Harnessing the private health sector by using prices as a policy instrument: Lessons learned from South Africa

Abstract

Governments frequently draw upon the private health care sector to promote sustainability, optimal use of resources, and increased choice. In doing so, policy-makers face the challenge of harnessing resources while grappling with the market failures and equity concerns associated with private financing of health care. The growth of the private health sector in South Africa has fundamentally changed the structure of health care delivery. A mutually reinforcing ecosystem of private health insurers, private hospitals and specialists has grown to account for almost half of the country's spending on health care, despite only serving 16% of the population with the capacity to pay. Following years of consolidation among private hospital groups and insurance schemes, and after successive failures at establishing credible price benchmarks, South Africa's private hospitals charge prices comparable with countries that are considerably richer. This compromises the affordability of a broad-based expansion in health care for the population. The South African example demonstrates that prices can be part of a structure that perpetuates inequalities in access to health care resources. The lesson for other countries is the importance of norms and institutions that uphold price schedules in high-income countries. Efforts to compromise or liberalize price setting should be undertaken with a healthy degree of caution.

Keywords: Economics; Hospital prices; OECD; Private sector; South Africa; Universal coverage.