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Dr J Narshai

Dissertation submitted to The Graduate School of Business

University of Cape Town In partial fulfilment of the

Master of Business Administration

Executive MBA 2001 / 2002

March 2003

A Systemic Enquiry in to the Sustainability and Viability of the South African Private Health Care

Industry

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ACKNOWLEDGEMENTS I would like to dedicate this thesis to future generations of South Africans in the hope that

they may have unlimited access to healthcare to enjoy life to the fullest.

Heartfelt thanks to my family and especially my wife, Lata, who gave me support,

encouragement and motivation, and without whose help this thesis would not have been

possible.

Thanks must go to members of my group for all the moral support, especially Harvey, who,

despite all his personal problems, was always ready to assist. I will cherish the memory of

many evenings at the Portswood, filled with stimulating conversation

Being computer illiterate, my thanks must go to my secretary Vivianna and my editor Helen

Allen, who respectively typed and edited the manuscript, and put up with all my demands

without protest.

It would not have been possible to complete this work without the encouragement received

from Tom Ryan, members of the EMBA staff and colleagues in the EMBA 2s and 3s,

especially when I had to suspend my studies because of an unexpected health problem.

To the many others who gave unstintingly of their time and contributed to my understanding,

I shall be always be grateful.

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ABSTRACT

This is an account of the private healthcare industry in South Africa, written from the

perspective of an active family practitioner. The last decade has seen medical inflation

outstripping increases in salary, resulting in contributions that are not affordable for the

average worker. This dissertation gives a description of the cost drivers in this industry, and

how the effects of those drivers cause escalation in medical aid contributions.

Systems thinking, using the Viable System Model of Stafford Beer, has allowed a model of

the industry to be introduced that reflects the different activities of the system. Using this

model, it can be seen how using Russel Ackoff’s theory of conflict between the different

stakeholders reveals instability in this industry. Using a different “lens” each time, the

researcher is able to demonstrate different perspectives to this problem. This dissertation

shows how different stakeholders have different goals, which are not aligned, resulting in

conflict amongst the various stakeholders.

The use of systems thinking demonstrates that the basic problem is lack of communication

and trust, absence of sharing of information, and inability to understand the cultures of the

different stakeholders.

Use of systems failure methodology shows the reasons for the problems, and together with

interactive planning, is able to isolate a number of “gaps” or solutions, that can be applied to

this industry. One such gap is a system to manage the healthcare needs of the member.

Applied to a different reimbursement system, results in decreased costs and increased access

to healthcare. An ideal model is then postulated, using Interactive Planning.

The answer is validated by showing how the model, applied to three liquidated medical

schemes, could have helped them to remain viable. A discussion of four health plans that use

the capitation model follows, outlining weaknesses and strengths, and showing how

application of the model could improve them.

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The thesis ends with a personal evaluation, and identifies areas that can be explored in further

research.

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CONTENTS

Acknowledgements 1 Abstract 2 Glossary of terms Definitions 11 CHAPTER 1(Introduction) 1.1 Health a global problem 16 1.2 Background to health care in South Africa 17 1.3 Relationship between private and state health sector 21 CHAPTER 2 2. The perspective of the researcher 29 CHAPTER 3 (The problem context) 3.1 Access to healthcare. 32 3.2 Visible cost drivers. 34 3.2.1 The legal and regulatory framework. 3.2.2 Aging population 3.2.3 Lifestyle changes 3.2.4 Aids 3.2.5 Infrastructure 3.2.6 Rand devaluation 3.2.7 Brokers 3.2.8 Medical Schemes 3.2.9 Administrators 3.2.10 Service providers 3.2.11 Members 3.2.12 Savings account 3.3 Lack of competition 44 3.4 Power in the industry 47 3.4.1 Sources of power 3.4.2 Control over resources 3.4.3 Ability to influence people 3.4.4 Legal authority 3.4.5 Control of decision making process 3.4.6 Tradition 3.5 The role of culture 51 3.6 Stakeholder alignment 52 3.7 Conclusion 55 CHAPTER 4 (A systems approach to management inquiry and problem solving) 4.1 Systems Thinking and Healthcare 4.2 Application of social sciences to systems thinking 60 4.3 Different systems thinking approaches 63 4.3.1 Functionalist, Objective/regulatory view 4.3.2 Interpretative Subjective/regulatory view

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4.3.3 Emancipatory Objective/radical view 4.3.4 Humanist Subjective/radical view 4.3.5 Post Modernist view of systems thinking 4.4 Critique of systems thinking 63 4.5 Factors for and against systems thinking 66 4.5.1 Factors against systems thinking 4.5.2 Factors in favour of systems thinking 4.6 Viable System Model 67 4.6.1 Functionalist Approach 4.6.1.1 Introduction to the VSM 4.6.1.2 Systems I-V of the VSM. 4.6.1.3 Applications of the Viable System Model (VSM) 4.7 Emancipatory Approach 75 4.7.1 Critical System Heuristics 4.7.2 Applications of CSH 4.8 Post Modernism 78 4.9 Systems Failure Approach 81 4.9.1 Application of the systems failure approach 4.10 Interactive Planning (IP) 83 CHAPTER 5 ( Formulating the problem) 5.1 Functionalist approach 88 5.1.1 Stakeholder, definitions and terminology 5.1.2 Viable system model 5.1.2.1 System 1-V of the VSM 5.1.2.2 Structural deficiencies identified by the VSM 5.1.2.3 Summary of problems demonstrated by the VSM 5.2 Emancipative approach 97 5.2.1 Critical System Heuristics 5.2.1.1 Stakeholders and definitions 5.2.1.2 Summary of findings from the CSH 5.3 Post Modern approach 99 5.3.1 Definitions and terminology 5.3.2 Problems identified in the Post modern approach 5.4 Interpretive approach 102 5.4.1 System failure approach 5.4.1.1 Identification of failures 5.4.1.2 Failures compared to the formal system paradigm 5.4.1.3 Failures compared against other paradigms 5.4.1.4 Interpretation and conclusion of failures approach 5.5 Refining the problem 108 5.5.1 Lack of communication 5.5.2 Power and the medical scheme 5.5.3 Management of stakeholder interests 5.6 The use of system tools in problem formulation 117 5.6.2 Causal loop diagrams of problems in the PHCI 118 5.7 Trust in the PHCI 124

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CHAPTER 6 (Towards a solution) 6.1 Managing healthcare demand. 128 6.2 The communication mystery. 129 6.3 Application of interactive planning methodology 133 6.3.1 Reference scenario 6.3.2 Ends planning 6.3.3 Identifying the gaps 6.3.4 Analysis and identification of suitable gaps 6.3.5 Evidence in favour of choosing this gap 6.4 The Ideal Model 138 6.5 Explanation of the ideal model 142 6.5.1 Ownership 6.5.2 Structure and functions of the board 6.5.3 Risk-Taking Model 6.5.4 Contracts 6.5.5 Education of stakeholders 6.5.6 Communications 6.5.7 Administrators 6.5.8 Relationship between the plan and the Independent Practitioners association (IPA) 6.6 Is it good enough? 144 CHAPTER 7 (Testing and critique of the answer) 7.1 Is there merit in the answer? 147 7.2 The case for a healthcare manager. 149 7.3 Summary of the analysis of three failed schemes. 151 7.4 MCG Failure and the ideal model. 153 7.5 The MMP failure and the ideal model. 157 7.6 Phila’s collapse and the ideal model. 159 7.7 Conclusion of the failed schemes. 161 7.8 The ideal model and existing schemes. 162 7.9 A critique of the ideal model using a post modernistic view point. 164 CHAPTER 8 (Conclusion and Evaluation) 8.1 Is the solution relevant? 170 8.2 Is the answer useful? 171 8.3 Is the answer valid? 173 8.4 Ethics 174 8.5 Reflections, learnings and future paths 176

