes in 1992/93. South Mrica's population suffers from high levels of Direct payments by households to health service morbidity and premature death. This burden of illness providers accounted for a further 23 percent of private could be substantially diminished at relatively low cost sector expenditure. This included cash payments to by strengthening preventive programmes, and general practitioners and the purchase of over-the- providing access to effective curative care to those in counter medicines. greatest need. Spending on these activities ill Over the past decade, expenditure by medical schemes internationally regarded as an important investnwnI increased faster than the rate of inflation. Spending in human capital, and a key component of a poverty on medicines and private hospitals rose particularly reduction programme. rapidly over this period. A related fmding is that the number'of beds in private for-profit hospitals nearly The costs of reorienting the public health service doubled between 1988 and 1993. Members of medical aid schemes used health services costing approximately This report estimates that an additional 1.5 - 2.5 billion 15 times as much per person as public services in the rands will have to be spent annually on public sector poorest fifth of magisterial districts. While medical primary care services in order to ensure full coverage scheme contributions were equivalent to 7 percent of by a number of key preventive programmes, and average salaries in 1982, they had increased to 15 extend access to basic health services to everyone who percent of salaries by 1992. needs them. The major challenges facing the private health sector Additional resources will also be required for other are to contain the rapid cost spiral and extend access aspects of public health sector restructuring and to private sector resources to a larger proportion of service extension. Although not quantified in this the population. report, these potential costs include: xiii • the capital costs of building new primary care • closing facilities which have very low occupancy facilities; rates; • the capital and recurrent costs of building • Sale or leasing of a facility or part of it to the private additional community hospitals in areas which have sector; and poor or no access to such facilities; • competing with private hospitals for patients. • the recurrent costs of developing specialist services in curren tly under-resourced provinces; User fees • the costs associated with integrating and Another option for financing increases in public health decentralising public health administration and services is to generate more revenue from charges to services in terms of training. the development of patients. There is limited scope for increasing fees in management procedures, and increased personnel facilities which primarily serve the poor, without costs because of the integration of authorities with jeopardising access to care. However. it may be possible different salary structures; and to increase the revenue generated from private • the costs related to increased demand for care in patients, particularly in the tertiary and academic public sector facilities as a result of popUlation hospitals. This would require negotiation with the increases, the impact of the HIV/ AIDS epidemic, Department of Finance to ensure that health budgets higher numbers of referrals to hospitals as more would not be decreased in line with increases in people get access to primary care, and a general revenue. It would also be necessary to implement rise in expectations. measures to ensure that hospitals continue to provide public patients with specialist care when they require Potential sources of finance for meeting government it. commitments to provide additional public health services are considered in the following sections. One factor which may limit the ability of public hospitals to increase cost recovery is the competition Improving value for money in public hospitals from private facilities. There may be a greater potential in the longer term if some form of hospitalisation A substantial proportion of the cost of expanding insurance is established. This would make possible primary care services will have to be financed out of substantial reductions in government allocations to savings on hospital services. In particular. academic tertiary and academic hospitals without reducing and other tertiary hospitals are likely to face increasing service provision. budgetary constraints and will have to reassess their role. Particular considerations for academic and Government support tertiary hospitals include: Given that it may take some time to establish the • the potential savings from restricting outpatient additional sources of finance outlined above. the key visits to referrals for specialist care; immediate source of additional recurrent expenditure • the downgrading of some facilities so they provide is the national government. Increases in budgetary less expensive care to general patients; and allocations could be regarded as short-term "gap- funding". Some of this gap could be bridged with • more aggressive competition with the private sector Reconstruction and Development Programme (RDP) for patients. funds. In future years. provincial health departments Improvements in management could lead to efficiency will have to identify alternative sources of finance, or savings within public hospitals. A prerequisite would decrease the size of their health service, unless be to give hospital managers more decision-making economic growth is faster than currentJy projected. powers. with associated technical support. It will take Some growth in the health budget could be fmanced a considerable effort to make substantial savings as they out of savings on government funding for private would have to come largely from decreases in staffing sector health services. These include tax exemptions levels and/ or increases in productivity. It is important for company contributions to medical aid schemes and to distinguish between increases in efficiency which subsidised training for health workers. The public enable a hospital to provide the same services for less sector makes substantial payments to the private sector money. and budgetary cuts which could lead to a fall through contributions to medical aid schemes on in quality. behalf of government employees (1.8 billion rands in Other options should also be considered for reducing 1992/93). Measures need to be taken to set limits on overall public sector spending on hospitals including: the cost of this coverage. xiv t 'lhl'l' uplicms aVclilable to national, provincial or local Considerable investment will be required to manage 1'M'I'III11('nts for financing increases in health services the transition process effectively. This will include '''Ilude: resources for strategic analyses of the options for change, training of personnel for primary care service • lupplementation of the budgetary allocations out delivery and administration, the development of I)f local taxes, utility sales and rates; information and management systems, and the • IIpecial taxes on goods which adversely affect health, monitoring and evaluation of progress. such as tobacco or alcohol; Summary • the establishment of social health insurance to cover primary care services; and There are substantial resources available for meeting • the development of hospitalisation insurance (and the health needs of South Africans. However, there competition by public sector hospitals for patients). are gross inequalities in the distribution of these resources between the public and private sectors, Donor funding between levels of care, and between geographic areas. A major redistribution is required, but this will have Donors are an additional source of finance during the to be managed in order to minimise disruption. In transition period. Their support will be particularly the longer term, it should be possible to make important for development of infrastructure and additional resources available for meeting the needs funding some of the costs of transition. However, care of the under-served through efficiency savings, will have to be taken to ensure that the recurrent costs improved cost-effectiveness of all health services, and of expanded services can be funded out of local increased cost-recovery at hospitals. However, some resources. additional enabling funds will be required from government budgets and donors to ensure that Pbuudng for change primary care services are substantially improved within One of the major conclusions of this report is that the the next few years. In the longer term, there is likely reprioritisation of public health services and the to be an increase in demand for the more sophisticated process of structural change needs to be carefully services, as part of the general development of the planned and managed. Otherwise, the poorer areas economy. It is impossible, at present, to anticipate the may miss a window of opportunity for the relative roles of the public and private sectors in establishment of effective services, and poorly financing and providing these services. managed budget cuts in the rich areas could result in serious disruption of services, low staff morale, strike action, dissatisfaction among health service users and damage to the long term future of the services. This planning process should occur largely at the provincial and district levels and should include the following aspects: • proposals for the construction of new facilities, including estimates of the recurrent cost implications to prevent the construction of more facilities than the health services can afford; • a strategy for improving and expanding primary care services rapidly, such as through providing additional staffing, improved drug supplies, and extending the hours of opening in existing public sector facilities, or by means of contracts with private sector providers; and • a strategy for improving resource use by existing facilities, especially within hospitals. xv PREFACE----------------- The preparation of the Health Expenditure Review There is widespread agreement among members of Sources of data the Government of National Unity and other role The principal source of data on public sector health players in South Africa's health sector that they need care expenditure was the Regional Health a comprehensive and accurate picture of financial Management Information System (ReHMIS). flows in the health sector in order to assess the developed by Dr Kobus Herbst of the Medical alternatives for providing and financing health University of South Africa (MEDUNSA). A large services. A number of key stakeholders attended a number of health personnel collected information on meeting in July 1993 to discuss how to provide that information. They decided that a health expenditure equipment. personnel and expenditure, from every review (HER) should be prepared. public sector health care facility. These data were entered into the ReHMIS database. A preliminary It was agreed that the principal audience for the report report on some of the ReHMIS data was published by should be senior public sector officials in the Ministries Kistnasamy and Herbst (1994). The drafting team of Health, Finance and the Reconstruction and worked closely with Dr Herbst to validate the ReHMIS Development Programme (RDP) , other stakeholders data and design the analyses to be performed in South Africa's health sector and members of the (Appendices A and B provide detailed information international donor and lending community. The about the methodologies employed). The tables in this decisions of that meeting have been published by the report illustrate the kinds of analyses that can be Health Systems Trust (1993)' and are summarised performed. These data are available to planners at below. national and provincial levels. The objectives of the HER should be to determine Technical reports were commissioned on the following total expenditure on health care and quantify its issues with regard to the public sector: expenditure distribution by type of service, geographic ·area, and on health services by other central government input category. and its sources of finance. It should departments such as the Departments of Defence. provide information on all public and private sector Police and Prisons; research expenditure (Blecher and sources of finance and providers of services. but not Mcintyre 1994); expenditure on the training of health on other health-related activities. such as water supply personnel (Bunting 1994); proposed capital project'! and sanitation. It should not make policy (Deloitte and Touche 1994a); and historical trends in recommendations. hospital expenditure (Price and Broekmann 1994). A The following process was followed in the production review of the international literature on the of the report: distribution of health expenditure between levds of care was also commissioned (DOherty 1994). Eadl • contracts for the collection of data were awarded report describes the methodology it employed and tht' to a number of South African academic institutions. sources of data. health service providers and private consultancy groups; An extensive survey of the private health sector wa!l undertaken (Valentine and Mclntyn' I !H11). • the World Bank and selected international consultants provided technical assistance; Information was collected from the following lIUlUH'!I: the larger medical schemes. scheme aclminilll .... wl1I. • The Health Systems Trust managed the project and insurance companies offering health cnv('r prncluc Ill. a reference group was established to ensure the the Chamber of Mines and other indu!lcl'y·h;lllrcl technical quality of the data; and sources. pharmaceutical man ufactnrt'u a lUI • drafting team was appOinted to prepare the final II wholesalers. market research groups. alld puhll!lhr{1 report and unpublished surveys with informacion 011 levll household 'out-of-pocket' expenditure on health. A further technical report documented expenditure on health care projects funded by donor organisations (Deloitte and Touche 1994b). An extensive peer-review process was undertaken on all aspects of the Health Expenditure Review. All technical reports were read by at least one independent reviewer, and the final draft of this report was reviewed by 21 individuals working in the public and private health sectors, the Department of Finance and State Expenditure, academic and research institutions, and the World Bank. In addition, meetings were held with senior officials from the national Department of Health and the Departments of Finance and State Expenditure. at which the contents of the final report were discussed. The conclusions presented in this report should not be regarded as reflecting the views of the individuals who reviewed it, nor the organisations who provided financial support for this project. Any errors and omissions remain the responsibility of the drafting team. xviii CHAP'I'ER 1 INTRODUCTION' 1.1 THE PURPOSE OF THIS REPORT South Africa's health services are embarking on a process of structural change. Given that the health South Africa spends a great deal of money on its health sector represents a twelfth of the South African services and yet its population suffers from a large economy, the restructuring of this sector represents a amount of preventable illness and premature death. major challenge for policy makers. This report is not This is due, in part. to factors outside the health a detailed planning document in itself, nor does it sector such as the widespread prevalence of severe attempt to be policy prescriptive. The aim of this poverty and the poor quality of basic services in many report is rather to provide those involved in the parts of the country. However, international restructuring process with an understanding of the experience has shown that good health services can health sector they have inherited. This kind of contribute to improvements in health. understanding is essential in order to formulate The Government of National Unity has stated in its realistic strategies for change. Reconstruction and Development Programme (ROP) that one of its aims is to improve the population's 1.2 OUTI.JNE OF THE REPORT, health. In this way it hopes to reduce the burden of The report begins in Chapter 2 with an overview of preventable illness and death substantially by providing South Africa's economic and social structure. The aim everyone with access to at least a minimum package is to describe the context within which the problems of essential preventive and curative health services. of the health sector must be understood. This chapter This report particularly focuses on the needs of those also identifies the vulnerable groups most in need of living in poverty, who constitute almost half of the basic health services. population and suffer the most serious health problems. It assesses the current shortfall in the Chapter 3 introduces South Mrica's health sector provision of basic services to the poor and estimates summarising the major health problems, outlining the the cost of making this shortfall up. . structure of the health sector and providing an overview of the size and relative roles of the public The report provides much less analysis of the health and private sectors. services used by those who are not poor. That does not mean that these services do not face serious Chapters 4 and 5 describe the private and public problems. On the contrary. their cost has risen sectors. respectively, presenting data on the sources dramatically in recent years and they have tended to of finance and the pattern of expenditure, and overemphasise sophisticated curative care and neglect identifying the major challenges which both the prevention. Organisations that represent the users of private and public sectors face. these services are pressing for change. An additional Chapters 6 and 7 discuss specific components of the study is required which focuses specifically on these public sector in more detail. Chapter 6 focuses on the problems. potential for savings on hospital expenditure through The Minister of Health has established a Committee better distribution of resources between levels of care, ofInquiry into a National Health Insurance System to improvements in operational efficiency and increased review the relative roles of the private and public collection of user fees. Chapter 7 quantifies the sectors in the provision of primary care services and shortfulls in expenditure on primary health care in the poorer parts of the country and estimates how to assess the potential for social health insurance as a much it would cost to provide a package of essential source of additional health fmance. The Co1ll;Dlittee services to the population. is undertaking a major exercise in data collection as part of that review. As a result, it will be able to provide Chapter 8 briefly highlights some of the strategies for more detailed analysis of the private sector than this health sector restructuring, arising from this report, report. that need to be developed at provincial level. 1 CHAPTER 2 - - - - - - - - - THE ECONOMIC AND SOCIAL STRUCTURE OF SOUTH AFRICA 2.1 INTRODUCTION TO SOUTH AFRICA of inequality in a country is expressed by the Gini coefficient: the greater the inequality the closer it is South Mrica is a large country with a surface area of to 1. Estimates of the Gini coefficient for South Mrica just over 1.2 million square kilometres situated at the in 1994 range from 0.54, calculated on the basis of southern tip of Mrica. Its population is approximately expenditure per adult equivalent by Donaldson and 40 million and is growing at a rate of 2.5 percent a Malan (1994), to 0.65, calculated on the basis of year (Du Toit and Falkena 1994). income per adult equivalent by Whiteford and South Mrica is an upper-middle income coun try with McGrath (1994). Income-based coefficients for other a gross national product of US$2,560 per person in upper middle income countries range between 0.45 1991 (World Bank 1993). Its economic structure and 0.63, making South Mrica one of the most unequal reflects its level of development with agriculture and of societies (Fallon and da Silva 1994). The segmen ted mining accounting for only 13.8 percent of its gross structure of South Mrican society, mainly along racial domestic product (GDP), manufacturing and lines, is discussed in more detail in section 2.4. construction accounting for 32 percent and services South Mrica's rapid rate of population growth will accounting for 54.1 percent (Du Toit and Falkena continue to put pressure on its stock of housing and 1994). According to the 1991 census, 56 percent of its educational. health an~ social services. If the the population live in cities or large towns, 1 percent population continues to grow according to present live in small towns or villages and 43 percent live in trends it will double within 55 years; however. much the rural areas (CSS 1993c). of that increase is expected to take place in the next In spite of having a level of output per person higher few years (Bos tt all994) . than every other country in sub-Saharan Mrica except The Government of National Unity has committed Botswana and Gabon, South Mrica faces economic itself, in its Reconstruction and Development problems. Since the early 19808 its GDP increased by Programme (RDP), to addressing the issues of slow less than 1.5 percent a year while its population grew economic growth and poverty alleviation. It will take by 2.5 percent (Table 2.1). Its gross domestic income, time to overcome the structural constraints on Change. which takes into account changes in the exchange rate, The remainder of this' chapter highlights the did not grow at all, and its gross domestic income per characteristics of South Mrica's economy and political capita fell substantially. Table 2.1 Indicators of South Mrica's economic performance, 1981 - 1992 Indicator 1981-85 198~92 (%) (%) Annual rate of growth of gross domestic product at constant (1985) prices 1.36 1.03 Annual rate of growth of gross domestic income at constant (1985) prices 0.03 0.27 Annual rate of growth in formal sector employment 0.07 -0.23 Annual rate of population growth 2.5 2.5 Sources: Fallon and da Silva (1994). Central Statistical Service (1992). and Du Toil and Falkena (1994). One consequence of this slow growth is that very few newjobs have been created. Between 1981 and 1985 and administrative. system which are of greatest formal sector employment hardly grew at all and relevance to the health of its people and the future between 1986 and 1992 it decreased. It is extremely development of the health sector. difficult for new entrants to the labour market to find work. An increasing number of people earn their living 2.2 TIlE ECONOMIC AND ADMINISTRATIVE in the so-called 'informal sector'. GEOGRAPHY OF SOUTH AFRICA There are great income inequalities in South Mrica. 2.2.1 Patterns of settlement 51 percent of annual income goes to the richest 10 percent of households while under 4 percent goes to Prior to 1994 South Africa's political and administrative the poorest 40 percent (World Bank 1994). The degree system was structured along racial lines. The apartheid 3 policy, which fostered the separate development of commercial farms. Over 8 million people, two thirds each racial group, worked to the advantage of Whites of them African, live in this area. A large proportion (who constitute 13.2 percent of the population) and of the population of the inner periphery work as to the disadvantage of Coloureds, Asians and Africans agricultural labourers. The provision of public services (who make up 8.6, 2.6 and 75.6 percent of the to the African population is very poor in most of this population respectively). The patterns of population area. distribution and economic development have been The outer periphery is made up of the ex-'black strongly influenced by apartheid. South Mrica is homelands', comprised of the so-called 'independent organised in three distinct economic regions: the states' and 'self-governing territories'. 44 percent of economic core, the inner periphery, and the outer South Mrica's population lives in this area. The periphery (Table 2.2). principal economic activity in the outer periphery is The economic core consists of Pretoria-Witwatersrand- subsistence agriculture. Many men migrate to the Vereeniging (PWV), Durban-Inanda-Pinetown (DIP), urban areas to find work and there is a Table 2.2 Distribution of the population between economic regions, 1991 Whites Coloureds Asians Mricans Total (%) (%) (%) (%) (%) Economic core (%) 9.4 5.2 2.1 18.2 35.1 Inner periphery (%) 3.7 3.4 0.3 13.8 21.5 Outer periphery (%) - - - 44.0 44.2 Total (%) 13.3 8.6 2.6 76.2 100 Source: Urban Foundation (1991) the Cape Peninsula and Port Elizabeth-Uitenhage, as disproportionate number of women, young children well as the metropolitan areas of East London, and the aged in these areas. Pietermaritzburg, Bloemfontein and Orange Free State Goldfields. 35 percent of South Africa's 2.2.2 Political and administrative structure population lives in the economic core. Most of the Whites, Coloureds and Asians live in this region. Prior to 1994, South Mrica was divided along racial lines into four 'independent states', six 'self-governing Un til 1986 the movement of Africans to the territories', and four provinces of 'White , South Africa metropolitan centres was contained by influx-control (Box 2.1 and Map 2.1). It is now organised into a legislation. In that year the controls were abolished single, multiracial country with an elected National and the movement ofAfricans to the cities accelerated. Parliament and an executive headed by a President. In 1991, approximately half of the population of the There are nine provinces, each with an elected economic core was African. legislature and an executive headed by a Premier The Urban Foundation predicts that the population (Map 2.2). in the metropolitan areas will grow by 4 percent a year South Africa is establishing a system of governmen t between 1995 and 2000. If this happens, they will in which the provinces will have a considerable contain half of South Africa's people by the end of amount of power. The provinces will probably be the decade. There is already a serious shortage of responsible for agriculture, cultural affairs, education, housing and serviced land in the cities and many environment, health, housing and other services. people live in informal squatter settlements. The establishment of Box 2.1 Previous and present political and administrative divisions an adequate infrastructure for Previous divisions Present provinces this rapidly growing urban population will be an important 'Independent' States Eastern Cape (E. Cape) task for the government during Transkei, Bophuthatswana, Venda, Eastern Transvaal (E. Tvl.) the next few years. Ciskei (TBVC states) Gauteng Self-Governing Territories KwaZulu-Natal (KZ-N) The inner periphery consists of the KwaZulu. KaNgwane, QwaQwa, Northern Cape (N. Cape) areas previously allocated to the Lebowa. Gazankulu. KwaNdebele Northern Transvaal (N. Tvl) White, Asian and Coloured 'White' South Mrica North-West (N-West) populations under the apartheid Cape, Natal. Orange Free State, Orange Free State (OFS) 'Group Areas' policy. It is Transvaal Western Cape (W. Cape) organised into towns and 4 Almost all taxes currently accrue to the national authorities previously separated along racial lines into government which transfers funds to the provincial unified local governments. This will establish, in some governments. The government has not decided on the areas, municipal governments with the capacity to future distribution of tax authority between levels of finance their own basic services. In other parts of the government, nor has it defined the criteria for country local governments will depend on fiscal determining the size onnter-provincial fiscal transfers. transfers from provincial and national levels to a greater extent. Until recently there were approximately 800 local government authorities. Their roles varied a great deal The government plans to establish district health between localities previously designated as 'White' or services. It is not yet clear how the health districts will 'Mrican' and between urban and rural areas. The relate to the proposed local government structures. present process of consolidation will yield While the relative roles of national and provincial approximately 300 local authorities. governments are quite clear, the roles of these and local governments in financing and providing primary The functions of local authorities in formerly White health care services have not been decided. urban centres include the provision of water. sanitation, transportation, electricity, preventive and 2.3 THE PROVINCES OF SOUTH AFRICA promotive primary health care services, housing and security (Development Bank ofSouthernAfiica 1994). There are considerable differences between South These services are financed through a combination Mrica's nine provinces: Northern Cape covers the of grants from the national government and local largest territory and Gauteng the smallest; their revenue generated from property taxes, levies, fees and populations vary from less than 1 million in Northern other taxes. Cape to over 8 million in KwaZulu-Natal (Table 2.3). The responsibilities of authorities in formerly African The provinces differ considerably in their level of urban localities are similar to those in White development. Gauteng and Western Cape account for municipalities. However, local governments in these half of South Africa's GDP, in spite of containing only areas have not been able to discharge them adequately. a quarter of its population. On the other hand, One reason, among many, is that they have a limited Northern Transvaal produces only 3 percent of the tax base which has been further weakened by boycotts GDP and has over 12 percent of the population. These of rents and taxes organised against administrations differences are reflected in the average personal which lacked political legitimacy. income per capita which ranges from 4,992 rands in The rural areas have weak political and administrative Gauteng to 725 rands in Northern Transvaal. structures and virtually all services are organised at The substantial movements of people between the provincial level. provinces in search of work is illustrated by the The new national government intends to consolidate differences in the dependency ratio. It is very low in Table 2.3 Basic data on South Africa's provinces Area Population Contribution Income per Dependency Human (kru2 ) 1993 toGDP Capita ratio Development (million) (%) (rands) Index E.Cape 170,616 6.7 7.5 1,358 3.7 0.48 E. Tvl 81,816 2.8 8.3 2,164 2.1 0.61 Gauteng 18,760 6.8 36.9 4,992 I 0.9 0.71 KZ-N 91,481 8.5 14.7 1,910 2.3 0.58 N. Cape 363,389 0.7 2.2 2,865 1.6 0.73 N. Tvl 119,606 5.1 3.1 72 4.8 0.40 N. West 118,710 3.5 6.9 1,789 1.6 0.57 OFS 129,437 2.8 7.1 2,419 1.4 0.66 W.Cape 129,386 3.6 13.2 4,188 1.2 0.76 Total 1,223,201 40.7 100.0 2,566 1.9 0.69 Source: Development Bank of Souther.n Africa (1994) 5 MAP 2.1, SOUTH AFRICA: PROVINCES AND HOMELANDS PRIOR TO THE 1993 CONSTITUTION BILL ~ Bophuthatswana f~ ~~ J Ciskei Ii Gazankulu 11 KaNgwane En KwaNdebele I;@] KwaZulu TRANSVAAL o Lebowa II QwaQwa Inll Transkei ~ Venda MAP 2.2, SOUTH AFRICA: NEW PROVINCES FOLLOWING THE 1993 CONSTITUTION BILL NORTIIBRN TRANSVAAL nBB STATB NATAL MORTlleRN CAPB BASTBRN CAPB Gauteng, where many people travel in search of jobs, in real wages despite the recession of the 1980s. and it is high in provinces which include the former Another result has been the development of homelands, such as Northern Transvaal, Eastern Cape, institutionalised social benefits such as pensions and KwaZulu-Natal and Eastern Transvaal. The areas with low-cost medical benefit schemes. Approximately 2.3 high dependency ratios have a high proportion of million people belong to medical benefit and children and old people, who tend to have a greater "exempted" schemes or have access to on-site industry- need for health services. specific services (Chapter 4). The differences in the quality oflife between provinces The government defines households as poor if their is reflected in the human development index which is annual income is below the poverty datum line (also composed of a number of indicators of health status, called the minimum living level, or household education and income. The index varies from over subsistence level). This was approximately 9,500 rands 0.7 in the better off provinces of the Western Cape, per household in 1993 (Potgieter 1993). Du Toit and Northern Cape and Gauteng to under 0.5 in Eastern Falkena (1994) estimate that almost half of South Cape and Northern Transvaal. Mrica's population is poor by this definition. The highest concentrations of poverty are in the inner and 2.4 INEQUALITY IN SOUTII AFRICA outer periphery where over 60 percent of the population have incomes below the household 2.4.1 Inequality between racial groups subsistence level, and where the population is mostly One of the dominant characteristics of the South African. The conditions of1ife in these areas are similar Mrican economy is the inequality between racial to poor areas in other parts of Southern Mrica, where groups. Fallon and da Silva (1994) estimate that, in people find it difficult to obtain dean water, there is 1987 Whites earned 9.5 times more per person than inadequate disposal of human wastes, literacy levels Mricans. In addition, the racially defined governments are low and a large proportion of children are spent much more perperson on services in White areas malnourished. than in African ones. The majority of Whites live in The rapid migration of Mricans to the metropolitan cities which have a modern infrastructure and are centres has led to a growing problem of urban poverty. served by well-funded schools and modern hospitals. Most of the housing in lower-income urban Most i\fric3.n urban localities have much poorer communities is overcrowded and squatter settlements services and large numbers of people live in shanty have sprung up. A study by the Urban Foundation towns. The rural Mrican population has poor access . estimates that the number of squatter shacks increased to public services. by 60 percent per annum between 1985 and 1991 (Jordaan 1991). It is difficult to estimate accurately 2.4.2 The three broad income groups how many urban dwellers have incomes below the household subsistence level, particularly because many It is possible to segment South Africa's population into of them supplement their earnings through work in three broad categories on the basis of their household the informal sector. income. A new source of information on the poor is a High income earners, which includes the majority of household survey conducted in 1993/94 by the Project Whites, enjoy a style of life similar to that of people in for Statistics on Living Standards and Development advanced industrialised countries. Most live in their (1994). A preliminary analysis of its data by Klasen own home or rented accommodation in well-serviced and Doherty (1995) found that 23.7 million South parts of the cities. They possess a number of household Africans have incomes of less than 301 rands per adult goods and pay regularly into a pension plan. This equivalent per month. Table 2.4 summarises some of group obtains most ofits medical care from the private the more striking characteristics of these members of sector and the majority are members of medical aid the poorest 40 percent of households, and contrasts schemes. Approximately 6.7 million people are their situation with that of the members of the richest members of these schemes or purchased private health 20 percent of households. insurance (Chapter 4). The number of people in the high income group is between 7 and 8 million or 2.4.3 Classification of magisterial districts by between 17 and 20 percent of the population. average income The low to middle income group includes approximately a third of the population. Large numbers of this group A major objective of this report is to assess the degree live in badly serviced urban localities. An important to which the health service needs of poor households characteristic of this group has been the growth of are being met. The provinces are too large to provide un ionisation since the legalisation of African unions much information in this regard. The strategy most in 1979. In 1990 approximately 30 percen t of African commonly employed in South Africa is to analyse data employees were registered union members (Fallon and by racial group. However, racial categories are also too da Silva 1994). One result of the increasing large to provide enough detail for planning, and organisation of the African workforce has been a rise obscure the fact that there is a wide variation in the 8 Map 2.3. Distribution of magisterial districts within quintiles 1 and 2 Income Quintiles 1 & 2 o All others .2 Iml Table 2.4 A prome of the poor in South Africa. 