Current Levels of Benefit from Expenditure on Highly Specialised Services

3.14 Clearly, the preceding analysis has dealt only with expenditure in terms of the provinces in which that expenditure takes place. Many patients from across the country are treated outside the province in which they live, especially in the major academic hospitals. Hence, expenditure which, in the preceding analysis might be incurred in Gauteng, will in fact also benefit the residents of other provinces. Such cross-border funding was, indeed, one of the explicit rationales behind the institution of the Central Hospitals Grant. Data collected for this review on province of origin of patients treated by specialised services allow, for the first time, the generation of estimates of the extent to which residents of one province benefit from expenditure incurred by another province on specialised services.

3.15 Data collected on province of origin were far from perfect. In the central hospitals, these data were generally available in only around 50% of units (and were often less complete in regional hospitals). In many cases where data were supplied, they are best-guess estimates by the clinicians involved, as very few hospitals appear to collect reliable statistics on residence. Hence, the analysis which follows is certainly not presented as being firmly established fact, and readers must accept these estimates only with caution. They do, however, represent a first step in establishing a picture of the extent of inter-provincial benefit from expenditure on tertiary services. Two analyses are presented. The first (Table 10) describes inter-provincial expenditure and benefit using the "full" definition of tertiary and specialised services. The second (Table 10) examines only the ten current central hospitals, in order to illustrate the likely differential benefit by province from the current conditional grant. In both cases, expenditure is allocated to each province of residence on the basis of the proportion of inpatient admissions originating from each province. Annex D summarises the proportion of admissions by province of origin for each hospital included in the analysis.

3.16 The main section of Table 10 shows expenditure by each province on "full" highly specialised services in rows, and each column shows how much each province’s residents benefited from that expenditure. Thus, for example, Gauteng spends over R1.6 billion in total on these services – of which R1.39 billion appears to be spent on Gauteng’s own residents, with the remaining R261 million benefiting residents of other provinces. When the expenditure of all provinces on is combined, we can see that, nationally, some R1.4 billion is spent on Gauteng residents. The second section shows the percentage benefit of total national expenditure on "full" specialised services accruing to residents of each province, alongside each provinces share of the population without medical aid cover. The final section then shows combined national expenditure per capita by province for "full" HSS. Table 11 repeats the same analysis, but considers only benefit from the central hospitals conditional grant as it currently operates.

3.17 Table 10 indicates that, on the available evidence, residents of Gauteng and Western Cape benefit disproportionately from "full" highly specialised service expenditure. Their residents receive 29% and 21% of total spending respectively, but constitute only 13% and 9% of the uncovered population. Conversely, residents of Northern Province make up 14% of the uncovered population – yet they receive only 2% of total spending on "full" specialised services. Indeed, only in Northern Cape, Free State and KwaZulu Natal do population and benefit ratios appear to be roughly in line. The per capita expenditures for "full" highly specialised services tell an even starker story. National spending on tertiary care for Northern Province residents (even allowing for the weighted inclusion of medical aid members) is only R23 per person per year – yet for a Gauteng resident it is R270, and for a Western Cape resident R325. There is thus a nearly fourteen-fold difference in tertiary care benefits received between the most disadvantaged and the most advantaged province.

3.18 Table 11 suggests similar levels of inequity in the extent to which residents of different provinces benefit from current spending on the Central Hospitals Conditional Grant. Once again, the overwhelming beneficiaries of expenditure via this grant appear to be the residents of those provinces in which the central hospitals are located. Hence, fully 40% of national expenditure under this grant accrues to Gauteng residents (13% of the uncovered population), and 26% to Western Cape residents (9% of the uncovered population). As a result, every resident of the Western Cape receives a benefit equivalent to R274 in national spending via the Central Hospitals Grant – yet a Northern Province resident receives benefits from this grant equivalent only to R12 per capita. This disparity represents more than a twenty-fold inequity.