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Appendix Appendix A: (Back Ground Details) A.1 Summary of problems in European healthcare 180 A.2 Sources of power (Gareth Morgan) 181 A.3 Sources of power (Palmer & Hardy, 2000) 182 A.4 Factors driving healthcare costs 183 A.5 Illustration of the working of the PHCI 184 A.6 Stakeholder functions 188 A.7 Flow of money in the PHCI 189 Appendix B: (System Methadologies) B.1 System tools 191 B.2 Functionalist approach to systems thinking (Keatings, 2000) 192 B.3 Functionalist approach – functions of stakeholders in the PHCI (VSM, De Beer) 194 B.4 Functionalist approach – functions of each system (Keatings) 199 B.5 Functionalist approach – structural deficiencies in the analysis of the VSM 201 B.6 Emancipative approach 204 B.7 Post modern approach – modern vs post modern approach 206 B.8 Post modern approach – application of methodology (Taket & White, 1993) 201 B.9 Post modern approach – application of this approach to the healthcare industry in the USA 210 B.10 Interactive planning – Ackoff 212 B.10.1 Flow chart of interactive planning B.10.2 Application of methodology B.10.3 Formulating the mess B.10.4 Ends planning B.10.5 Means planning B.10.6 Resource planning B.10.7 Implementation and control B.11 Interactive planning – flow chart of the failures methodology 240 Appendix C: ( Analysis of the failure of failed medical schemes.) C.1 Analysis of MCG using the systems failure methodology 241 C.1.1 System identification C.1.2 Identification of System failures C.1.3 Failures compared against formal system paradigms C.1.4 Failures compared against other paradigms C.1.5 Paradigms that contributed to the failures C.1.6 Understandings from the project C.1.7 Comparison of the failures to the VSM and stakeholder models C.1.8 Conclusion C.2 Analysis of the failure of Phila medical scheme using systems failure methodology 259 C.2.1 System identification C.2.2 System failures C.2.3 Failures compared to the formal system paradigm C.2.4 Failures compared to the other paradigms

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C.2.5 Learnings from the failure. C.3 Analysis of MMP using the system failure methodology 268 C.3.1 Rich picture of problems in MMP C.3.2 Structure and functions in MMP C.3.3 Failures identified C.3.4 Learnings from this failure. Appendix D: ( Analysis of Viable Medical Schemes.) D.1 Explanation of terminology 275 D.2 The Udipa model 276 D.2.1 Historical analysis D.2.2 Structure of Udipa D.2.3 Udipa as a system D.2.4 Capitation fee D.2.5 Public private partnership model D.2.6 The essential process D.2.7 Re-imbursement method D.2.8 Co-operation and viability within Udipa D.2.9 Marketing D.2.10 Risk taking D.2.10.1 Introduction D.2.10.2 Individual risk D.2.10.3 Group risk D.2.10.4 Udipa’s risk D.2.11 Group and peer review D.2.12 Why Udipa works D.2.13 Critique of the system D.2.14 Governance D.2.15 Competition D.2.15.1 Pharmaceuticals and competition D.2.15.2 Private hospitals and competition D.2.15.3 Competition and doctors D.2.16 Problems specific to the capitation model D.2.17 The effect of aids on Udipa D.2.18 Conflict in Udipa D.2.18.1 Conflict between specialists and GP’s D.2.18.2 Conflict with private hospitals D.2.18.3 Conflict with pharmaceutical manufacturers D.2.19 Static membership D.2.20 Understanding the problems D.2.21 Explanation of conflict D.3 The Care Cross model 295 D.4 The Primecure model 296 D.5 The Medicross model 296 10. References 300

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LIST OF FIGURES

CHAPTER 1 1.1 Figure 1.1: Self destruction of the private healthcare industry 21 1.2 Figure 1.2: Public healthcare system 22 1.3 Figure 1.3: Overloading of the public healthcare sector 24 1.4 Figure 1.4: Integration of private and public healthcare sector 26

CHAPTER 3 3.1 Figure 3.1: Private healthcare system 33 3.2 Figure 3.2: Factors driving health care costs in the private sector 35 3.3 Figure 3.3: Real non-health expenditure per beneficiary 39 3.4 Figure 3.4: Benefits paid: medical savings accounts 41 3.5 Figure 3.5: Rich picture: private healthcare industry 43 3.6 Figure 3.6: Role of power in aggravating the current situation 46 3.7 Figure 3.7: Total non-health expenditure for registered schemes 48 3.8 Figure 3.8: Map of relationships and power 50 3.9 Figure 3.9: Major stakeholders in the private healthcare industry 52

CHAPTER 4 4.1 Figure 4.1: Systems approaches 62 4.2 Figure 4.2: Variety of systems approaches 66 4.3 Figure 4.3: Viable system model 69 4.4 Figure 4.4: Fundamental operation in private healthcare industry 72 4.5 Figure 4.5: Managing healthcare demand 73 4.6 Figure 4.6: Basis of methodology 76 4.7 Figure 4.7: Systems existing in the private healthcare industry 85

CHAPTER 5 5.1 Figure 5.1: Methodology of systems thinking 89 5.2 Figure 5.3: Methodology as an iterative process 102 5.3 Figure 5.4: Formal model of private healthcare industry 103 5.4 Figure 5.5: Control paradigm 106 5.5 Figure 5.10:ID of problems in the private healthcare industry 118 5.6 Figure 5.11:CLD of problem formulation in the PHCH 119 5.7 Figure 5.12:CLD of communication 120 5.8 Figure 5.13:CLD of culture 121 5.9 Figure 5.14:CLD of information 122 5.10 Figure 5.15:CLD for power and stakeholder management 124 5.11 Figure 5.16:Trust in the private healthcare industry 125

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CHAPTER 6 6.1 Figure 6.1 Triangle of communication 132 6.2 Figure 6.2 CLD of reference scenario 135 6.3 Figure 6.3 Ideal model 141 CHAPTER 7 7.1 Figure 7.1 CLD of the ideal model 148 7.2 Figure 7.2 Dynamics that contributed to the failure situation 152 7.3 Figure 7.3 MCG failure 157 APPENDICES APPENDIX A A.1 Workings of the private healthcare 188 A.2 Flow of money in the private healthcare industry 189 APPENDIX B B.1 Influencing relationships 191 B.2 Behaviour overtime graph 191 B.6 VSM model of the PHCI 200 B10.1 Interactive Cycle 213 B.10.2 Scheme members requiring healthcare 216 B.10.3 The desired system 225 B.10.4 Constrained version of the desired system 226 B.10.8 Flow chart of implementation 235 B.11 Flow chart of the failure methodology 240 APPENDIX C C.1 Rich picture MCG 243 C.2 Formal structure and functions of MCG 244 C.3 Formal system 247 C.4 Communication system 248 C.5 Information processing system 248 C.6 Formal implementation system 249 C.7 A formal communication system 250 C.8 A simple control system 251 C.9 The MCG feedback system 251 C.10 A formal implementation system 251 C.11 Information flows in MCG 252 C.12 Formal information distribution system 252 C.13 Healthcare monitoring and controlling system 253 C.14 Structure and functions of Phila medical scheme 261

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C.15 The system of interest in Phila 262 C.16 The formal system paradigm in Phila 264 C.17 System to predict healthcare demand 264 C.18 System of controlling healthcare demand 266 C.19 Rich picture of MMP 270 C.20 MMP – structure and functions 271 CHAPTER D D.1 Levels of care applied to scheme members 275 D.3 Divisions of groups 278 D.4 Process involved in Udipa 279 D.5 System map 280 LIST OF TABLES

CHAPTER 5 5.1 Table 5.1: Definitions and terminology 88 5.2 Table 5.3: Systems deficiency 95 5.3 Table 5.4: Stakeholders and definitions 97 5.4 Table 5.5: Analysis of stakeholder problems 112 5.5 Table 5.6: Summary of problems from a systems point of view 115 APPENDIX B B.1 Four different approaches 193 B.2 Functionalist approach 194 B.3 Primary functions of each system 198 B.4 Structural deficiencies 201 B.5 Twelve heuristics questions 204 B.6 Modern vs post modern approach 206 B.7 Methodology for the post modern approach 207 B.8 Simple rules for the design of the 21st century healthcare system 211 B.10.3.1 Trends analysis chart 222 B.10.5 Gaps between the reference scenario and idealized state 228 B10 Implementation form for a step in the ideal model 238 APPENDIX D D.1 Chart of capitated service providers 299

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DEFINITIONS Administrator - Appointed by a medical scheme to administer the scheme,

collect contributions, pay service providers, and provide timeous reports.

Capitation- - Fixed payment per month per patient to service

providers to look after the health of the members. Chronic medication - Medication used by members with chronic illnesses, usually

limited by a budget or a formulary. Chronic patient - Patient on chronic medication, usually with a fixed

annual budget. Fee for service (FFS) - Payment to the service provider for each patient encounter. Formal system paradigm - An accepted system or method of executing functions in

an organization. Formulary - A list of medicines or allowed procedures from which

the doctor may select to treat a member of the scheme. Generics - Legal copies of original medication. Hard-system approach - Used where there is consensus on the problem situation. Health outcomes - A measure of the quality of the process of applying

healthcare to a scheme member. Hospital authorization - Permission is obtained, usually from a nursing sister,

who gives a number that authorizes hospital admission of a medical-aid member, by agreeing to pay the hospital.