1993/94 Where are the poor?1 Northern Transvaal has 10.6 percent of the total population but 18.7 percent of the poor - Gauteng has almost 21.6 percent of the total population but 6.6 percent of the poor rural areas have 47.2 percent of the population but 68 percent of the poor metropolitan areas have 30.6 percent of the population but 10.1 percent of the poor r--------------------------------------------------------------------------------~ What is the burden of poverty?' - almost 24 million people have incomes per adult equivalent to less than 301 rands per month over 6 million people between the ages of 16 and 64 are unemployed (excluding those who are home- makers, child-rearers, in formal education. ill or disabled) - 25.4 percent of children between 7 and 60 months are chronically malnourished over 10 percent of dwellings are shacks over 2 million households use wood for cooking - over 600 thousand households have to travel more than 500 metres to obtain water - 1.4 million households do not have a flush toilet. bucket toilet or pit latrine What are the differences between the rich and the poor?2 on average, there are 3 people in a rich metropolitan home and 6 in a poor rural home all rich households have a flush toilet, but only 13 percent of African rural households have one 99 percent of rich households have electricity but the proportion of poor households with electricity is 54 percent in metropolitan areas and 14 percent in rural areas. The poor are defined in this table as members of households with a monthly expenditure per adult equivalent of 300.97 rands or less. This figure is the cut-off point of the bottom two quintiles (40 percent) of the distribution of households. The rich live in the highest quintile of households. Sources: Klasen and Doherty (1995), and Project for Statistics on living Standards and Development (1994) economic situation of members of each racial group. residents of the outer periphery, 1.3 million residents In addition, limited information is available at a of the inner periphery and 3.3 million residents of national level linking race with the provision and use the inner core. Almost the entire population of these of health services. districts is African. A high percentage of households The unit of analysis which this study employs is have incomes below the household subsistence level. therefore the magisterial district. South Africa There are more females than males, reflecting the organises its census data into 377 of these districts. migration of men to metropolitan areas in search of These districts do not necessarily cover the same area work. as the new administrative districts which the This report returns to these districts in Chapter 3 which government intends to establish. The main purpose explores the health problems of their populations, and of organising data in this way is to illustrate geographic in Chapters 5 and 7 which discuss the provision of inequalities in the provision of public health services. public health services in them. As stated earlier, the Internationally, such analysis is undertaken by linking aim of this report is to focus on the situation of the service delivery data to socio-economic data obtained poor. through. the census. This study sorts magisterial districts into quintiles (or fifths) on the basis of their One flaw in this approach is that it misses poor average income per capita in 1985 (van Wyk 1989) communities in districts with a high average income (Table 2.5). In other words the poorest fifth of districts per capita, particularly in the inner periphery and the are grouped together in Ql and the richest fifth are metropolitan areas. The problems of these populations in Q5. It is unlikely that the ranking of districts has need to be identified as part of the government district changed very much since 1985. planning exercises which will take place during 1995. The poorest 150 magisterial districts (quintiles 1 and Similarly, while income and race are closely related in 2) contain almost half of South Africa's population the poorest quintiles, racial differences in access and (see map 2.3), including the entire 15.2 million utilisation in richer districts need to be explored. 10 Table 2.5 Classification of maghlterial district by levels of average income Distribution of population in 1993 Quintiles of Area Inner Inner Outer Female to Percent magisterial districts Total core periphery periphery male ratio African (million) (million) (million) (million) (%) Ql (lowest income) 11.2 0.6 0 10.6 1.3 99.9 Q2 8.5* 2.7 1.3 4.6 l.l 98.4 Q3 2.9 1.1 1.8 0 1.0 85.7 Q4 3.0 0.3 2.7 0 0.9 53.1 Q5 (highest income) 15.0 12.0 3.0 0 0.9 49.1 Total 40.7 16.7 8.8* 15.2 1.0 76.4 ~ The differences in the totals are due to rounding Source: ReHMIS survey, van Wyk (1989) and Central Statistical Service (1993) 2.5 GOVERNMENT EXPENDITURE The government has stated its intention to decrease the size of its deficit relative to the GDP through 2.5.1 Trends in government expenditure measures to increase revenue and control growth in expenditure. Given that an increasing share of public Government expenditure has risen over recent years, sector spending will be needed to service the in spite of slow economic growth (Table 2.6). Since government's debt, it appears likely that public sector the mid-1980s government expenditure has grown spending on other items will grow very slowly in real more quickly than total revenue. According to the 1994 terms. budget review, the budget deficit was 27.4 billion rands in 1992/93, or 7.8 percent of GDP (Department of Within these tight parameters, health will have to Finance 1994). The servicing of the debt was expected compete for budget increases with housing. welfare. to cost 5.6 percent ofGDP in 1994/95, or 17.5 percent education and other services for which there is a great of government expenditure. It will be difficult to backlog of unmet need. This suggests that it would be increase government expenditure further unless there unrealistic to expect much increase in the government is substantial economic growth. health budget relative to population growth. Potential alternative sources offinance, such as dedicated payroll 2.5.2 Prospects for the immediate future taxes, are currently being examined by health sector While a upswing in the economy is expected, South policy makers. In addition, there is considerable Mrica's GDP is unlikely to grow by much more than 3 duplication of government services and it could be percent a year in real terms over the next few years, argued that there is potential for savings within the . according to projections based on the macro-economic health sector which could be used to fmance more model developed by the World Bank. This suggests services for the poor. However, the cost of transition is that, given a population growth of more than 2 likely to be high. In sum, while there is a need to extend percent, growth in per capita income is likely to be health services to the poor, this will have to take place small. in an environment of tight financial constraint. Table 2.6 Real annual rates of growth of government revenue, expenditure and GDP (constant 1985 prices) 1978-82 1983-87 1988-93 1991 1992 1993 (%) (%) (%) (%) (%) (%) Total revenue 4.0 2.2 2.0 -2.2 -3.0 -3.2 Total expenditure 2.2 2.9 3.5 8.4 0.5 7.5 Gross domestic product 4.0 0.3 0.7 -0.7 -0.4 -2.7 Sources: Fallon and da Silva (1994) 11 C~T1UREE--------------- HEALTH AND HEALTH CARE IN SOUTH AFRICA 3.1 IN1RODUCTION kinds of health problems the population faces. However, the statistics presented in this chapter This chapter introduces South Africa's health sector. probably underestimate substantially the levels of ill section 3.2 describes the health problems of the health and premature death. population; section 3.3 outlines the size and structure of the health sector; and section 3.4 summarises the This section makes considerable use of surveys of the data on the inequalities in the provision of health literature prepared by Rispel and Behr (1992) and the services between social groups. In order to put the Kaiser Foundation (1991), which provide a rough idea situation of South Africa into an international context, of the health situation of the different population indicators of its health status and provision of health groups. It also draws upon an analysis of mortali ty data services are compared with those for countries with for 1990 which was carried out by David Bourne (1994) similar GDPs per capita and with the weighted averages for the Health Expenditure Review. for middle income countries, other countries in sub- Saharan Africa and the established market economies. 3.2.1 Deaths 1U THE HEALTIf OF SOU'fH AFRICA'S The number of babies who die before reaching one PEOPLE year of age for every 1,000 live births is called the infan t mortaIityrate (IMR). South Africa'slMR was 49 in 1992 A number of questions have been raised about the (DNHPD 1994). This was higher than the weighted accuracy of South African health statistics. In the first average for middle income countries (Table 3.1). place, most data exclude the former homelands in Botswana, a country with a similar income per capita which over 40 percent of the population lives. to South Africa's, had an IMR of 36. Furthermore, as many as 40 percent of deaths in African communities are not registered and census There are considerable differences. between the IMRs data are poor. In addition, the cause of death is of South Africa's racial groups. In 1992 Whites and recorded simply as 'natural causes' for a large Asians had IMRs of 7 and 10, levels similar to the proportion of cases, particularly in rural areas. In spite average of 8 for established market economies. The of these difficulties, it is possible to get an idea of the IMRs of Coloureds and Africans, on the other hand, Table 3.1 Data on health status in South Africa, countries with similar GDPs per capita and weighted average for countries organised into income groups Infant mortality Life expectancy Annual incidence of rate* at birth 1991 tuberculosis 1990 (per 1,000) (years) (per 100,000) Sub-Saharan Africa excluding 104 male 49 not available South Africa female 52 Middle income countries 38 68 not available South Africa >49 <63 250 Botswana 36 68 not available Hungary 16 70 38 Malaysia 15 71 67 Venezuela 34 70 44 Chile 17 72 67 Established market economies 8 77 20 • Data on the infant mortality rate are for 1992 in South Africa and 1991 in the other countries Sources: World Bank (199!l) TablesA.!l, 1 and 28, and World Bank (1994) 13 were 36 and 54. These may be uriderestimates because percent. A third major source of excess deaths were of the problems with data outlined above. A large perinatal causes, which are often related to inadequate proportion of the excess deaths of children were primary care services. These findings should be treated caused by gastro-enteritis and respiratory infections. with caution because many deaths are not registered which are largely related to bad living conditions and and 14 percent of potential years ofHfe were lost due a lack. of adequate primary health care services (Rispel to iIl-defined causes. The unreported and unclassified and Behr 1992). deaths probably included a high proportion of the preventable causes prevalent among the poor. The maternal mortality rates (MMRs). that is, the number of deaths due to complications of pregnancy The poor quality of the data means that it is im possible and childbirth per 100,000 live births. are also high. to quantify accurately the differences in health status The Department of Health (previously the between the quintiles of magisterial districts sorted by Department of National Health and Population average income per capita. The poorest quintile Development or DNHPD) reported an average MMR con tains many districts in the ex-homelands, for which of 32 in 1991. According to Klugman and Weiner few data are available on health. Furthermore. it is (1992). the real rate was higher because many deaths lik.ely that the proportion of unreported deaths is were unregistered. Theyestimate that the MMR for higher in the poorer districts. Africans was 43 in 1990. Neither the official estimate One indication of the differences in health between nor the revised one include data from the ex- the different population groups is the higher homelands, where MMRs were probably higher than percentage of deaths due to infectious and parasitic the national average. illnesses or ilI-defined causes in the poorer quintiles. For South Africa, the average life expectancy at birth These causes accounted for 65 percent of deaths in was 63 in 1991. This is several years shorter than in the poorest and second poorest quintiles. On the other other coun tries at similar levels of development (Table hand. they accounted for under 30 percent in the other 3.1). The racial groups have quite different life three quintiles (Bourne 1994). expectancies at birth. The life expectancy for Whites was 69 for males and 77 for females between 1985 and 3.2.2 Morbidity 1990; the values for Africans were 61 and 67, respectively. Premature death is only one of the effects of a high burden of poor health. Other effects include 'personal Figure 3.1 summarises the analysis by Bourne (1994) suffering. high levels of disability and disruption to of the major causes of potential years oflife lost (PYlJ.) normal activities. There are no routine statistics on in 1990. The PYLL is calculated from the age-specific general levels of poor health in South Africa. In order death rates, by subtracting the age at death from 65 to provide some idea of the kinds of health problems years. A death of a 1 year old is counted as 64 years which exist, this sub-section has selected a few on which lost and of a 5 year old as 60 years. Deaths over 65 do information is available. In some cases it is because not count towards the PYLL. the disease is legally notifiable. The selection does not The largest single cause of loss of potential years of imply that these are the most important causes of life was accidents, poisoning and violence. which morbidity in South Africa. accounted for 22 percent of the total. Infectious Tuberculosis is a very large public health problem. diseases. many of which could have been prevented accounting for 80 percent of disease notifications. Its or effectively treated. accounted for a further 14 incidence is much higher than in other countries with Figure 3.1 Major causes of potential years of life lost in South Africa (excluding TBVC states), 1990 respiratory disease B% III-deflned 14% Infectious disease 15% Accidents, poisoning & violence 22% cfrculatory disease 7% Source: Bourne (1994) 14 Table 3.2 Evidence of excess mortality and morbidity Health status indicator Difference between population groups Infant mortality rate (1992) • 7 times greater in Mricans than Whites • 2.5 times greater in Transkei than Venda • 2.6 times greater in rural than urban Mricans Life expectancy at birth (1985-1990) • 8-10 years shorter for Africans than Whites • 11 years shorter for Coloureds than Whites Tuberculosis notification rate (1992) • 35 times greater in Coloureds than Whites • 3 times greater than the national average in the former Western Cape Malnutrition (1990) • 3.5-5 times greater for Coloureds and Africans than Whites in children between 6 months and 5 years • 4-5 times greater for Coloureds and Africans than Whi tes for children between 6 and 12 years • 7-8 times greater for Coloureds and Mricans than 'Whites for pregnant and lactating women Sources: DNHPD (1990 and 1994) similar GDPs per capita (Table 3.1). Van Rensburg. Acciden ts, poisoning and violence are the largest single Fourie and Pretorius (1992) estimate that it costs 200 cause of excess deaths. They are also a major cause of million rands per year to care for tuberculosis patien ts. injuries which require emergency treaunent and which The known case load was over 82.000 in 1992 and there may result in permanent disability. were more than 2.000 reported deaths. It is estimated The HIV/ AIDS epidemic reached South Mrica that between a third and half of all cases went relatively late but it is now spreading rapidJy. A national unreported (Radloff and Webb 1994). Tuberculosis is survey of antenatal clinics found that 4.3 percent of most prevalent in the Western Cape, where it has attendees were infected with HIV in 1993 (Swanevelder increased considerably since the early 1970s. The 1994). In the absence ofa change in behaviour, it is notification rate is 35 times higher for Coloureds than estimated that by the first decade of the next century for Whites. The prevalence of tuberculosis is expected between 18 and 27 percent of adults "ill be infected. to increase because many people live in over-crowded This could put a great deal of pressure on the public urban areas and because the HIV virus is spreading. health services. Doyle et al (1991) estimate that HIV/ Measles is the second most commonly notified disease AIDS cases could account for between 34 and 75 in South Mrica. It causes deaths and disabilities which percent of total health expenditure. if current methods could be prevented by an effective immunisation of treatment continue to be practised. programme. In 1990, 63 percent of South Mrica's It is difficult to estimate the degree to which South children, excluding those in the ex-homelands, were Mricans suffer from mental illness. Freeman (1989) fully immunised against measles. Immunisation levels estimates that over 5 million people require treatment ranged from 46 percent in Lebowa to 72 percent in for a mental illness, of which 300,000 suffer from an the former Western Cape (Eggers and van Wyk 1993). incapacitating disorder. He further suggests that the A national campaign was launched in 1991 and prevalence of problems may be high because of the- coverage increased to 71 percent. There was an high levels of violence and social disruption. epidemic in 1992 which affected all population groups. A report by the Committee for the Development of a 3.2.3 Excess sickness and premature death in Food and Nutrition Policy for Southern Mrica SouthMrica (DNHPD 1990) stated that 2.3 million children and pregnant or lactating women were malnourished in The data on differences in health status between population groups presented in Table 3.2 indicate that 1989.87 percent of the malnourished were Africans there are high levels of preventable death and and only 1.7 percent were Whites. A recent survey morbidity in South Mrica. Whites ha\'e a pattern of found that 857,000 children between 7 and 60 months disease and rates of death similar to those found in ·were stunted in 1993/94 (Project for Statistics on advanced industrialised nations. The other population Living Standards and Development 1994). One of the groups are sicker and die at a younger age due to first measures taken by the government of national causes that are relatively easy to prevent. unity was to provide free food supplements to school children. There are no data yet available on the success In addition to causing unnecessary suffering, high of this measure in decreasing levels of malnutrition levels of morbidity jeopardise efforts to diminish and improving school performance. poverty. When someone faUs ill they may be unable to 15 work or go to school. Ifsickness persists or is not treated of the level of resources in the health sector and do early enough. it may result in disability and a not provide information on the quality offacilities or permanent fall in productivity. An episode of illness the skill of health workers. None the less. they provide puts pressure on an entire family. Someone. usually a some idea of South Africa's position compared with woman. may have to divert time from work to care for other countries (Table 3.3). the sick family member. At the same time it may be South Africa spent 30.15 billion rands on health necessary to pay for treatment or the purchase of services in 1992/93, equivalent to 8.5 percent ofGDP drugs. Serious illness can tip a family into a vicious (Table 3.3). Health expenditure per person was 740 circle of poverty (World Bank 1993). It is for these rands or US$247. The established market economies reasons that the prO\.ision of access to basic preventive spent a similar proportion of their GDP on health to and curative health services is considered an essential South Africa. but countries with GDPs per capita component of a strategy for poverty reduction. comparable to South Africa's spent a lower proportion The burden of excess suffering and premature death (Table 3.3). For example. the percentage ofGDP spent in South Mrica could be substantially diminished at on health was 6.0 in Hungary. 3.0 in Malaysia. 3.6 in relatively low cost. Measures to improve living Venezuela and 4.7 in Chile. One reason for this conditions, increase coverage by preventive disparity is that the data on Sou th Africa were collected programmes and prQ\.ide access to basic medical care by a special study and reflect private health could greatly diminish the high levels of infant and expenditure more fully than most routine data. South maternal mortality. The government has stated in the African health expenditure is therefore overstated RDP that it intends to decrease excess mortality and relative to many other countries whic!"t are unlikely to morbidity in South Mrica. The remainder of this have undertaken such extensive health expenditure chapter, and the subsequent ones, describe the health reviews. In spite ofthis, there is little doubt that South sector which has an important role to play if this goal Africa spends a high percentage ofits GDP on health is to be achieved. services by international standards. However. a substantial proportion of this spending is on private 3.3 SOUTH AFRICA'S REALm SECTOR health care for a minority of the population and on expensive government referral hospitals. 3.3.1 Overview of health sector resources South Africa has 162,000 hospital beds, which is This section presents data on health expenditure and equivalent to 4.0 per 1,000 population (Chetty 1994). the number of health facilities and health workers in This ratio of beds to population is typical for a country South Africa. National averages are crude measures with South Africa's income (Table 3.3). For example, Table 3.3 Data on health service provision in Sonth Africa, other countries with simUar GDPs, established market economies and snb-Saharan Africa Health expenditure as Hospital beds Population per percentage of GDP in 1985-90 per 1,000 physician in 1990 population 1991 (%) Sub-Saharan Mrica excluding 4.5 1.1 9,000 South Africa Middle income countries not available 4.1 2,060 South Africa 8.5 4.0 1,661 (1992/93) Botswana 3.3 2.4 5.150 Hungary 6.0 10.1 340 Malaysia 3.0 3.9 2,700 Venezuela 3.6 2.9 630 Chile 4.7 4.7 2,150 Established market economies 9.2 8.3 420 Sourcc=s: For South Afri~ • R.c=HMIS survq. Chc=tty (1994). Dc=vc=lopment Bank of Southern Africa (1994); for othc=r countric=s - World Bank (1993 and 1994) and Barnum and Kutzin (1993) 16 Table 3.4 Distribution of facilities aDd health personnel between provinces (1992/93) Province Hospital beds per Doctors per Nurses per Pharmacists per 1,000 100,000 100,000 100,000 population population population population Eastern Cape 3.5 30.7 321.3 20.1 Eastern Transvaal 2.1 28.3 265.8 23.1 Gauteng 6.0 127.4 618.4 109.8 KwaZulu~Natal 3.8 53.5 431.9 28.7 Northern Cape 4.0 [ 37.6 432.3 28.5 Northern Transvaal 2.5 15.5 293.2 7.8 North-West 3.3 22.7 273.5 22.8 Orange Free State 4.1 46.5 382.3 38.8 Western Cape 5.4 143.8 686.3 79.8 Total 4.0 60.2 421.5 42.6 Sources: Chetty (l994) and Development Bank of Southern Mrica (l994) a survey carried out by Barnum and Kutzin (1993) 3.3.2 Distribution of health resources between found a mean number of beds per 1,000 population provinces of 4.1 in 78 middle income countries. The national averages mask considerable differences It is difficult to assess the availability of primary level between provinces (Table 3.4). The number of hospital facilities, relative to the World Health Organisation's beds varies from 6.0 per 1000 in Gauteng to 2.1 in recommendation of one clinic for every 10,000 people Eastern Transvaal. There are also substantial (WHO 1981). This is because South Mrica has a large differences in the number of health workers relative number of private general practitioners in addition to population. The Western Cape has 9.3 times more to its public sector clinics and outpatient departments. doctors and 2.6 times more nurses on the SAMDC Chapter 7 assesses the availability of primary care register than the most under-resourced provinces (the facilities, particularly in the poorer districts. Northern and Eastern Transvaal respectively). Similarly, Gauteng has 14.1 times more pharmacists In 1992 South Mrica had 24,500 doctors, 171,500 than the Northern Transvaal. nurses and 9,000 pharmacists, according to the Development Bank of Southern Africa (1994). This is 3.3.3 The public and private health sectors the number of personnel on the register of the South African Medical and Dental Council (SAMDC) which South Mrica has well developed private and public includes those who are no longer in active practice in health sectors which are discussed in detail in Chapters South Africa. The ratios calculated on the basis of these 4 -7. Table 3.5 summarises the information on the sources of finance for the health sector (see Appendix figures may over-estimate the availability of personnel C for more detailed data). The government and local in the country. authorities provided 38.7 percent of the total. This South Africa is reasonably well supplied with doctors, included the budgetary allocations to the Department with 1,661 people per physician (Table 3.3). The of Health, net of fee revenue, health-related weighted averages of the number of people per dOCtor expenditure of other government departments and in 1990 were 420 in the established market economies local government contributions to their health 2,060 in middle income countries and 9,000 in the services. The private sector provided 60.8 percent in rest of sulrSaharan Mrica contributions to medical schemes and medical insurance, direct funding ofindustrial health services, It is difficult to obtain data with which to compare and out-of-pocket payments by users of health services. South Mrica's ratio of 237 people per nurse. The only The remainder came from donors. upper~middle income countries for which the World Figure 3.2 shows how the health sector allocated its Development Report provides data on the number of people per nurse are: Yugoslavia, 110; Venezuela, 330; expenditure in 1992/93 (see Appendix C for details). Oman, 400; and Saudi Arabia, 420 (World Bank 1993). While Table 3.5 addresses the question of where the This suggests that South Mrica has a reasonably good money for health care comes from, Figure 3.2 indicates what activities health care funds are spent on. These supply of nurses. 17 Table 3.5 Sources of f'mance for the health sector (1992/93) Source of finance Expenditure Percentage (million rands) contribution (%) General tax revenue I 1l,447 38.0 Local authorities 225 0.7 Total public sector sources 1l,672 38.7 Medical schemes 2 12,064 40.0 Medical insurance 923 3.1 Industry 1,162 3.8 Out-of-pocket 4,184 13.9 Total private sector sources 18,333 60.8 Donor furiding 145 0.5 Total' 30,150 100 I Net of revenue from fees • Includes the government contribution to the civil servants' medical scheme (if these paymenu are classified as public funding. 45.2 percent of total health care expenditure came from public sources) • This figure is an underestimate as expenditure on the education and training of health personnel. donor-funded health sector expenditure, and out-of-pocket expenditure on the services of private practitioners is known to be under.reported (Appendix C and Chapters 4 and 5) Sources: ReHMIS data; Blecher and Mcintyre (1994): Bunting (1994): Deloitte and Touche (1994b): Valentine and Mcintyre (1994): personal communication with Dr B. Kistnasamy (for Departments of Defence, Correctional Services and Police data) alternative methods of presenting financing and • the fragmentation of preventive, promotive, curative expenditure data account for differences in the and rehabilitative care; and public/private mix estimates. • racial inequalities in access to health services which Capital projects funded from public sector and donor are the legacy of the previous apartheid system of sources accounted for 1.3 percent of total health organisation of public sector services. expenditure in 1992/93, health personnel training for South Mrica has a substantial private health sector 0.8 percent, and research for 1 percent. Expenditure which accounted for 58.2 percent of total health on training is likely to be underestimated. The expenditure in 1992/93. This included expenditure remainder was divided between public and private on services provided by private sector providers during health service providers. that year, the costs of administering medical schemes The public health services spent 11.6 billion rands. or and health insurance organisations, as well as the contributions received by these financial 38.6 percent of the total. This included all health intermediaries in 1992/93 which were retained as service provision by the central, former provincial and surpluses, either in the form of profits or investments former homeland health departments and local for future health service expense claims. A higher authorities. It also included health care by the proportion of the most highly trained health workers Departments of Defence, Correctional Services and work in the private sector, with the exception of nurses Police. Only 26.8 percent of the public sector health (Figure 3.3). For example 59 percent of doctors, 93 budget was spent directly on the poorest 40 percent percent ofdentists and 89 percent ofpharmacists work of magisterial districts, which contain approximately in the private sector. However, only 23 percent of South 49 percent of the population and are inhabited mainly Africans have some degree of access to private sector by Africans. In contrast, 61.4 percent was spent on the health care on a regular basis (Chapter 4). richest 20 percent of districts, which contain A litde under a third of hospital beds are in private approximately 37 percent o( the population and are facilities (Chetty 1994). These are discussed in detail inhabited mainly by Whites. The public health services in Chapter 5. There is a large pharmaceutical industry are characterised by: comprising manufacturers, distributors and retailers. • an emphasis on curative, hospital-based care with There has been increasing concern, in recent years, relative underdevelopment of community-based about the rapid rise in the cost of drugs in the private primary care services; sector. 18 Figure 3.2 Distribution of total health sector expenditure (1992/93) , Public health seJVlces & Public & donor funded capital projects 1.3% Research & training 1.8% Private health services, administration & surplus 58.2% Sources: ReHMIS data; Blecher and McIntyre (1994): Bunting (1994); Deloitte and Touche (1994b) Valentine and McIntyre (1994); Personal communication with Dr B. Kistnasamy (for Departments of Defence. Correctional Services and Police data) The private sector largely serves the more affluent treatment of chronic illness; social groups, It is generally biased towards curative care. The cost of private medical care has risen sharply • people with low to middle incomes use both public in recent years and there are increasing questions and private primary care providers and rely heavily about whether the private sector provides good value on the public sector for inpatient care; and for money. • the poor depend largely on public sector health services. 3.4 INEQUALITIES IN ACCESS TO HEALTH RESOURCES Figure 3,4 provides an idea of the cost of health services per person for people with high incomes and for the The three population groups defined in Chapter 2 use poor. It is not possible to estimate the cost of health quite different health services: services for people with low to middle incomes on the • people with high incomes depend largely on the basis of the available data. This underlines the need private sector, using public sector hospitals for for further- study of the health services used by this highly specialised services and for lorig-term population group. F.gure 3.3 Distribution of health personnel between the public and private sectors in South Africa, excluding the homelands (1989/90) • Private sector ~ Public sector Doctors Dentists Pharmacists Nurses Supplementary health personnel Source: Rispel and Behr (1992) 19 Expenditure on health services per person for the high 3.5 CONCLUSIONS income group was assumed to be the average contribution per medical aid beneficiary, which was South Africa's health sector reflects the society which 1,800 rands in 1992/93 (Table 4.2). This it serves. It provides different kinds of services to the underestimates total spending on health by members different social groups. For the most affluen t segment of this group because it does not include co-payments of the population, comprised mainly of Whites, there and other cash payments to supplement medical aid. is a highly developed private sector which provides the It was not possible to estimate average health style of medical care found in the established market expenditure on all people living below the household economies. The public sector spends a large subsistence level. However, it was possible to calculate percentage of its budget on a relatively small number average public health expenditure in the poorest of expensive hospitals in the metropolitan centres, quintile of magisterial districts (Table 2.5). Average many of which are linked to medical schools. On the public health expenditure in these districts was 122 other hand, a large proportion of the population does rands per person (see Table 7.5). This under-estimates not have good access to health services. The majority total expenditure beci.use it does not include spending of Black people fall in to this category. by households in these districts on private health services. However, according to a preliminary analysis The coexistence of large numbers of people who do of the data from the Project for Statistics on living not have access to basic health services with others who Standards and Development (1994), health accounted spend a great deal of money on medical care explains for 1 percent of total spending by the poorest quintile in part why South Mrica has so much excess sickness ofhouseholds, whose average expenditure was less than and premature death despite the fact that it spends 118 rands per person per month. Some of the health 8.5 percent of its GDP on health. The remainder of expenditure was for fees for public services, so average this report focuses on the options available to the cash payment per person on private health services government for addressing these health problems, was low. given the resource constrain ts and the structure of the The ratio of spending on health services for members health service inherited from the past. of medical aid schemes to the average spending by the public health services in the poorest 75 districts was almost 15:1. The ratio was even higher for the 7.2 million residents of districts in which spending on public health services was less than 100 rands per person (see Table 7.6). Chapter 7 shows that levels of public health expenditure in these districts were insufficient to fund a minimum package of preventive and curative health services, at existing unit costs. This illustrates the magnitude of the inequalities which exist in South Mrica's health sector. FIgUre 3.4 Health expenditure per person on members of medical aid schemes and residents of the 75 poorest magisterial districts 1992/93 R2,0Xl Rl.500 R1.OXl R500 lID Medicolold Residents of members poor magisterial districts Sources: Valentine and McIntyre (1994) and ReHMIS survey 20 CHAPTER 4 THE PRIVATE HEALTH SECTOR 4.1 INTRODUCTION provided by private employers, and therefore as private. However, the size of the contributions is of The topic of this chapter is the private sector. It begins concern to the government since they substantially with an overview of the major sources of private health increase the cost of public sector employment care finance (section 4.2); it then describes the population groups that utilise private health services Medical schemes are non-profit associations funded (section 4.3); it outlines the different private sector primarily out of contributions from employers and health care providers (section 4.4); it discusses the employees. Generally, the size of contributions rapid increase in private sector health expenditure in depends on the member's income and number of recent years (section 4.5); and it concludes with a dependants. There are three major categories of discussion of government financial support to the schemes: medical aid, medical benefit and exempted private sector (section 4.6) and an outline of major schemes. Although the Medical Schemes Amendment policy challenges for the future (section 4.7), Act (Act No. 23 of 1993) has dispensed with these categories, this report uses them because the 4.2 PRIVATE SOURCES OF FlNANCE differences between schemes in structure and benefit Private sources spent more than 18 billion rands on coverage persist. The key characteristics of these types health care in 1992/93. The major sources are of schemes are summarised in Table 4.2. summarised in Table 4.1. A number of medical schemes are not required to Medical schemes are the principal financial report to the Registrar of Medical Schemes. Their intermediaries in the private sector, accounting for contribution levels and benefits packages tend to be nearly two-thirds of total private sector health care similar to those of medical aid or benefit schemes, but funding. There is some debate about whether the they are governed by other legislation than the Medical contributions of the state towards civil servants' Schemes Act (Act No. 72 of 19(7). They include medical scheme subscriptions should be considered a schemes covering the police, prisons and defence private source of finance. In this report they are viewed force, as well as schemes which existed before the as fringe benefits to employees similar to those Medical Schemes Bill was enacted in 1967. Table 4.1 Health expenditure funded from private sources (1992/93) Source of finance Expenditure Percentag (thousand rands) (%) Medical schemes' - private sector employees 9,492,077 52.1 Medical schemesl - civil servants2 2,572,402 14.1 Medical insurance 922,810 5.1 IndustrY' .7 hold payments 4,184,254 23.0 18,212,995 100 , Note that expenditure by medical schemes includes both those schemes who report to the Registrar of Medical Schemes and those that do not-Although most schemes.report expenditure in terms of calendar years, the 1992/93 financial year equivalent has been calculated to ensure comparabilitywith public sector data. I This includes medical schemes for local authority employees. a This is slightly lower than the amount presented in Table 3.5, as industry's expenditure on medical research is not included here. Source: Valentine and McIntyre (1994) 21 Table 4.2 Characters of different types of medical schemes Medical aid Medical benefit Exempted schemes Characteristics of Higher income formal Lower income formal Very low income beneficiaries sector employees and sector employees and employees; mainly those their dependants frequently their organised in terrns of dependants industrial councils; seldom cover dependants Number of beneficiaries (1992) 4,764,732 757,655 531,580 Kinds of benefits relatively comprehensive Focus on primary care Lowest benefit coverage; benefits; free choice of level but have limited largely restricted to provider; provider paid hospital benefits; benefit primary care services; on fee-for-service basis funds contract with capitated contracts with special providers ("panel panel doctors or salaried doctors") who are paid a employment of health capitation fee; or employ personnel personnel as in staff model HMOs Annual contributions per benefic:iaryt (1992/3) Rl,800 Rl,408 R713 These schemes are exempted from complying with certain specified conditions of the Medical Schemes Act (1967). 