3.19 It is important to note that this analysis accentuates a key lesson which can rapidly be confirmed by visual inspection of Annex D. Despite the explicit emphasis of the Central Hospitals Grant on financing national and supra-provincial services, in only three of the "central" hospitals do residents of other provinces account for more than 20% of admissions to highly specialised services in aggregate – namely Pretoria Academic (75% Gauteng residents), and Ga Rankuwa (57% Gauteng residents). Only at Red Cross Children’s Hospital do local residents appear to constitute a minority of inpatients (only 45% Western Cape residents), reinforcing this hospital’s claim to be a truly unique national asset. In other words, in most of the country’s largest tertiary hospitals, highly specialised services are provided primarily for the benefit of local residents, with provision of care to non-residents forming, at best, only a secondary mission. Indeed, at three of the "central" hospitals (Chris Hani Baragwanath, King Edward VIII and Wentworth), residents of other provinces make up less than 5% of inpatient users of highly specialised services.

3.20 Once again, the important limitations of the data on province of origin are explicitly acknowledged. Whatever their flaws, however, the available data suggest deeply worrying levels of inequity in the ability to benefit from current public expenditure on highly specialised services. As a minimum, they suggest an urgent need for further investigation of this issue, and to establish robust prospective data collection systems to provide more reliable information on province (and, potentially, lower level area) of residence. Overall, and despite these caveats, we feel that our analysis suggests that national funding of central hospitals has not achieved improvements in equitable access to highly specialised care, but has in all likelihood entrenched prior inequities in resource allocation. The correct role of national funding in future therefore seems to be precisely to provide an instrument to improve equity in access to highly specialised care.

Table 10: Benefit Accruing from "Full" Specialised Services Expenditure, by Province

% Benefit Accruing to Residents of Province vs. Provincial Share of Population Without Medical Aid Cover

"Full" Specialised Services Expenditure Per Capita, Incidence Based

(n.b. excludes expenditure on "unknown origin" patients)

"Weighted Med Aid" population counts medical aid members at a weight of 0.25 relative to persons without medical aid cover

Table 11: Benefit Accruing From Central Hospitals Conditional Grant, by Province

% Benefit from CHG Accruing to Residents of Province vs. Provincial Share of Population Without Medical Aid Cover

Central Hospitals Grant Expenditure Per Capita, Incidence Based

(n.b. Excludes Grahamstown Maximum Security Facility)

Highly Specialised Services Spending and Provincial Budgets

Total Provincial Spending

4.1 The preceding analysis can be linked with an analysis of total provincial health budgets to illustrate the differential impact of tertiary care provision and expenditure on spending. Table 12 below compares total provincial health budgets for 2001/02 (from Provincial White Books), grant funds allocated through the three "hospital" conditional grants (i.e. Central Hospitals, Health Professionals Training and Research, Redistribution of Specialised Services), and estimated "full" tertiary expenditure.

Table 12: Provincial Heath Budgets 2001/02

4.2 Table 12 highlights a number of important points. The second column illustrates the provincial health budget once the Central Hospitals, Health Professionals and Redistribution grants are excluded. Once "full" tertiary expenditure is subtracted from the total health budget (column 3), it can be seen that several provinces are effectively funding some portion of tertiary care provision from their own (equitable share) resources – where column 3 values are smaller than column 2 values. This is especially marked in Eastern Cape and KwaZulu Natal (which spend over R340 and R370 million of equitable share funds respectively to sustain "full" definition tertiary care services); indeed, Eastern Cape appears to use 9% of its total equitable share budget for tertiary care – but also, proportionate to their total budget, in Northern Cape and Free State. Conversely, the analysis shows clearly that expenditure on "full" definition tertiary services in Gauteng and Western Cape is actually less than the amount received by these provinces in the form of hospital-related conditional grants. Thus, conditional grant funding effectively subsidises basic service provision in Gauteng and Western Cape, as these provinces appear to retain a surplus once tertiary expenditure is factored out. Finally, the analysis indicates the very marginal impact of tertiary care and conditional grants on Mpumalanga, North West and Northern Province.

4.3 Table 13 spells out the equity impact of this situation, by translating Table 12 into per capita budget terms (using both non-medical aid and weighted medical aid populations).