Managed health - A system of managing the health of a member by removing

inefficiencies in the system Modernistic - Signifies bureaucracy, top-down decision-making,

empowers organizations and disempowers individuals. Network model HMO - A group of doctors provide a service to a captive healthcare-seeking market.

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O and S in CLD - O Cause effect S

O means that cause and effect move in the opposite direction. S means that cause and effect move in same directions.

Paradigm - A set of ideas, assumptions and beliefs that guide

scientific or other activities. Post Modernism - This view promotes personal liberty and freedom to

make choices that affect one. Primary care - Health services rendered by a family practitioner or nurse

(trained to administer primary care). Savings account - A portion of the scheme member’s contribution that is under the member’s control, to fund discretionary

medical spending. Service providers - Any person or organization that provides healthcare services to a member of a medical scheme.

Soft-system approach - Used when there is no consensus on the problem situation

and major conflict between stakeholders. Staff model HMO - The provision of healthcare to a captive group at a single

facility managed by different healthcare professionals. Tertiary services - Medical services that can only be supplied in a hospital

setting.

o

.

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LIST OF ABBREVIATIONS CEO - Chief Executive Officer CLD - Causal Loop Diagram FFS - Fee for Service Model (Paid for every patient/service

provider interaction).

FSP - Formal system paradigm GDP - Gross Domestic Product GP - General Practitioner HBR - Harvard Business Review HMO - Health Maintenance Organization HSPC - Health Services Professional Council ID - Interrelationships Diagraph IP - Interactive planning IPA - Independent Practitioners Association (Association of doctors

who have common interests). MCG - Midland Chamber Group Medical aid MMP - Midland Medical Plan MRI - Magnetic Resonance Scan MSC - Medical Scheme Council PHCI - Private Healthcare Industry PPP - Public-Private Partnership SAMJ - South African Medical Journal

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UCT - University of Cape Town UDIPA - Uitenhage & Despatch Practitioners Association UDIPA PLAN - A health plan which allow access to healthcare VSM - Viable System Model

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CHAPTER 1

STRUCTURE OF THESIS

CHAPTER 1 INTRODUCTION

CHAPTER 2 THE WRITER’S PERSPECTIVE

CHAPTER 3

BACKGROUND TO THE PROBLEM

CHAPTER 4

SYSTEMS THINKING. A MANAGEMENT

TOOL FOR PROBLEM SOLVING

CHAPTER 5

PROBLEM FORMULATION

CHAPTER 6

TOWARDS A SOLUTION

CHAPTER 7

TESTING THE ANSWER

CHAPTER 8

CONCLUSION EVALUATION REFLECTION LEARNING

APPENDIX A= Situation background B= system methodologies C= Analysis of failed schemes D= Analysis of viable schemes

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CHAPTER 1

INTRODUCTION Access to adequate health care is a universal problem in highly developed and developing

countries such as South Africa. This thesis attempts to understand the problems that affect the

private healthcare industry (PHCI) in this country, which make this industry not viable

(Editor, South African Medical Journal, January 2003).

Understandably, health is a personal and emotional issue. Nothing strikes more at the heart of

individuals’ self-confidence and ability to enjoy life and generate an income than a

devastating illness or injury. It is therefore understandable that the employed (and every

other) person wants to have access to the best possible medical cover for himself and his

family.

Universal access to healthcare for all exists in many countries. However, it is the very ability

to purchase this cover in a market that is growing very expensive that is threatened. It is also a

threat to society. In any country it is accepted that, in order to attract foreign investment and

encourage people to remain in the country, access to good quality healthcare is important.

1.1 Health – a global problem

A quick scan of the global healthcare environment makes it clear that healthcare is a global

problem. A report (European Observatory on Health Care Systems, April 2002) covering

eight developed countries in the west, showed that numerous problems existed in the

healthcare systems of those countries. (A summary is presented in Appendix A.) Amongst

these the most prominent was denial of access to healthcare by long waiting lists and

increased contributions by the citizens to access healthcare.

In America there are a growing number of people who do not belong to any form of medical

aid. It was estimated in 1993 (Beuchamp, 1993) that 100 000 people in America lost coverage

every month. In the United Kingdom there is an aging and geriatric population that places

enormous demands on the National Health Service. Waiting-time for cataract operations is

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one year and longer. (Daily Mail 9/12/2001) America spends 14% of Gross Domestic Product

(GDP) on healthcare, but still leaves 93 million citizens uninsured. (Beuchamp, 1993)

Japan spends 6-7% of GDP on healthcare, and has better health outcomes. (www.who.int/en).

By comparison, South Africa spends 8-9% of GDP (Health Portfolio Committee, 25 June

2002) on healthcare but its health outcomes are less good than those of equivalent countries,

developed and developing. Based on a United Nations health survey (Health Portfolio

Committee, 25 June 2002) South Africa ranks 175 out of 200 countries. This suggests that

the South African system has a great deal of inefficiency in it.

1.2 Background to healthcare in South Africa In the context of the South African Constitution, all individuals have the right of access to

adequate medical care. It is of concern to all individuals that if they become sick, they can

afford to have access to the best available treatment. Times have changed. Twenty years ago

there were no Magnetic Resonance Scans (MRIs), expensive medication, or private hospitals.

The healthcare environment has changed. You can now be admitted and kept alive in an

Intensive Care Unit for R10 000 a day. MRIs at R8000 a throw are available as expert

diagnostic tools. Medication costing you R10 000 per month can keep you alive if you have

received a kidney or heart transplant. These possibilities generate expectations in members of

medical schemes, that as they are paying, they should be entitled to these benefits. With 60%

utilization of service providers and facilities, can we afford to give these benefits to everyone?

(Reg Magennis, 2002)

Nobody will deny that it is morally correct to give everyone the best medical treatment that

the person and the country can afford. But it is impossible. Medical care has to be rationed in

South Africa because resources are limited. Who is going to say what should be given and

what should be restricted? In the current fee-for-service (FFS) model (where payment is made

for every doctor-patient contact) the member and the service provider will continue treating

till benefits or funds are exceeded, and then rely on the State. It is a model that is not viable

and is flawed. It rewards service providers by paying them to keep members “sick”. It limits

the member from receiving treatment when benefits are exceeded (he has used up his

allocated budget) even if he is sick. The end result is that the service provider and the

administrator are paid regardless of the outcome. The person who gets the worst deal is the

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member. It is no wonder that membership of medical schemes is not increasing (Medical

Schemes Council [MSC] Annual Report, 2001).

The current situation in the South African healthcare industry has led to stagnation in the

growth of the industry. It has remained at the level of about 7 million members for the last

three years. (MSC Annual Report, 2001) There are another 7 million people who are

employed but are not on medical aid. (Planting, 2002) The current medical aid contributions

are too high.. It is also of concern that members who have remained have downgraded to

cheaper options that have reduced benefits.

The popular press constantly prints articles on how the healthcare system is not working. It is

the right of every human being to expect to be treated with respect, dignity, empathy and care

when confronted by illness.

The South African private healthcare industry (PHCI), like many others in the world, is prone

to systematic increases. Real costs have increased 249.7% from 1974 to 1999. (MSC Annual

Report, 2001). Hospital costs have increased by 560.3%. Non-medical costs have increased

by 444.8% and medicines by 302.8% (MSC Annual Report, 2001)

Recent figures published by the MSC (2001) reveal the following:

Increases in premiums have exceeded the rise in wages. This has resulted in contributions

to schemes as a percentage of salaries, rising from 2% in 1998 to 15-25% in 2002.

Increases in administration fees over the last five years have exceeded the Consumer Price

Index. In fact, open schemes increased administration fees in 2001 by 56% compared with

2000.

There have been increases in payments for medicine, hospitals and specialists.

A decreased percentage of contributions have been paid out for actual health services

rendered, from 94 cents in the rand in 1980, to 84 cents in the rand today.

It is clear that if medical aid premiums continue to escalate faster than salaries, they will soon

become unaffordable for the majority of members. 10% of salary is a reasonable and adequate

amount to pay for healthcare. According to Professor McCleod, head of the Centre for

Actuarial Research at UCT, currently the average blue-collar worker (married with two

children) who earns R5000 per month contributes R1000 towards his medical aid. his

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company contributes another R1000. This is 20% of his salary, which is not sustainable. The

member has to purchase food, housing, electricity, water and clothing to maintain a

reasonable standard of living, such as living in a brick house with sewerage, water and

electricity, compared to staying in a shanty with no electricity, sewerage or water and the

concomitant health risks. So both from a consumer point of view and a public point of view,

this is not desirable or sustainable

It is particularly with reference to the PHCI that front-page headlines are made. According to

Gary Taylor, manager of Medscheme, the largest medical aid administrator in South Africa,

doctors are sometimes found to act unethically or fraudulently. Patients in collaboration with

doctors have defrauded medical schemes, and administrators are being investigated for illegal

and unethical practices. (Alex Van Den Heever, 2002) Even trustees of medical schemes have

been known to draw excessive remuneration. (SAMJ, October 2002).