2 This reflects the total contributions by employers and employees divided by the number of beneficiaries. i.e. principal members and their dependants. Source: Valentine and McIntyre (1994) There were approximately 6 million beneficiaries of increased more rapidly than for other population the three types of medical scheme described in Table groups (Fallon and da Silva 1994). This relative 4.2. The Registrar of Medical Schemes (1993) increase in income levels has enabled an increasing estimates that there are a further 852.661 beneficiaries proportion of employed Mricans to become medical of schemes which do not report to him. scheme members. The changing racial composition of medical schemes is also a reflection of the increased The membership of medical schemes has grown over unionisation of Mrican workers and the growing the past decade (Table 4.3). This has largely been due pressure by un ionised workers for employers to to an increase in the number of African members of provide medical cover. over 1 million. Although there has been a low rate of growth in formal sector employment for Mricans. The upward trend in membership of medical schemes earning levels of Africans in employment have reporting to the Registrar of Medical Schemes seems Table 4.3 Changes in membership of medical schemes reporting to the Registrar of Medical Schemes (total beneficiaries), 1982-1991 1982 1991.1 Group Number % of total Number % of total Africans 484.898 9.98 1,523,702 24.22 Coloureds 672,833 13.84 948.164 15.07 Asians 229,394 4.72 329,488 5.24 Whites 3,473.742 71.46 3,490,001 55.47 Total 4,860,867 100 6,291,355 100 The decade ending 1991 was selected because the Registrar did not report the racial breakdown of membership in 1992 Source: Development Bank of Southern Africa (1994) 22 to have halted in 1991, and membership decreased by cover for major surgical and hospitalisation costs, nearly 4 percent between 1991 and 1992. Section 4.5 which means that the insurer pays a predetermined discusses possible reasons for this decrease. amount of money on claims for clearly specified contingencies, rather than reimbursing the actual Direct out-of-pocket payments by households are the medical expenses incurred. as in the case of medical second largest source of private health care finance, schemes. Health insurance organisations do not fall accounting for 23 percent of the total (Table 4.1). This under the Medical Schemes Act, but are regulated category includes: "schemes gap" payments, through the Insurance Act and overall insurance representing the difference between the fees charged industry mechanisms. which relate primarily to by private health service providers and the amount monitoring the financial viability of insurance reimbursed by medical schemes; payment by non- companies. scheme members for consultations with private doctors and for the purchase of prescribed drugs; user fees at Many young. healthy adults elect to purchase only public sector hospitals; and spending on over-the- health insurance cover due to the attractive premiums counter medicines by all categories of patients. The relative to medical schemes' contribution rates. The study by Valen tine and Mdntyre (1994) could not fully lower health insurance contribution levels are possible quantify cash spending on items such as the services because there is careful risk screening for these policies of medical specialists, dental practitioners. and because they cover a more restricted benefits homeopaths, chiropractors, psychologists and package than medical schemes. However, certain traditional healers. While direct household medical scheme members purchase "top-up" health expenditure on services provided by some of these insurance products to cover the difference between providers is likely to be minimal, expenditure on the cost of health services and the amount reimbursed providers such as traditional healers and dentists is by schemes. Health insurance products thus compete likely to be significant. The figure for direct household with medical schemes as well as complement them. paymen ts used in Table 4.1 is therefore an Industry contributes 5.7 percent of total private sector underestimate. health care resources for the funding of industry- Health insurance is a small (5.1 percent) but rapidly specific health services and services funded through growing component of private health financing in the Workmen's Compensation mechanism. Industry- South Africa. It is offered by both life and short-term specific services range from limited workplace health insurance companies. Most policies provide indemnity services to comprehensive care at mining hospitals. Table 4.4 Total beneficiaries of medicalscbemes and health insurance, or employees in industry with access to on-site health services (1992) Type of cover Total beneficiaries Percentage of total Medical schemes 6,906,628 76.4 - Medical aid 4,764,732 52.7 - Medical benefit 757,655 8.4 - "Exempted" schemes 531.580 5.9 - Schemes not reporting to the Registrar of Medical Schemes 852,661 9.4 Insurance3 1,100,000 12.1 Industry 1,041,1l0 11.5 -Mines 450,000 5.0 -Other 591,110 6.5 Total 9,047,738 100 Percentage of population covered (%) 22.8 1 As cenain health insurance policy holders are also members of medical schemes, there is an element of double-counting in these data. Sources: Valentine and McIntyre (1994) 23 This expenditure is in addition to private sector scheme members also purchase health insurance employers' portion of medical scheme contributions. cover. The extent of this dual medical cover is Donor funding ofNGOs is not covered in this chapter unknown. An unknown proportion of the population due to a dearth of accurate information. The data utilises private practitioners on a direct payment basis, but this access is variable and depends on the available on donor funding are presented in Chapter availability offinanciaI resources when care is needed. 5. 4.4 PRIVATE PROVIDERS OF HEALTH 4.3 POPULATION SERVED BY THE PRIVATE SERVICES SECTOR High income earners are the major users of the private 4.4.1 Private practitioners sector. They tend to be members of medical aid Table 4.5 provides data on the main categories of schemes and/or holders of medical insurance policies. health personnel in the private sector. These personnel They utilise private sector services for all their health include general and specialist medical practitioners, needs, except for highly specialised services such as and dental practitioners; other personnel registered dialysis and cancer treatment which are not available with the South African Medical and Dental Council and/or affordable in the private sector, and for long- (SAMDC), or other relevant professional councils, term treatment of chronic illnesses which are not fully such as chiropractors, homeopaths, naturopaths, covered by medical aid. osteopaths, dental technicians, dieticians, occupational Low to middle income earners also use private health therapists, physiotherapists, speech therapists, services. Some are members of medical benefit or psychologists, optometrists, and pharmacists; as well exempted schemes which cover limited ambulatory as a diverse group of personnel not registered with care by private providers. Some employees have access the SAMDC such as hypnotherapists and to health services provided by employers at their place aroma therapists. In addition there are between of work. Others pay out-of-pocket to utilise private 350,000 and 500,000 traditional healers. sector providers, but this tends to be restricted to More than half of all major categories of health general practitioner services and the purchase of workers, except nurses, work in the private sector. Most drugs. The majority depend on public hospitals for private sector nurses are employed by private hospitals, inpatient treatment, except for those entitled to care most pharmacists work in the 2,876 retail pharmacies in a company hospital. in the country (Pharasi 1992) and the other categories Poor households make less use of private health of personnel tend to practise on a fee-for-service basis. services. However, there is evidence that even the A minority of each category work in industry-specific poorest families are prepared to pay for the services health services and provide services through medical of traditional healers. benefit funds and exempted schemes. Table 4.4 estimates that almost 23 percent of South There are few restrictions on the right of health care Africans have some degree of access to private sector professionals to work in private practice. They only health care on a regular basis. There is an element of have to be registered with the SAMDC, or other double-counting in these estimates as certain medical relevant professional councils, and must be registered Table 4.5 Health personnel practising in the private sector (1989/90) Proportion of each category of Category of personnel Number of personnel health personnel in private sector General doctors 7,947 62%1 Specialist doctors 3,703 66%1 Dentists 2,883 93% Pharmacists 7,350 89% Supplementary health professions 6,374 60% Nurses 22,940 21% In total, 59 percent of doctors work in the private sector (see Figure 3.3). The reason for this proportion being lower than the proportion of general and specialist doctors in private practice is that there are 1,252 doctors working in the public sector who are categorised as superintendents and interns, in addition to the 4,942 general doctors and 1,891 specialists employed in the public sector. Sources: Rispel and Behr (1992) 24 as a dispensing practitioner if they wish to dispense (Chetty 1994). There has been a particularly rapid medicines. In addition, a practitioner must obtain a growth in private for-profit hospitals since 1988 as practice number from the Representative Association indicated in Table 4.6. of Medical Schemes in order to submit claims to Most private for-profit hospitals are located in medical schemes. Certain personnel, such as oral metropolitan areas, where high income earners live. hygienists, cannot work independently and are There is a trend towards small-scale day clinics and required to work in a group practice setting with a unattached operating theatres which prOVide dental practitioner. The scope of nurse practitioners, ambulatory surgical services. Thirteen percent offor- particularly in relation to prescribing medicines, has profit hospitals have 10 or fewer beds (Valentine and un til recently been severely limited by the Nursing Act McIntyre 1994). and the Medicines and Related Substances Control Act. The private for-profit hospital industry is dominated by a few hospital groups. The three largest groups 4.4.2 Private hospita.b (Clinic Holdings, Afrox and Medi-Clinic) owned over 42 percent of all private for-profit hospital beds in 1993 There is a range of hospitals within the private sector (Engelhardt 1994) However, there has been an including for-profit facilities which provide care on a increase in the number of facilities owned by groups fee-for-service basis, non-profit hospitals run by of private medical practitioners in recent years. charitable or welfare organisations, and industry- specific hospitals. Contractor hospitals which provide A number of industrial concerns, primarily in the care primarily for long-term psychiatric and mining industry, provide hospital services exclusively tuberculosis patients, and in a few instances general for their employees. In 1993, there were 53 mine acute hospital care, on a per diem payment contract hospitals with 6,898 beds, serving approximately with the state have traditionally been classified as 450,000 mine workers (Valentine and McIntyre 1994). private hospitals. However, as these hospitals are The mining industry is currently investigating essentially state funded and the facilities are in certain mechanisms to provide health care . to the instances owned by the state, there is a strong argument approximately 1 million dependants of mine workers. for classifying them as public hospitals (Personal communication with Dr Jonathan Broomberg). They 4.4.3 Non-governmental organisations are included in this section as the public sector There has been a proliferation of NGOs in recent database (ReHMIS) did not provide information on years. These range from charitable and welfare contractor hospitals. A further category of hospitals organisations providing services such as first-aid frequently classified as private sector is that of province- training, drug counselling, and hospice care, to others aided hospitals. They have been combined with public which are largely involved in the development of sector hospitals in this report since they receive community-based primary care programmes. The substantial subsidies from provincial administrations growth in the latter group of organisations is partially for services provided to non-private patients (Chapter due to the former government's inability and/or 5). unwillingness to meet the socio-economic needs of the There were 46,611 beds in private hospitals in 1993 population. The international community supported Table 4.6 Distribution of private hospital beds by ownership category (1988 and 1993) Type of hospital No. of beds No. of beds % change 1988· 1993 - For-profit 9,825 18,432 87.6 Industrial 9,789 7,091 -27.6 Contractors 13,962 14.272 2.2 SANTAi 5,335 5,287 -0.9 Other!! 923 1.529 65.7 Total 39,834 46,611 17.0 SANTA is a charitable organisation which provides long-term inpatient care for tuberculosis patients :I This category includes hospitals provided by religious and welfare organisations. Source: Chetty (1994) 25 NGOs as a means of assisting South Africa's people Schemes on an annual basis and as they account for without supporting a government which upheld the vast m~ority of total private sector health care apartheid policies (Deloitte and Touche 1994b). In expenditure (see Table 4.1), medical schemes data are certain instances, such as for HIV/ AIDS services, analysed in detail below to demonstrate likely trends NGOs play an important service delivery role. in overall private sector health care expenditure. It Many NGOs are facing financial difficulties because can be speculated that direct out-of-pocket payments international donors are now prOviding support have increased at a similar rate over the past decade, as almost half of these payments are in the form of . directly to the govern men t. The relative roles ofNGOs and the public health service, and the relationship expenditure by medical scheme members to cover between them, have not yet been dearly defmed. expenses not reimbursed by schemes (Valentine and McIntyre 1994). Co-payments by medical scheme 4.5 TRENDS IN PRIVATE HEALTH CARE members have in fact increased over this period so EXPENDITURE the assumed trend in direct expenditure is likely to be conservative. The only source of routine data on private health care is the South African Reserve Bank's (SARB) estimate 4.5.1 '&ends in expenditure by medical schemes of private consumption expenditure on medical goods and services. According to this source, private health Medical schemes that reported to the Registrar care expenditure increased from approximately 2.24 increased their spen ding from 1.1 billion rands in billion rands in 1983/84 to 10.66 billion rands in 1992/ 1983/84 to 9.3 billion rands in 1992/93 (note that 93 (South African Reserve Bank 1991 and 1994). The this figure differs from that presented in Table 4.1 as .1992/93 expenditure estimate expressed in real terms certain medical schemes for private sector employees is 3.07 billion rands if deflated by the CPI and 2.54 and for civil servants do not report to the Registrar of billion rands if deflated by the MPI. The SARB Medical Schemes). Figure 4.1 illustrates that spending Ftgure 4.1. Medical scheme expenditure per beneficiary at constant (1983/84) prices"'. 1983/84·1992/93 160 140 / - 120 -e- MedIcines ~.. 100 -e- Hospitals ,P ;iD ..J!!f'" ...- ___ Speclalists .,./ eo ~ ..,.- - -PIr" ~ 60 [3" - -tIIIII ___ GP's 20 - I I!I" ..... - .Ji1 -t!I- Dentists o - 63/84 84/85 85/86 86/87 87/88 88189 89/90 90/91 91/92 92/93 ... Expenditure deflated by the CPI Source: Registrar of Medical Schemes (1993) and Central Statistical Service (1993a) estimates therefore reflect very little real increase in on each of the major items of expenditure by these total private health care expenditure in the past schemes rose by more than the rate of inflation during decade. that period. The data presented in Table 4.1, which is based on The distribution of medical schemes expenditure by the review of private sector health care expenditure category of health service provider in 1992/93 is (Valentine and McIntyre 1994), indicates that the presented in Table 4.7. Average expenditure per SARB underestimated total expenditure by 70 percent beneficiary was 490 rands for drugs, 274 rands for in 1992/93. It is thus possible that private sector health medical specialists and 270 rands for private hospitals care expenditure increased more rapidly than the in 1992/93. Expenditure by medical schemes on these official estimates suggest. This highlights the need to items rose particularly quickly between 1983/84 and improve the quality of routine private sector health 1992/93 (Figure 4.1). Although per capita expenditure care expenditure data collection. on general practitioner consultations was only 177 rands in 1992/93, key informants in the As the m~oritY of medical schemes are legally required pharmaceutical industry estimate that 80 percent of to submit information to the Registrar of Medical drug expenditure in the private health sector is 26 Table 4.7 Expenditure by medical schemes reporting to the Registrar of Medical Schemes by service cuegory(1992/9S) Service category Expenditure % of total Expenditure per (Rands) expenditure beneficiary (Rands) General practitioners 1,073,387 11.5 177.30 Medical specialists 1,661,417 17.8 274.43 Dentists 905,378 9.7 149.55 Provincial hospitals 401,354 4.3 66.3 Private hospitals 1,633,416 17.5 269.81 Medicine 2,968,159 31.8 490.28 Other benefits 653,366 7.0 107.92 Ex-gratia payments 28,001 0.3 4.63 Total 9,324,478 100 1,540.22 Source: Valentine and McIntyre (1994) associated with general practitioner services in the amendments has not yet been documented. form of dispensed or prescribed medicines (Personal The rise in expenditure on benefits is due to increases communication with Dr Jonathan Broomberg). in both unit ·costs and utilisation levels. The schemes As indicated in Figure 4.1, there have beeri different have been reasonably successful in con trolling rates of increase in expenditure on various services reimbursemen t rates for medical consultations and the over the past decade. Consequently, the proportion daily charge for a hospital bed. However, they have of total medical scheme expenditure on general not been able to prevent rises in drug prices or practitioner consultations has declined from 16.9 utilisation increases. percent in 1983/84 to 11.5 percent in 1992/93, while The fee-for-service method of payment of hospitals and that on specialists and dentists has declined from 20 private practitioners has contributed to the rise in to 17.8 percent and from 12.7 to 9.7 percent, utilisation since earnings are directly related to volume respectively. In contrast, expenditure on hospitals has of work. A recent South African study found that increased from 17.9 percent of medical scheme medical scheme patients visited their doctors 33 expenditure in 1983/84 to 21.8 percent in 1992/93. percent more often than members of a health and that on medicine from 25.9 to 31.8 percent. maintenance organisation (HMO) which employed The contributions to medical schemes have also risen salaried staff. Doctors caring for medical scheme rapidly, since schemes must finance the benefit beneficiaries ordered 133 percent more radiological payments out of contributions. The rate of procedures and 14 percent more pathological contribution increases has not kept up with increases investigations than HMO personnel (Broom berg and in expenditure on benefits. For example, spending on Price 1990). The fact that doctors have a stake in the benefits increased by 30.5 percent between 1988/89 financial performance of some hospitals through share and 1989/90 while subscriptions increased by 25.6 ownership or another form of relationship, such as percent. Between 1989/90 and 1990/91, the increases rent-free or subsidised consulting rooms within were 34.6 and 30.7 percent respectively (McIntyre hospitals, may also have encouraged higher levels of 1993). Many medical schemes thus face serious hospitalisation and/or longer periods of admission. financial problems. The Melamet Commission (South Many health service providers benefit financially from Africa 1994) highlighted solvency difficulties within selling medicines. This is clearly the case for hospitals medical schemes. For example, of the 240 medical which sell medicines at retail prices. It also applies to schemes in 1990, nine were declared insolvent and a the 8,316 general and specialist medical practitioners further 88 schemes traded at a loss (Dr Coen Slabber, who were registered to dispense medicines in 1992 quoted in The Argus, 26 November 1991). The (Registrar of Medical Schemes 1993). The number of intention of the Medical Schemes Amendment Act dispensing practitioners has nearly doubled since 1988 (1993) was to assist schemes in addressing these when 4,400 doctors were registered for dispensing problems (see Appendix D). The effect of these purposes (Grobicki 1991). One medical scheme 27 reported that expenditure per member on medicine of average salaries. The rapid increase in costs has dispensed by general practitioners increased from 85 prompted some members to seek alternatives, such as rands in 1985 to 233 in 1990 (Medscheme 1991). The risk-rated medical insurance, which is relatively 1990 expenditure is equivalent to 114 rands when inexpensive for the young and healthy. These trends inflation between 1985 and 1990 has been taken into coupled with increasing unemployment may explain account. At the beginning of 1994 the Representative the decline in medical scheme membership between Association of Medical Schemes (RAMS) offered 1991 and 1992. medical practitioners increased consultation fees in Given the extent of contribution increases, the rate of return for reducing expenditure on doctor and defection from schemes is surprisingly low. This is pharmacy dispensed medicines, as well as on largely because membership of a medical scheme is hospitalisation. This project resulted in savings on frequently a condition of employment. In most pharmacy dispensed medicines while there was little instances, employees are required to become members apparent impact on doctor dispensed medicines or of the medical scheme which their company has hospital costs (Personal communication with Mr Reg selected. This has certain benefits for schemes as they Magennis, Representative Association of Medical can enlist a large number of members by contracting Schemes). with one employer rather than having to compete for The increase in the proportion of elderly scheme individual members. There are also disadvantages for members has also contributed to the increase in the schemes as they generally cannot exclude employees value of claims (Fourie and Marx 1993). The with high risk profiles from membership. Since the percentage of medical scheme beneficiaries who are 1993 amendments to the legislation, most ,schemes pensioners or widows increased from 5.3 to 7.2 percent offer a range of options with different benefit packages between 1986 and 1992 (Valentine and McIntyre and contribution levels to allow more choice for 1994). The young and healthy members of schemes members. have to support the rising number of people whose The medical schemes have been slow to respond to contributions are low, but whose average daims are the financial crisis. Their initial reaction was to increase high. The recent Medical Schemes Amendment Act contribution levels more rapidly than the general rate (1993) has reduced this cross subsidisation burden in ofinflation and restrict the benefits covered. They have that medical schemes are now permitted to charge also sought help from government in the form of high risk members higher contributions, based on changes in legislation. They have only recently become their previous medical claims or on pre-existing more pro-active and energetic in cost containment, , conditions (see Appendix D for details of the for example by implementing utilisation review. These Amendment Act). In this way, certain schemes may efforts have been aided by the implementation ofthe become increasingly unaffordable for the elderly and Medical Schemes Amendment Act (1993) inJanuary chronically ill who will rely more heavily on public 1994. For example, the Act no longer enforces sector health services, but will be able to compete more statutory scales of benefits, thus allowing individual effectively with health insurance products for younger, schemes to negotiate and set their own levels for healthy members. reimbursing providers and for member co-payments. Table 4.8 illustrates the extent to which contributions In addition, the requirement for direct guaranteed to medical schemes have increased, relative to salaries, payment to providers who charge at the scale of over the past decade. While salaries have not increased benefits level has been abolished. This strengthens the much in real terms during this period, increases in position of medical schemes in dealing with over- scheme contributions have far exceeded the inflation utilisation by members and over-provision by providers, rate. Medical scheme contributions were equivalent in that schemes can refuse to settle accounts where to 7.1 percent of average fonnal sector salaries in 1982. they consider services provided either unnecessary or Ten years later, in 1992, they amounted to 15.2 percent excessive. This is applied particularly to the evaluation Table 4.8 Growth in annual medical scheme expenditure and contributions per principal member. 1982- 1992 (rands) (expressed in real terms. deflated by the CPl. in brackets) 1982 1987 1992 Expenditure (including administration costs) 462 (462) 1.247 (622) 4,039 (1,037) Con tributions 442 (442) 1,294 (645) 4,099 (1,052) Average annual salary 6,192 (6,192) 12,036 (6,000) 27,048 (6,943) Contributions as a percent of average salary 7.1 10.8 15.2 Source: Registrar ofMedicaI Schemes (1993) and Central Statistical Service (1993a) 28 ofdoctors' dispensing and prescribing patterns, as well 4.5.2 Other emerging trends in the private sector as to assessing hospital admission and length of stay (see Appendix D for details of the Amendment Act). A number of issues relating to private sector health care provision and financing warrant specific There has not been a concerted effort by interested comment. Firstly, there is a significant concentration parties, such as trade unions and employer groups, to taking place in the health sector. A few large groups engage medical schemes in planning and dominate the private hospital industry (see section implementing cost containment measures. This also 4.4.2). In addition, there has been a trend towards applies to the government, which spent nearly 1.8 vertical integration and certain hospital groups have billion rands of general tax revenue on contributions interests in financial intermediaries and to medical schemes on behalf of civil servants in 1992/ pharmaceutical companies~ 93 (note that the 2.6 billion rands in Table 4.1 includes contributions by civil servants themselves). A second trend has been the growth of the health insurance industry. An increasing number of young, The rate ofincrease in medical scheme costs is relevant healthy members of medical schemes are being to current debates about the possible establishment attracted by low cost insurance policies, leaving the of a social health insurance (SHI) scheme. The exact schemes with a higher proportion of high risk nature of a potential SHI in terms of population members. The Medical Schemes Act only applies to coverage and the composition of the benefits package organisations which directly reimburse members for is still unclear at present. However, a SHI would at least medical expenses incurred. As health insurance include compulsory membership for all formal sector policies provide indemnity cover (see section 4.2), employees. Additional members for a SHI (i.e. those insurance companies offering such policies are not who are currently not covered by a medical scheme) subject to the regulations of the Medical Schemes Act will largely be low income earners and will tend to have and there is therefore less control of their activities. It a higher average number of dependants. Their is not possible to estimate the profits they earn. inclusion in a SHI will therefore require cross- However, Valentine and McIntyre (1994) indicate that, subsidisation from higher income earners, no matter of the 443 million rands received in health policy how limited the benefits package. contributions by life insurance companies during In 1992. the contribution rate per principal member 1992/93, approximately 86.4 million rands (19.5 of a medical scheme was 4,558 rands for medical aids, percent) was paid out in claims settlements during that 3,699 rands for benefit funds and 1,388 rands for year. exempted schemes (see Table 4.2 for description of There has also been a growth in the role of marketing different types of schemes). Medical schemes which agencies and brokers. Brokers of health care products contract directly with providers and reimburse on a offered by short-term insurers receive a monthly capitated or salaried basis, such as exempted schemes, commission for the duration of the policy at a rate of appear to offer a more affordable model for a SHI. approximately 20 percent over the life of the policy. There is a need for more study of existing schemes and for support of experiments with alternative low Life insurer brokers receive a commission of 3.5 cost models of health care provision. percent of the value of the policy, 85 percen t of which is paid out in a lump sum at the time of concluding Tht; recent history of medical care cost escalation the policy (Valentine and McIntyre 1994). These all highlights the danger that a newly established SHI add to the cost of health care. Furthermore, brokers could rapidly face financial problems. particularly if are now also operating in the medical scheme market. based on a fee-for-service reimbursement mechanism. Employers contract with these brokers to negotiate In such a situation there could be pressure on the cover for their employees. Several schemes have government to provide financial support out of tax indicated that brokers move members away from a revenues. This could jeopardise the funding of particular scheme if they do not receive "commission essential services for the poor. Workable models of payments" from the scheme. service delivery need to be developed and effective systems of monitoring and cost control established in A third trend is the growth of managed care initiatives. order to avoid this problem. The future role of medical These range from staff model health maintenance schemes in relation to a SHI is not clear. The schemes organisations (HMOs) to independent practitioner are likely to favour the German model where individual associations (IPAs). With the rapid increase in the costs sick funds are the financial intermediaries for the SHI. of medical scheme cover, alternative schemes which However, in light of the rapid cost spiral in the past, it have an active cost-containment component and an is critical that medical schemes develop strategies for element of merging the roles of health care financiers controlling costs if they are to play an effective role in and providers, or at least increasing the contractual a future SHI. contact between the two groups, are emerging. 29 4.6 GOVERNMENT FINANcIAL SUPPORT TO full repayment of training costs, possibly through THE PRIVATE SECI'OR licensing fees. The government supports the private health sector in By way of contrast, revenue does flow from private a number of ways. The most widely discussed is the providers to the state in the form of pharmaceutical tax concession on employer contributions to medical and private hospital company taxation, and value- schemes. Individual taxpayers have more restrictive tax added taxation (VAT) on medical services. It was concessions on medical expenses. Taxpayers under the estimated that VAT receipts from the private health age of 65 can only claim contributions and other sector could have been as high as Rl.35 billion in medical expenses which exceed 1,000 rands or 5 1992/93 (Valentine and Mcintyre 1994). This is likely percent of taxable income, depending on which is the to be an overestimate as certain private practitioners greater amount. The first 500 rands are not tax may not have declared the "cash practice" component deductible in the case of handicapped people, while of their income. Private practi tioner organisations have people over the age of 65 can claim all scheme contributions and other medical expenses. A recent lobbied for the removal of VAT. There may be study estimated that the loss of tax revenue through arguments for exempting certain medical goods and tax deductibility of medical scheme contributions by services from VAT, particularly those used by low to employers was between 1.5 and 2.6 billion rands in middle income earners. 