Shifting Toward Sustainable Reimbursement Models in South Africa’s Healthcare Sector
Escaping Fee-for-Service: Pathways to Sustainable Reimbursement Models
The Council for Medical Schemes (CMS) Annual Report 2024/25 underscores the urgent need for reforming South Africa’s private medical schemes sector, where fee-for-service (FFS) reimbursement drives cost inflation exceeding economic growth rates. Sustainable reimbursement models are essential to address this, with the report highlighting shifts toward capitation and risk transfer arrangements, evidenced by a 7.40% rise in accredited managed healthcare expenditure to R5.94 billion in 2023, alongside net gains from R5.63 billion in risk transfer value against R5.19 billion in capitation fees. These changes, bolstered by the Draft Interim Block Exemption for Tariff Determination, align payments with value-based healthcare (VBHC) principles and prepare for National Health Insurance (NHI) integration, positioning sustainable reimbursement models as a cornerstone for long-term viability.
FFS Flaws Fueling Cost Inflation
The CMS Annual Report points to the structural flaws in FFS, which rewards service volume over efficiency, leading to unchecked expenditure growth even within managed care frameworks covering 99.19% of 9.13 million beneficiaries. For instance, the direct link between adverse demographic profiles—such as older age and chronic disease prevalence—and higher per-member managed care costs illustrates how FFS encourages over-utilisation in high-risk groups, contributing to the 7.40% expenditure surge from R5.53 billion in 2022 to R5.94 billion in 2023.
In contrast, risk transfer mechanisms offer promising counterweights, with capitation fees for pharmacy benefit management yielding a R440 million net efficiency gain, demonstrating potential for cost containment through provider risk-sharing, particularly in predictable chronic care areas. These data points affirm a gradual evolution from volume-based incentives, yet the report’s emphasis on capitation’s limited scale—R5.19 billion versus R239 billion in total benefits—signals that FFS dominance persists, necessitating accelerated adoption of sustainable reimbursement models to curb medical inflation.
Data-Driven Critique of Reimbursement Inefficiencies
The analysis in the annual report relies on comprehensive financial and operational data from 71 regulated medical schemes, including audited expenditure figures, beneficiary demographics, and risk transfer valuations, to substantiate its critique of reimbursement inefficiencies. Methodologically, it employs actuarial correlations to link demographic risk profiles with cost patterns, while evaluating managed care through metrics like directly attributable insurance service expenditure (DAE), which accounts for 40.02% of administration costs in open schemes, revealing opaque allocations in areas such as marketing and staff remuneration.
This quantitative approach supports policy recommendations, notably the gazetting of the Draft Interim Block Exemption, which facilitates the creation of a Tariff Determination Body and Multilateral Negotiation Forum (MLNF) under the National Health Act and Medical Schemes Act. By pursuing these reforms, the CMS is building an evidence-based case for transitioning to VBHC, informed by domestic Health Market Inquiry (HMI) findings on supplier-induced demand.
Tariff Reforms Reshaping Equity and Access
The report insights carry profound implications for health economics and outcomes research (HEOR) in South Africa, potentially moderating the 8.70% annual growth in per-beneficiary healthcare expenditure by institutionalising MLNF-driven tariff negotiations that balance provider leverage with funder interests. In market access and reimbursement contexts, the expansion of Efficiency Discount Options (EDOs) to 71 plans with 37% enrolment exemplifies how value-linked networks could enhance affordability, informing HEOR studies on cost-effectiveness in high-burden chronic conditions.
Reflecting broader industry trends toward NHI complementarity, these reforms align private financing with universal coverage goals, though challenges like data fragmentation underscore the need for robust digital infrastructure. Ultimately, successful implementation could position medical schemes as key enablers of equitable pricing, reducing reliance on FFS and fostering sustainable reimbursement models that prioritise preventative care, thereby strengthening long-term sector sustainability amid demographic shifts.