Accusations fly around about who is responsible for this “mess”. Speak to doctors and they

will tell you the medical aid is “crooked” and does not pay them a “living fee”. Speak to

medical aids and they will tell you that doctors are to blame. They over-service, or submit

fraudulent claims. Speak to the MSC, and they will tell you that administrators are

overcharging. Who in this scenario is the “guilty” party? Nobody is guilty and everybody is

guilty. By this I mean that no single person or entity is responsible. However, collectively

they are all responsible.

Imagine that you going to the annual sale at a popular department store. There is a limited

quantity of merchandise at a reduced price. Everybody is there to purchase some of it. There

is shouting and commotion with people trying to push and get in front so that they may get the

desired item. In the PHCI everyone is also trying to get his share. However, some want more

than their share of the available merchandise/cash. The patient wants access to the latest

healthcare technology, as often as he wants it. The doctor wants what he thinks he is entitled

to, and sets out to achieve this. The administrator wants his share and his profit for his efforts.

But the amount of merchandise available is fixed. Why is it fixed? The amount of money in

the system can purchase only a fixed amount of healthcare. With everyone demanding more

out of a fixed amount, the only way to make it stable is to put more resources (cash) in. This

is done by raising contributions that now cost 15-20% of salary (Jeanette Clark, 2002).

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Ackoff (1994), in his stakeholder theory of organizations, states that for the organization to

survive, it must take into account all the conflicting interests of all stakeholders. Ansoff

(1965) also held this view. The private health-care industry can be viewed as such an

organization. Its stakeholders comprise:

Patients / Members of Schemes

Service providers

Administrators

Brokers

Medical Schemes

Government / Treasury

Medical Schemes Council.

Although these stakeholders throw accusations at each other, the current system does not

allow stakeholders to talk to each other. What is happening is that the current stakeholders are

attempting to get the maximum benefit from the system for themselves. Each one has a valid

claim and sometimes a fraudulent claim. It is the inability of the system to balance all these

conflicting claims that makes it difficult for the system to survive. When this happens, the

only way to stabilize the system is to increase premiums – which is a short-term solution –

what I call “treatment of the symptoms” – as these frequent increases hide inefficiencies.

Increases in contributions are usually greater than increases in salary and the resultant

premiums become unaffordable.

If one side takes more, there is less for others. To satisfy demand, more “merchandise” or

money, must be made available, and this money is supplied by healthcare consumers and

employers. This can result in a negative re-inforcing loop, causing continuous increases until

the system collapses. (see Figure1.1)

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Figure 1.1

This figure shows how high medical aid contributions cause healthier members to leave and

sicker members to remain. There are more older members who claim more, but there are

fewer healthy members to subsidize the sick. As a result premiums have to be increased

further, making them unaffordable.

In this structure, all stakeholders appear to be taking more out of the system than they are

entitled to, or should be receiving. This shakes the stability and foundation of the current

private healthcare system and it is not sustainable. It will manifest as a reduction in

membership, with only an elite few remaining and the majority depending on the restricted

ability of the State. This research intends to show that the current system is not sustainable.

1.3 Relationship between the private and state health sector The current healthcare environment can be divided into the public and private sectors. The

two, although independent, are linked. Any discussion on the Private Health Care will not be

relevant without reference to the public healthcare system, and the way the two interact. In

any country, the public funded system is the system of last resort. Citizens of all countries

HIGH MEDICAL AIDPREMIUMS 0

DECREASEMEMBERSHIP 0

FEWER MEMBERSCONTRIBUTING,

BUT INCREASINGCLAIMS 0

ONLY SICK JOIN 0

INCREASEDCOSTS 0

SELF DESTRUCTION OF THE PRIVATE HEALTHCARE INDUSTRY 0

Negativere-inforcing loop

HEALTHY LEAVES 0

DECREASINGVIABILITY 0

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expect the government to look after them if they are sick. Governments are able to do this

depending on the resources they have available to them. Private Health Care in South Africa spends R37 billion on 7 million citizens, and the different

provinces spend R30 billion on the remainder of the population (Health Portfolio Committee,

25 June 2002). Next follows a brief overview of the PHCI (See Figure 1.2).

Figure 1.2

PUBLIC HEALTH SYSTEM

PRIMACAR

CLINI

UNEMPLO

EMPLOYED healthcar

CALL BACK RESULTS TREATME

HOM

HOMNURSINWEL

SUBSTANDATREATME

TREATME INPATIE

OUTPATIE

STATHOSPIT

RECOV

RELAP

(Used by +- 31 million)Sickmember ofthe public

(+- 31 MILLION) PRIVA

HEALTHC

CANNOAFFOR

MEDICALSCHEME

MEMBERS. NOBENEFITS

ALTERNATCAR

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This illustrates how a sick member of the public moves through the public healthcare system.

The individual may belong to the category of the unemployed, the employed not on medical

aid, or those on medical aid who have been denied access to care. The first port of call is the

primary care clinic. If the patient does not get better, then he is sent to the hospital. He is

treated as either an inpatient or an outpatient. If he has a relapse, he may then attempt to get

care at a private institution. If unable to do so, he will go back or seek alternative treatment,

for instance herbal medication or treatment from a witchdoctor.

The public sector is government-funded. The employed are charged a fee based on their

current earnings. However, children, pregnant women, and the elderly, have access to free

medical care. It is this unrestricted access to public healthcare that has caused an

unprecedented demand for health services. This demand is at the primary care level.

Government has focused on this level and re-directed the budget from tertiary care (hospitals)

to primary care. This reduction in funding, as well as inefficient administration, has resulted

in deterioration of the public hospitals, which has resulted in a drop in standards of healthcare

(Newspaper headlines, Herald, Mail and Guardian and Business Day, 2002). (See Figure

1.3.)

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Figure 1.3

The above figure illustrates how the public heath sector gets burdened by members who are

“falling out of” the PHCI. The reasons that this occurs are as follows:

Benefits have been exceeded for the current year.

Members have “bought down” to cheaper options that offer limited benefits

Conditions have occurred that are not covered by the rules of the scheme

OVERLOADING OF THE PUBLIC HEALTH SECTOR

PUBLICHEALTHCARE

SECTOR

CANNOTAFFORD

CAN AFFORDPREMIUMS

TOO HIGH

LIMITEDCOVER

PRIVATEHEALTHCARE

SYSTEM

NOT COVEREDBY RULES

TREATMENT OFPRIVATE

HEALTHCARECONSUMER

FALLS OUT DUETO LIMITED

BENEFITS

HAPPY

Shows that publichealthcare system is the

system of last resort

UNTREATEDPUBLICTREATEDMEMBER

CAUSED ADDITIONALDRAIN ON PUBLIC

SECTOR

BRINGSLIMITEDCOVER

FAILEDSCHEMES

FALLS OUT -NOT COVERED

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Members have opted out because of high premiums and are going to the State as paying

patients

These members then present themselves to an already overburdened and understaffed health

sector. The overload on the public sector has created the perception that the public healthcare

system is failing. Those who can, opt for private healthcare. This has fuelled the private

hospital industry, in which the percentage of cash-paying patients (not on medical aid) has

increased dramatically from 4% in 1990 to 10% now, according to Netcare, the largest private

hospital group in the country (Norman Weltman, 2003). As people avoid the public healthcare

system, there is a loss of income from paying patients who subsidize non-paying patients. If

patients and doctors avoid public institutions, further deterioration of standards occurs.

Rapid empowerment appointments in the public sector have led to mismanagement, and

administrators with no previous financial knowledge have been put in charge of billion-rand

budgets. Human resource management, administration and logistics are all areas where the

health department lacks skills, resulting in further inefficiencies. Current labour legislation

prevents effective management of the labour problems in the State healthcare sector. It is

against this background that most members try to purchase private health cover or pay cash

upfront.

Figure1.4 shows how the public and private system are integrated.

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Figure 1.4 This figure demonstrates that the common denominator is the service provider. Some work

only in one sector, but often they are involved in both sectors. The difference is in the manner

that they are paid, and the facilities where services are rendered. There is a constant flow of

patients between the two sectors, and each sector is affected by the dynamics in the other.

The illustration above demonstrates how the two systems are linked. When patients fall off

the private health-care chain, they fall into the lap of the under-funded State sector. In order to

resolve private healthcare, one must also resolve problems in the State sector, as the public

sector has not been able to deliver. The State has accused the private sector of monopolizing

healthcare resources for the benefit of a privileged minority, and views this in a serious light

as a denial of healthcare to the less privileged – in other words, that private healthcare should

be more socialistic and less capitalistic – but this is not a viable option It is also government’s

view that the private sector should contribute to the public sector by using, and paying for, the

State facilities.