1994 (Price et al1994). The greatest beneficiaries of The above paragraphs illustrate the complex inter- this subsidy are high income earners who belong to relationship between the public and private sectors. the most expensive schemes and have the highest There is a need for a comprehensive review of the marginal tax rates. Providers of expensive private current system of taxation and the size of financial health care also benefit through an increase in the demand for their services. flows to the private sector. Some have argued for an end to all tax concessions 4.7 CONCLUSIONS on medical scheme contributions. Others argue that the public sector benefits from the contributions made The major Challenges facing the private health sector to medical schemes, because it does not need to are to control costs and address the financial crisis provide care for scheme members. They argue that facing medical schemes. Employers and trade unions the subsidy provides an incentive for companies to have an interest in the success of these efforts because cover their employees and that the concern should health care costs are becoming a significant financial be to design a more appropriate package of burden. The government, as a major contributor to exemptions which gives more weight to the needs of medical schemes, also has a direct financial stake in low to middle income earners (Price et 0.11994). For the solution to the current problems. example, there are much stronger grounds for tax exemptions for contributions to schemes which The degree to which medical schemes meet the finance low cost care such as that provided by current cost-containment challenge will strongly exempted medical schemes, than for those options influence the development of social health insurance. which fund treatment in very expensive private In order for such an endeavour to succeed, it will be hospitals. However, the removal of subsidies will necessary to develop cost-effective models of service decrease net salaries for employees and/or increase delivery and to establish mechanisms for monitoring the cost of labour for employers. Thus, the impact on and controlling costs. the economy should be carefully assessed before reform of these subsidies is considered. While it is not possible at this stage to adequately evaluate the impact of the recent amendments to the Another way in which the state supports the private Medical Schemes Act (see Appendix D), there are health sector is by subsidising health worker training. A recent study estimated that the average cost of concerns that some of the changes may threaten the training a university medical graduate was 66,500 rands financial viability of poorly managed schemes, and are in 1992 and that the net government subsidy was likely to increase the financial burden on the public 40,200 rands (Bunting 1994). This refers only to the sector (through greater experience and risk-rating by Department of Education 's subsidy to universities, and schemes). The changing nature of medical schemes does not include the substantial indirect medical should be closely monitored and the need for further training costs which are borne by the academic legislative changes evaluated. hospitals. The training of all other health personnel is similarly subsidised. There has been a great deal of This report was able to collect only some basic data debate about how to recoup some of the training about the private sector, and it has raised more subsidy of professionals who work in the private sector. questions than answers. There is a need for additional Recommendations include providing people with a work on the functioning of the private sector to clarify . choice between a period of compulsory public sector the options for the future relationship between the service prior to registration for private practice or the public and private sectors. 30 CHAPTER 5 PUBLIC SECTOR HEALTH SERVICES S.l INTRODUCTION S.2 INTRODUCTION TO THE PUBUC HEALTH SECTOR This chapter introduces the public health sector. It begins in section 5.2 with a description of the complex Previously the public sector was fragmented into a large administrative structure inherited from the past and number of overlapping administrative systems: each of the current plans for restructuring; section 5.3 racial group had its own national department of health; discusses the sources of finance for the public sector; every homeland and provincial administration had a section 5.4 presents data on trends in expenditure by department of health; and 400 or so local authorities the public health services; section 5.5 discusses the also had health departments. This chapter describes distribution of resources by level of care and between the health services which resulted from this process geographical areas; section 5.6 presents information of development. It focuses particularly on the high on the plans for investment in new buildings; section share of total expenditure going to hospitals and on 5.7 discusses strategies for allocating government funds the very large inequities in resource distribution. more equitably between provinces; and section 5.8 concludes with an overview of the process of structural The government is currently restructuring the public change which needs to be carried out. health service. Box 5.1 summarises the situation in Box S.l The present structure of pub6c sector health services in South Mrica Level of government Department(s) Responsibilities/Activities - health policy formulation - determination of provincial budgets including component for local authority subsidies Central Department of Health - co-ordination of services - line functions such as dental, forensic, national laboratory and so forth - other support functions - determination oflocal authority budgets - hospital-based services and mental health Provincial Provincial health departments - primary level curative and rehabilitation services - comprehensive primary care services in former homelands - ambulance services in conjunction with local authorities - preventive. promotive and rehabilitative primary Local (including care services with particular emphasis on municipalities and Local authority health communicable disease control and Regional Services departments environmental health Councils) - ambulance services Other (non-health) Departments of - provision of health services for staff, their departments Defence. Police and dependants and prisoners Correctional Services Note: Some of the service provision responsibilities described above have been delegated to other health authorities; for example ambulance services are frequently provided by local authorities although they are the mfxmsibility of provincial administrations. 31 early 1995. The national Department of Health 5.3 SOURCFS OF FINANCE FOR THE PUBUC formulates policy, determines provincial health SECTOR budgets, co-ordinates services and provides other support functions. The Provincial Health Departments There are three major sources of recurrent funding determine subsidies to local authorities and provide for public sector health services: general tax revenue; preventive health and hospital services, pri~ary level local rates, utility sales and taxes; and user fees (Figure care and comprehensive services in the former 5.1). Until recently, capital expenditure was fully homelands. Local authorities are responsible for funded by government. Now, donor agencies have preventive and promotive primary care, with a become willing to fund government services. particular emphasis on communicable disease con trol and environmental health. 5.3.1 General tax revenue The National and Provincial Departments of Health Centrally collected general tax revenue finances 94 plan to establish a new tier of district health services. percent of public health recurrent expenditure It is anticipated that there will be an average of 20 (Figure 5.1). Prior to 1994, taxes collected in the districts per province. The districts will be responsible former provinces were placed in the State Revenue for non-specialist hospitals and comprehensive Account and taxes collected in the former homelands primary care services. However, the exact demarcation were placed in homeland revenue accounts. The of functions between provinces and districts has not former homelands received substantial budgetary been determined. transfers from the State Revenue Account. All taxes The relationship between health districts and the are now credited to a consolidated National Revenue planned local government structures, described in Account. Chapter 2, needs to be clarified. For example, it is not The national Department of Health is responsible for certain whether the two structures will share the same the use of central government health funds. The boundaries. It is also unclear whether the district Function Committee for Health, whose members health authorities will be under the provinces or include representatives from the National and whether they will be integrated into local government. Provincial Health Departments, the Centra! .E~()nomic Some local authorities use different salary scales than Advisory Service (CEAS), the Department of Finance the Department of Health. This has made it possible and the Department of State Expenditure, advise it for better-financed localities to attract personnel from on resource allocation. The details of the budgeting the public sector. It has also made it difficult for process are presented in Appendix E. personnel working for different levels of government Until recently, budget allocations were based largely to cooperate. The government has not yet decided on the previous year's budget. The Department of whether it will change this arrangement in future. Health plans to reduce historically determined The constitutional framework for South Africa has not regional inequalities in funding rapidly. These plans been finalised and the exact powers and relative are discussed in Section 5.6. The present centralised responsibilities of the central, provincial and local system of budgeting may change if the new governments still need to be defined precisely. constitutional arrangements lead to a substantial Decisions with regard to these issues will greatly devolution to provincial or local governments of influence the structure of the public health services. authority over the collection and use of tax revenue. Ftgure 5.1 Sources of recurrent f'mance for pubHc health services (199%/93) User fees 4.5% Genera/tax local rates, utility sales revenue 94% and taxes 1.5% Source: McIntyre (1993) 32 Box 5.2 Uniform fee structure for health services in South Mrica The uniform fee structure divides patients into four income-related categories: HI, H2, H3 and private .. Patients are defined as private if their income is above specified income level or they are a member of a medical aid scheme. It is important to note that, although patients are supposed to provide documen tation of their income status, it is often determined on the basis of an interview. The income categories are revised on an annual basis. The categories for the 1994/95 financial year are as follows: ANNUAL INCOME Category Single Family unit HI RO · Rll,OOO RO &20,000 H2 R11,OOI · R16,OOO &20,000 &29,000 H3 R16,OO1 · &23,000 &29,001 R39,000 Private Patients > &23,000 > &39,000 Fees are differentiated in terms of these income categories as well as in terms of the level of care. For example, HI patients pay R8 per outpatient department visit at a community hospital and R13 at a regional or academic hospital, whereas a private patient pays &31 at the former and ruB plus additional charges for tests and drugs at the latter. HI patients pay &26 per admission for inpatient care in a regional or academic hospital, this being an all-inclusive charge, while private patients pay a daily tariff of &258 in addition to charges for intensive care, diagnostic tests, prescription medicines and theatre time (see McIntyre 1994a for full details offee structures). All of the health departments described in Box 5.1 5.3.3 User charges can initiate capital projects. In recent years, non- The public health service generated the equivalent of governmental organisations, such as the Independent 4.5 percent of recurrent expenditure from user Development Trust (IDT), have become involved in charges (Figure 5.1). The health departments of the the development of health infrastructure. A recent former provincial administrations introduced a study by Deloitte and Touche (1994a) found that there uniform fee structure several years ago, but the ex- was little co-ordination between agencies and that it homelands still have their own fee policies. The level was difficult to obtain information on all of their of fees in the uniform fee structure depends on the building plans. Developmen t expenditure is discussed sophistication of the health facility and on the declared in more detail in section 5.5. income of the patient (Box 5.2). Certain patients and services are totally exempt from fees (Box 5.3). 5.3.2 Local rates, utility sales and taxes There are several reasons why so little revenue is A relatively small amount of health service funding generated from user fees. Fee levels are low, except for private patients. However, until recently private (1.5 percent) is derived from local rates and taxes. This patients were not supposed to use public hospitals source funds between a third and a half of the unless they did not have easy access to a private facility. recurrent health care expenditure by local authorities, In addition, all fee revenue is effectively returned to according to different sources (ReHMIS data, Central the Provincial Revenue Account, since each Statistical Service 1993b). Local authorities in large department's health budget is reduced by the amount metropolitan areas fund a higher proportion of of fees it collects. In consequence, facilities have little expenditure from their own sources than those in incentive to collect fees. The present and potential smaller towns or rural areas. The provincial future role of user fees is discussed in more detail in departments of health fund the balance of expenditure Chapters 6 and 7. by local authorities in the form of subsidies (subsidies 5.3.4 Donor funding were previously funded by the national Department of Health). The future role of this source of finance Deloitte and Touche (l994b) carried out a depends a great deal on the final distribution of tax questionnaire survey of donors for the health authority between government levels under the new expenditure review. They established that donors spent constitution. at least 145 million rands on health sector projects. 33 Box 5.3 Patients and services exempted from user fees The current uniform fee structure exempts the following groups of patients and services from fees: • immunisation and other measures to combat notifiable infectious diseases; • treatment of communicable diseases including pulmonary tuberculosis. leprosy. cholera. diphtheria. plague. typhoid and paratyphoid, haemorrhagic fever, meningococcal meningitis and venereal diseases; • outpatient family planning services and inpatient sterilisation services; • examination of rape survivors and assault victims; • persons donating organs, blood, milk and human tissue; and • public sector health personnel who are injured or exposed to radioactive substances while on duty. Some of the former homelands had more extensive fee exemptions such as the treatment of malnutrition, psychiatric care, geriatric care and treatment for certain chronic illnesses. Shortly after the elections in April 1994, it was announced that children under the age of six years and pregnant women who are not members of a medical aid scheme will be exempted from fees at all public sector health facilities. However, there were many data deficiencies, partially 5.4 PUBUC SECTOR HEALTH CARE due to a low response rate, and they concluded that EXPENDITURE this figure is probably only a fraction of total donor funding of the health sector. Their findings should be In 1992/93. recurrent public health expenditure was interpreted with caution. approximately 11.1 billion rands or 273 rands per capita and capital expenditure was 386 million rands. Nearly 20 percent of donor funding was by South The proportion of total government spending African institutions (large corporations or allocated to health (recurrent and capital health independent trusts), less than 2 percent was by budgets) fell from 11 percent in 1991/92 to 10.2 national embassies, and over 78 percent was by percent in 1994/95 (McIntyre and Owen 1994). international organisations. The largest single Public recurrent health expenditure was equivalent contributors were the W.K. Kellogg Foundation and to 3.3 percent ofGDP in 1992/93 (Table 5.1). These the United Nations Development Programme percentages are reasonably high compared with other (UNDP). middle and upper-middle income countries. It should Donor support is increasing rapidly. The new donor be recognised that GDP in South Africa has grown very projects primarily support infrastructure development slowly in recent years which also contributes to the and the strengthening of basic health services throug~ relatively higher proportion of GDP devoted to public training and technical assistance, but they also support health care expenditure. Many of the established specific programmes such as HIV/ AIDS. market economies spend a higher percentage of Table 5.1 Changes in public recurrent health expenditure (1983/84 -1992/93) Average annual increase or Indicator 1983/84 1992/93 decrease Nominal expenditure (rands) 2,453,585,129 11.114,894,737 18.3% Real expenditure (1983/4 prices)! (rands). 2,453,585,129 3,199,870,686 3.0% Nominal expenditure per capita (rands) 76 273 15.4% Real expenditure per capital (rands) 76 79 0.5% Expenditure as % GDP 2.6% 3.3% 2.9% I The q:msumer price index (CPI) was used as a deflator. Sources: Mclntyre (1993) and ReHMIS survey 34 government expenditure on health and their public salary levels in South Mrica are high relative to health expenditures averaged 5.6 percent of GDP. developing countries. It is thus difficult to make international comparisons when there are significant Recurrent expenditure on public health services wage differentials between countries. In addition, increased at an annual rate of 18.3 percent a year recent financial constraints have squeezed investment between 1983/84 and 1992/93, from R2.5 billion to Rll.l billion (Table 5.1). However, this was largely due and spending on non-salary inputs. There is limited to inflation and the yearly increase was 3 percent in scope for additional savings on non-salary expenditure. real terms. This was equivalent to an annual increase Medicines for public sector health services are in health expenditure of 0.5 percent per capita. obtained through anational tendering system at prices The government compiles a medical price index (MPI) well below those in the private retail sector. The which indicates that the increase in the price of Minister of Health established a committee, shortly medical care has been faster than the rate of ipflation. after the democratic elections, to develop an Essential Drugs List and to prepare treatment guidelines for However, this index reflects changes in prices of private health personnel, to promote more rational and cost- medical services and is not an appropriate deflator effective medicines use in public sector health care for measuring real health services in the public sector. facilities. An index of health care costs is required which takes into account trends in public sector wages and the 5.5 DISTRIBUTION OF PUBliC HEALTH CARE prices of drugs and other specialised inputs to the RESOURCES health sector. During the same period, recurrent public health Sections 5.5.1 and 5.5.2 present data from the ReHMIS expenditure grew as a proportion of GDP from 2.6 to survey on the distribution of public sector facilities. 3.2 percent. This was due to the combination ofa real personnel and expenditure by level of care and increase in health care expenditure and a real fall in geographic area, respectively. , GDP (Chapter 2). 5.5.1 Distribution by level of care Figure 5.2 breaks recurrent public health care expenditure down into major inputs. South Mrica's Table 5.2 provides data on the different categories of public sector health services spent 67.6 percent of health facility in the public sector. The hospitals are recurrent expenditure on personnel in 1992/93 classified into the following levels of care (Appendix (equivalent to 65 percent of total health expenditure, A provides details on the definition of the levels of including the investment programme). This was a high care and on the relationship between these categories proportion to spend on salaries compared, for and those used by the previous Department of Health example, to 12 Asian countries included ill a recent and Welfare): study by Griffin (1992). Their public health services • academic hospitals are linked to medical schools/ spen t 43 percen t on salaries. 38 percen ton non-salary academic complexes; expenditure and 19 percen t on capital. While the salaries of public health personnel are not high in • tertiary hospitals have the four basic specialities comparison with other salaries in South Africa. overall (physicians. surgeons, paediatricians. and Figure 5.2 Distribution of recurrent public sector health expenditure by inputs (1992/93) Other 10,6% Pharmoceuttcals 12.5% Personnel 67.6% Note: Additional expenditure on maintenance of health facilities is reflected on the accounts of the respective c Departments of Works. Unfortunately. the extent of this expenditure could not be determined. Source: ReHMIS survey 35 obstetricians/gynaecologists). some higher Table 5.3 provides an overview of the distribution of specialities and an intensive care unit; health personnel between levels of care in the public sector. It highlights the concentration of health care • secondary hospitals have more than two of the human resources in the hospitals. In particular. the basic specialities and an intensive care unit; 49 academic and tertiary hospitals employed 61 • community hospitals are acute hospitals not percent of public sector general doctors, 82 percent included in the above categories; and of specialist doctors, 36 percent of nurses and 51 • chronic hospitals include psychiatric facilities. percent of pharmacists. On the other hand the primary hospitals for the care of tuberculosis and other health care services employed only 10 percent of communicable diseases, and long-term care general doctors, 17 percen t of nurses and II percent facilities. of pharmacists. As Figure 5.3 shows. recurrent expenditure was also Over half of the acute care hospital beds in the public sector are in facilities with specialist services and l 38 concentrated on hospitals; approximately 76 percent percent are in tertiary and academic hospitals. of the total was spent on acute care hospitals, 5 percent on chronic hospitals, 11 percent on non-hospital Non-hospital primary care services are largely provided primary health care and 8 percent on other services, through fixed and mobile clinics and community including emergency and dental services and the health centres. Some facilities are comprehensive and former DNHPD's head office administration costs. some provide only preventive or curative services. The Tertiary and academic hospitals, alone. accounted for other services included under the category of primary 44 percent of the total. health care in the ReHMIS survey include district surgeons. district pharmacist services. community According to a literature review carried out by Doherty nursing services, environmental health services and (1994), the percentage of public health expenditure school health services (Chapter 7). The hospital allocated to hospitals varies between 35 and 70 percent outpatient departments are also important providers in developed countries and between 40 and 80 percent of primary care services. The definition of primary in developing ones. It is difficult to make international care services used in this report thus essentially relates comparisons because of differences in definition, poor to the format in which data were available rather than data quality and other methodological problems. None a specific package of health services and service the less, it can safely be stated that South Africa's public providers. health services allocate a high proportion of their Table 5.2 Public sector health facilities by level of care (1992/93) Percentage of total Number of Number of acute public sector Level of care facilities beds hospital beds (%) Academic hospitals 16 18,266 18.5 Tertiary hospitals 33 19,540 19.8 Secondary hospitals 47 18,172 18.4 Community hospitals 269 42,885 43.4 All acute hospitals l 365 98,863 100 Chronic hospitals 54 21,158 Fixed clinics 3,141 6,303 2 1,053 Mobile dinics I Province-aided private hospitals are included in the following analyses because they treat public patients and receive funds from the Provincial Departments of Health and Hospital Services. This explains why this report's estimates of the numbers of public sector hospitals and beds are different from Chetty's (1994). The expenditure data only include the public subs~dies to these facilities. 2 This refers to the number of vehicles rather than the number of stopping points. Source: ReHMIS survey 36 Table 5.3 Distribution of public sector bealth care personnel by level of care (1992/93) General doctors Specialist doctors Nurses Pharmacists Facility type No. (%) No. (%) No. (%) No. (%) Academic hospitals 2,164 38.0 1,367 63.1 21,288 19.5 289 28.2 Tertiary hospitals 1,287 22.6 419 19.3 17,694 16.2 233 22.7 Secondary hospitals 404 7.1 122 5.6 13,733 12.6 132 12.9 Community hospitals 1,146 20.2 89 4.1 29,049 26.7 220 21.5 Chronic hospitals 114 2.0 91 4.2 8,665 7.9 44 4.3 Primary care services I 575 10.1 80 3.7 18,627 17.0 108 10.5 All acute hospitals 5,001 87.9 1,997 92.1 81.764 75.0 874 85.2 Total 5,690 100 2.168 100 109.056 100 1,026 100 Includes staff working at clinics, district surgeons, and personnel providing other primary care services such as school health services. As some health personnel work on a part-time basis, the "full-time equivalent" value is used, with the exception of district surgeons where "full-time equivalent" data were not available. Source: ReHMIS survey resources to hospitals, compared with other countries. One difficulty in making inter-regional comparisons The cost-effectiveness of this pattern of resource is that the richer areas have a larger proportion of high distribution in addressing the major causes of excess income earners who make little use of the public health morbidity and mortality is discussed in more detail in services. later chapters. These areas have many more private hospitals and 5.5.2 Geographic distribution of resources private health practitioners than poor ones. The very large differences between provinces in the total There are very large disparities in the distribution of number of hospital beds and health personnel (i.e. public sector health resources between regions both the public and private sectors) relative to (Klopper and Taylor 1987, Dorrington and population are illustrated ,in Table 3.4. Zwarenstein 1988. McIntyre 1990, McIntyre 1994b). This section reviews the ReHMIS data on the One way of correcting for the tendency to understate distribution of public sector resources (attributable to the inequalities between rich and poor regions would all central, pro-.rincial, former homeland, and local be to exclude members of medical aid schemes from authority health departments) between provinces and the target population for the public health services. between rich and poor magisterial districts. This would provide a better estimate of the relationship FIgUre 5.3 Distribution of public sector health care expenditure by level of care (1992/93) Secondary hospitals 12% Other 5% ChronIc hospitals 5% Source: ReHMIS survey 37 Table 5.4 PubHc sector health care facilities in magisterial districtS sorted by income per capita (1992/93) Quintiles of magisterial Acute hospital All public hospital Population districts sorted by income beds/ beds/ fIXed clinic per capita 1,000 population 1,000 population (thousand) Ql (lowest income) 1.8 2.1 16.3 Q2 2.2 2.5 16.3 Q3 2.4 2.B 9.6 Q4 2.8 3.6 7.2 Q5 (highest income) 3.0 3.8 12.4 Total 2.4 3.0 13.0 Source: ReHMIS survey between available resources and the number of people the needs of a relatively large area. Nonetheless, the who depend on them. Unfortunately there are no substantial differences between districts suggest that precise data on the regional distribution of medical some areas may not have adequate access to public scheme members. This information needs to be hospitals. This issue needs to be addressed as part of obtained in order to assess more accurately the an overall assessment by provincial health departments allocation of public health resources relative 'to need. oftheir hospital network (Chapter 6). The number of acute care beds (including bassinets There are substantial differences between provinces for new-born babies) in public sector hospitals per in the availability of public sector personnel. Table 5.5 1,000 population varied from under 2 in Eastern compares the ratio of personnel to population in the Transvaal to over 3 in Northern Cape. There were worst and best staffed provinces. The Western Cape similar differences in the population per clinic which had the highest ratios of health personnel to varied from 23 thousand in KwaZulu-Natal to 6 population for all categories, while the Eastern thousand in Northern Cape. These figures provide Transvaal, Eastern Cape and Northern Cape had the only a crude indication of the physical accessibility of lowest ratios for different categories of staff. facilities. For example, Northern Cape has a very low Table 5.6 summarises the distribution of public health population density, which means that many small personnel between quintiles of magisterial districts, clinics must be provided in order to ensure that people sorted by income per capita. The greatest difference live within reach of a facility (Development Bank of between QI and Q5 was for specialist doctors (there Southern Mrica 1994). were 35 times more specialists in Q5 than in QI), Table 5.4 demonstrates the geographic distribution of reflecting the concentration of referral hospitals in the health facilities between quintiles of magisterial more affluent urban districts. The differences between districts sorted by income per capita, as described in these two quintiles in the availability of general doctors Chapter 2. The population of the poorest districts, who (4.6 times), health inspectors (5.9 times), and are mainly Mricans and have the greatest health pharmacists (10.8 times) are of greater concern, problems (Chapter 3), have the least access to both because of their importance to the delivery of the hospitals and clinics. package of basic services (Chapter 7). There was a less There are only l.8 beds in public acute care hospitals unequal distribution of registered and other nurses, per 1,000 in the poorest quintile, compared with 3.0 with differentials of 2.4 and 1.7 respectively. The in the richest one. A further indication of the relatively high numbers of doctors and nurses in Q3 inequality of access to public sectOr hospitals is that a can be attributed to the fact that two very large referral fifth ofthe population (B.2 million) live in magisterial hospitals are located in this quintile. districts that have no public hospital beds at all, and a Table 5.7 presents information on public sector health third (13.5 million) live in districts with either no beds expenditure per capita. It was below 200 rands in the or less than 1 bed per 1,000. The boundaries of the Eastern Transvaa1, Northern Transvaal and North- new health districts may not be the same as the existing West, and above 300 rands in Gauteng and the Western magisterial districts. However, these data suggest that Cape. The Western Cape spent over three times as a number of the new districts will not have a hospital. much per person as the Eastern Transvaal. This The differences in the availability of clinics are underestimates the difference because many more discussed in Chapter 7. people are members of medical aid schemes in Every district does not need to have the same number Western Cape than in Eastern Transvaal. The of acute beds per 1,000 since a large hospital may serve disparities in the distribution of per capita expenditure 38 Table 5.5 Public sector health personnel'" per 100,000 population by province (1992/93) General Specialist Registered Other Health doctors doctors nurses nurses inspectors Pharmacists Lowest ratio Province E. Tvl E.Tvl E.Tvl E.Tvl E.Cape N.Cape . Ratio 6.48 0.48 67.63 87.57 1.74 1.36 Highest ratio Province W.Cape W.Cape W.Cape W.Cape W.Cape W.Cape Ratio 30.63 23.71 200.46 224.54 8.06 6.69 • Includes personnel working in local authority health departments. Source: ReHMIS survey Table 5.6 Health workers per 100,000 population in the magisterial districts sorted by per capita income (1992/93) Quintiles of magisterial districts sorted by income General Specialist Registered Other Health per capita doctors doctors nurses nurses inspectors Pharmacists Ql (lowest income) 5.1 0.4 78.7 109.4 1.1 0.5 Q2 9.4 1.8 90.9 119.2 2.2 1.1 Q3 15.8 3.2 128.4 137.1 4.3 2.5 Q4 13.5 1.8 128.2 131.5 7.6 4.0 Q5 (highest income) 23.3 12.3 189.9 185,4 6.7 5,4 Total 14.1 5,4 129.5 143.1 4.1 2.8 Source: ReHMIS survey between the quintiles of magisterial districts are administrations, three of the ex-homelands. the IDT discussed in the con text of primary care provision in and the CEAS. The results are summarised in Table Chapter 7. 5.8. The planned investment was allocated as follows: 89 5.6 CAPITAL EXPENDITURE AND percent on hospitals. 9 percent on primary care .lNVFSTMENT COMMITMENTS facilities. and 2 percent on other health~related According to the ReHMIS survey. public sector health facilities (Table 5.8). The two largest projects were a departments spent 386 million rands, or 3,4 percent new 493 million rands academic hospital in KwaZulu- of total public health expenditure, on building projects Natal and a 417 million rands upgrading and extension in 1992/93. This may be an underestimate, as some of the facilities at HF Verwoerd teaching hospital in ex-homelands reported no capital expenditure at all. Pretoria. The National Health Forum. a consultative In addition, the IDT's clinic building progr.amme body created in 1993 to oversee the transition to an expenditure was not included in this total because it elected Government, recommended that all major was classified as a non-governmental organisation capital projects be suspended and reviewed for their (NGO). consistency with the new government's priorities. It was particularly concerned to avoid commitInents to Deloitte and Touche (1994a) documented all public major projects which would increase recurrent health development projects planned for the period expenditure by tertiary and academic hospitals. The between 1993/94 and 1995/96. They collected future of these and other capital projects is not yet information from all four former provincial known. 