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South Africa Healthcare

Healthcare and Pharmaceuticals Report South Africa August 2010

Healthcare report


August 25th 2010

South Africa spent an estimated 8.8% of GDP on healthcare in 2009. Total expenditure on healthcare is higher than in most other upper-middle income countries and similar to that of some high-income countries. This is more than China (4.7% of GDP on healthcare), but far less than the US (16.2%). Despite substantial expenditure on healthcare, South Africa's health status indicators are much worse than those of many other countries of a similar level of economic development. The impact of the HIV/AIDS pandemic on South Africa is a major factor contributing to the county's poor health indicators, including low average life expectancy and high infant mortality. South Africa has the highest number of people living with HIV/AIDS in the world: about 5.2m people (10.6% of the population) were infected in 2009, according to the latest official statistics. The HIV/AIDS pandemic will continue to undermine South Africa's health indicators and put pressure on the public health system during the forecast period.

Key health indicators are markedly different for the poor black majority and the affluent sections of society. For example, the infant mortality rate among the South African population as a whole is high, on a par with that for Bangladesh, but the rate for the more affluent is similar to that in OECD countries. The government is trying to improve the overall health status of the population by expanding the free primary healthcare system, but the lack of skilled medical and administrative professionals, owing in part to uncompetitive salaries and harsh working conditions, will continue to impede the provision of adequate public health services.

South Africa's healthcare system consists of a large under-resourced and over-used public sector and a much smaller well-funded and well-equipped private sector. The public health sector provides healthcare for 85% of the population, with the remainder covered by the private sector through healthcare insurance schemes. In terms of funding, around 40% of total healthcare spending is directed to the public sector, with the remaining 60% dedicated to the private healthcare system. High and rising medical-aid premiums render the private sector unaffordable for the majority of South Africans, and the sector tends to cater to middle- and high-income earners and to affluent foreigners looking for high-quality surgical procedures at relatively affordable prices. The government proposes to create a National Health Insurance (NHI) system, but this will be introduced gradually, over a five-year period at minimum, because of the cost and logistics implications. In the interim, priority will be given to correcting deficiencies in the existing public health system by upgrading and rehabilitating hospitals and clinics, improving remuneration for health officials and tackling the HIV/AIDS pandemic via increased testing and the faster roll-out of anti-retroviral (ARV) drug therapy.

Income and demographics
  2005a 2006b 2007b 2008b 2009b 2010c 2011c 2012c 2013c 2014c
Nominal GDP (US$ bn) 247.0 261.3a 286.2a 276.5a 285.8a 348.9 346.7 350.3 371.3 390.0
Population (m) 47.5 47.9a 48.4a 48.8a 49.1a 49.1 49.0 48.8 48.6 48.4
GDP per head (US$ at PPP) 8,545 9,232a 9,926a 10,421a 10,301a 10,725 11,283 12,022 12,813 13,685
Private consumption per head (US$) 3,281 3,443a 3,710a 3,519a 3,566a 4,342 4,506 4,741 5,246 5,704
No. of households ('000) 12,529 12,767 12,977 13,166 13,333 13,502 13,673 13,847 14,022 14,200
No. of households with annual earnings above US$5,000 ('000) 10,514 10,825 11,231 11,201 11,362 11,974 12,159 12,387 12,747 13,071
No. of households with annual earnings above US$10,000 ('000) 6,516 6,866 7,455 7,157 7,287 8,389 8,570 8,844 9,424 9,924
No. of households with net wealth over US$1m ('000) 29 54 73 70 149 232 251 306 389 485
Source: Economist Intelligence Unit.

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Funding. National healthcare spending in 2009 is estimated at around US$212bn, or 8.8% of GDP. Healthcare spending will rise in 2010-14 as the government commits more funds to public hospitals and AIDS treatment, although increasingly tight fiscal conditions in 2011-14 and intense competition for available resources will keep a lid on public spending. At the same time, aggregate spending on private healthcare will be constrained by the high cost to users. Healthcare spending, in real terms, will expand at broadly the same rate as overall GDP, and will remain at 8.8% of GDP during the outlook period. Spending in nominal terms rose slowly in 2009—by 3% in rand terms and 1% in US-dollar terms, although the pace of growth will quicken. Spending, in rands, is expected to grow by an average of 7.9% a year in 2010-14, although the likely depreciation of the rand implies a much slower, 3% a year, growth rate in US-dollar terms. Spending is projected to rise from an estimated US$29.7bn in 2010 (US$604 per head) to US$33.2bn in 2014 (US$685 per head).