A recent survey (Stakeholder Analysis Report, July 2001) conducted by the MSC, showed

that 95% of medical aid scheme members were satisfied with the service. It is obvious that

those who can afford it, and whose employers help subsidize the costs, enjoy excellent access

to healthcare. However, its sustainability is questionable.

INTEGRATION OF PRIVATE AND PUBLIC HEALTHCARE SYSTEMS

(Supported by tax payer)

PUBLICSECTOR

PRIVATESECTOR

UNEMPLOYED / EMPLOYED NOT

ON SYSTEM

PUBLICHEALTHSYSTEM

INTERFACE

OWNER =GOVERNMENT

PROCESS APPLYING

TREATMENT

SERVICEPROVIDER

(private)

ADMINISTRATOR -PAY THE SERVICE

PROVIDERACCORDING TO

RULES

APPOINTEDBY SCHEMEWHICH SETSTHE RULES

NOT TREATED TREATED

EMPLOYED REGULATED BY HSPC

/ PROFESSIONAL BODIES /

ADMINISTRATORS

PAYS CONTRIBUTIONS

REGULATEDBY MEDICAL

SCHEMESCOUNCIL

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CHAPTER 2

STRUCTURE OF THESIS

CHAPTER 1 INTRODUCTION

CHAPTER 2 THE WRITER’S PERSPECTIVE

CHAPTER 3

BACKGROUND TO THE PROBLEM

CHAPTER 4

SYSTEMS THINKING. A MANAGEMENT

TOOL FOR PROBLEM SOLVING

CHAPTER 5

PROBLEM FORMULATION

CHAPTER 6

TOWARDS A SOLUTION

CHAPTER 7

TESTING THE ANSWER

CHAPTER 8

CONCLUSION EVALUATION REFLECTION LEARNING

APPENDIX A= Situation background B= system methodologies C= Analysis of failed schemes D= Analysis of viable schemes

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CHAPTER 2

PERSPECTIVE OF THE WRITER

In order for the reader to understand the assumptions, explanations and style of this

dissertation, it is useful to be familiar with the background of the writer. It is difficult to write

on a subject that one has been closely involved with for 32 years and remain impartial.

The writer is in active general practice, running a large family practice employing three full-

time assistants. The practice averages in excess of 2 000 patient visits per month. In addition,

a small number of hospital and other minor procedures are undertaken. The practice is largely

based on servicing members of the motor industry in a small town with a population of about

300 000. Most of the patients (approximately 80%) are members of a medical scheme.

The researcher is also a director in a private hospital and in a company that provides a

capitated healthcare model in the town. This is a system where a doctor is paid a fixed amount

per month to look after the healthcare needs of the scheme members. This dissertation

explains in detail why this model is viable.

It has long been the researcher’s aim to bring affordable medical cover to the employees of

industries in the town. In the process he has had to overcome many built-in assumptions and

beliefs of his own. The reader should therefore bear in mind that the researcher is a service

provider in the private healthcare industry, and a large part of his income is dependent on the

survival of this industry. His position as researcher cannot therefore be described as

disinterested.

His views do not necessarily reflect the views of his professional colleagues or any

organizations of which he is a member. The researcher’s views are based on the experience

and influence of the various lecturers at the University of Cape Town’s Executive MBA unit,

and on interaction with his colleagues.

The dissertation reflects the researcher’s day-to-day work and his close involvement in the

industry. He is critical both of his own profession and of other stakeholders who threaten the

viability of the industry. Much of the evidence has been gained from first-hand knowledge of

the current state of events, and from close involvement in all aspects of the industry.

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The researcher has noticed and experienced personally the manner in which high medical aid

contributions have continued to escalate, forcing his patients to abandon medical aid schemes

or buy down (decreased benefits for the same contribution) to retain some cover. It has been

his personal experience that the percentage of medical scheme members over the last five

years has decreased. In addition, as a general practitioner, his income has declined over the

last five years as a result of inadequate increases and declining medical aid membership. This

dissertation is an attempt to show that in this high-cost environment, good management

thinking can help reduce costs in an industry that is difficult to manage.

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CHAPTER 3

STRUCTURE OF THESIS

CHAPTER 1 INTRODUCTION

CHAPTER 2 THE WRITER’S PERSPECTIVE

CHAPTER 3

BACKGROUND TO THE PROBLEM

CHAPTER 4

SYSTEMS THINKING. A MANAGEMENT

TOOL FOR PROBLEM SOLVING

CHAPTER 5

PROBLEM FORMULATION

CHAPTER 6

TOWARDS A SOLUTION

CHAPTER 7

TESTING THE ANSWER

CHAPTER 8

CONCLUSION EVALUATION REFLECTION LEARNING

APPENDIX A= Situation background B= system methodologies C= Analysis of failed schemes D= Analysis of viable schemes

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CHAPTER 3

THE PROBLEM CONTEXT

Professor Heather McCloud (University of Cape Town Actuarial Research, 2002) notes that

53% of the country’s medical scheme members earn less than R4 000 per month. So a R1 000

deduction for healthcare is not viable for them. With the collapse of the public health system,

these members have no option but to subscribe to medical aid to get any chance of decent

medical care. What happens in practice is that they stay on, but buy down. In other words the

same premiums buy them less healthcare.

Currently there are 7 million people who are employed but do not enjoy medical cover. How

can South Africa, with a small economy and a critical shortage of skilled professionals,

provide cover for them? The State’s responsibility to provide healthcare for the indigent, and

the private healthcare industry, are linked. However, the private sector is spending R37 billion

on 7 million people, and yet people are not getting enough health cover (see Figure1.3).

How does one measure the effectiveness of one’s health care system? In business it is easy to

look at a few ratios and decide if the business is healthy. But how does one know that one’s

healthcare system is working and that one is getting value for money? Mortality and

morbidity statistics are very broad indicators of the health of a population. The issue is

difficult and subjective.

3.1 Access to healthcare Figure 3.1 attempts to illustrate how members of this system are able to access healthcare.

The reader is referred to Appendix A for an illustration of how the industry operates,

functions of stakeholders, and how money flows in the industry. It is necessary that the

reader be familiar with the system, as the subsequent discussion hinges on the reader’s

understanding of the current system.

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Figure 3.1

Figure 3.1 tracks the movement of a medical scheme member through the private healthcare

system.

A medical-aid member is usually an employee of a company. The company contributes 50%

of the contribution and the employee the other 50%. These percentages can vary, but this is

the norm. The contributions are tax-deductible. This money is paid over to a medical scheme.

The medical scheme appoints an administrator who collects the contributions and pays out

service providers according to scheme rules. Service providers are paid as and when

members present themselves for treatment, provided that member funds are available.

PRIVATE HEALTHCARE SYSTEM

(Used by +- 7 million)

and company EMPLOYEES PAYS SCHEME REGULATOR

OFSYSTEM

ACCEPTS SYSTEM

ALLOWS ACCESS TO

PROVIDERS BYAGREEING TO

PAY

TREATED EMPLOYEE

SATISFIED NOT

SATISFIED

PAYS PROVIDER

OPTS

DECREASED MEMBERS

INCREASED COSTS

MORE SERVICE

PROVIDERS JOIN

ADMINISTRATOR

MEDICAL SCHEMES COUNCIL

DOES NOT PAY SERVICE

PROVIDER UNHAPPY

REFUSESSEE

ACCESSHEALTHCARE

REDUCED

PAYSTO

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Members who are satisfied continue paying the contributions. Those who are unhappy leave

the system. Members, who remain, lose the benefit of cross subsidization and have to pay a

higher premium. This forms a negative reinforcing loop leading to higher and higher

contributions (see Figure 1.1). Service providers, who accept the rate and get paid, remain in

the system and are available to treat members. This forms a positive reinforcing loop, which

continually attracts new service providers. Should service providers not be paid, this would

reduce the number available to treat scheme members, making the scheme less attractive, and

contributing to the further loss of members.

The large increases in contributions have made younger, healthy members opt out of the

system. They choose not to pay the premium as they feel it is too high, not justified, and not

necessary. However, sick members remain and if there are no healthy paying members, then

premiums will go even higher as there will be no-one to subsidize the sick (see Figures 1.1

and 3.5). This is already occurring as the healthier members either move out or downgrade to

“hospital only” plans. This leaves sick people stranded with high premiums.