39 Table 5.7 Public health care expenditure per The additional annual recurrent expenditure capita in each province (1992/93) associated with the projects listed in Table 5.8 was estimated to total 212.6 million rands. Tbis is less than Total health 10 percent of the value of the investment, which is expenditure per very low for health projects. Deloitte and Touche capita (1994a) express doubts about the accuracy of this Province (rands) estimate. In view of the lack of reliable information Eastern Cape 226.98 on either the capital projects which are underway or the recurrent costs ofrunning the completed facilities, Eastern Transvaal 136.60* this report does not attempt to estimate the additional Gauteng 381.66 costs which the public sector health budget will have to bear as a result of its investment programme. KwaZulu-Natal 236.88 Deloitte and Touche (1994a) make a number of Northern Cape 221.15 criticisms of health facility planning in the public sector. They point out that there is little information Northern Transvaal 164.07 available on the existing capital stock or on planned North-West 178.91 projects. They also conclude that infrastructure development is not planned systematically. The Orange Free State 266.49 Treasury has instituted the following procedures: Western Cape 491.13 • projects costing less than 300,000 rands do not need approval from central government; Total 262.61** • projects costing between 300,000 rands and * Expenditure data" for the Eastern Transvaal is 5,000,000 rands require approval from the slightly underestimated as data on expenditure at Department of Health; and KwaNdebele clinics were not available in the ReHMIS database. • projects costing more than 5,000,000 rands must be submitted to the Treasury Committee on ** Does not include 411 million rands of Department Building Norms and Cost Limits. of Health Head Office expenditure, but does, include transfer payment, from the Department to However, there are no clear guidelines on how to assess other health authorities. the degree to which a proposal for a new facility is Source: ReHMIS survey Table 5.8 Reported estimated costs of planned projects for the development of public health sector capital, 1993/94 -1995/96 Estimated capital Facility type Number of cost projects (million rands) (%) Hospitals 2,007.1 89 New 4 562.9 Upgrade/ extension 211 1,444.2 Clinics 198.1 9 New (Health departments) 29 86.4 Upgrade/extension (Health Depts) 21 35.1 IDT programme 37.9 CEAS programme 38.7 Other* 24 52.2 2 Total 2,257.4 100 * "Other" = facilities not part of hospitals or clinics, such as laundries, pharmacy depots, nursing colleges and staff accommodation. Source: Deloitte and Touche (19943) (data analysed by Dr Max Bachmann) 40 consistent with health sector development priorities. preventive programmes and essential curative services In consequence, these priorities are not necessarily which includes both ambulatory and inpatient care. taken into account in the design and project approval It may be possible to finance some expanded services process. in under-resourced areas out of additional budgetary The planning and management of the public sector allocations to the health sector but it will also be health investment programme should be improved: necessary to make better use of the available resources. the repair and replacement of existing facilities needs Therefore, additional objectives will be to decrease the to be well programmed; clear criteria must be share of public finance spent on the tertiary and established for defining the need for a new facility; academic hospitals and improve the efficiency of all Provincial Health Departments should formulate levels within the health service while minimising the investment plans hased on clear defmitions of need; disruption of services to the public. It may also be and the recurrent cost implications of a project must possible to identify sources of additional finance to be taken into account when it is evaluated. complement the budgetary allocations out of general tax revenue. Depending upon the outcome of current 5.7 REDUCTION IN THE INEQUALITIES policy discussions these could include increased user BETWEEN PROVINCIAL HEALTH BUDGETS charges, increased funding out of rates or local taxes, and new earmarked taxes, such as social health The goal of the national Department of Health is to insurance. eliminate inequalities between provinces in the levels of puhlic sector expenditure. It has set targets for The achievement of these objectives will constitute a provincial expenditure which are based on population major structural change in the public health sector. size, weighted for provincial per capita income, with The implementation of a process of rapid change in an allowance for the additional costs of academic the levels of funding for health services will have to be hospitals (see Appendix E for the details of the managed to maximise the benefits in areas where allocation formula). It hopes to achieve these targets services are expanded and minimise the problems in in five years. areas where budgets have to be cut. The allocation targets will nf7ed to be revised in future The next stage in the development of a strategy for in order to reflect a province's need for public sector change would be for each prOvince to prepare a health health finance more fully (Appendix E). For example, service development plan with clearly defined targets the allocation formula does not take into accl;mnt inter- for improving access and resource use. Such a plan provincial differences in population density and would have to include proposals for strengthening utilisation of private sector services, or the implications service delivery, constructing new facilities and of rapid urbanisation. The refinement of the allocation improving the use of available resources. Health status, targets will be facilitated by improvements in the and indicators of service quality and cost, will have to quality of routinely available data. be monitored to ensure that the expanded services are cost-effective and to monitor the impact of Given the su bstantial disparities in public sector health decreased expenditure in the better resourced care resources that currently exist between provinces provinces. Without such a plan, there is a danger that and the goal of achieving equity in weighted per capita under-resourced provinces will spend additional funds expenditure within five years, annual budgetary on expanding hospital rather than primary care changes within provinces are sizeable (as much as 20 services, and the over-resourced provinces will percent in some provinces). In implementing such a continue to finance very large specialist hospital rapid process of change, care will have to be taken to services. ensure that the additional funds are used well in the provinces whose budgets are increased and to avoid The implementation of structural change in a sector substantially disrupting services in the provinces whose which accounts for 8.5 percent of the economy is a budgets are reduced. This underlines the need to major task. Strategies will have to be developed on the develop clear strategies for the implementation of basis of an analysis of the likely impact of the available these changes, options. It will be necessary to monitor progress and re-evaluate strategies on the basis of experience. An 5.8 A STRATEGY FOR STRUCTURAL CHANGE important future constraint which this report has been unable to quantify is the emerging AIDS epidemic. The m~or objective of the health sector over the next The costs of caring for HIV/ AIDS patients will few years will be to decrease substantially the levels of undoubtedly be large, and will necessitate a re- excess sickness and premature death by ensuring that evaluation of modes of delivery of care, as well as a everyone has access to at least a minimum package of re--prioritisation of existing health resources. 41 CHAPTER 6 PUBLIC SECTOR HOSPITALS 6.1 INTRODUCTION sector hospital beds to the population dependent on these facilities is relatively low by international Public sector acute care hospitals spent 8.59 billion standards. rands in 1992/93, or 76 percent of total recurrent public health expenditure (Chapter 5). This chapter There are considerable differences between provinces analyses how they used this money. Sections 6.2 and in the availability of public sector hospitals (Table 6.1). 6.3 present information on the allocation of hospital Eastern Transvaal has the lowest and Northern Cape resources between provinces and between levels of the highest ratio of acute beds to population. There care; section 6.4 compares hospital unit costs to assess are also differences in the levels of utilisation of efficiency; section 6.5 presents data on recent trends hospital services. Public sector hospitals in Eastern in hospital expenditure; and section 6.6 explores the Transvaal, North-West and Northern Transvaal 'potential for increased cost recovery. Be~ause hospitals provided less than 500 inpatient days per 1,000 account for such a high proportion of total health population, while KwaZulu-Natal and Western Cape expenditure, a relatively small increase or decrease in provided over 700 days. There were even larger their spending has a major impact on the availability differences in the number of acute admissions relative of finance for other purposes, such as an expansion to the population. The differences in admissions and of primary care services. patient days relative to the population served is to some extent related to the supply of acute hospital facilities. 6.2 GEOGRAPIDC DISTRIBUTION OF PUBUC However, utilisation levels are also likely to be SECTOR HOSPITAlS influenced by the physical access of the population to these facilities, epidemiological differences, variations There are 2.43 public hospital beds per 1,000 in admission, treatment and discharge policies, and population in South Africa (Table 6.1). If medical aid other related factors. Such factors could also explain beneficiaries are excluded from the population inter-provincial differences in the average length of denominator, the ratio rises to 2.75 beds per 1,000. stay in acute hospitals. Thus, although South Africa has an overall hospital bed to population ratio which is comparable to There are also differences in the mix of public sector countries with a similar income level (4 per 1,000 acute care hospitals (Table 6.2). Over half of the beds population as detailed in Chapter 3). the ratio of public in Gauteng and the Western Cape are in academic or Table 6.1 Indicators of availability and uti1isation of public sector hospitals between provinces (1992/93) Acute Chronic Acute inpatient Acute Average beds/WOO beds/WOO days/l ,000 admissions/l 000 length of Province population population population population stay (acute) Eastern Cape 2.29 0.68 647 70 9.5 Eastern Transvaal 1.73 0.05 404 73 5.7 Gauteng 2.48 0.29 664 111 6.1 KwaZulu-Natal 2.92 0.54 748 89 8.8 Northern Cape 3.21 0.79 672 140 5.0 Northern Transvaal 2.22 0.42 462 78 6.7 North-West 2.14 0.35 480 64 8.8 Orange Free State 2.22 0.45 550 96 5.8 Western Cape 2.59 1.30 855 115 6.5 Total 2.43 0.52 628 88 7.3 Source: ReHMIS surw:y 43 Table 6.2 Percentage of beds in the different categories of acute care hospitals in each province (1992/93) Academic Tertiary Secondary Community hospitals hospitals .I I hospitals hospitals Province (%) (%) (%) (%) Eastern Cape 6.8 22.0 12.6 58.6 Eastern Transvaal - 5.5 38.4 56.1 Gauteng 57.6 9.2 19.8 13.4 KwaZulu-Natal 8.2 30.7 20.9 40.2 Northern Cape - - 44.4 55.6 Northern Transvaal - 29.2 5.2 65.6 North-West - 19.4 17.9 62.7 Orange Free State 31.0 9.6 17.5 41.9 Western Cape 37.5 14.5 18.1 29.9 Total 18.5 19.7 18.4 43.4 Source: ReHMIS sUr\'ey tertiary facilities. On the other hand, the Eastern care, such as by negotiating contracts with tertiary and/ Transvaal and Northern Cape have virtually no tertiary or academic hospitals in another province, should be beds at all. The Western Cape also has a large number seriously considered. This Inay not be necessary if the of chronic hospital beds per 1,000 (Table 6.1), which resource allocation formula provides adequately for is linked to its high incidence of pulmonary the costs of service provision to patients from other tuberculosis. provinces (see Appendix E). Residents of relatively under-resourced provinces use The unequal disttibution of hospital beds and bed tertiary facilities in neighbouring provinces. HowC\'er, utilisation demonstrates why it is important that as Gauteng and the Western Cape suffer budget cuts, provinces plan the development of their hospital their referral hospitals may become more reluctant to services. They need to define the needs of their treat patients from other provinces. There are already population relative to dearly defined targets for the reports that some out-of-province patients have had provision of general and specialist services. This will difficulty in gaining admission to tertiary and academic enable them to formulate strategies for addressing hospitals. However, the Department of Health's these needs. The provinces will have to estimate the resource allocation formula (see Appendix E) includes capital and recurrent costs of any additional hospital a special allowance for provinces with academic services to ensure that their plans are realistic and do hospitals which is intended to compensate such not jeopardise plans to expand the provision of hospitals for indirect training costs as well as senice primary care. The sections which follow outline some provision to patients from other provinces. of the issues which provincial health departments will need to address in formulating hospital service It will be necessary to address the disparities in the development plans. availability of hospitals. In areas with a relative o,'er- supply it may be possible to reduce the number of 6.3 DISTRIBUTION OF PUBUC SECI'OR public sector beds and/or downgrade some facilities HOSPITAL RESOURCES BETWEEN LEVElS to secondary hospitals. On the other hand, under- OF CARE served areas, such as the large number of magisterial districts with less than 1 bed per 1,000 (see section The academic and tertiary hospitals had 38 percent 5.5.2), may need additional beds; and areas where of the beds but accounted for 58 percen t of to tal acute there are enough hospitals beds may require specialist care hospital expenditure in 1992/93 (Table 6.3). This services in their hospitals. Given that a large reflects the higher running costs of these facilities: a proportion of public sector hospital resources are bed in an academic hospital cost more than twice as already located in academic and tertiary hospitals (38 much as a bed in a tertiary hospital and more than percent of beds and 58 percent of acute hospital three times as much as a bed in a community hospital. expenditure), the development of additional tertiary facilities should be c\'llluated with caution. AI ternative The largest item of expenditure by acute care hospitals. mechanisms for under-resourced provinces to ensure accounting for 68 percent of the total, was payment of that their residents have adequate access to tertiary staff. There were substantial differences in staffing 44 Table 6.3 Distribution of public sector expenditure in acute care hospitals by level of care (1992/93) Percentage of total Annual Total expenditure expenditure expenditure per Level o(care/type of hospital (rands) (%) bed (rands) Academic hospitals 3,319,652,651 39 181,739 Tertiary hospitals 1,584,755,524 19 81,103 Secondary hospitals 1,230,657,103 15 67,723 Community hospitals 2,326,989,059 27 54,261 Source: ReHMIS survey between the different kinds of hospitals (Figure 6.1). An indicator which gives a more accurate reflection The community and secondary hospitals had similar of hospital activity levels is that of the 'patient day'. It numbers of doctors and nurses per bed. However, is a composite measure of the provision of hospital compared with community hospitals, academic services, and is defined as: the number of inpatient facilities had 5 times the number of doctors per bed days plus a third of the number of outpatient visits. and 1.7 times the number of nurses; and tertiary This ratio is based on the assumption that an inpatient hospitals had 2.7 times the number of doctors and 1.4 day costs three times as much as an outpatient visit. times the number of nurses. Academic hospitals had While there has been debate about the size of the cost 1.8 times more doctors and 1.3 times more nurses per differential between inpatient and outpatient services, bed than tertiary facilities. the 3: 1 ratio has been historically used within South Mrica. Cost per bed is not a good measure of the relationship between hospital spending and benefits, because it A study by Lorn bard et al (1991) found qui te different does not take into account the quantity of in- and ratios between the cost of an outpatient visit and an outpatient services provided, or patient case-mix and inpatient day in hospitals in the former Cape Provincial severity of illness differences. One reason for the Administration. The cost of an outpatient visit was 43 higher cost per bed in academic facilities was their percent of an inpatient day in small hospitals and 70 higher levels of activity. For example, the average percent in specialist and academic ones. Another occupancy rates of academic and community hospitals recent study of Cape hospitals produced similar were 82 and 68 percent, respectively (Table 6.4). findings (73 percent in academic hospitals, and Figure 6.1 Differences in the numbers of nurses and doctors per bed in different categories of public sector hospitals (1992/93) 1.4 1.2 ~ Academic ~ Tertiary 0.8 0 Secondary 0.6 +------+-iI()~~ • Community 0.4 0.2 • Chronic Doctor/bed Nurse/bed Source: ReHMIS survey 45 Table 6.4 Indicators of acute pubUc sector hospital utilisation by level of care, 1992/93 (Average for all hospitals in category) Average Bed Bed occupancy length of stay turnover rate'" Level of care (%) (days) Academic hospitals 82 7.4 39.9 Tertiary hospitals 74 8.5 31.8 Secondary hospitals 74 7.0 38.7 Community hospitals 68 6.9 36.4 Chronic hospitals 80 54.4 5.4 '" Bed turnover rate is an indicator of the average number of admissions per bed in a year. Source: ReHMIS survey between 45 and 50 percent in other categories of Table 6.5 presents data on the average cost per patient hospitals) (McMurchy 1995). A study of hospitals in day in the different categories of hospitals. Unit costs Gauteng found that the ratio of inpatient to outpatient in academic hospitals were more than twice those in costs varied between 1.68 and 7.63% in academic secondary and community ones. This difference was hospitals, between 1.75 and 3.12% in regional due, in part, to the different functions of general and hospitals, and between 3,41 and 11.00% in community specialist facilities. Patients at academic hospitals are hospitals (Brown and van den Heever 1994). drawn from a wide catchment area, they tend to be sicker and they are provided with expensive specialist The estimates of the cost per patient day using the services. However, the academic facilities also provide Lombard ratios are presented in the note to Table 6.5. basic inpatient and ambulatory care to large numbers As there is a higher outpatient workload relative to of patients who live nearby at considerable cost. the number of inpatients at the larger urban hospitals, (Chapter 7 indicates that the average cost of an the greater weighting of outpatient visits using the outpatient department visit is 120 rands at academic ratios from Lombard's study results in smaller hospitals and 76 rands at tertiary hospitals compared differences in unit costs between levels of care. This with an average cost of 30 rands per visit at a clinic). highlights the need to treat the estimates of unit costs Basic ambulatory services could be provided more cost- provided in this chapter with caution. effectively, and with improved access for patients, by Table 6.5 Average cost of public hospital care per patient day by level of care (1992/93) Cost per patient day'" Level of care (rands) Academic hospitals 360 Tertiary hospitals 227 Secondary hospitals 171 Community hospitals 166 Chronic hospitals 101 '" This index was calculated on the assumption that the cost of an outpatient visit was equivalent to a third of the cost of an inpatient day. This is the most commonly used ratio. However, a study by Lombard et al (1991) found that the cost of an outpatient visit was 43 percent of an inpatient day in small hospitals and 70 percent in large ones. When these ratios are used, the estimates of cost per inpatient day are: academic hospitals (R247) , tertiary hospitals (R173). secondary hospitals (R156) and community hospital (R156). Source: ReHMIS survey 46 increasing the proportion of total expenditure devoted adversely affecting the quality of the services they to preventive programmes and simpler, community- provide. based health facilities (see Chapter 7) .. The factors which influence unit costs within hospitals. The provin(;ial hospital development plans will need including the role of hospital management, requires to include a strategy for achieving an appropriate detailed investigation. Hospitals are complex balance between specialist and general hospital institutions and a number offactors can influence their services. This report will not attempt to estimate either efficiency (Barnum and Kutzin 1993). This report does the additional costs of providing more hospital services not discuss these factors in detail. A considerable to under-resourced areas or the potential savings in amount of additional work is needed to ident.ify clearly the provinces whose hospitals cost the most. This will the major management problems in South Africa's have to be done when provincial plans are prepared. public sector hospitals. The potential value of this kind of study is illustrated by Table 6.7. which summarises 6.4 EmCIENCYWITHIN PUBUC SECTOR the impact of one factor. the occupancy rate, on unit HOSPITAlS costs. Table 6.6 provides information on the range of unit Hospitals are usually designed to operate most costs at public sector hospitals. A patient day cost less efficiently at an occupancy of 85-90 percent; at lower than 133 rands in a quarter of the facilities for which levels of activity their unit costs rise and at occupancy data were available and more than 261 rands for rates above 100 percent the quality of their services another quarter of the facilities. Some of the variation fall (Barnum and Kutzin 1993). The ReHMIS survey was due. to differences between the four categories of identified 39 acute care hospitals with occupancy rates acute care hospital in the sophistication of services they less than 40 percent (Table 6.7 note). These had much provided. However, there was considerable variation higher costs per patient day than other facilities in their in unit costs for each category of hospital. For example, category. This analysis suggests two options for facilities 85 community and secondary hospitals cost less than with very low occupancy rates: a considerable amount 133 rands per patient day and 62 of them cost more of money could be saved by closing these facili ties, or than 261 rands per patient day. by reducing their bed numbers with an associated proportional reduction in staff; or they could treat Some of these differences were due to variations more patients at relatively low additional cost. between facilities in the health problems of their patients or the quality of service provided. In particular, A rough estimate was made of the. magnitude of the the continued effect of historical differences in potential efficiency savings. It was calculated that if resource availability and quality of care in hospitals every hospital that currently spends more on staff that served African patients relative to those that served salaries and drugs than the mean expenditure on these White patients, prior to the desegregation of public items per patient day for their level of care, were to sector facilities. requires further investigation. In reduce their spending to the mean level. the savings addition, there may be significant differences in the could be almost 1 billion rands. These estimates are quality of cost and service data available at different no more than an illustration of the need to take hospitals. For example. some hospitals include efficiency improvements seriously. Some hospitals will maintenance and transport costs in their total need to spend considerably above the mean because expenditure, while in other hospitals these costs are they have a different case mix and/or are treating borne by other provincial departments such as the sicker patients. In contrast. certain other hospitals Department of Works. None the less. these data suggest which are already spending below the mean may be that some facilities could decrease costs without able to achieve efficiency gains. Detailed studies need Table 6.6 Public sector hospitals sorted into quartiles on the basis of their cost per patient day (1992/93) Number of hospitals for which data are available Ranges of hospital ~ Academic Tertiary Secondary Community Total costs per day hospitals hospitals hospitals hospitals <133 - 2 11 74 87 133-185 - 6 10 72 88 186-261 2 12 14 60 88 >261 14 12 11 51 88 Source: ReHMlS survey 47 Table 6.7 Average cost per patient day 1 for different categories of facilities and different occupancy rates (1992/93) Occupancy rate Level of care <40%2 41%-100 101%-130% >130% (rands) (rands) (rands) (rands) Academic hospitals 458 402 - - Tertiary hospitals 439 281 172 - Secondary hospitals 303 210 127 - Community hospitals 311 181 139 125 Chronic hospitals 251 104 70 59 This table reflects the mean of the average patient day costs within each occupancy rate and level of care category. 2 The number of facilities with occupancy rates below 40 percent were as follows: 1 academic hospital, 3 tertiary hospitals, 3 secondary hospitals, 32 community hospitals, and 5 chronic hospitals. Source: ReHMIS survey to be carried out in both low cost and high cost sector hospitals. hospitals in order to develop a more accurate picture A substantial effort will be required to improve of the potential for improvement. Such studies should information systems. train more hospital managers and also investigate ways of improving control over develop appropriate hospital management pharmaceutical and other medical consumables. The procedures. In particular. there should be greater Steinmetz Commission indicated that shrinkage of decentralisation of control to hospital level. as well as these items could amount to 500 million rands per to cost-centres within hospitals. Hospital managers annum (South Mrica 1993). should be given greater authority and autonomy to It may be possible to achieve some savings in make innovative changes required in order to achieve expenditure without substantial disruptions to service efficiency gains. provision, such as in areas with duplicate facilities as a result of apartheid policies. It will be more difficult to 6.5 RECENT TRENDS IN HOSPITAL achieve more extensive and sustained savings. This is EXPENDITURE partly related to the rigidity in cost structures within hospitals. particularly in relation to staffing. It will be The Health Expenditure Review Reference group necessary to overcome resistance, for example. to the commissioned Price and Broekmann (1994) to redeployment of staff from facilities with high unit prepare a report on recent trends in spending by costs. Changes in entrenched working practices to hospitals in the four former provinces. While they improve staff productivity are also required. The exten t indicated that it was difficult to draw conclusions to which efficiency gains are achieved is dependent because of problems with data, they prepared the on improved management capacity within public analyses summarised in Table 6.8. Table 6.8 Trends in provincial hospital expenditure 1984/85 -1990/91 Percentage change 1984/85 1990/91 (%) Expenditure (million rands) 2.018 5.001 147.9 Expenditure at constant (1984) prices (million rands) 2,018 1.849 -8.4 Total provision of services {million patient days*} 20.9 21.2 0.8 Expenditure per patient day at constant, 1984. prices (rands) 96.33 87.58 -9.1 * Defined as the number of inpatient days plus one-third of the number of outpatient visits Source: Price and 8roeJcmann (1994) 48 The provincial hospitals more than doubled their total 6.6 USER CHARGES IN PUBUC HOSPITALS expenditure between 1984/85 and 1990/91. However, this was equivalent to a real decrease of 8.4 percent, 6.6.1 Current levels of cost recovery taking inflation into account. This trend was not uniform between provinces. Hospital spending rose Public sector hospitals collected approximately 9 more quickly than the rate of inflation in the former percent of their total expenditure from charging fees provinces of Natal and the Orange Free State and fell, to patients (Table 6.9). The contribution offees varied in real terms, by 3 percent in Transvaal and 21 percent from over 13 percent for secondary hospitals to a little in the Cape Province. This is partly attributable to over 6 percent for academic facilities. The levels of attempts to reduce geographical disparities in per fees depend on the category offacilityand the patient's capita expenditure between the former provinces. declared income (Box 5.2). Hospitals have little . incentive to collect fees because all revenue is An earlier commentary indicated that the real decrease effectively returned to the treasury in that their in public sector health care expenditure since the mid- budgetary allocation is calculated net of projected fee 1980's reflected important developments in revenue. There are indications of substantial amounts government policy (McIntyre 1991). Since the of uncollected patient fees. presentation of the White Paper on Privatisation and Deregulation in 1987, the government has been This section explores the potential for increasing the investigating every possible means of reducing the level revenue generated from fees for inpatient care. of public expenditure (South Mica 1987). One of the Chapter 7 discusses charges by outpatient areas specifically targeted in this regard was the health departments. budget. As indicated in section 2.5.2, overall Hospitals find it difficult to charge high fees for government expenditure will be tightly controlled in inpatient care because most patients cannot afford future, and it is thus likely that real decreases in public a more than small proportion of total costs. For hospital expenditure will continue. example, an average admission to an academic hospital There was a marginal increase in the total provision costs over a quarter of the annual income of a of hospital services in the four provinces, despite the household living below the poverty line (an academic fall in real expenditure. However, service provision fell hospital admission cost 2,700 rands in 1992/93). This by 17.4 percent in the Cape Province. The average cost is the reason why fees were kept to 120 rands or less per patient day rose more slowly than the rate of per admission for families earning under 31 ,000 rands inflation so that there was a net fall of9 percent in the a year in 1992/93 (Table 6.10). There is only a limited real unit cost of services. potential for raising more revenue from these patients unless more of them are covered by some form of The experience of the four provinces since the mid health insurance. 1980s illustrates that hospital spending can be controlled. However, it is not possible with routinely 6.6.2 Private and insurance patients in public available data to assess the degree to which the hospitals aV".!.ilability and quality of services has been affected, particularly in the Cape Province which experienced Medical scheme members and people whose family the largest decrease in real expenditure. The major income was more than 31,000 rands a year (1992/93 question for policy-makers with regard to the public income categories) are classified as private patients. sector hospitals is whether real expenditure at these They pay a daily fee plus additional charges. The facilities can be reduced further, without seriously average charge per patient day in tertiary and disrupting services for the public. academic hospitals in 1992/93 was 234 rands and Table 6.9 Fee revenue as a proportion of recurrent expenditure at public sector hospitals by level of care (1992/98) Level of care Fee revenue as % of recurrent expenditure AcademiC hospitals 6.1 Tertiary hospitals 11.3 Secondary hospitals 13.3 Community hospitals 11.1 Chronic hospitals 4.4 Total 9.2 Source: ReHMlS survey 49 Table 6.10 Fees for inpatient services in government facilities in 1992/93· Annual family income Service R()"R16,OOO RI6,001·R24,000 R24,OOl-R3I,000 >R31 ,000 or member of medical aid Community and RI9 per R46 per R92 per RI84 per day secondary hospitals admission admission admission plus other charges Regional and R24per R59per R117 per R234perday academic hospitals admission admission admission plus other charges Source: South Africa (1993) patients paid an average of 16 rands per day for Several factors have depressed the generation of laboratory and diagnostic services and drugs (Table revenue from private patients. In the first place, the 6.10). Based on these fee levels, it can be estimated government fee policy states that private patients that private patients paid an average of 250 rands per should only be treated at public hospitals in certain day in both kinds of facility. According to the ReHMIS instances. such as when there are no readily accessible sur\'ey. tertiary hospitals spent 227 rands per patient private facilities (South Mrica 1993). Secondly, day and academic hospital spent 360 rands (Table 6.5). hospitals determine a patient's income by interview This suggests that tertiary hospitals charged private and they have little incentive to categorise a patient as patients the full cost of services but that academic private, since they do not retain any of the revenue. Thirdly, members of medical aid schemes. who should hospitals did not. be classified as private, do not have an incen tive to The preliminary results of a recent survey of public inform the hospital, since private and public patients sector health care facilities indicate that more than 70 receive the same services. percent of their revenue comes from members of It should be possible to increase revenue generation medical schemes. The importance of private patients substantially if the present policy of discouraging is illustrated by one hospital which generated fee public hospitals from competing for private patients re\'enue equivalent to 43 percent of its recurrent were changed. Options such as negotiated contracts expenditure. this being largely derived from the 38 between academic or other tertiary facilities and percent of its patients that were prh-ate. In contrast, medical schemes to provide specified hospital services another hospital at which 1 percent of the patients to their members could be investigated. If fees to were private. only generated revenue equi\-alent to 2 private patients exceeded cost recovery levels, it should percent ofits recurrent expenditure (McIntyre 1994a). be possible for provinces to decrease their budgetary Table 6.11 Fees for private patients at private hospitals and at academic and regional public sector hospitals (1992/93) Pri\-ate hospital Private hospital Tertiary and academic Service NoICU with ICU public hospitals Ward charge per day R202 R257 R234 Laboratory services Charges for each Charges for each R46 procedure procedure per admission Diagnostic senices Charges for each Charges for each R46 procedure procedure per admission Pharmaceuticals Per item dispensed at Per item dispensed at R92 retail rates retail rates per admission Theatre - basic charge R144 R144 R131 Theatre, 1-60 minutes R6.00 per minute R7.50 per minute R6.82 per minute Theatre, 60+ minutes RB.15 per minute RIO.OO per minute R9.10 per minute Source: Private sector data obtained from RA.'.rS Scale of Benefits; public sector data obtained from South Mrica (1993). 