The financial impact of new private hospitals on the privately insured South African population.

The financial impact of new private hospitals on the privately insured South African population.


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Healthcare costs in the South African private sector have been increasing faster than general inflation. Both demand-side (e.g. age, and disease burden) and supply-side factors (e.g. new technology) have contributed to this. This presentation focuses specifically on one of the supply-side factors impacting on medical scheme (private health insurance) expenditure –the impact of the introduction of new hospitals on hospital claims expenditure.

According to the South African Health Market Inquiry, provisional finding and recommendations report , 193 new facilities  opened between 2010 and 2016, adding an additional 12 644 beds to the industry, a 40.7% increase in the supply of hospital beds over the period with scheme membership growing at 7.4% (based off Council of Medical Schemes data) over the same period. Members of schemes administered by Discovery Health, accessed care at 28 new acute private facilities between January 2008 and December 2017

Our analysis demonstrates a very strong correlation between the supply of hospital beds, and the significantly higher hospital utilisation rates in the regions in which the new hospital was opened, even after taking into account the changing disease burden and referral patterns within the specific region.  The higher hospital utilisation impact manifests itself through the following combination of effects, which may be termed, the ‘supplier-induced hospital demand triad’:

  • A higher rate of hospital admissions
  • A longer length of stay per admission
  • A reduced complexity and severity of the cases (case mix) being admitted.

Our analysis demonstrates that this triad occurs in the majority of cases in regions where a new facility has been introduced.  In most of the regional case studies, the analysis demonstrates that new hospitals resulted in statistically significant increased utilization levels in the localised hospital service area in which the new hospital was opened. In these cases, the triad of supplier induced demand effects appears to be due to a combination of the impact of the new hospital itself, as well as the reaction from pre-existing hospitals which are acting to defend market share and revenues.


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