The public health sector provides healthcare for 85% of the population but accounts for only around 40% of total national health spending. The social services budget for the medium term is composed mainly of education (35%), welfare (29%) and healthcare (20%). The recent budget (for 2010/11) estimated that total public-sector spending on healthcare amounted to R99.8bn (US$12.9bn) in 2009/10, and that it will rise briskly, to R122.5bn, in 2012/13, with the bulk being spent by provincial health departments.

The private sector services the remaining 15% of the population that purchases private healthcare insurance, and accounts for around 60% of national health spending. Almost 30% of total expenditure in the private sector is private household out-of-pocket expenditure (R36.5bn out of R121.6bn in 2009/10), according to official data. Medical schemes largely serve corporate staff members and are either self-administered or run by a small number of specialist administrators. Membership of medical schemes increased in 2006 following rapid growth in the Government Employees Medical Scheme, which extended employer subsidies to public servants and their families, many of whom had not previously been on medical aid. According to official data in 2010, 7.9m South Africans are protected by medical schemes (including 4.3m dependents). Nevertheless, the pool of people served by private providers remains limited, largely reflecting the rapid rise in premiums charged by medical-aid companies, which makes membership unaffordable for the majority of the population. The government is currently considering tax changes to make schemes affordable to poorer market segments. Medical schemes will continue to focus on building reserves to meet legislated solvency (the ratio of reserves to gross contributions) requirements, and this will drive up premiums even further and encourage schemes to make greater use of members' savings to manage routine claims. Total private-sector health spending is expected to rise from R121.6bn in 2009/10 to R153.8bn in 2012/13, according to the Ministry of Finance.

In June 2009 the president, Jacob Zuma, in his first State of the Nation address, endorsed the establishment of the NHI scheme. There are few concrete details available regarding the actual structure of the scheme but the ruling African National Congress (ANC) has proposed that a NHI system be introduced through various stages within the next five years, although costs will remain a significant obstacle. The government will also continue trying to speed up the movement of low-income families into the privately insured market—via such schemes as government-mandated low-cost healthcare plans. However, growth in the number of privately covered beneficiaries—currently 7.9m—may be slow at best during the forecast period. One consequence of government intervention to lower the cost of medical schemes will be fragmentation in the market, with some schemes offering significantly more benefits than others (and charging more accordingly).

The HIV/AIDS pandemic will continue to put additional strain on the overstretched public health system during the forecast period. Spending on HIV/AIDS is budgeted to rise from R4.7bn-5bn in 2007 to R11.3bn-13.3bn in 2011. Donors and a number of large employers are contributing to the national HIV/AIDS response but the bulk of funding is expected to come from the government. Of the total cost, 40% is allocated to purchasing ARV drugs and 7% for supporting AIDS orphans (1.9m in 2009). The cost implications of the HIV/AIDS programme are significant, and it is expected to account for as much as 20% of the healthcare budget in any given year. In addition, the number of people with compromised immune systems means that South Africa is at heightened risk from pandemic diseases, including influenza variants. The H1N1—swine flu—scare in 2009 faded quickly (causing only 91 deaths) but if a similar infection were to become more virulent the healthcare system would struggle to cope and the economy would suffer.