50 support to specialist hospitals without causing major on meeting the needs of the under-served. The rest disruption to their functioning. This should, in turn, will be used by hospitals, for example to improve release additional funds for the expansion of hospital facilities for patients or for the replacement of services in under-resourced areas and for primary care . equipment and maintenance of facilities. services. The following paragraphs outline the issues The major objective in trying to increase the number which would have to be addressed as part of a reform of private patients in the specialist hospitals is to release of cost recovery. funds for use in services that make a greater impact The fees charged by public sector facilities appear to on the health of the poor (World Bank 1993). However, be competitive with private facilities. Academic care must be taken to ensure that hospitals do not hospitals may be charging less than the cost of neglect the needs of their public patien ts. Once providing services. Regional and academic hospitals hospital managers are allowed to retain a share of their charged slightly lower ward and theatre fees than the revenue, they will try to attract as many private patients private hospitals with intensive care units in 1992/93 as possible. Measures will be required to ensure that and they charged considerably less for laboratory and public patients have adequate access to specialist care. diagnostic services and drugs (Table 6.11). Unlike This could be linked to improved provision of non- private hospitals, most public sector hospitals did not specialist care to public patients in outpatient clinics charge professional fees in addition to ward. theatre and general hospitals and the implementation of and other inpatient fees in 1992/93. However, since adequate referral systems. the introduction oflimited private practice, hospitals To summarise, there is little scope for substantial allow doctors to charge for services. There may be increases in the level offees for inpatient care to those benefits in moving from the current mandatory with low income. However, public hospitals could uniform fee structure to greater decentralisation in generate substantially more revenue from people with determining cost-recovery charges, particularly in high income or those covered by hospital insurance. hospitals which have adequate cost information Provincial health departments may wish to include a systems. strategy for attracting more patients to specialist Although price competition is important, patients do hospitals, particularly in provinces with a high not choose their hospital simply on the basis of price. proportion of acute hospital beds in tertiary and It is possible that many private patients prefer the academic facilities. The negotiation of contracts with better 'hotel' services in the private hospitals. Public medical schemes to provide specialist hospital care for hospitals may have to open amenity wards to attract their members should be investigated. This strategy substantial numbers of private patients. An undesirable will have to address the issues discussed above in consequence of this is that it would formalise the considerably more detail. demarcation between public and private patients. Measures would have to be taken to ensure that all 6.7 SUMMARY AND CONCLUSIONS patients had a similar quality of medical care. South Africa spent nearly 8.5 billion rands on its public At present only 14 percen t of the population is covered sector acute hospitals in .1992/93. This was equivalent by medical aid schemes (Le. excluding medical benefit to approximately 200 rands per person in that year and exempted schemes which do not include many (236 rands per person if medical aid members are hospital benefits) and a large number of private excluded from the population assumed to be hospitals cater to their needs. Some of these facilities dependent on public hospital services). In spite or this are operating substantially below optimum occupancy it only has 2.43 public sector beds per 1,000 population rates. The competition for private patients is likely to and many magisterial districts have no hospital at all. be intense in the immediate future. In the longer term, Table 6.12 summarises the major requirements for the number of insured patients could grow if some increased hospital expenditure and the potential form of SHI is introduced for lower paid workers sources of savings by public hospitals. A major aim of (Chapter 5). However, improved user fee revenue provincial planning exercises should be to quantify generation through this niechanism would depend on these items. hospital care being included in the SHI benefits package. One reason for the low levels of cost recovery is that hospitals do not benefit from collecting revenue. These facilities will have to be allowed to retain a portion of the reven ue they collect. However, this means that only part of the additional revenue will be available to spend 51 Table 6.12 Potential sources of increased expenditure and savings by public sector hospitals Increased resource requirements Kew general hospitals in under-served areas This cannot be established before provinces have determined their needs Addition of specialist services in under-served areas This cannot be established before provinces have determined their needs Increases in need and demand due to population In the short term there may be an increase in increases, increased expectations once primary demand, but over time it may be diminished due care services have been established and the to improved preventive measures and an easing HfV/ AIDS epidemic of the pressure on hospital outpatient departments (Chapter 7). However, greater access to primary care services is likely to result in additional referrals to hospitals. Recurrent costs of hospitals currently under This cannot be established until the Department construction of Health has documented the projects which will go ahead and accurate estimates are made of the running costs of the new and upgraded facUities. I Potential budgetary savings I Closure of wards and/or hospitals which are This must be assessed in the proVincial hospital I currently under-utilised service development plans. Downgrading of some specialist facilities This must be estimated in the provincial hospital service development plans, based on accurate needs assessment. Improvements in hospital efficiency A crude estimate of 1 billion rands, but there are many constraints to be overcome. Increased cost recovery from private patients Must be determined on the basis of an assessment of the market. The data presented in this chapter are not sufficiently alternatives, such as giving greater autonomy and detailed to propose solutions. Instead, they highlight authority to hospital managers; the further analysis of the hospital sector required to • Evaluating current management capacity and support efforts to address allocation and efficiency additional requirements, including the need for issues. Such analysis should include the following improved information systems and labour relations aspects: expertise; • Assessing the need for various levels of hospital care • Investigating ways of improving the management l\ithin each prmince; of supplies to reduce levels of shrinkage of • Analysing the determinants of utilisation of hospital pharmaceutical and other medical supplies; senices including epidemiological factors. current • Evaluating the possibility of contracting with other geographical and financial access, and other organisations for management and logistical related factors; services; and • Identifying the key determinants of efficiency and • Evaluating the potential for reallocating hospital- inefficiency within hospitals with a particular focus based resources to community-based primary care on differences in staffmg levels, skill levels of clinical services. This will include considering the staff, and productivity of staff; This should be possibility of closing wards or entire hospitals which evaluated by type of hospital. geographical location are currently under-utilised. or selling or leasing (i.e. by province and rural versus urban), and by them to the private se.ctor, with associated shifting type of staff. Quality of care should be taken into of personnel. An important aspect of these account in this evaluation; investigations will be negotiation with the public • EYaluating existing management systems and service commission. professional organisations and regulation mechanisms and investigating health worker trade unions. 52 CHAPTER 7 PRIMARY HEALTH CARE IN THE PUBLIC SECTOR 7.1 TIlE PRIMARY HEALTII CARE APPROACH that this is the most cost-effective approach for decreasing the levels of excess sickness and premature There are many reasons for the high levels of sickness death which are found in South Africa (World Bank and premature death in South Mrica, including 1993 and 1994). The government has not yet defined inadequate health services, poor nutrition, bad in detail the services to which everyone should have housing, exposure to environmental risks, access. However, the package is certain to include: unavailability of clean water, low levels of education and the problem of violence. The government's • programmes to educate the population about how strategy for addressing these problems is outlined in to take responsibility for their health and change the Reconstruction and Development Programme dangerous behaviour, such as smoking. excessive (Mrican National Congress 1994). This Chapter use of alcohol and unprotected sexual activity; focuses on the main component of this strategy in the • activities aimed at preventing diseases through health sector, namely the provision of primary care. environmental improvement or preventive Primary care services are defined in this chapter in programmes; terms of the format in which data were available rather than in terms of a package of health and health-related • provision of easy access to basic medical care to services. Thus, the emphasis is on services provided at prevent the development of serious and costly public sector fixed and mobile clinics, and by district complications of illnesses; and surgeons and other personnel providing primary care • measures to help the disabled to be more self- services such as community nursing and school health sufficient and productive. services. The potential components of a basic package of health The RDP gives priority in the health sector to services should be carefully evaluated for cost- prevention and the provision of essential curative care effectiveness and overall efficacy in achieving to all. There is widespread international agreement improvements in health status. Table 7.1 Health service providers used during a reported episode of illness by households sorted into quintiles on the basis of the average income per adult equivalent, 1993/941 Quintiles of households sotted on the basis of adult equivalen t Service provider monthly income! in rands less than 150 150-267 268-447 448-858 858+ Private doctor (%) 31.3 39.0 47.4 63.7 85.4 Traditional healer (%) 4.7 3.2 2.2 1.2 0.6 Health centre/clinic (%) 24.0 21.7 19.0 11.3 2.7 Hospital (%) 37.1 32.8 28.7 21.7 7.3 Other 3 (%) 2.8 3.2 2.9 2.2 3.9 Total 100 100 100 100 100 1 This table reports the providers used by people reporting an episode of illness during the 2 wee ks prior to the survey; it does not include the people who did not visit a provider. ! MethodOlogy for calculation of the average expenditure per adult equivalent is presented in Project for Statistics on Living Standards and Development (1994). The number of people in a quintile decreases as the average income rises, partly because households with more dependants tend to have a lower income per person and partly because the poor tend to have larger households. 3 Includes visits to other primary care workers, pharmacies, shops and private nurses. Source: Preliminary analysis of data froni the Project for Statistics on Uving Standards and Development (1994) 51' 7.2 WHO USES THE DIFFERENT PROVIDERS practitioners and purchasing drugs from pharmacies OF PRIMARY CARE SERVICES? or dispensing doctors. The three income groups described in Chapter 2 The poor depend to a large extent on publicly funded obtain primary care services from different providers. services provided at government health facilities, This is illustrated by Table 7.1 which is derived from although they also make considerable use of private the report of the Project for Statistics on Living doctors and traditional healers and purchase some Standards and Development (1994). It presents drugs from private pharmacies or shops. information on the health service providers that This chapter concentrates on the public sector because people in different income groups visit when they are it is the principal funder and provider of services for ill. the poor. The Department of Health is reassessing the High income earners make relatively little use of . relative roles of hospital outpatient departments, government outpatient services. They obtain most of public sector clinics and private general practitioners their care from private doctors, dentists and other as providers of primary care services to public patients. health workers, and they purchase drugs from The strategy adopted for the development and finance pharmacies or dispensing doctors. of primary care services will be influenced by the Low to middle income earners use both public and outcome of this review. The principal aim of this private sector providers, attending public clinics and chapter is to present the problems which the strategy hospital outpatient departments, consulting private will have to address. Box 7.1 Authorities responsible for the provision and f'manclng of public primary care services at the time of the election of a democratic government , Administrative authority Services provided Facilities Area Served Local government, • preventive and health promotion • fIXed and mobile • urban areas including local clinics authorities. • environmental health management • curative services related to communicable committees and disease control boards, and regional services councils • some rehabilitative care Provincial • curative care • fIXed and mobile • urban areas administrations in clinics formerly "White South • ambulance services (generally provided on an agency basis by local government bodies) Africa ftl • district surgeons • medico-legal services in urban and rural areas • curative care for the indigent where there are no clinics in urban areas • health promotion. prevention and curative • usually mobile • urban areas care clinics DNHPD • most service responsibilities including communicable disease control. family planning and prevention of malnutrition are delegated on an agency basis to provincial administrations and local governments Self-governing and ex- • combined preventive and curative clinics in • clinics and • ex-homelands homeland health wards linked to a base hospital hospital OPDs governments Department of • school health services (usually delegated to Education and health authorities) Training Department of Public • building and maintenance of facilities Works Departments of • preventive and curative services • departmental Defence, Police and, staff and Correctional Service prisoners Until 1998, there were also ~Own Affairs" health departments which provided comprehensive primary care to Whites, Coloureds and Asians in urban areas. These services are now provided by provincial administrations. Source: Preliminary analysis of data from the Project for Statistics on Living Standards and Development (1994) 54 7.3 PRIMARY HEALTH CARE IN TIlE PUBlJC authorities and Box 7.2 shows how health services in SECI'OR one area were organised as a consequence of this complex situation. Care must be taken in interpreting 7.3.1 Organisation of primary health care these summaries, because in many cases the services listed are not fully provided, in practice. The public sector provides a wide range of personal and public health services organised in a complex The fragmentation of the public health services system of overlapping administrations. These services increased their cost because of the duplication of were previously split along racial lines and between services and management bodies (for example some preventive and curative care. Box 7.1 summarises the places have a facility for each of the racial groups). It responsibilities of the different administrative also made it difficult to develop strong preventive Box 7.2 Public health authorities involved in primary care provision in Greater Soweto, 1993 Public primary health care authorities Services offered DNHPD,Regional Office • services delegated to city Health Departments ; • subsidise City Health Departments • administer CEAS money for satellite clinics .Central Witwatersrand Regional Services Council • fund capital expenditure Provincial Administration: Hospital Services • family planning • Soweto Community Health Centres: 12 • ante-natal care clinics in Greater Soweto and 1 clinic in • diagnosis and treatment of illness Orange Farm • trauma • 8aragwanath Hospital outpatient/casualty • health education • the following services are not delivered at every clinic: maternity services. photo therapy. x-ray services, rehabilitation, psychology Provincial Administration: Community Services • school health - services at some clinics • psychiatry - school health team • oral health ...:. 1 container clinic in Doornkop • family planning .' • health education • primary health care outside urban areas Diepmeadow City Health Department • child health -2 clinics • school immunisation Dobsonville City Health ~epartment • family planning - 1 clinic • health education Soweto City Health Department • follow-up treatment for tuberculosis, sexually -lOdinics transmitted diseases and rheumatic heart disease • soCial workers • home visits • environmental health services District Surgeon Services • medical examination of cases referred by the State • examination of clients for disability grants • examination for mental illness • examination of cases of rape. child abuse, assault and drunken driving Source: Centre fur Health Policy (1994) 55 programmes, to establish an effective referral system The government spent 1.2 billion rands. or 10.5 and, indeed, to apply the primary health care percent of its recurrent health expenditure. on non- approach. The government intends to integrate the hospital primary health services in 1992/93 (Chapter existing authorities into unified provincial and district 5). This was equivalent to 28.7 rands per person. The health authorities. Although this will save money in public sector also spent 2.5 billion rands on hospital the long run, the process of transition could be costly. outpatient departments. This study did not attempt It will require a substantial effort of training and to determine the proportion of hospital expenditure management support and, if authorities with differen t which was allocated to primary-level outpatient visits pay scales are integrated, the salary bill may increase or maternity care. significantly (Makan and Bachmann 1994). There were 72.8 million ambulatory visits to 7.3.2 Public primary care services in the nine government clinics and hospital outpatient provinces departments during 1992/93 (Table 7.3). According to the ReHMIS survey there are 3,141 The data for Northern Cape and KwaZulu-Natal general primary care clinics and 365 outpatient illustrate the problems in using simple indicators of departments in the public sector (Table 7.2). This is access to primary care. Northern Cape had the largest equivalent to 11.6 thousand people per facility (Table number of outpatient facilities relative to its population 7.3). However, in a number of cases, preventive and but it had less than one outpatient visit per capita. This curative care is provided at different clinics which are may be related to its extremely low population density located close together. Therefore this ratio overstates which means that many people have to travel a long the number oflocalities which have a facility. way to reach a clinic. KwaZulu-Natal, in contrast, had over 20 thousand people per facility at which there In addition to the fixed public facilities there are 343 were 2.4 outpatient visits per capita. It is possible that district surgeons (mainly part-time) and 1,053 mobile clinics which provide services to communities on a some facilities were overcrowded, but it is also possible weekly, monthly or six-weekly basis. Because district that KwaZulu-Natal has large community health surgeons provide a limited range of services and centres and that its hospital outpatient departments mobile clinics provide services episodically, they are see large numbers of patients. Provincial means do not included in the analysis of the availability of not provide much information on the degree to which facilities. There are also 2.825 maternity beds in public some areas are under-served. The data on differences sector clinics. between districts provide a better indication of this. Table 7.2 Provincial distribution of primary health care fadlities in 1992/93 I I Hospital District Mobile Maternity beds in Clinics OPDs surgeons clinics} clinics E.Cape 584 69 47 143 554 1 E. Tvl 209 24 39 158 149 Gauteng 460 88 27 228 252 KZ-N 367 52 45 24 637 N. Cape 124 32 13 69 84 N. Tvl 355 42 21 111 550 N. West 319 32 27 77 337 OFS 259 31 70 120 97 W.Cape 464 50 54 123 165 Total 3,141 365 343 1,053 2.825 } This refers to the number of vehicles and not the number of stopping points by mobile clinics. } The number of clinics in the Eastern Transvaal is slightly underestimated as data on KwaNdebele clinics (34 clinics) were not available in the ReHMIS database Source: ReHMIS survey 56 Table 7.3 AvaDability of public primary care services in the nine provinces in 1992/93 Population per outpatient facility Outpatient ('000) visits per capita E.Cape 10.2 1.2 E. Tv}! 12.5 1.1 Gauteng 13.9 2.5 KZ-N 20.4 2.4 N.Cape 4.9 0.9 N.TvI 12.9 1.2 N. West 9.8 1.9 OFS 9.7 0.8 W.Cape 7.0 2.4 Total 11.6 1.8 Data for the Eastern Transvaal are slightly underestimated as data on KwaNdebele clinics were not available in the ReHMIS database. This does not alter the results significantly. For example, if the 34 KwaNdebele clinics are included, the population per outpatient facility is approximately 12,000. Source: ReHMIS survey 7.4 SHORTFAll IN PUBUC PRIMARY CARE estimates that an additional 1,087 facilities would be SERVICES required to ensure that each pro~nce had one clinic per 10 thousand people. This section uses data from the ReHMIS survey to assess the coverage of public primary care ~rvices in The ReHMIS survey found that there were over 14 rich and poor magisterial districts. It uses the following thousand people per public sector facility (clinic and indicators of the availability of services: population per hospital outpatient department) in both Ql and Q2 outpatient facility, the number of outpatient visits per (Table 7.4). These districts are inhabited by the Mrican capita, population per health worker, and public sector poor. On the other hand, there were considerably health expenditure per person. The survey did not fewer than 10 thousand people per facility in Q3 and collect information on the effectiveness of preventive Q4 and only slightly more than that number in Q5. programmes or the quality of curative care. The m~or shortfall in primary care facilities was in The analysis focuses on the two poorest quintiles of QI and Q2, where an additional 626 clinics would be magisterial districts. Since the 19.7 million people who required in order to provide a facility for every 10 live there depend heavily on the public sector, the thousand people. It is difficult to assess the needs of ReHMIS survey provides a reasonable picture of the under-served communities in Q3. Q4 and Q5 on the population's access to basic health services. This is not basis of this data because their population received the case in the richer districts, where the lack of data much of their primary level care at large health centres on the private sector is more serious. and hospital outpatient departments (often with relatively sophisticated services) or from private The use of the district as the unit of analysis obscures practitioners. the problems of under-served communities living in richer areas (Chapter 2). The needs of these There are a number of weaknesses in this methodology communities can only be established through district for estimating the need for more facilities. In the first planning exercises. such as a recent one carried out place, a large hospital outpatient department. a in Soweto (Centre for Health Policy 1994). community health clinic with over 100 staffand a small rural clinic with 3 workers are all counted as a single 7.4.1 Availability of health facilities facility. A more useful measure of differences in the capacity of outpatient facilities is the concept of the This sub.section compares the population per public "functional unit", developed by the Council for sector health facility against a commonly used Scientific and IndustriaI Research. The ReHMIS survey benchmark of one facility per 10 thousand people. A was unable to collect sufficiently accurate information recent analysis of national data by Chetty (1994) on the number of consultation rooms in clinics and 57 outpatient departments to permit detailed analysis of sub-section uses the number of outpatient visits to the availability of functional units. public health facilities per capita as an indication of the accessibility of services. It compares utilisation A second problem is that the Department of Health is levels for 1992/93 with the target of 3.66 visits per reassessing the relative roles of hospital outpatient capita used by the Council for Industrial and Scientific departments, public sector clinics and private general Research in assessing the need for new facilities (Abbot practitioner practices in the provision of primary care services. The number of new facilities needed and the 1992). This ratio is an achievable target in Southern proportion of them that are public sector clinics will Africa. as illustrated by Botswana, where almost every depend a great deal on the decisions it makes with district reports at least 4 visits per year to public sector facilities per capita (Bloom and Lenneiye 1989). regard to this issue. For example, fewer new clinics will be required if more use is made of private The average of 1.8 outpatient visits to South Africa's practi tioners. public health facilities per capita is low (Table 7.4). The estimates also do not take into account factors One reason for this is the important role of private practitioners in the richer parts of the country. that will influence a district's need for new facilities However, there was only 1.0 visit per capita in QI and over the next few years such as the growth of its 1.4 visits per capita in Q2, where people depend largely population. the present duplication of facilities on the public sector. The total number of visits to providing preventive and curative cjU"e t'o the same public sector facilities would have to increase from 23.1 community, and the physical degradation of the million to 72.0 million, in order to reach the target of existing stock of clinics. 3.66 visits per person in these districts. This indicates On the basis of the available data, it is not possible to the inadequacy of their population's access to basic go beyond a crude estimate that between 600 and 1000 health services. According to Table 7.1, almost one additional primary level facilities are required. It is third ofvisits by poor households are to private doctors. possible that the real need is quite different and it will There is a need for more information on the reasons not be possible to estimate the requirements for why the poor use private doctors and on the impact of additional facilities accurately until detailed district high levels of medical care expenditure on poor planning exercises have been completed which assess households. the proportion of the population living within easy The RDP emphasises the need for pregnant women reach of a facility. An investment programme that is to have adequate health care. There are no national not based on such an exercise could result in the data on the number of women who attend antenatal construction of facilities which do not meet priority clinics sufficiently early and often during a pregnancy, needs. and who deliver in a health facility. Local studies suggest that many women attend clinics only once, late 7.4.2 Utilisation of public sector health facilities in their pregnancy. Surveys in the rural areas have found that between 31 and 66 percent of women give There are reasons, other than the lack of facilities. why birth at home (Klugman and Weiner 1992). Van den the population does not have adequate access to public Heever and Price (1994) estimate that rural facilities health services. These include staff shortages, would have to provide another 66.000 deliveries in inconvenient opening hours. poor service quality and order to raise the proportion of births in facilities to an inability to pay fees or transportation costs. This 80 percent. 'Iable 7.4 AvaUabWty of public primary care services in magisterial districts sorted by income per capita in 1992/98 Quintiles of Population per Outpatient districts sorted by PHC facility visits per income per capita ('000) capita Q1 (lowest income) 14.7 1.0 Q2 14.6 1.4 Q3 8.3 1.8 Q4 6.1 2.0 Q5 (highest income) 11.4 2.6 Total 11.6 1.8 Source: ReHMJS survey 58 Table 7.5 PubHc sector health expenditure in 1992/93 in magisterial districts sorted by income per capita Quintiles of Total. public health Clinic expenditure districts sorted by expenditure per capita per capital income per capita (rands) (rands) Ql (lowest income) 122 21.1 '. Q2 175 21.4 Q3 213 25.3 Q4 212 21.7 Q5 (highest income) 437 26.2 Total. 263 23.4 Spending on clinics by ex-homelands was estimated using the methodology described in Appendix B. Source: ReHMIS survey 7.4.3 Availability of pubHc sector health workers health services of the low levels of expenditure by estimating the cost of providing 3.66 outpatient visits There are great differences between regions in the per capita. If, as van den Heever and Price (1994) number of public sector health workers per 100,000 suggest. a visit to a rural facility costs 20 rands, it would population (Table 5.6). The ReHMIS survey found a cost over 70 rands per person per annum to finance national average of 14.1 general doctors per 100,000 basic outpatient services in rural areas. However, population, but in Ql therewereonly5.1. There were according to Thble 7.6, total. public health expenditure also fewer registered and other nurses relative to the was between 50 and 100 rands per person in 20 of the population in the poorer districts. The numbers of 150 poorest districts (which include some of the ex- health inspectors (1.1) and pharmacists (0.5) per homelands) and under 50 rands per person in a 100,000 were particularly low in Ql. These professions further 46. This strongly indicates that spending will play key roles in the provision of primary level health have to rise in order to provide universal access to services. outpatient services. 7.4.4 PubHc sector health spending 7.4.5 Environmental health services Public sector health expenditure is lower in the poorer The Project for Statistics on Living Standards and districts, averaging 122 rands in Ql and 175 rands in Development (1994) found that a substantial number Q2. compared with 437 rands in Q5 (Table 7.5). of households do not have access to clean water or Spending on clinics is also lower in Ql and Q2 than in adequate disposal of human wastes. This exposes them the other quintiles. Since large numbers of people in to a considerable risk of illness. In the rural areas 22.6 the richer districts do not use pu blic sector clinics. this percent of Mrican households live more that 500 metres from a source of water and 25.4 percent do suggests that average spending on clinic services per not have a flush toilet, bucket toilet or a pit latrine. public patient is considerably higher in the richer There are only I.l health inspectors per 100,000 in districts. Ql, which indicates the size of the shortfall in the One can get an idea of the consequences for access to environmental. health services in the poor rural areas. Table 7.6 Average spending per person during 1992/93 on pubHc sector health services in the poorest 150 magisterial districts Spending per person Number of Population (rands) districts (million) <50 46 4.7 50-100 20 2.5 100-150 41 5.8 150-200 15 2.6 200+ 28 4.1 Source: ReHMIS survey 59 The same study also found problems in the urban areas • provision of full coverage by child health and where the percentage of Mrican households without maternity services; a flush toilet, bucket toilet or pit latrine is 28.8 in the • running an additional 1,060 clinics; smaller centres and 10.1 in metropolitan areas. • extending emergency services to all areas; 7.5 THEADDmONAL COST OF PROVIDING • immunising the population against Hepatitis B and ESSENTIAL PRIMARY CARE SERVICES strengthening the AIDS and men tal health The RDP commits the government to address the programme; and priority health needs of the population through the • improving rural health services through in-service extension of primary care services. It is difficult to training and providing salary increments. calculate how much it will cost to achieve this goal; firstly because there is not enough information Van den Heever and Price (1994) argue that 1.5 billion available on existing services. and secondly because rands is an under-estimate of the necessary increase there is no nationally accepted model for organising in recurrent spending because their calculations do primary care. This section summarises the available not take into account the need to provide services, estimates of the increases in expenditure on primary other than those identified in the RDP, such as: level services which will probably be necessary over "expanding access for adults, treatment of sexually the next few years. transmitted diseases. detection of TB, reduction of deafness through treatmen t of ear infections and... [so The number of clinics is a major determinant of the forth] ". They also do not include environmental cost of primary care. Van den Reever and Price (1994) services. On the other hand. they caution that there estimate that if an additional 1,060 facilities are may be some double counting, since the running cost required, as estimated by Chetty (1994), the capital of the new facilities will include the cost of child health cost would be 1.2 billion rands and the additional and maternity services. They also use another method annual recurrent cost would be 536 million rands, at for estimating future expenditure requirements. 1994 prices. This is a rough estimate, based on arbitrary Assuming that public per capita health care assumptions that the ne:w facilities will include a expenditure as a percentage of per capita GDP should mixture of small and relatively large facilities. If all of be 5 percent in a developing country. they estimate the clinics are the type which the IDT proposes for a that an additional 2.6 billion rands is required. population of 10,000 people, the total cost would be 400 million rands. The problems with the estimate of An unpublished paper by Zwarenstein et al (1994) the number of clinics required were discussed above. defines a package of basic health services and uses unit costs derived from published studies to estimate the A second method for estimating the additional services cost of providing the package of services to everyone required is to calculate the shortfall in outpatient visits who is not a member of a medical aid scheme. The below the target of 3.66 per capita. According to authors estimate that 4.6 billion rands would be section 7.4.2, an additional 48.9 million visits would required, at 1993 prices. Of this total, 1 billion will be required in Ql and Q2. If a visit costs 20 rands, the come from the current primary care budget and a increase in spending would be 1 billion rands. This substantial amount could be derived from the budgets methodology may overestimate the cost of increasing of hospital outpatient departments. It is difficult to the delivery of services, since it may not be necessary estimate how much additional finance will be required to increase operating costs in proportion to the to fmance the full package adequately. increase in activity. In addition, it does not take into account the role of private doctors in poor areas. This Finally, Beattie and van den Reever (1995) estimate methodology does not include the cost of meeting the that the recurrent cost of funding the gap in public needs of under-served populations in the richer sector primary care services is at least 2.7 billion rands districts, which cannot be estimated using district-level {1992/93 prices). This estimate is based on detailed data. costing of services at a number of primary care facilities in South Mrica. These costs were applied to the The above estimates are based on simple measures of estimated population dependent on public sector the availability of facilities and the number of health services (i.e. excluding both medical scheme outpatient visits. They do not take into account the need to strengthen preventive programmes and members and those using private sector services on a environmental services and improve the quality of cash basis). The target of an average of 3.5 primary care. Estimates which look at primary care packages care visits per person per annum was assumed in their in more detail are described below. calculations. A recent paper by van den Reever and Price (1994) The different measures of the additional resources estimated that the annual public sector recurrent required to meet priority needs for primary care health budget would have to increase by 1.5 billion services vary because they are based on different rands over the next five years in order to meet the assumptions. A comparison between them raises the following RDP service delivery targets: following policy issues. 