3.2 The visible cost drivers in the healthcare industry Figure 3.2 illustrates the various factors that have been involved in driving healthcare costs

up. It is an amplification of Figure 1.1. Each factor is discussed in detail later. Figure 3.2

demonstrates how escalating premiums cause healthy members to leave, or to buy cheaper

options, resulting in loss of cross-subsidization. This causes premiums to rise further to meet

rising claims from the remaining and usually less healthy members, resulting in continuous

increases. Failed medical schemes testify to this.

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Figure 3.2

I will now discuss all the drivers in detail. A summary is available in Appendix A.

In the fee-for-service (FFS) environment, all providers have methods of increasing

consumption. Hospitals become more like hotels, to encourage people to stay longer. Doctors

call back patients for vague reasons, or dispense medication that is not indicated. Brokers

encourage “churning” (movement of members from one scheme to another scheme in order to

generate commissions). Radiologists give kickbacks to specialists for referring patients to

them (South African Medical Journal, Sept. 2002).

NEW TECHNOLOGY

REGULATORS

ADMINISTRATORS

SERVICE PROVIDERS

PATIENTS

LIFESTYLE CHANGES

INFRASTRUCTURE (LACK OF)

MEDICINEMANUFACTURERS

DEVALUATIONOF RAND

AIDS

FACTORS DRIVING HEALTHCARE COSTS INTHE PRIVATE SECTOR

INFRASTRUCTURE

BROKERAGE

HUMAN NATURE

DEMAND/UTILIZATION

MONOPOLIES

PRICE FIXINGAGE

ECONOMY

ESCALATINGHEALTHCARE

PREMIUMS

MEMBERSDOWNGRADING

MEMBERSREMAINING

MEMBERSLEAVING

BUY HOSPITAL ONLY PLANS FOR LIMITED

BENEFIT

SICKREMAIN.

HEALTHYLEAVE

SICK REMAIN

NO CROSS SUBSIDIZATION

REDUCED FUNDING / PREMIUMS

South African Industry level of competition

FACTORS DRIVING HEALTHCARE COSTS IN THE PRIVATE SECTOR

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The private healthcare system currently runs at about 60% of capacity. To make it viable,

service providers encourage increased consumption of services to get a return on capital

invested (Reg Magennis, Financial Mail, 27 September, 2002)

The right to adequate healthcare is provided for in the Constitution. However, “adequate

healthcare” is not defined. In the private sector, R37 billion is spent caring for 7 million

people. In the public sector, R30 billion cares for the other 30 million. It is this discrepancy

that makes government want to introduce National Health Insurance.

3.2.1 The legal and regulatory framework

It is apparent that, when changes were made to the legislation relating to medical schemes,

mandatory joining of the schemes by employees was not deemed necessary. For example, in

the Uitenhage Goodyear Tyre plant, where medical aid is an option, 10% of the workforce are

not on medical aid. This 10% comprises those who are healthy and probably “low claimers”.

As a result the medical aid scheme at Goodyear will end up mostly with the less healthy

members of the workforce, resulting in a strain on the other members. There is also a late

joiner penalty, which has not helped to improve membership.

There are 150 medical aid schemes in South Africa, each offering a variety of options. Each

option has to be administered, raising costs further, compared with the USA, where there are

only three medical aids, which helps to keep costs down.

With regard to the Medical Schemes Council (MSC), the comment is made that it is a

socialistic system (Helen Riding, 2002) that makes little allowance for free market or

capitalist economies. Not making medical scheme membership mandatory for all employed

people has weakened the cross-subsidization principle, where the healthy subsidize the sick. It

applies a “community rating” and not a “risk rating”. A community rating means that anyone

can join and pay the same premium, regardless of health. A risk rating is when one pays a

higher premium if one is a bad risk, for example members with pre-existing heart conditions.

The rules of the MSC allow for punitive penalties for late joiners. However, the penalties for

late joiners have not had the desired effect. Legislation also insists on a minimum benefit; for

example, if one has used up one’s private hospital benefit, the medical scheme is still obliged

to pay State hospital fees. This has been considered to be more a socialistic rule than a free-

market rule.

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3.2.2 Aging Population

In an aging population, many people are living longer. It is therefore inevitable that there will

be increased demand for chronic medication and allied health services. It is recognized that

most people incur the highest medical costs in the period just before death. It has already been

shown that schemes that have a high number of older, sicker people have higher claims.

Statistics have shown that the average age of the medical-aid members has increased,

confirming that older, sicker members are remaining or joining, and healthy, younger

members are leaving (MSC Annual Report, 2001).

3.2.3 Lifestyle changes

Lifestyle changes have also contributed to escalating costs. Smoking, stress, excessive alcohol

consumption, lack of exercise, motor car accidents and violent crime all contribute to

increased man-made causes of illness.

3.2.4 AIDS

The AIDS epidemic presents a major hurdle. The United Nations estimates that 20% of the

population is infected. (www.who.int/en/)

3.2.5 Infrastructure

Lack of basic infrastructure with rapid urbanization and the creation of “shanty towns” with

inadequate sanitation, water and electricity, cause further demands on healthcare, by the

increased occurrence of contagious diseases.

3.2.6 Rand devaluation

The devaluation of the rand, together with the increased demand for sophisticated technology

and the latest medications, is a further driver of healthcare costs. 90% of all medical

equipment is imported. Some medicines are produced locally, but raw ingredients are

imported, and these costs are all dollar-based. The consumer mindset claims entitlement to all

the latest technology and medication without regard to cost.

3.2.7 Brokers

Brokerage fees have been seen as another method by which medical aid schemes can be

“skimmed” for additional profits. In 2001, brokers increased their costs by 35% (as illustrated

in Figure 3.3), although membership was static.

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In 2001 this amounted to R270 million. This fee is not related to the work that brokers do, but

is a percentage of contributions. While legislation states that it should not exceed 3%, brokers

increased this to 9% by various methods such as co-administration (MSC Annual Report,

2001). Currently, brokers shift members from one scheme to another so that they can earn a

commission. That is to say, they shift members from a low commission-paying scheme to a

high commission-paying scheme. These increases reduce the value of the healthcare rand that

is available to the member

3.2.8 Medical schemes

Medical schemes are non-profit organizations. To become viable, they require a good product

and good marketing. Medical schemes are headed by a Board of Trustees who are paid, and

who are required to appoint administrators to run the schemes. Trustees of schemes are often

employees of the administrator, leading to a conflict of interest and poor corporate

governance. Many trustees charge excessive fees. It is often a lack of governance by the

trustees that allows a situation to exist where administrators are given the freedom to do as

they wish.

There has also been a reduction in the number of dependants per main member (MSC Annual

Report, 2001). This explains why members leave out dependants to make it possible for them

to afford the premium.

A further indicator of the health of the industry is the number of schemes that the Council

puts on a "watch list". (A scheme on the watch list is considered to be potentially insolvent.)

According to Gary Taylor of Medscheme, the largest administrator in the country, 14 schemes

have been placed on this list in 2001. This is approximately 10% of all schemes, an

alarmingly high figure.

3.2.9 Administrators

Trustees appoint administrators to administer the scheme according to rules and policies

determined by the trustees. The administrator charges the scheme an administration fee to

manage the scheme.

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A well-managed scheme costs 6–7% of contributions. Many schemes, for example,

Discovery, cost up to 14% of contributions (MSC Annual Report, 2001). The Registrar of

Medical Schemes, Patrick Matsobe, stated in the 2001 Annual report that for 2001,

administration fees had increased from R2.5 billion to R3.5 billion. The increase for closed

schemes (limited to the industry or company) increased by 11%, but open schemes (open to

the public) increased by 52%. This increase is more than medical inflation, and has increased

the payout to non-medical service providers to approximately 16c of every healthcare rand. In

Figure 3.3, it can be seen that the claims ratio (actual health care payments) decreased from

94% in 1995 to 84% in 2001. From these figures it appears that increases in healthcare

spending are being used to finance other non-medical expenditure. Figure 3.3 illustrates how

the different administration fees have increased but the actual medical payout (the claims

ratio) has decreased from 97c in the rand in 1990, to 83c in the rand in 2001, confirming that

increased contributions have funded increased administration fees.

Figure 3.3

Source: MSC Annual Report, 2001

3.2.10 Service providers

In the researcher’s own experience, a common pattern that is found by many service providers

is a marked drop in patients of approximately 25-30% in the last four months of the year, as

members’ benefits run out. In fact, one can gauge the health of the industry by the date when

the benefits run out. Previously it was only in December that benefits ran out. Now, in some

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instances it is found that benefits run out in March. This is especially true of the lower-budget,

or affordable, schemes. This leaves the members (who are usually low salary earners of

approximately R4 000 per month) to fund expenses out of their pockets, or else to go to State

facilities. This is why government is saying that, in spite of the tax breaks given to members

and employers, government still ends up funding the members.