Table 13: Adjusted Per Capita Health Budgets

4.4 Even allowing for some use of public facilities by the large medical aid populations in Gauteng and Western Cape, Table 13 emphasises the significant inequities in spending on non-tertiary health services between provinces. Thus Gauteng is able to spend almost R1000 per head on non-tertiary health care for its residents, and Western Cape over R800. In the Eastern Cape, this sum is only R570 per capita, and in the North West only R511. There is thus, between the highest and lowest spending provinces, practically a two-fold variation in spending on non-tertiary health services.

Discussion of Policy Implications

Inequities in Public Provision of Highly Specialised Care

5.1 The analysis of the current level of provision and expenditure on public sector tertiary hospital services in South Africa indicates that, in terms of access to, provision and funding of tertiary care, provinces fall into four distinct groups:

A. Minimal access and provision, minimal funding impact – Into this group fall the Northern Province, North West and Mpumalanga. These provinces provide only very limited levels of tertiary care themselves, and their residents receive relatively little benefit from services situated elsewhere. They receive little or no direct conditional grant funding for tertiary care, but – because they provide only a limited level of service – they equally do not spend any of their equitable share revenue on tertiary services.

B. Moderate access and provision, nationally unfunded – Into this group fall the Eastern and Northern Cape. These provinces provide fairly significant levels of tertiary care (relative to their population sizes), giving their populations rather better access to such services. However, they receive little or no conditional grant funding, and hence must finance their significant tertiary care base from equitable share revenue – inevitably crowding out expenditure on primary and level 2 care. They are thus systematically disadvantaged by the current funding regime, with the negative impact being absorbed by lower levels of care.

C. Moderate access and provision, nationally underfunded – Into this group fall KwaZulu Natal and Free State. These provinces also provide significant levels of tertiary care (relative to their population sizes), giving their populations good access to such services. They receive significant conditional grant funding, but the costs of their tertiary care services substantially exceed the grant funding they receive. Hence they must also fund the balance from equitable share funds. Whilst the extent of "crowding out" of lower levels by tertiary care in these provinces is less acute than in group B, it nonetheless may draw equitable share funds away from use at lower levels of care.

D. High access and provision, nationally overfunded – Western Cape and Gauteng. These provinces provide extensive tertiary services, to which their populations have high (and disproportionate) levels of access. They receive very substantial conditional grant funding, the benefit of which accrues disproportionately to their own residents. Their current levels of central hospital grant funding appear to exceed even the most generous estimates of the actual costs of provision at these hospitals. They thus effectively receive a net surplus, which can be used to subsidise non-tertiary care.

5.2 This categorisation allows the articulation of the policy problems and questions which underlie the current situation. These boil down to the following fundamental questions:

5.3 Nationally:

• Can the status quo of ten to twenty-fold inequities in access to tertiary health services continue to be tolerated in future?
• What level of access to tertiary care is appropriate and affordable for South Africa in the medium term? Should the aim of health policy be to improve access levels for all citizens to those currently available for Gauteng and Western Cape residents (requiring significant additional resources), or to redistribute existing resources to ensure more or less equitable access to a more affordable level of provision, broadly similar to that currently offered in KZN and Free State?
• Should access be improved by physically moving services from highly-resourced to under-resourced areas – or by establishing systems to allow patients to be brought to centralised service providers on a more equitable basis?
• Can existing service providers really be induced to move to less attractive parts of the country (i.e. away from the major urban centres)?
• If radical redistribution is required, how can we ensure that destabilisation of services is minimised and the desired benefits are actually achieved (avoiding a "disaster" case in which services collapse in Gauteng and Western Cape, without achieving any significant improvement in other provinces)?
• Even if additional financial resources were made available to expand tertiary care in under-served areas without running down services in the traditional centres, can sufficient appropriately skilled personnel be produced and attracted to staff the new services?
• Given the profound implications of all general solutions for both losers and gainers, just what level of priority should be attached to tertiary care relative to other policy priorities (e.g. primary health care, district and regional hospitals provision, HIV/AIDS and TB care and support etc.)