60 There is a need to define the contents of the package departments. of essential services. This should be based on a rational Discussions about essential primary care services refer framework which assesses the cost-effectiveness of the principally to the services required to decrease the potential components of an essential service package. excess burden of sickness and premature deaths & Box 7.2 illustrates, the facilities in theJohannesburg among poor households (Chapter 2). Low and middle area, in which some of the major costing studies have income earners are unlikely to be satisfied with. a been carried out, provide a wide range of services, even package of basic services. They already make if some of them are deficient. It is not clear whether it considerable use of private doctors, many of them is realistic to aim to provide this range to the entire through their membership of a work-related medical country within five years. scheme. It is unlikely that it will be possible to finance Existing services are expensive. One of the major access to this kind of service out of the existing health sources of data on unit costs is the study by Broomberg budget and alternative financing mechanisms need to et al (1992) of Diepkloof Clinic in Soweto. They be identified. Two possibilities are an extension of estimated the average cost per visit (including the cost medical schemes similar to those organised by of diagnostic tests and drugs) to be 34 rands in 1990, industrial councils or the establishment of a social which is equivalent to 49 rands at 1993 prices. The health insurance scheme (Chapter 4). The authors found evidence of substantial inefficiencies, Department of Health has established a committee to such as health workers who only saw patients during assess the feasibility of the latter option. Whatever the the morning. It is possible that a package of basic findings of that committee, it is important that the services could be provided at a lower cost than in the needs of the poor for basic health services are given estimates by Zwarenstein et al. More work is needed to top priority in the allocation of resources and of scarce develop models of service delivery appropriate to the management skills over the next few years. poorer parts of the country. High income earners depend mainly on the private It is instructive to compare the estimates of the cost of sector for primary care services and the major issue of primary care services in South Afiica with those made public policy with regard to this group is the financial in other countries in Afiica. The World Bank (1994) crisis of the medical aid schemes which was discussed estimates that a package of basic primary level and in Chapter 4. (community) hospital services in low income countries Although more information is needed in order to in Afiica should cost approximately US$13 per person calculate the cost of providing universal access to and US$16 in higher income countries, such as primary care services, it is possible to provide a rough Zimbabwe. This is considerably below the 70 rands estimate of the additional resources required. It has (US$23) estimate in sub-section 7.4.4 of the cost of been estimated that it will cost 1 billion rands to meet 3.66 outpatient visits a year. It is necessary to be very minimum service delivery targets in the poorest 150 cautious in making this kind of comparison. The World districts, and it has also been estimated that it will cost Bank (1994) points out that the principal reasons for 1.5 billion rands to meet RDP programme targets. The differences in costs between countries are salary levels first estimate does not take into account the quality of (in US dollars) and provision of housing for staff. services or the existence of unmet needs in the richer Another difference, in the case of South Mrica, is districts, and the second estimate does not take into probably the sophistication and breadth of the services account the health service needs of adults. Neither provided. None the less, the co-existence of relatively estimate takes into account the effect of population high levels of expenditure and the delivery of an growth or the transitional costs of the reorganisation inadequate volume of services highlights the need for of primary care services. These estimates suggest that more work to define the appropriate basic health recurrent spending on non-hospital primary level services to be provided and their cost. services will have to increase by at least 1.5 billion It is difficult to estimate how much additional rands, and possibly by as much as 2.5 billion rands, in expenditure primary care services will require. In the order to meet priority health needs. This will have to poorer districts of Ql and Q2 public sector be funded out of savings on other public health expendi ture will have to increase substantially in order services, an increase in public health finance, or a to provide the population with a package of essential combination of the two. primary care services. This will not be the case in the richer districts where hospital outpatient departments 7.6 POTENTIAL FOR LIMITING TIlE are important providers of ambulatory care and where ADDmONAL COST OF PROVIDING many low to middle income earners consult private ESSENTIAL PRIMARY CARE SERVICES practitioners. The rich areas will have to spend more on primary care in the poorer communities and over 7.6.1 Potential savings on ambulatory care time they will also have to move primary care services into community clinics. However, they should be. able The government spent at least 3.6 billion rands on to fmance much of the additional costs of clinic-based ambulatory care during 1992/93 (Table 7.7). Half of services out of savings by the hospital outpatient this was spent by the outpatient departments of the 61 Table 7.7 Outpatient visits and their cost at government facilities Total visits Total cost Cost per visit (million) (Rmillion) (R) Non-clinic primary visits l 7.4 not available not available Clinics2 31.7 951.1 30.0 Community hospitals! 9.0 498.5 55.4 Secondary hospitals! 7.0 398.2 56.9 Tertiary hospitals! 5.8 441.5 75.5 Teaching hospitals! 11.5 1.374.3 119.8 Chronic care hospitals! 0.4 13.1 33.0 Totals 72.8 3,676.7+ Primary care visits not at clinics (e.g. visits to district surgeons) 2 Costs directly attributable to clinics but not other costs for preventive programmes and administrative support 3 Estimated on the assumption that an outpatient visit is one third the cost of an inpatient day Source: ReHMIS data base tertiary and academic hospitals. The average cost of a ReHMIS data that the cost per visit was 75.5 rands at visit to an academic hospital was more than four times tertiary hospitals and 119.8 rands at academic as high as a visit to a clinic. This expense may have hospitals. Fees constituted a smaller proportion of the been justified for patients referred for a specialist cost of the most expensive outpatient departments. consultation. However. a large percentage of patients This enabled patients to ignore cost when deciding at these facilities could have been treated at a clinic. It where to seek health care. may be possible to release resources for more cost- Primary care clinics collected only 7 percent of their effective services in the future by closing outpatient departments in academic and tertiary hospitals to total expenditure in fees in 1992/93. This is not surprising since most visits were to nurses for which unreferred patients. or by requiring these patients to pay the full cost of their care. However. it will be the charge has varied between 2 and 4 rands in recent necessary to provide adequate ambulatory care. in years. Furthermore these facilities had little incentive clinics or with private doctors. as an alternative. to collect fees. since they did not retain any of the money. The administrative costs of fee collection are The studyofDiepkloofClinic cited above. and the data also high in terms of nurses' time. management of the presented in Chapter 6. suggest that there is money. accounting and auditing requirements and considerable potential for decreasing the cost of investigations into losses. providing ambulatory care. This issue requires additional study as part of a wider effort to develop There is limited scope for increasing revenue cost-effective primary care. Support will need to be generation by clinics in poor areas without creating given to pilot schemes to test different models for the problems of access for the poor. A recent household organisation of these services. survey found that almost a fifth of its sample had been refused medical treatment because they could not 7.6.2 User charges for primary health care afford to pay and a similar number had not bought services prescribed medicines because they could not afford them {CASE 1994). A preliminary anaIysis of data from Patients are expected to pay for primary care services the survey by the Project for Statistics on Living unless they qualify for exemption (Boxes 5.2 and 5.3). Standards and Development (1994) confirms that The schedule of fees presented in Table 7.8 was used charges for health care already constitute a financial by facilities in most areas except the ex-homelands in burden for poor families. Members of the poorest 40 1994/95. percent of households reported lower levels of sickness Fees do not cover the full cost of services at many during the previous 2 weeks than members of richer facilities. even for private patients. For example. the households. Nonetheless. during over a fifth of illness study by Broomberg et al (1992a) found that the cost episodes they did not consult a health worker. and in per clinic visit in Diepkloof was approximately 49 over 60 percent of cases that was because fees and/or rands. in 1993 prices. and it is estimated from the transportation were too expensive. 62 Table 7.8 Fees for primary health care services in government facilities in 1994/95 Annual family income Service RO-R20,OOO R20,OOl-R29,OOO R29,OOI-R.39,OOO >R39,OOO or member of medical aid Clinic seen by doctor 4 4 4 31 seen by nurse 2 2 2 31 mobile clinic 0 0 0 31 Hospital OPD community hospital 8 16 24 31 tertiary or academic hospital 13 26 39 51 Laboratory and diagnostic (per request) and pharmaceuticals (per prescription) community hospital 0 0 0 31 tertiary or academic hospital 0 0 0 51 Source: Mdntyre (199401) Early in 1994 the government decided to exempt out of the cities by offering them a new kind of children and pregnant women who are not members contract. of medical aid schemes from charges at public facilities. Several proposals have been made for greater The impact of these changes on utilisation of health utilisation of general practitioners by the public sector. services needs to be assessed. This will provide The most common suggestion is that some form of important information on the degree to which fees insurance scheme be established which would pay constitute a barrier to access to care. doctors on a capitation basis and encourage them to There is greater scope for increased revenue make greater use of nurses and other para-medical generation from primary care services in the richer personneL The medical benefit and industrial council districts. It would be possible to charge higher fees for or "exempted" schemes have already established unreferred patients attending outpatient departments models for the organisation of primary level care. The of tertiary and academic hospitals. This would have to data on these new organisational forms should be be linked to a strengthening of the network of clinics. studied when options for meeting the health service It might also be possible to charge more for clinic visits, requirements of low to middle income earners are since facilities in the metropolitan centres tend to be being assessed. more sophisticated than those in the rural areas. However, measures would have to be taken to ensure 7.8 INVESTMENT IN PRIMARY CARE access by the poor either by charging lower fees in FACILlTIES facilities in poor communities or by establishing an effective exemption scheme. The review of capital expenditure carried out by Deloitte Be Touche (1994a) identified at least four 7.7 POTENTIAL ROLES FOR PRIVATE SEcrOR agencies involved in clinic construction: a small unit PROVIDERS iJ.l the Chief Directorate of Primary Health Care of the national Department of Health responsible for the The public sector has contracts with 343 district establishment of clinics funded by the Central surgeons. Serious questions have been raised about Economic Advisory Service (CEAS); the Independent the cost-effectiveness of the services they provide. Development Trust (IDT); the provinces; and the local Additional research is required to determine how authorities. At the time their report was completed future contracting arrangements with private total commitments for the construction or upgrading practitioners could be made to work better. This is of primary care facilities amounted to 193 million particularly important because one option for rapidly rands. It is not clear how many of these facilities have increasing the availability of doctors in under-served been subsequently completed. Since the above report areas might be to attract young private practitioners was completed, the RDP has allocated additional funds 63 for clinic construction. Once a clinic has been completed the cost of running it becomes the responsibility of the government health The report by Deloitte and Touch (1994a) underlines service. Deloitte & Touche (1994a) did not find a number of problems in the planning of clinic evidence that this is taken into account in planning building which lead to doubts that facilities are always future budgets. In fact, a recent study by McIntyre and sited in the areas of greatest need. This is indicated by Strachan (1993) found that, in recent years, some Table 7.9, which breaks down by province the authorities responsible for administering newly commitments for clinic construction made by IDT in completed clinics had received real decreases in their 1993 and CEAS in 1991. Because the two programmes government subsidy. If the investment programme is were defined in different years, the amounts are not substantially expanded without taking into account the directly comparable. The largest commitments were need to fund the operating costs of the new facilities, made to the Eastern Cape, KwaZulu-Natal and the there is a danger that clinics will not be able to function Northern Transvaal, each of which has fewer than the effectively and that they will quickly become run down. target of 1 clinic per 10 thousand people. However, a This has happened in a number of countries. relatively low proportion of funds was committed to A more systematic approach is needed for planning Eastern Transvaal, in spite of the fact that it was the investment in clinic construction: fourth worst region in terms of the population/ clinic ratio. Deloitte &: Touche (1994a) report finding no • districts need to evaluate their population's access evaluations of the siting of clinics within provinces. to facilities (they may wish to make use ofReHMIS to draw maps which show the proportion of the Both the IDT and the CEAS depend on requests from population within a defined distance of a health communities to identify clinic building projects. The facility); . danger with such a "demand driven" strategy is that it • the need for new facilities should be defined on rewards areas with strong local leaders, but may not the basis of the findings on access to services and channel funds to the most needy communities. The on a physical evaluation of the existing facilities. pressure to commit funds rapidly means that the and sites should be graded in order of priority; central management has little time to evaluate proposals and assess priorities. There is often little • the capital costs of the proposed building opportunity for proper consultation with communities programme should be estimated; and and between authorities concerning priorities. These • the cost of running and maintaining the new and problems need to be addressed. in the design of the existing facilities should be estimated and a strategy RDP investment programme. Otherwise there is a formulated to ensure that these funds are made danger that it will not meet priority needs. available. Table 7.9 Inter-provindal distribution of IDT and CEAS commitments for primary care infrastructure development 1992/93) I IDT clinics and visiting points' (1993) CEAS clinics (1991) Province (rands) (%) (rands) (%) Eastern Cape 7,123,600 17.1 6,062,325 15.6 Eastern Transvaal 4,554,000 10.9 719,292 1.9 Gauteng 0 0.0 9,086,700 23.5 KwaZulu-Natal 7,404.870 17.7 5,414,061 14.0 Northern Cape 0 0.0 611,742 1.6 Northern Transvaal 16,581,235 39.7 268,441 0.7 North-West 4,048,000 9.7 2,110,840 5.5 Orange Free State 0 0.0 7,565,015 19.5 Western Cape 2,015,750 4.8 6,905,843 17.8 Total 41,727,455 100 38.744.259 100 1 ... The IDT is building a number of small structures which can be used as Vlsltmg pomts for mobde clImcs or teams of health personnel Source: Deloitte & Touche (1994a) 64 The building programme needs to be included in a broader plan for the development of a district's primary care services. 7.9 SUMMARY AND CONCLUSIONS The most cost-effective approach for decreasing the burden of excess sickness and premature death in South Africa is to provide access to effective preventive programmes and basic curative care to everyone who needs it. The ReHMIS data demonstrate that public sector health services lack facilities. personnel and fmandal resources in the poorer districts. One sign of the lack of access to basic services is the small average number of outpatient contacts per person at public health facilities in poor areas, which are inhabited mainly by Africans. The district level data provide less information on under-served communities in the richer parts of the country. The Government has set a number of targets for the provision of basic services in its Reconstruction and Development Programme. In order to meet these targets it will probably be necessary to increase recurrent expenditure on non-hospital primary care services by between 1.5 and 2.5 billion rands a year within five years. This gap will have to be financed out of a combination of savings on other health services and generation of additional resources for the health sector. Additional money. on its own. will not lead to great improvements in health unless measures are taken to ensure that it is spent on services which address priority health needs. Provinces and districts will have to formulate and implement strategies for strengthening their primary care services which include: the construction and operation of facilities in under-served areas; measures to strengthen basic services; measures to improve resource use by decreasing dependence on expensive hospitals; and proposals to make better use of private providers. It will then be necessary to support a sustained effort to implement these strategies. 65 CHAPTERS THE WAY FORWARD There is general agreement on the need to provide people have invested so much time and effort to ensure South Africa's population with access to a package of that it reflects reality as clearly as possible within the essential services which include a number of constraints of data availability. preventive programmes and both outpatient and It is impossible to predict the impact of different policy inpatient care. In order to meet this target. health decisions. That is why it is essential that strategies are services will have to expand in areas which were continually re-assessed on the basis of experience. This previously under-served. This will have to take place report should be regarded as the first of a series of during a period of tight public expenditure studies in support of the process of structural change. constrain ts. There is general consensus that a strategy for achieving this will include measures to: • develop effective and affordable primary care services; • ensure a more equitable distribution of public sector health finance between provinces and between localities within .each province; • reduce the share of the public health budget spent on tertiary and academic hospitals (by reducing expenditure and/or increasing revenue generation): • improve the efficiency of public health services without reducing the quality of care; and • make resources currently located in the private sector accessible to a greater proportion of the population. The next step is for provinces to formulate strategies for achieving these objectives. The provincial strategies will have to be based on an analysis of the existing situation, identification of constraints to change. and an assessment of the options for overcoming these constraints. One purpose of this report is to highlight the questions which the provincial teams will have to address. The major focus of this report is on the public sector. This is partly because it concentrates on the problems of the poor, who largely depend upon public health services. It is also because much less information is available on the private sector. The review which the Committee of Inquiry into a National Health Insurance System is presently making of the potential role of the private sector in the provision of primary care will make up this deficiency to some extent. The restructuring of a sector which represents over one-twelfth of the economy is a m:yor undertaking. It must involve the active and informed participation of the major stakeholders. That is the reason why this report was commissioned and it explains why so many 67 - - - - - - - - - APPENDIX A - - - - - - - - METHODOLOGICAL· DETAILS A.l PUBIJC SECfOR EXPENDITURE REVIEW treatment area information; etc.); A large proportion of the data used to determine • A very detailed breakdown of clinical, public sector health care expenditure was derived from administrative, and support staff; the Regional Health Management Information System • Details of equipmen t; (ReHMIS) . Certain gaps in this data set were identified and filled from other data sources. • Information on service provision (e.g. number of admissions, in-patient days, and outpatient visits for A.l.l The ReHMIS database and its analysis a variety of services; promotive and preventive services such as number of immunisations; patient ReHMIS was developed by Dr Kobus Herbst of the transport, etc.); Department of Community Health at MEDUNSA • Details of referrals to other hospitals; and (Medical University of South Africa) in 1991. It was designed in consuJtation with public sector health care • Financial data including capital and recurrent managers in what is now known as the Northern expenditure, and patient fee and other income. Transvaal province, and has been implemented on a Different data collection forms were used for hospitals, national basis. The primary purpose of ReHMIS is to clinics, offices and outreach services. In addition to provide information on the distribution of health the numerical data provided by ReHMIS, a facilities in a geographical region, thereby providing geographical information system (called Mapinfo) is a basis for evaluation of the adequacy of health service used to present ReHMIS data spatially. provision and planning of structural changes in the provision of health services. It is potentially an The collection and computerisation of ReHMIS data important input to the development of provincial was only completed once the drafting of the Health health plans. Expenditure Review (HER) reporthad begun. At that time, no data validation had been undertaken. The ReHMIS includes data on each public sector health HER drafting team therefore initiated a limited data care facility in South Africa. A list of all local authority validation process. Each of the former provincial clinics was obtained from the former Department of administrations and homelands was requested to National Health and Population Development (now provide information from head office records on known as the Department of Health). Every local certain key data fields including total expenditure, bed authority is required to provide such a list in order to numbers and workload statistics per facility. In obtain a subsidy towards recurrent costs. Each former addition, comprehensiveness and accuracy of the provincial administration health department was database were checked against two other recently requested to provide a list of all hospitals and curative compiled databases, namely a facility (hospitals, bed primary care facilities under its jurisdiction. This numbers and clinics) database compiled by Dr Kamy . included both hospitals that are fully funded by Chetty of the University of Cape Town's Department provincial administrations and those that are partially of Community Health, and a database of all health subsidised, such as province-aided hospitals. This perSonnel in South Mrica compiled by Bupendra information was crosschecked with the Hospital and Makan of the UniverSity of Cape Town's Health Nursing Year Book (Engelhardt 1994). In the former Economics Unit. Where discrepancies in the data were homelands, details of all health wards were obtained. identified, a research assistant contacted the relevant The chief administrator in each of the health wards facility to determine the reason for the disparity and was requested to compile a list of hospitals and clinics. where necessary collected revised information for key In addition, details of mobile services were obtained. data fields relevant to the HER Each facility in the former provinces was visited by The ReHMIS database was assessed to be health personnel who had been trained to collect comprehensive in that comparisons with other sources information for the ReHMIS database. In the former indicated that the vast m.yority of public sector health homelands, the "mother" hospital in each health ward facilities were included in the original data base. In was visited as it retains information for its satellite those instances where data had not been collected clinics. The following information was collected: directly from the facility, data obtained from the relevant head office was included. • Information on functional units (including: acute, obstetric, delivery, chronic, and intensive care bed The major omission in the ReHMIS database relates numbers; operating, dispensing, examination, an~ to clinics in KwaNdebele. Total health care 69 expenditure in KwaNdebele was obtained from other hospitals and primary care facilities to conduct the sources and included in the analysis presented in this analyses presented in Chapters 6 and 7. A more report. However. clinic-specific data could not be detailed description of the methodology appears in included in this report. Thus. primary care AppendixB. expenditure. population to clinic ratios and personnel To analyse the distribution of resources between levels figures in the Eastern Transvaa1 (the province into of care, an algorithm was developed with which to which KwaNdebele has been incorporated) are slightly categorise facilities into clinics and various types of understated in this report. This is footnoted in all hospitals (see Figure A.l). The classification of relevant tables in the body of the report. hospitals differed somewhat from that previously used The comparison of ReHMIS personnel data with the by the Department of Health (1984). which only Makan database indicated that there was a relative differentiated between three categories of hospitals. undercount of total public sector health personnel in namely academic, regional and community hospitals. ReHMIS. However. these discrepancies were not According to their definition. academic hospitals are significant in relation to the key clinical personnel large, highly specialised hospitals where the training analysed in this HER report. of doctors and other paramedical staff occurs, which is similar to the definition used in this report. Regional There were discrepancies between facility collected hospitals refer to large hospitals which offer at least data and that provided by the respective head offices the four basic specialist services. The Department of in relation to bed numbers and expenditure. Bed Health specified that community hospitals should not number disparities were largely attributable to three exceed 350 beds and only provide general practitioner factors. Firstly, there was some confusion between care. This is similar to the meaning given to community ''au thorised" beds (original number designed for that hospital in this report, but no limit on bed numbers hospital) and "active" beds (beds currently available has been specified. For the purposes of this report, it for inpatient care) . Secondly. some head office records was felt that there needed to be an additional category excluded bassinets whereas the ReHMIS database of hospitals. namely secondary hospitals, to represent included these in the bed count. Thirdly. data prm1ded those hospitals which tend to be larger than by the head offices was for the year 1992/93. while community hospitals and have some specialist facility provided data reflected the current situation. personnel and services. The term regional hospital is Disparities therefore frequently related to actual not used in this report; it is replaced by the term changes since 1992/93. All these factors could be tertiary hospital, and is applied to hospitals with the clarified by interviewing administrators at the various four basic specialities and some higher specialities. facilities. It was decided that. facility-provided data should be used in the HER analysis as they were the It was necessary to build additional checks into the best indicator of current bed availability. algorithm to ensure correct classification of facilities due to certain anomalies. For example, with the recent With regard to disparities in expenditure data. many budgetary cuts, many posts are "frozen" when a staff facilities prmided information in terms of the most member resigns. Therefore. at the point of data recent year for which they had financial statistics. In collection, certain tertiary hospitals may not have had this instance it was decided to use data provided by all posts for the four basic specialities filled and would the respective head offices to ensure that expenditure not have been classified as tertiary. It was therefore was consistently expressed in terms of the 1992/93 presumed that if more than one of the higher financial year. specialities were present in the hospital. it could be There were two specific difficulties with expenditure assumed that it was a tertiary hospital. Similar data collected in the former homelands areas. Firstly. assumptions in relation to the presence of basic Transkei was unable to provide any facility-specific specialities and intensive care facilities were made for expenditure information as separate budgets were not the classification of secondary hospitals. allocated to each facility but controlled centrally. As Although the medical school at the University of the personnel account for the majority of health sector Transkei trains relatively few medical students at expenditure, personnel numbers at each facility were present, and the facilities available at Umtata hospital used to estimate the relative distribution of (the teaChing hospital associated with this medical expenditure. Secondly. health services in the former school) differ to those available at most other academic homelands are structured in terms of "health wards" hospitals in South Africa, Umtata hospital has been which consist of a hospital and satellite clinics. Once included in the "academic hospital" category in this again. heal th ward expenditure was allocated between report. the hospital and clinics in terms of personnel numbers at the respective facilities. These estimation procedures The data on primary care services are particularly are unlikely to affect the HER analysis significantly as difficult to interpret. The methodologies employed are most data are presented in aggregated form. It was described in Appendix B. necessary to undertake this modelling in order to Audits were performed on the ReHMIS database to estimate the distribution of expenditure between determine the proportion of facilities where data had 70 Figure A.1, ReHMIS Facility Classification Algorithm V2.1 SUperIor oll\ce PHC DIatrtct B••lc .pecIaIltIes: Physician Surgeon PaedIatrIdan ~mmd~&~~ Higher .peclall.... can:llo-lhoraclc surg ..... -.. -. - Tertiary Hospital Dermatologist Neurologist f - - - - - - - - t o ( Presumed Tertiary Hospital OpIhaImoIogIst ENT PaedialriC surg Secondary Hospital UrologIst 1---------llfPresumed Secondary HospItal Type C Community Hosp Type B Community Hosp Type A Community Hosp PHC MatsmII.y PHCMobi1e PHC Cli'IIc PHC01her not been obtained for specific data fields of expenditure figures had to be estimated drawing on a importance to the HER analysis. It was found that range of different sources. Sensitivity analyses were relatively complete data had been obtained in most performed to evaluate the variability of the estimates instances (i.e. in the key data fields, 100 percent of with changed assumptions, and the final estimates used facilities had provided the information requested) with in the analysis were regarded as erring on the a few exceptions. Data for chronic hospitals were poor conservative side. in terms of the recording of certain data fields (doctors Certain expenditure in the private health sector could and examination units), incomplete data were not be estimated within the time frame of this project. available for emergency (i.e. ambulance) services, and For example, out-of-pocket payments to non-general in most categories of hospitals, less than 80 percent practitioner health service providers (such as specialist had provided information on patient fee revenue. medical practitioners, den tal prac ti tioners, These factors were taken into account in the HER psychologists, homeopaths and chiropractors) were analYSis wherever possible: for example, when not included. The total estimated expenditure in the calculating fee revenue as a proportion of recurrent private sector should therefore be regarded as still expenditure, all hospitals which did not have both sets being an underestimate of the true situation. of data were excluded. In addition, a few hospitals classified as community hospitals according to the HER A.5 OTHER DATA algorithm did not provide complete workload data (i.e. either admissions, inpatient days and/or outpatient The most recent population data which has been visits). Again, these hospitals were not included in the adjusted for undercounts in the official census, is that calculation of average patient day costs. provided by the Development Bank of Southem Africa In summary, there remain some deficiencies in the (1994) . This was obtained on a magisterial district basis ReHMIS database. However, it is the most to enable analysis of the distribution of health care comprehensive single database of public sector health resources relative to the population served in each care facilities available at present, and the preliminary district. validation team were unable to detect major Consumer Price Index (CPI) data was obtained from inconsistencies in data fields of relevance to the HER the Central Statistical Service (1993a) while Gross that would alter the conclusions drawn in this report. Domestic Product (GDP) data was obtained from the With more extensive data validation this database will South African Reserve Bank (1991 and 1993). undoubtedly be a valuable resource in the development of detailed health plans at a provincial Mortality data was provided in an analysed form by level. David Bourne of the University of Cape Town's Department of Community Health. He has developed A. 1.2 Other public sector data collection and an extensive database of mortality in South Africa, by ana1ysis magisterial district, based on death registration information provided by the Central Statistical Service. As indicated above, there were certain gaps in the It is known that there is significant under- and milo ReHMIS database (such as expenditure on health reporting of deaths at present, particularly in rural related research and training activities) which were areas and among the African population. filled through commissioned research. The detailed Consequently, most of the previous analysis of mortality methodology for each research project is described in and other health indicators in South Africa has focused the respective technical reports