Healthcare: key indicators
  2005a 2006a 2007a 2008a 2009b 2010c 2011c 2012c 2013c 2014c
Life expectancy, average (years) 49.3 49.2 49.1 48.9b 49.0 49.2 49.3 49.4 49.5 49.6
Life expectancy, male (years) 49.4 49.5 49.7 49.6b 49.8 50.1 50.2 50.3 50.4 50.5
Life expectancy, female (years) 49.2 48.8 48.6 48.1b 48.1 48.3 48.4 48.5 48.5 48.6
Infant mortality rate (per 1,000 live births) 47.0 46.4 45.8 45.1 44.4 43.8 43.2 42.7 42.1 41.6
Healthcare spending (R bn) 137 152 174 199 212 236 256 277 299 319
Healthcare spending (% of GDP) 8.7 8.6 8.6 8.7 8.8 8.8 8.8 8.8 8.8 8.8
Healthcare spending (US$ bn) 21.5 22.5 24.6 24.1 25.2 30.7 30.5 30.8 32.7 34.3
Healthcare spending (US$ per head) 453 469 509 493 513 625 623 632 672 709
Healthcare (consumer expenditure; US$ bn) 13.4 13.6 14.8 14.0b 14.7 17.8 18.5 19.5 21.5 23.3
Doctors (per 1,000 people) 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6
Hospital beds (per 1,000 people) 2.9 2.9 2.9 2.9 2.9 2.9 2.9 2.9 2.9 2.9
Source: Economist Intelligence Unit.

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Provision. The focus of public healthcare has shifted from a curative to a preventative approach since the late 1990s, and the broad objective of enhanced primary healthcare currently guides the development of health policy in South Africa. As a consequence of this shift in policy focus, access to care has expanded significantly over the past decade. For instance, around 100m visits to primary healthcare facilities were reported in 2008, compared with 67m visits in 1998.

The public sector is under-funded and overstretched, and has for several years struggled to recruit and retain a sufficient number of skilled medical staff. The number of public healthcare personnel fell from 235,000 in 1996 to a low of 215,000 in 2003, following the emigration of doctors and nurses to the UK, the US, Australia and other countries where working conditions and pay were better. Numbers employed recovered quickly, to 235,000, by 2006 as more public healthcare funding was made available. However, the system will continue to face skills shortages, partly because of the number of healthcare workers falling victim to AIDS, comparatively poor pay, and deficiencies in the education and training system.

The National Health Act, which was signed into law in 2004, states that all newly qualified medical, pharmaceutical and nursing professionals must perform one year of compulsory community health service before graduating. The government also pays a scarce-skills levy to certain categories of healthcare professional in the public sector. In addition, the government is pursuing bilateral and multilateral agreements aimed at discouraging destination countries from "poaching" key healthcare workers. For instance, a bilateral agreement with the UK, which was extended for a further five years in July 2008, has led to a significant drop in the number of South African nurses registered with the UK Nursing and Midwifery Council. However, in general, advanced industrial countries have not been particularly responsive to such agreements, owing to their own shortages and cost pressures.

Paraprofessionals, such as community healthcare workers, have proved effective in other African states, and South Africa plans to increase their number and responsibilities to include certain initial treatments and administrative tasks. This should free up doctors and nurses to see more patients and ease some of the pressure on public services, although such measures will do little to lift the overall burden unless they are accompanied by significant and rapid improvements in working conditions and remuneration for key healthcare workers.

The national health amendment bill was approved in April 2008 and contains proposals for collective bargaining on private healthcare fees. In June 2008 a revised version of the bill was published, setting the National Health Reference Price List as a price ceiling for the basic basket of care that all medical schemes must provide for their members, but allowing parties to negotiate lower rates. The private sector has argued that such measures will increase emigration of medical professionals as financing becomes tighter and reduce the sector's ability to raise sufficient revenue to finance infrastructure projects. However, the Ministry of Health justifies the new legislation as a means of introducing transparency in the pricing of healthcare services, and as the first step towards containing spiralling costs that are putting private healthcare outside the reach of most South Africans. The next target could be the cost of private hospital in-patient stays, which account for 35% of total spending by medical schemes. The cost of hospital services has doubled in ten years and is the primary driving force behind significant increases in the cost of insurance premiums year on year.

International bodies, including the World Health Organisation (WHO), provide funding for various projects aimed at bringing about healthcare reforms. Public-private partnerships (PPPs) are also being encouraged, and the Ministry of Health has published a uniform patient fee schedule to provide a fee structure for externally funded patients being treated in public hospitals. Such PPPs come in various forms and include public financing of private-sector care for public patients, private financing of public care, and state subsidisation of private and insured patients. The Netcare PPP, with two public-sector hospitals in the Free State, is one example of this.