5.4 For Group A provinces:

• How can more acceptable levels of access to tertiary care be achieved for the residents of Mpumalanga, Northern Province and North West in the medium to long term?
• To what extent should service provision be moved to become physically situated in these provinces; how feasible would major physical shifts in service location be; and what enabling measures would be required to make such shifts a reality (e.g. incentive packages to attract personnel with specialist to relocate, etc.)?
• Alternatively, to what extent could access by residents of these provinces to services provided in Gauteng be substantially enhanced; what measures would be required to achieve this (e.g. significantly improved patient transport services, major improvements to referral systems etc.)?
• Given that either approach requires significant reductions in service access and utilisation by Gauteng residents, what measures would be required to enforce reduced access for Gauteng residents, and could such reductions realistically be achieved in service providers that remained part of the Gauteng provincial health system?

5.5 For Group B provinces:

• Should national funding be diverted to compensate the Eastern and Northern Cape for the tertiary services they currently provide?
• Given that the purpose of so doing would be to release funds for the enhancement of primary health care and district level services (to improve equity in access to basic services), what measures would be necessary to ensure "top-up" funding for tertiary care achieves this aim?
• To what extent (if any) should tertiary care provision in these provinces be further expanded?

5.6 For Group C provinces:

• Should national funding be diverted to more adequately compensate KwaZulu Natal and Free State for the tertiary services they currently provide?
• Given that the purpose of so doing would be to release funds for the enhancement of primary health care and district level services (to improve equity in access to basic services), what measures would be necessary to ensure "top-up" funding for tertiary care achieves this aim?
• To what extent (if any) should tertiary care provision in these provinces be further expanded – especially given that they seem to currently provide a reasonable halfway house between the extremes of access to tertiary care visible elsewhere in the country?

5.7 For Group D provinces:

• If some level of geographical redistribution of tertiary care away from Gauteng and Western Cape is required, what measures (especially in terms of personnel incentives and remuneration packages) will be required to effect large-scale relocation and transfer of services to other provinces?
• If, instead of moving services, national access to centralised services is to be improved, how can referral, patient management and patient transport systems be strengthened to achieve the goal of equitable access? What performance regime will be required to ensure that clinicians and managers provide equitable access, where this will require reduced utilisation by local residents? Can such a scenario realistically be achieved without shifting certain key services or hospitals out of provincial control and into a more explicit role as national referral assets?
• How would such changes (under all scenarios) be sold to the Gauteng and Western Cape populations?

Sustainability, Affordability, and Absorption Capacity

5.8 The primary purpose of the review of highly specialised services was to describe, quantify and cost the current provision of tertiary care in the South African public sector to an acceptable level of detail. Given the high level of aggregation required to achieve this task, it is not possible to draw direct conclusions regarding efficiency, sustainability and affordability issues. However, a number of inferences can be drawn from suggestions within the data and from the general impressions and judgements of the team. They are not presented as matters of fact, but as issues for discussion.

5.9 The review has provided a substantial amount of data on the age and value of the clinical equipment stock in use for the provision of tertiary care services. As described above, the survey revealed an equipment stock with a current replacement value of R1.55 billion, and an average age of 7.5 years. Using crude (but defensible) assumptions that a) clinical equipment will, on average, require replacement after a ten year life cycle, and b) using a rule of thumb that ±10% of value should be spent annually on maintenance to ensure adequate levels of serviceability, two key implications for sustainable financing of tertiary care emerge – that around R150 million should be spent annually to replace equipment, and the same amount again to provide ongoing maintenance. This implies "sustainable" equipment expenditure requirements of ±R300 million per year – against a total estimated "full" expenditure of R4.9 billion (i.e. 6% of expenditure). The team does not have actual data on equipment maintenance and replacement spending (a specialised study would be required to obtain this data in a reliable form). Based upon our impressions and discussions with key personnel across the country, and on parallel work on the Integrated Health Planning Framework, we would, however, state that we feel it is very unlikely that these amounts are currently being spent upon equipment replacement and maintenance. Maintenance, upgrading and replacement appear to be key areas of inadequate spending at all levels of the health system, with inevitable consequences for service quality, sustainability and efficiency, and we argue strongly that nothing we have seen in the course of this exercise gives us cause to believe that the tertiary sector is different.