Service providers have been known to claim “excessively” from schemes by various methods.

Some of these are as follows:

Submitting obviously fraudulent claims, that is, charging when no services are rendered

(Gary Taylor, Medscheme manager)

Specialists generating additional revenue by unnecessary services that do not add value

(“Radiology kickbacks”, SAMJ, September 2002)

Private hospitals “padding” hospital accounts) (Gary Taylor, Medscheme manager)

Doctors and pharmacists charging for the original when the generic was supplied (Gary

Taylor, Medscheme manager)

Opticians supplying sunglasses instead of spectacles (Receptionist employed by optician,

M-Net Carte Blanche)

Dentists charging for crowns when gold fillings have been inserted (Gary Taylor,

Medscheme manager)

General practitioners making unnecessary call-backs (Medscheme, Peer review statistics)

Pharmacies supplying cosmetics instead of scripted medication (M-Mnet Carte Blanche,

personal experience).

While most service providers are ethical, irregular activities of varying degrees do occur, and

are difficult to prove. Often the line between what is acceptable and what not, is thin and

contentious.

3.2.11 Patients / Members

By joining and contributing to a scheme, members have access to healthcare. They usually

want a “return on capital invested” which normally occurs when they obtain treatment.

Members, however, demand the latest technology and some have been known to use

fraudulent means to obtain benefits with or without the co-operation of service providers. The

medical scheme, a third party, pays for these services. The scheme has little or no control over

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the buying and selling process. The member is not directly responsible to pay the service

provider. He is therefore not aware of the costs generated. This contributes to the escalation in

medical inflation, as members demand services whose benefits are not related to the costs

involved.

3.2.12 Savings accounts

A further concern is the trend in the industry towards savings accounts. These are allocations

(limited to 25% of contributions) that members may use to purchase day-to-day services from

general practitioners and chemists. Medical schemes have no control over these funds. They

are under the members’ control. This pool of money is effectively removed from the larger

pool and is not available to cross-subsidize sick members. It therefore contributes to the

instability of the system. In the USA, medical savings accounts are not allowed, as they

prevent cross-subsidization.

Figure 3.4 (MSC Annual Report 2001)

Figure 3.4 illustrates the allocation of benefits paid from savings accounts. It confirms that the

majority of benefits are paid for medicines (44.1%). It has been shown that these medicines

are sometimes substituted for other items available in the pharmacy. This further demonstrates

the abuse perpetrated by certain members.

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In this scenario, administrators raise fees as high as the market can bear, service providers

over-service in an FFS environment, and members aim to get back every cent that they have

contributed, by whatever means possible, legal or illegal. This situation is graphically

illustrated in a "rich picture" (Figure 3.5).

Figure 3.5 represents the “mess” in which the industry finds itself, with the interactions

depicted between the various stakeholders.

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RICH PICTURE – PRIVATE HEALTHCARE INDUSTRY IN SOUTH AFRICA Government Family practitioner Threat of Businessman nationalization Student Regulating a dying industry Huge demand

Limited resources

Fighting Squeezed Strong overpowers fighting Trustees (Weak system)

fighting Grabbing Administrators Control of money Points fingers at everyone

Blames service providers- Accept themselves Service

providers

Patients Service providers Squeezed - Good - but can’t afford

- Go to - State facilities

- Demanding greater acces

ME

MEDICAL SCHEMES COUNCIL (BOSS)

REGULATOR REPRESENTS

GOVERNMENT FIGHTING A LOSE BATTLE

MEDICAL

SCHEMES WEAK

TRUSTEES

GENERAL PRACTITIONERS

REDUCED INCOME.

COMPETITION FROM

PRIMARY CARE,

SPECIALISTS SCARCE

ADMINISTRATOR STRONG / POWERFUL

DEMANDS

GOVERNMENT - Unhappy

MONOPOLIZING RESOURCES – Tax

holiday. Rich getting more benefits than

poor, overloading the state health system

Pharmaceutical Manufacturers

Enjoy government patent protection, vertical integration,

price collusion, little competition

HOSPITALS FIXPRICES FEW

COMPETITORS OLIGOPOLY

MEMBERS CAN’T AFFORD. FALLING OUT AS BENEFITS ARE

REDUCED COMPETITIONCOMMISSION

BREAKING

CARTELS

TRIANGLE OF

DEATH? CULTURE OF BLAME

EVERYONE EXCEPT

THEMSELVES ARE TO

BLAME

AIDS TIME BOMB.

READY TO EXPLODE IN 2-

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3.3 Lack of Competition The MSC Annual Report for 2001 shows that hospitals, specialists and medicines have taken

large slices of the market and have increased their percentage of the healthcare rand. There are

only three large hospital groups in the country. They continue to grow larger by acquiring more

of the independent hospitals, thereby reducing choice in the market. It is to the benefit of the

various hospital groups to co-operate in fixing prices in this market.

Specialists have been attracted to other countries by lucrative salaries in the face of the rapid

devaluation of the rand and the deterioration of living standards in South Africa. As a result there

are fewer specialists in South Africa. Those who remain are paid an FFS and thus do not have

incentives to reduce costs.

Service providers, such as specialists, are in short supply, and belong to professional associations.

These associations set pricing at levels, which are higher than would otherwise prevail, owing to

lack of competition. The MSC 2001 Annual Report states that collaboration of service providers

to form cartels that control prices is another cost-driver of healthcare services. In addition, with

the emigration of large numbers of doctors to greener pastures, there are fewer doctors left to

render services, so that competition between service providers is reduced.

Many specialists are now super-specializing. This creates a new category of healthcare service

provider. These specialists command high premiums, and in an FFS environment, where there is

no risk for the consumer or service provider, demand for these services will increase, further

contributing to escalating healthcare costs.

Another driver of medication costs is the monopoly enjoyed by the pharmaceutical

manufacturers, wholesalers and retailers, with fixed pricing and vertical integration. This allows

pharmaceutical manufacturers to control the entire supply chain. This has raised medicine prices,

which are higher than in many developed countries of the world.

Pharmaceutical manufacturers have a fixed pricing system and are protected by copyright laws.

They have been able to discourage consumption of generics (legal copies of branded/patented

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drugs), which would lead to a decrease in costs. In a free market economy, equilibrium is

achieved between buyers and sellers. Too many buyers and too few sellers will cause prices to

increase. However, in the private healthcare system, prices are usually set by the professional

organizations such as the South African Medical Association. Further regulations are imposed by

statutory bodies such as the Health Services Professional Council. With a paucity of service

providers, pricing will need to be adjusted upwards to attract more service providers to the

industry.

A similar situation exists with hospitals and pharmaceutical manufacturers. With South Africa's

small market and few suppliers, there is a lack of competition, with monopolistic pricing. This

pricing chain needs to be broken. The Competition Commission has not been effective in

preventing these oligopolies from existing. The free-market principle of willing buyer and

willing seller, with no regulations and no monopolies, does not exist in the PHCI in South Africa.

It is an artificial market propped up by rules and regulations, dominated by monopolies and

oligopolies. Porter and Teisberg (1994) note that the lack of competition at all levels contributes

to rising healthcare costs. They go on to say that incentives are skewed, so that normal rules of

competition do not apply.

Figure 3.6 shows how lack of competition affects the private healthcare industry. Lack of

competition contributes to higher prices, which in turn cause higher medical aid premiums. This

makes healthcare unaffordable for the majority of South Africans. This in turn causes further

increases, as the healthier members leave the system and the sicker members remain. There is

thus a loss of cross-subsidization of younger members. Regulations that do not make membership

compulsory also contribute to the increases, as younger members do not join early on, and are

thus not available to subsidize the older, sicker members.

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Figure 3.6

ROLE OF POWER IN AGGRAVATING THE CURRENT SITUATION

Specialist

Emigratioservice providers

Oligopolies

Price fixing

Violence / Rand devaluation

Small markets

Economics of scale

Power of service providers

(Specialists)

(Hospitals)

(Medicine, manufacturers / distributors)

HIGHPREMIUMS

UNAFFORDABLETO MANY

HEALTHYCONSUMER

DROPSOUT

SCARCE RESOURCES

POWER TO MAINTAIN MARKET

SHARE AND HIGH

PRICES

REGULATIONS NO COMPETITION

LACK OFSUBSIDY

FROMHEALTHYMEMBERS

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3.4 Power and the healthcare industry Ackoff’s stakeholder theory (The Democratic Corporation, 1994) makes the point that an

organization must balance the conflicting claims of the various stakeholders, so that the

objectives of the organizations or system can be met. However, in some systems or organizations

certain stakeholders have more power and therefore are able to subvert the system for maximum

gain.