published under the on the "non-African" section of the population. The auspices of the HER (Doherty 1994; Deloitte and indicator of poor health status which appears most Touche 1994a and 1994b; Kistnasamy and Herbst 1994; stable to these biases is the percentage of deaths, for Blecher and McIntyre 1994; Bunting 1994; Price and each geographical area, due to Infectious diseases Broekmann 1994). The drafting team requested that combined with those ascribed to iIl-defined causes. each of these technical reports undergo peer review. Hence it is this indicator which is used to analyse the Major criticisms of these reports arising from the peer relationship between the distribution of health care review process are noted in the body of this reporL resources and health status in this report. A.2 PRIVATE SECTOR EXPENDITURE REVIEW Methodological details of the private sector health expenditure review are documented extensively in the relevant HER technical report (Valentine and McIntyre 1994). Very few data on private sector health care expenditure are routinely collected and there are difficulties in obtaining access to information from primary sources due to its competitive value. Therefore, certain 72 - - - - - - - - APPENDIX B METHODOLOGY FOR THE CALCULATION OF NATIONAL EXPENDITURE ON NON-HOSPITAL PRIMARY CARE B.l INTRODUCTION Services Councils (RSCs) which provide primary care services (that is, the RSCs of the Western Cape. It is particularly difficult to estimate expenditure on Orange Free State and Natal) was divided between primary care in South Africa because of the number districts in proportion to the expenditure by the of authorities involved in the delivery of primary care. RSC on clinics in each district. Several of these authorities are also responsible for other services but do not account for these services • Total expenditure by regional offices of the separately. An important example is the ex-homelands. Department of National Health and Population where budgets are generally available for the health Development was divided between districts in ward as a whole and are not broken down into proportion to the expenditure on clinics in each expenditure on the hospital. clinics and ambulance district. services within the ward. The clinic and other costs allocated to each district The methodology described below applies a number were totalled to achieve an estimate of total of assumptions to the available data on expenditure expenditure on non-hospital primary care in each in order to provide a best estimate of expenditure on district outside the homelands. non-hospital primary care by district or ex-homeland health ward. It is not possible to estimate expenditure B.! THE ALLOCATION OF PRIMARY CARE on primary care within hospitals (such as outpatient COSTS INSIDE THE HOMELANDS' and uncomplicated obstetric care) without special Most homelands allocate a budget to each health ward. studies. This budget is used to provide all the health care in the ward and the different services are not accounted B.2 THE AlLOCATION OF PRIMARY CARE for separately. The process followed to estimate COSTS OUTSIDE THE HOMELANDSI primary care expenditure in each ward was as follows: Budgets for individual clinics were readily available. • Expenditure on ambulance services was first and did not need to be manipulated. Administrative deducted from the ward budget. As the real cost of costs, and the costs ofvertical programmes (including ambulance services is generally not known. the environmental health services) which are not based running cost per functional ambulance was derived at clinics, were seldom available by district. The from a study in the homeland KaNgwane and following process was followed in adding these costs expressed in 1993 prices (Price 1994). For each to estimates of primary care expenditure: health ward this cost was multiplied by the number of functional ambulances in that ward. The total • The total expenditure by each local authority office was divided between districts in proportion to the cost of ambulances was then deducted from the expenditure by the local authority on clinics in each total budget of each health ward. district. • The remaining ward expenditure was then divided between clinic and hospital care by means of a • Expenditure by offices of the former provinces was formula which combined information from the allocated to each district in the following fashion: KaNgwane study and another study in the Ciskei the total expenditure by each regional office was (Broomberg It alI994). This formula assumes that divided between districts in proportion to the the pro}>9rtion of nursing personnel (excluding provincial expenditure on clinics in each district; student nurses) working in primary clinics is the most important determinant of the proportion of head office expenditure corresponding to the the ward budget which is spent on clinics. The proportion of the total provincial budget spent on proportion of clinic-based nurses, and the clinics (as opposed to other services such as proportion of the budget spent on primary care, hospitals) was allocated to districts in proportion in the KaNgwane and Ciskei studies were plotted to the provincial expenditure on clinics in each on a graph. A straight line was drawn between the district. points for the two homelands. and the gradient of • The total expenditure by each of those Regional the line and its intersection with the y-axis were Generally this section includes all costs associated with non- In this section all costs associated with non-hospital primary hospital primary care. An exception is some maintenance costs care are accounted for, including maintenance costs which are which are not financed by health authorities themselves. not financed by the health authority itself. 73 determined. The resultant formula is: The proportion of total district recurrent expenditure allocated to community based services = 0.883 * (the proportion of registered nurses working in community services) • 0.0123 (This formula was calculated by Dr Max Price from the KaNgwane and Ciskei studies - Price fit al (1995).) The application of this formula obviously yields a very crude estimate of primary care expenditure in each homeland. However, no better accuracywas possible given the available data. • Homeland head office costs which include costs for vertical preventive programmes, were then allocated to primary care in each ward through the following process: - If the homeland is in a malaria area, 25 percent of the head office costs was deducted for environmental health services (this figure was derived from the KaNgwane study). This amount was divided between the health wards in proportion to the expenditure by the homeland on clinic services in each ward. - Mter deduction of expenditure on environmental health services, the remaining amount was divided between the wards in proportion to the expenditure on clinics in each ward. - If the head office budget had included expenditure on medicines and supplies, the proportion of the ward allocation accounted for by medicines and supplies was divided between the hospital and clinics in that ward in proportion to the other expenditure on the hospital and clinics. - Lastly, the remaining amount of the ward allocation was divided between the hospital, ambulance and clinic services relative to the proportion of the ward budget they consumed. The ward and head office costs were totalled to achieve an estimate of primary expenditure in each ward. For the Transkei and Qwa-Qwa no expenditure information was available at a ward level, as the total health budget is managed by the head office. The following approach was adopted to allocate expenditure to individual health wards: • The percentage of the total budget allocated to each ward corresponded to the percentage of the homeland nurses working in each ward. • Ambulance expenditure was deducted from the total ward expenditure in the manner described above. • Finally, ward expenditure was divided between hospital and non-hospital services in proportion to the number of nursing staff working in each sector. 74 - - - - - - - - APPENDIX C DETAILS OF EXPENDITURE CALCULATIONS The purpose of this appendix is to provide more C.I CALCUlATION OF EXPENDITURE BY detailed explanations of how aggregate expenditure SOURCE OF FINANCE ('Thble 3.5) estimates presented in chapter 3 were arrived at. This Table C.l provides more detailed information of how will facilitate reproduction of these calculations by expenditure by source of finance, as presented in Table future researchers. In addition, more information on 3.5, was calculated. Readers should refer to the relevant research and training expenditure estimates is Health Expenditure Review Technical Reports for a provided. detailed description of the methodology and assumptions underlying these data. Table C.I Sources of f'mance for the health sector (1992/93) Source of finance Expenditure Expenditure (million rands) (million rands) General tax revenue 11,448 Health departments (DNHPD), Provincial and Homelands) expenditure less fee revenue 10,535 Education department (Subsidy to universities and technikons for training of health science students) 191 Research expenditure (By government departments other than health, and MRC expenditure less subsidy received from DNHPD) 139 Departments of Defence, Police and Prisons expenditure on health services 583 Local authorities revenue (Expenditure oflocal authority health departments less DNHPD subsidy) 225 Total public sector sources '11,673 Medical schemes (Total contributions received) 12,064 Health insurance (Total contributions received) 923 Industry 1,162 Direct expenditure on industr}'"Specific services 472 Portion of contributions to Workmen's Compensation (WCC) spent on health services 569 Research expenditure bypharmaceutical and other companies 120 Out-of-pocket 4,184 "Schemes-gap. ~over-the-counterW medicines and GP cash practice expenditure 3,894 User fees less expenditure by medical schemes and WCC at public sector hospitals 290 Total priwte sector sources 18,333 Donors 145 TOTAL 30,151 Sources: ReHMIS data; Blecher and McIntyre (1994); Bunting (1994); Deloitte and Touche (1994b); Valentine and McIntyre (1994): personaJ communication with Dr B. KistnaMmy (for Departments of Defence, CorrectionaJ Services and Police data) 75 C.2 DISTRlBU110N OF HEALTH SECTOR EXPENDITURE CALCULATIONS (Figure S.2) Table C.2 details how the distribution ofheaIth sector expenditure, as presented in Figure 3.2. was calculated. Table C.2 Distribution of total health expenditure (1992/93) Category of expenditure Expenditure Expenditure (million rands) (miIIion rands) (% in brackets) Capital 400 (1.3) Expenditure on capital projects by governments for health sector !l86 Donor funded capital projects 15 Eciualtion and 'IhliDiDg 250 (0.8) Education department (subsidy to universities and technikons for training of health students) 191 Donor funded education and training projects 60 Research 1113 (1.0) Public sector (Health and other government . departments, MRC and other parastatais and tertiary education institutions 190 Private (Pharmaceutical and other companies non-profit organisations) 120 Donor 3 Publk sector service provision and administration 11,64'1 (!IS.S) All expenditure on service provision and administration by health departments (DNHPD, Provincial Administrations, Homelands and Local authorities less DNHPD subsidies) funded by general and local tax revenue and patient fee revenue, but excluding expenditure on research and capital 11,064 Expenditure on health services by Department of Defence, Police and Prisons 583 Private sector service provision and admiDistradon 1'1,541 (58.2) Total payments to medical schemes (which were spent on payments to private health care providers, administration costs and a small retained surplus) less payments to public hospitals 11,614 Total payments towards health insurance policies (which were spent on claims payouts, brokers commission, administration costs and a substantial retained surplus/investment portion) 923 All expenditure on industry-specific services and that portion ofWCC contributions spent on private health services and administration 1,042 Out-of-pocket expenditure on "schemes-gap·, "over-the-counter" medicines and GP cash practice 3,894 Donor expenditure on service provision 68 TOTAL 30,151 (100) Sources: ReHMIS data; Blecher and McIntyre (1994); Bunting (1994); Deloitte and Touche (l994b): Valentine and McIntyre (1994); personal communication with Dr B. Kistnasamy (for Departments of Defence, Correctional Services and Police data) 76 C.! EXPENDITURE ON HEALTH RESEARCH A study carried out by Blecher and McIntyre (1994) for the health expenditure review found that 272 million rands were spent on health research in 1991/ 92 (310 million rands in terms of the 1992/93 financial year). This figure was higher than the estimate of 199 million rands made by the Research and Development Survey published by the Department of National Education, because it identified a substantially higher level of spending by pharmaceutical companies than the government survey did. C.4 EXPENDITURE ON THE EDUCAnON AND TRAINING OF MEDICAL PERSONNEL The direct expenditure by universities and technikons on the training of health care and health science students (for example, medicine and surgery, dentistry, physiotherapy, occupational therapy. pharmacy. and degree nursing students) was 291.7 million rands in 1992 (Bunting 1994). This estimate does not include indirect costs such as administration and building maintenance. The Department of National Education provided 186 million rands (191 million rands in 1992/93 financial year terms) in the form of subsidies and the remaining 105.7 million rands carne from student tuition fees. investment income. Department of National Education subsidy income diverted from other programmes. grants and contracts from research agencies and payments from the Provincial Health Departments responsible for academic complexes. According to Bunting (1994). most of these funds corne from the Provincial Health Departments. The estimate of the training budget in Figure 3.2 is an underestimate because it only includes the Department of National Education subsidy. Provincial health budgets include additional costs of training health personnel such as the proportion of time of clinical staff in academic hospitals devoted to teaching activities. the longer admissions of some patients for teaching purposes and the costs of some nursing colleges. This report does not attempt to quantify these indirect training costs. but any future training strategy will have to take them into accounL These costs are however included in total expenditure estimates presented in Figure 3.2. but are included under the service category of academic hospitals. It should be noted that various commentators have indicated that these data are likely to significantly underestimate the costs of health personnel training. More extensive research into this issue is urgently required. 77 - - - - - - - - APPENDIX D OVERVIEW OF THE MEDICAL SCHEMES AMENDMENT ACT The Medical Schemes Amendment Act (Act No 23 of The removal of direct guaranteed payment to 1993), was implemented on 1 January 1994. The service providers has two major effects. Firstly, if amendments to the principal Act (Medical Schemes scheme members are required to settle accounts Act, No. 72 of 1967) were the result of pressure by with providers and then claim reimbursement from medical schemes themselves for legislative change. Of their medical scheme, a greater awareness of the particular concern was that the Medical Schemes Act cost of health care is created which could reduce prescribed minimum and maximum benefits to be over-utilisation. Secondly, it allows more effective offered by schemes. There was thus little flexibility in utilisation review by schemes as there is a degree designing packages which would allow schemes to ofdiscretion in settling of accounts where schemes extend their market to low income earners, or to assess services to have been unnecessary or compete with health insurance companies which offer excessive (for example. excessive diagnostic "catastrophic cover" packages (usually covering m;yor investigations, medicine prescriptions, or periods hospitalisation and "dread disease" expenses). In of hospital admission in excess of average lengths addition, it was felt that the Medical Schemes Act did ofstay for a particular medical condition or surgical not allow schemes to address cost containment issues procedure) . effectively. The most important changes introduced • Prescribed benefit levels were abolished. thus by the Amendment Act are as follows: allowing greater flexibility in the design of • A married woman can now become a member of a packages. This will facilitate the extension of the medical scheme in her own righL Married couples medical scheme market, particularly to low income can therefore choose which partner should be the earners. These changes also enable schemes to principal member of a scheme and who should be compete more effectively with health insurance registered as a dependant. While this amendment organisations as schemes can now also offer was welcomed by many for removing gender packages which only cover major expenses. In discrimination, it has financial implications for addition, provision was made for schemes to medical schemes. Women tend to receive lower provide additional cover for their members by incomes and as scheme contribuiions are means of underwriting. insurance or re-insurance, differentiated in terms of income levels, overall which will promote competition with health scheme contributions could decrease as a result of insurance organisations for "top-up" cover business. this amendment. • There is now expanded scope for schemes to own • The definitional distinction between medical aid, or contract with health care facilities, and to enter benefit and exempted schemes was removed (see into employment or other contractual arrangements with health care providers. In this Table 4.2). way, managed care options can be more actively • Statutory scales of benefits and direct payment of pursued by schemes. accounts to health care providers were abolished. As the amendments to the Medical Schemes Act were Previously, scales of benefits were published in the only implemented a year ago, it is not possible to Government Gazette on an annual basis and evaluate accurately the effects of these changes. formed the official "price list" for medical schemes. However, there has been some debate about the If a service provider charged the scale of benefit implications of the greater flexibility of benefits rate, schemes were legally obliged to pay them packages offered by schemes. While this change will directly. While the Representative Association of facilitate the extension of the medical scheme market, Medical Schemes (RAMS) continues to publish the following concerns have been raised: scale of benefits tables, these are merely guidelines • It has become difficult for consumers to evaluate to schemes and are not legally enforceable. which of the myriad of alternative packages offer Individual schemes can now negotiate. prices the best value for money; directly with providers. In addition, they can determine the co-payments to be made by scheme • The marketing and administration costs of schemes members which play a role in reducing over- have increased; utilisation of services. The converse of this is that if • There is greater uncertainty for health service schemes wish to offer a very comprehensive providers in that it is difficult for them to determine benefits package, they are no longer restricted in which services are covered by a patient's medical terms of a maximum price list. scheme; and 79 • There is concern that the extent of diversification of benefits packages may increase the level of financial risk for schemes. In the absence of adequate actuarial expertise, it is difficult for schemes to accurately estimate the likely expenditure levels for different packages. Another fundamental change in the operation of medical schemes which preceded the Medical Schemes Amendment Act was the move from community-rating to experience or risk-rating in determining contribution levels. Previously. contributions for a defined package of services were only differentiated in terms of a member's income level and number of dependants. Risk-rating entails the differentiation of an individual's contribution on the basis of hi, or her age, existing medical conditions, claims experience, and other factors relating to clinical risk. This has reduced the leVel of cross-subsidisation and risksharing within schemes and has resulted in scheme membership becoming unaffordable for the elderly and chronically ill. This provides a means for schemes to address the financial difficulties associated with the changing demographic composition of schemes, namely an increasing proportion ofhigh-daiming, low- contributing elderly members. This will facilitate schemes' ability to recruit new members, particularly in the lower income categories. However, there are concerns that the elderly and chronically iII are being "dumped" on the public sector after contributing to schemes during their working life. Given that the nature of medical schemes is changing substantially, there is a need to monitor the effects of the recent amendments to the Medical Schemes Act closely and to evaluate whether further legislative changes are required. 80 APPENDlXE THE PROCESS OF BUDGETING PUBUC HEALTH EXPENDITURE A number of government departments are involved . the division of the global health budget between the in the budgeting process. These include: national level and the provincial health departments and to discuss whether any extraordinary expenditure • The Department of State Expenditure which is allowance should be requested. Each of the health responsible for preparing the government's departments are represented on the Function expenditure budget, evaluating the management Committee, in addition to the Department of Finance, plans of other state departments with regard to the Department of State Expenditure, CEAS, the RDP their expenditure .and for ,determining Office, the Joint Standing Parliamentary Committee unauthorised and other deviations from on Health, the Financial and Fiscal Commission, and expenditure plans and reporting on such the National Economic, Development and Labour irregularities'to the Auditor-General: Council (NEDI.AC - a newly formed statutory body • The Department of Finance which is responsible with representation from the government, business for rendering policy advice on state finances and sector and trade unions, which will consider all labour the overall utilisation of government funds, for legislation and all significant changes to funding the exchequer and for making funds socioeconomic policy). The function committee is available to state departments and other state chaired by the national Department of Health. institutions; The Department of State Expenditure determines the • The Central Economic Advisory Service (CEAS) guideline allocations (April 1994) after receiving which conducts research and provides overall policy inputs from CEAS, the Function Committees and advice on macro-economic matters; individual health departments. The formula for calculating the guideline allocations is: • The Reconstruction and Development Programme (RDP) Office; • Current budget less non-recurring expenditure, less extraordinary expenditure =adjusted current • The national Department of Health, which is responsible for determining the distribution of the year; health budget between the national level and the • Adjusted current year plus real growth, plus provincial health departments; and inflator, plus extraordinary expenditure = guideline allocation. • The provincial Departments of Health. Requests from the different functions (for example, The budgeting process is described below with the education, health, welfare, and housing) are usual time frame for this process being illustrated in considered by the Department of State Expenditure, terms of the development of the 1995/96 budget. The the Budget Committee, the Treasury Committee and actual timing of these activities differed this year due the Cabinet. Draft estimates are compiled (September to the change of government. 1994) based on the guideline allocations and The first step in the budgeting process is the submitted to the Treasury for consideration in relation development of guideline allocations. The national to anticipated available revenue. The fiscal and and provincial health departments are requested to monetary policy implications of the draft estimates are prepare five expenditure options for the following evaluated. three years. Guidelines are set for the preparation of The Function Committee continues meeting during these options, for example, departments were asked to consider plans for the following real expenditure this process to debate the division of the global health allocation between the various health departments. scenarios in developing the 1995/96 budgets: The ultimate responsibility for determining these Option 1: 2 percent (real growth) allocations rests with the national health department Option 2: 0 percent (no real growth) at present. Option 3: -2 percent (real decrease) Departments are informed of their final allocations (December 1994) to enable them to plan for Option 4: -4 percent (real decrease) down scaling activities if their budget is to be reduced, Option 5: -6 percent (real decrease) or for development of additional services if their budget is to be increased. The Function Committee on Health meets to discuss these expenditure scenarios, to begin its debates on The Estimates of Expenditure are produced and tabled in parliament (March 1995). 81 Three times during a finandal year (August 1995, The effects of this reallocation formula on the budgets October 1995 andJanuary 1996), a report is made on of the respective provincial health departments should state expenditure. These reports form the basis for be evaluated when the budget has been presented to determination of the Adjustments Budget, which is parliament. However. a number of points can be made tabled in parliament (February 1996). The about the formula based on present information. Adjustments Budget relates to the shifting of funds Given the significant existing disparities in per capita between functions, the re-appropriation of funds public sector health care expenditure and the goal of carried over, additional appropriations (for achieving equity in per capita allocations wi thin 5 years. extraordinary activities or to cover departments' substantial changes in prOvincial budgets will be overexpenditure), and to deal with a number of required on an annual basis. For example, the budgets technical budgetary adjustments. of certain provinces could change by as much as 20 Mter the end of the fmancial year (March 1996), the percent, in real terms, between 1994/95 and 1995/96 accounts of the respective departments are closed and (personal communication with national Department reviewed by the Auditor General. of Health). In other countiies, the rate of change has been slower. The British Resource Allocation Working The above description of the budgeting process Party (RAWP) recommended a ceiling of 5 percent indicates the range of departments and committees real growth over the previous year's allocation and a which influence the determination of the global health floor of 2.5 percent reduction in real budgets (DHSS budget. The allocation of this budget between the 1976). various health departments is influenced by the Function Committee on Health, but ultimate Policy-makers in South Mrica are faced. with the responsibility rests with the national Department of difficult task of balancing the need to take bold steps Health. to break the inertia inherent in historical budgeting .mechanisms, with the need to minimise the potentially As indicated in Chapter 4 of this report, there is a detrimental effects to existing health services of concerted effort to redistribute the 1995/96 health sudden large budgetary cuts. This must be budget to redress historical geographic resource accomplished within the context of a constrained disparities. An allocation "formula" has been global health budget. This once again highlights the developed by the national Department of Health in need for detailed provincial planning. Provinces who consultation with the provincial Health Departments. will gain from the reallocation process need sufficient This "formula" can be summarised as follows (Health time to develop additional health service infrastructure Policy Coordinating Unit 1994): before increased recurrent budgets can be adequately • the base-line proportional allocations between the absorbed. Conversely, provinces faced with budgetary national and nine provincial health departments cuts require time to plan for the downscaling of health were based on projected actual expenditure for the services. In recognition of the latter problem, a special 1994/95 financial year; allowance (over and above the global health budget) • in those provinces containing academic hospitals, has been negotiated for the Western Cape, Gauteng 25 percent of their respective anticipated and the Orange Free State for 1995/96. While these expenditure was excluded from the inter-provincial provinces will still receive an overall budgetary cut, it reallocation process on the basis that such hospitals will not be as great as that determined by the resource serve a national rather than a provincial function; allocation formula. This allowance will not become part of future health budget calculations, but has been • the central health department's projected specifically provided to assist these provinces in expenditure was also excluded from this managing the downscaling of service provision. Care reallocation process for a similar reason; will have to be taken to ensure that the additional • the expenditure remaining after these exclusions allocation is phased out. was assumed to represent the funds available for Once the reallocation process has been initiated, there redistribution; will be a need to refine the formula to determine the • target allocations for each province were calculated relative need for public sector health care funding based on a weighted proportional population more accurately. This will be facilitated by distribution (population within each province improvements in the quality of routinely available data. weighted by the inverse of the provincial per capita The issues relating to the current resource allocation income; income is given a 0.25 weight); formula that require further investigation and possible • budgets are to reach target proportional refinement include the following: distributions calculated in this way within 5 years; • While per capita income reflects socio-economic and differences between provinces, it would be • 30 percen t of the shift towards these target preferable to use indicators of health status allocations is to occur within the 1995/96 fmandal (morbidity and/or mortality) to weight provincial year. populations. Socio-economic differences do not 82 tranSlate directly into differences in need for health require additional funds in the same province for services. For example, an area with relatively better service expansion a few years later. socio-economic status may have a greater need for • The substantial differences in population density, health services because of endemic conditions (e.g. do not appear to have been adequately taken into malaria)'; Another example is that ofK.waZulu-Natal account. For example, the Northern Cape, which which has higher per capita income than certain has a populationdensityof2.1 people per km2 , will other provinces but has the highest incidence of require more resources to ensure adequate access HIVI AIDS. The indicators selected to weight to health services for the resident population than provincial populations should reflect differential a province such as Gautengwhich has a population need for health services as closely as possible. This density of 365 people per km! (McIntyre 1994b). refinement is clearly dependent on data. availability. The Department of Health has indicated that this • The effect of the global assumption that 25 percent factor was taken into account in determining the of expenditure in provinces which have academic Northern Cape's budget. However, the relationship hospitals should be deducted from the base-line between costs of service provision and population provincial expenditure, to account for expenditure density require further investigation and this factor on training of health personnel and the provision should be applied consistently to all provinces of highly specialised services to residents of other which have relatively low population densities. provinces, requires further investigation. In certain • Inter-provincial differences in access to and provinces, a considerably higher proportion of utilisation of private sector health services should provincial health budgetS are devoted to academic also be taken into account in the formula. In hospitals at present. In particular, this aspect of the particular, beneficiaries of medical aid schemes are formula seriously disadvantages provinces like almost entirely catered for by private sector Gauteng, which contains three academic providers. It would be preferable to exclude complexes and the Western Cape which has two medical aid beneficiaries from the provincial academic complexes, and favours provinces like population so that public sector health care KwaZulu-Natai and the Eastern Cape which have a expenditure is more equitably distributed between relatively low concentration of resources in the population dependent on public services academic hospitals. This reflects a conscious (McIntyre 1994b). Unfortunately. the provincial attempt to redistribute academic hospital resources distribution of medical aid members is not known between provinces containing academic at present. It is feasible that schemes could be complexes. However, the degree to which 25 required to include such information in their percent of provincial expenditure adequately annual reports which are submitted to the Registrar compensates provinces for providing a national of Medical Schemes. The proposal to exclude resource in terms of health personnel training as medical s!=heme members from the base well as the provision of highly specialised services population will need to be re-evaluated in the light to patients from other provinces requires detailed of possible future implementation of some form evaluation. of Social Health Insurance. which may make private sector services accessible to more South Africans. • The formula does not take account of likely future migration patterns between provinces. As South In summary. there is an urgent need to redistribute Africa is undergoing a process of rapid public sector health care resources on a geographic urbanisation, population migration patterns and basis to redress historical disparities. It has been differential birth and death rates should be demonstrated internationally that the use of a considered (Mcintyre 1994b). The Urban reallocation formula is an effective mechanism for Foundation has estimated that the metropolitan overcoming the inertia inherent in historical budgeting. However, as resource disparities are areas in the Western Cape, Gauteng, Eastern Cape reduced, it will be necessary to refine the current and KwaZulu-Natal will be most significantly formula to include a range of factors which will affected by inward urban migration (Urban influence the differential need for health care Foundation 1990). These four provinces face large resources between provinces and to improve the budgetary decreases in terms of the current quality of the data used in calculating target budgetary formula. While the target allocations will be allocations. Most importantly. there is an urgent need calculated on an annual basis, the population to improve health sector planning and to integrate figures used in the formula are based on" census the planning and budgeting processes. This is data which are not updated on an annual basis. As particularly critical at a time when the public health resource disparities between provinces are reduced, sector is confronted with an overall real budgetary it will be particularly important to have a longer decrease. Ifattempts to redistribute financial resources time perspective in the formula in relation to occur in conjunction with careful planning. especially population size. 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