5.10 Similarly, a constant theme in discussions with clinicians and managers was that restrictions in funding fell primarily upon non-staff expenditures, with staff numbers and pay generally protected at the expense of non-staff items. Clearly, to demonstrate the truth or falsehood of this argument would require a time-series analysis of a sample of services; unfortunately, data systems in even the best cases are simply not equal to the ask of demonstrating such trends over a meaningful period. However, in every hospital we visited, conversation with clinicians and casual observation of working practices repeatedly pointed to bottle-necks in care arising from drug and consumable shortages or equipment down-time due to poor maintenance. Such bottle-necks clearly constrain volumes of patient care (and hence lead to rationing and/or failure to benefit patients), potentially compromise care quality, and, critically, lead to inefficiency – utilisation is constrained while fixed costs remain unchanged, leading to higher costs per case treated.

5.11 The review team has therefore been left with a strong impression of a tertiary care sector whose sustainability is being compromised by inadequate maintenance and replacement, with many units running at significantly reduced levels of capacity due to lack of availability of basic supplies and services. Yet remedying these problems requires additional resources (as would any credible plan to relocate services and staff to address the equity problem). Whether tertiary care should have first call upon additional resources is clearly questionable, given the unfinished agenda of improving basic primary health care services and the growing and unavoidable demand for resources posed by HIV/AIDS care and support services (see the Integrated Health Planning Framework for a clear exposition of the choices thrown up here). We must therefore suggest that a truly sustainable tertiary care sector will either require a significant infusion of additional resources, or a significant restructuring to reduce fixed costs by reducing the number of units providing most types of specialised service – but that such a reduced number of units could, in all probability, equal or even surpass current levels of output. Clearly, though, transformation of this statement from an assertion based on opinion into a workable plan requires very significant development effort.

5.10 It is also important that any discussion of either the redistribution of resources or the introduction of additional resources includes a critical discussion of the ability of provinces to successfully absorb additional funding and to utilise such funds effectively for priority service developments. Certain provinces, especially the Eastern Cape, appear to have funded their inherited base of tertiary services from equitable share resources, almost certainly at the expense of basic service provision. If funds were made available to compensate Eastern Cape (and others) for this current inequity, what steps will be required to ensure that the equitable share funds thus released were a) retained within the health envelope, and b) used to enhance basic services in well-planned and appropriately prioritised manner. At the same time, a discussion of whether to attempt to expand tertiary care provision in the Group A provinces of Mpumalanga, North West and Northern Province must take place. This discussion must look critically at whether such a development of services can realistically attract the scarce staff required to successfully expand services, and at the practical measures needed to do so. In all cases, a crucial component of effecting successful resources shifts will be the incorporation of a realistic timescale which gives provinces sufficient time to absorb and utilise additional funding, and the avoidance of unrealistic timeframes and perverse incentives which push provinces to spend the money whether or not they are really ready to do so.

Anomalous Service Provision Policies

5.11 In the course of the data collection and analysis process, a small number of service anomalies were identified which need to be flagged for future attention. The most important of these related to two specialised services (in vitro fertilisation and cochlear implantation) which are physically provided in public hospitals, but which are effectively only partially publicly funded.

5.12 In vitro fertilisation is provided at a small number of public hospitals nationally. At Tygerberg Hospital, this service has for some years been fully differentiated from public hospital services, and is provided as a stand-alone private service within the hospital (which occasionally offers a free treatment to a "needy" public patient who cannot raise funds). At the other centres providing IVF, infrastructure and staff are funded publicly, but courses of treatment must be paid for by the patients concerned. The charges made by IVF services are significantly different from the normal hospital billing system, and little or no opportunity exists for indigent patients to access these services. This particular anomaly has been identified in terms of the review of the Prescribed Minimum Benefits Package - in the original package, IVF was included as a PMB on the basis that it is provided and funded in public hospitals, when in fact it is effectively not available as a public hospital service to public hospital patients.

