As a developing country spread over vastly differing geographical locations and with huge disparities in income over its population, South Africa presents a challenge to those setting tariff guidelines for medical schemes.

Generally practice cost studies are made throughout South Africa to try to determine reasonable tariff guidelines for healthcare services in the private sector. The problem with this approach is that it usually uses averages, often across different healthcare professions and specialities; the averages often include extrapolated costs of delivering healthcare services in vastly different locations and to patients with very different average incomes. Tariff calculation models using averages may work effectively in developed countries, where differences are less extreme and averages may be more representative, but can bring out flawed results in a developing country  such as South Africa, with its unique conditions and challenges:

      • The South African healthcare system does not work on supply and demand costing, as healthcare professionals have no real opportunity to set prices when they enter supplier contracts with medical schemes.
      • The geographical location of a healthcare practice makes a huge difference in costs and fees that they can charge. For example even within the same province, the costs of managing a practice fluctuate wildly, if you consider areas such as Sandton and Diepsloot, both within Gauteng.
      • The average household income fluctuates significantly in a developing country, far more so than in the developed countries on which the tariff setting models are based.
      • The costs of providing goods and services vary significantly between different areas.
      • The use of extrapolated data, also fails to reflect the conditions experienced by doctors in township and rural practices, where lack of infrastructure and support services, high levels of stress and sheer numbers of patients seen, impact doctors severely.

So how can doctors in private practice in South Africa work successfully within this framework?

Private healthcare professionals have to start running their practices as a business. They need to have practice management systems in place that allow them to calculate costs of the services they offer, to be able to charge a fair fee that enables them to make a reasonable income. So for each procedure you need to be able to calculate both direct costs and indirect costs, just as you would in any other business. Being aware of all the costs involved in each procedure allows you to negotiate more effectively with medical schemes when entering into contracts, or else to say no to tariffs that are set too low to be financially viable for your practice.

Using all the data gathered by practice management applications, you should also be able to create budgets and forecasts based on actual financial data that relates to your practice and reflects the true costs of each procedure, rather than the artificial averages applied to the medical scheme tariffs. Your budgets will also be able to reflect the real factors applicable in your geographical area, such as the costs payable by you and the relative household incomes of patients in your area.

All of this financial information allows healthcare professionals to manage their practices more effectively and profitably while providing services that are affordable to their patients.