5.13 A similar situation exists for cochlear implantation – i.e. a service is provided using public hospital infrastructure (ENT surgery, audiometry labs, speech therapy etc.), but the implant itself is effectively available only to those who can pay privately (or raise funds) to purchase the device, and thus cannot be said to be available to public hospital patients. The situation regarding cochlear implantation has been further complicated by the inclusion of this intervention in the national policy on Assistive Devices, and the proposal to PHRC (see minutes) that public funds be allocated to purchase 50 (rising to 100) implants annually in public hospitals, subject to user fees determined by the Assistive Devices / UPFS fee schedule, at an estimated cost of R9 million in the first year.

5.14 Allocating funds for the provision of cochlear implantation would effectively require additional funding for a new public service (i.e. one which was not previously available to public patients). The desirability of so doing must therefore be considered in terms of cost-effectiveness, health benefits and relative priority, compared to the allocation of these funds to other uses (e.g. basic primary care, prevention of mother to child transmission of HIV etc.). An adequate comparative analysis of this form was not undertaken as part of the original submission. A further factor not considered in the submission to PHRC is the fact that implants have an average life of 5 years. Hence, after a few years, it is highly likely that this programme would stabilise to the benefit of a limited pool of candidates receiving replacement implants, with little additional health gain.

5.15 There are therefore likely to be significant questions regarding the cost-effectiveness, appropriateness and affordability of cochlear implantation in the South African public sector. Given the critical funding problems identified in this paper, it is very hard for the review team to endorse the allocation of new public funds to this intervention. It is therefore recommended either that:

• PHRC reject the proposal to allocate public funding for cochlear implantation

  Or

• A further analysis of cochlear implantation be conducted in terms of cost-effectiveness and appropriateness in the SA public sector, making specific recommendations as to which other services should be discontinued in order to fund cochlear implantation should this service be found to be appropriate for public funding

5.16 PHRC should also note that a similar analysis is required before any attempts are made to change the status of IVF services in public hospitals.

Next Steps

6.1 A set of detailed options for redistributing and revising the health conditional grant framework is provided in a companion paper to this review.

6.2 The key strategic issues to be considered in deciding on these options, and on the longer term future of tertiary care provision in South Africa are as follows:

• The current crowding-out of equitable share expenditure by tertiary care spending in several provinces (Eastern Cape, Northern Cape; possibly KZN and Free State)
• The apparent over-funding of Gauteng and Western Cape
• The very low levels of provision of and access to tertiary care for residents of Northern Province, North West and Mpumalanga
• Whether and which services should be built up in underserved provinces, or whether access to services in the traditional centres should be expanded and guaranteed (with concomitant reductions in access by local residents)
• What are affordable, achievable and equitable levels of access to and utilisation of tertiary care in the South African context, especially given the competing priorities of the unfinished primary health care agenda and the impending impact of HIV and AIDS?

6.3 Given the results of the Integrated Health Planning Framework model, further analysis, further analysis is required to identify the possibilities for efficiency improvements and service restructuring at tertiary level, which will provide important information on the long-term choices facing the tertiary sector.

6.4 Particular importance must also be attached to ensuring that the proposed Regional Hospitals Package is consistent with the definitions of tertiary care ultimately adopted, and that proposals regarding to borderline services are practical and affordable, and do not make unrealistic assumptions about the ability to provide relatively costly services at every regional hospital.

References

Chief Directorate: Hospital Services. Submission to PHRC: Integrated Health Planning Framework – Planning Model. (May 2001)

Directorate: Health Financing & Economics. Review of Conditional Grants for Health: Current Problems and Options for Change (May 2000)

Directorate: Health Financing & Economics. Review of Highly Specialised Services: Preliminary Results and Summary Report to PHRC (January 2001)

Directorate: Health Financing & Economics. Report to PHRC: Proposed basis for restructuring and allocating the central hospitals conditional grant from 2002/03 (January 2001)

PHRC Minutes 9 November 2000. Item 6.7 Standardisation of provision of assistive devices in South Africa

Price Waterhouse Coopers. Hospital Cost Analyses. 1999.

Annexures