3.4.1 Sources of power

The reader is referred to Appendix A for a summary of the sources of power.

3.4.2 Control over resources

Hardy (1994) in Palmer and Hardy, (2000:83) states that the first dimension of power is the

“ability to control scarce and critical resources”. It is this ability that the three private hospital

groups have. They control over 90% of all beds in the private sector. They are flush with cash,

and generate increasing profits each year. They are able to demand and receive increases that they

feel are necessary to service medical scheme members. Pharmaceutical manufacturers wield

power by controlling resources. Having control over large budgets, they are able to influence

decision-making in their favour. Administrators control actual payments to service providers and

others. They control the administration, bank accounts and method of payment. They have

enormous power. One only has to view the huge increases in administration expenditure to verify

their ability to extract maximum gain. Figure 3.7 shows that administrators have had increases of

up to 56% from 2000 to 2001. This demonstrates their ability to extract the maximum benefit out

of the industry.

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Figure 3.7 (MSC Annual Report, 2001)

Source: MSC Annual Report, 2001.

Hospitals also wield considerable power. There are only three hospital groups, but all are

extremely profitable. They have large budgets and are able to utilize resources to influence

changes in their favour, for example negotiating favourable increases in tariffs. This is at the

expense of smaller players who are less organized and do not have the resources to mount

challenges to the system.

3.4.3 Ability to influence people

Luke (1974, in Palmer, 2000:83) theorizes that “power is achieved by the ability to influence

people’s perceptions that the existing order is preferable” If one relates this to administrators,

they are in the powerful position of being able to influence stakeholders in their favour.

Medical administrators receive and pay out large amounts of money. They are usually paid a

percentage of contributions. The higher the contributions, the greater their payment. It is therefore

in their interest to maintain an environment of high premiums so that their profits can escalate.

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Members of the scheme are led by the administrators to believe that the current system is to their

benefit, and that they should continue on it. Furthermore, administrators, by virtue of their control

and administration of the money, are in a powerful position to persuade trustees of the scheme

that they are doing their best, and will look at ways of reducing benefits before considering

whether they can reduce their own profits.

3.4.4 Legal authority

Fincham (1992 in Palmer, 2000:83) theorizes that power is obtained from "institutional mandated

authority". Patent laws are an example of this power. Pharmaceutical companies that enjoy

patent law protection use this power to charge consumers the highest price the market will bear.

This contributes to escalation of health costs.

3.4.5 Control of decision-making process

Hospitals with pharmaceutical manufacturers also have “the ability to control decision-making

processes and agendas”. Hardy (1994 in Palmer, 2000:83) states that “control of agendas and the

ability to influence the decision-making process is a source of power. Hospitals and

pharmaceutical companies are responsible for 53% of all healthcare costs (R19 billion). This

means that they have huge budgets and resources that they can use to sway public opinion. By

virtue of their resources, they are able to influence decision-making processes and individuals in

positions of power and authority, to protect their share of the healthcare rand. They have large

cash reserves with which they can influence the media and therefore public opinion.

3.4.6 Tradition

Hardy (1994 in Palmer, 2000:83) introduces the concept that people unconsciously accept certain

customs, traditions and value systems without questioning them. The doctor/specialist/service

provider falls into this category. Over the centuries, respect for doctors and the power they have

over life, death, healing processes and alleviation of pain, have meant that there is an unconscious

acceptance of the value of their services. This allows doctors the ability to raise fees without

objections from the consumer. A basic assumption is that a scheme member never questions the

price quality and value of a service that a doctor provides. When elevated to this level, the service

provider is able to demand and receive what he thinks is a fair portion of the proceeds. However,

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a distinction must be made between specialists and family practitioners. In the last 10 years,

family physicians’ share of the healthcare rand has been reduced from 20% to 8.5%, while that of

specialists has increased from 12% to 20.2% in 2001 (MSC Annual Report, 2001). It appears that

family physicians have lost out “power” to specialists. Figure 3.8 depicts the power relationships

discussed above. The reader is referred to Appendix A for a list of the sources of power.

Figure 3.8

The above figure illustrates the relationships between the various stakeholders and the source of

the power they have to influence relationships and further their own goals. The lines between the

different stakeholders show the communication channels present, and the strength of those

channels. Next to each stakeholder is noted the source of power or leverage in the system.

MAP OF RELATIONSHIPS & POWER

Power source = formalauthority/control of boundarieshas ability to exclude you as a

stakeholder

Power = Use of organizational structure /rules and regulations. Control of

information and technology. Has control ofthe money and all information is very

powerful.

Power = Control of scarce resourcesalliances / networks reduction of serviceproviders gives them bargaining powertogether with professional associations

The power to resign andleave. Have very little

power

Power = formal authority. Control of decision process. Making the scheme rules. Have the power to appoint or

dismiss administrators

strong link

strong link very strong link

weak link

Strong link'

weak link

MEDICAL SCHEMES COUNCIL

ADMINISTRATORS

SERVICEPROVIDERS

PATIENTS

SCHEMES

Does not exist

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In the above discussion I have sketched how different stakeholders have been able to manipulate

the decision- making process in their favour, without regard to other stakeholders or the medical

scheme members, who must foot the bill.

3.5 The role of culture Another method of describing the problems in the private healthcare industry from a different

perspective is to use the metaphor of “culture”. “Culture” in this sense refers to a set of values,

beliefs and assumptions about social reality shared by individuals in a group. It helps to explain

behaviour. When a culture is “strong” it influences organizational effectiveness.

Lahiry (1994 in Palmer and Hardy, 2001:131) states that in an “aggressive-defensive culture",

members are expected to approach tasks in forceful ways to protect status and security. This is

often the case with service providers, who oppose any changes that threaten their turf, for

example, restrictions on doctors’ rights to dispense medication to their patients. In an

“aggressive-defensive culture” groups look at forceful ways to protect their status and security.

Medical professionals readily defend any attempts to curtail their freedom to make decisions, and

have actively boycotted or taken legal action when their rights have been threatened. This

aggressive culture curtails any attempts at improving or changing the system.

The concept of “traditional culture” was first described by Ebers in 1995 (in Palmer 2000:131) as

“based on co-incident values, beliefs and traditions of its bearers that have developed over time

by self-selection and mutual adaptation over time.” The traditional culture of the healthcare

industry is based on values, beliefs and traditions that have developed over many years, for

example, that the doctor is always right and his decisions should not be questioned. It is this very

strong culture that is difficult to change. In a decision to purchase healthcare at the actual

interface, the seller (doctor) is at an advantage in terms of information, and enjoys respect and

power in terms of tradition. To obtain the best “deal”, the buyer must also have knowledge. Very

seldom does the buyer have this knowledge, and thus this “sale” is very one-sided.

A further concern is that the traditional structure of the industry is hierarchical. It is usually top-

down, with regard to power. People make decisions high up and these are passed downwards.

Peters (1993 in Palmer 2000:131) defines a “control culture”, in which people are “secure but

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stifled”. In this culture people do not take risks. The healthcare industry itself is well controlled

and highly regulated, and is not amenable to change. (For example, many doctors have resisted

computerization of there practises and are not computer-literate themselves.)

3.6 Stakeholder alignment It is the researcher’s contention that there has never been management of the various

stakeholders’ demands, resulting in the current situation. Each stakeholder has a goal that is

different from that of the others, and tries to subvert the system to meet his own requirements.

Figure 3.9 shows the various stakeholders who are involved in this industry. All interactions are

in both directions, that is, money changes hands for services rendered.

Figure 3.9

MAJOR STAKEHOLDERS IN THE PRIVATE HEALTH CARE INDUSTRY

PRIVATEHEALTHCARE

ORGANIZATION -R37 BILLION

MEDICALSCHEMES

MEDICAL SCHEMES COUNCIL (GOVERNMENT)

REGULATOR

MEDICAL ADMINISTRATORS

MEMBERS OF MEDICAL SCHEME

MEDICINE SUPPLIERS

SERVICE PROVIDERS

PRIVATE HOSPITALS

Money

Money

Services

Services

Money

BROKERS

RE-INSURERS

Services

Money.

ServicesMoney

Services

Money

Services

Money

Services

Money

Services

Money

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Thomas (1996:485) states that there is “lack of co-ordination between hospitals physicians and

insurers” which results in redundancies and duplications, which in turn impair progress and

efficiency. Donald and Preston’s (1995) theory that there must be stakeholder management for

an organization to succeed, confirms the view that conflicting stakeholder interests prevent this

co-ordination. They state that using the stakeholder theory would lead to improved stakeholder

management. If this theory is applied to the private healthcare system, it is apparent that there is

very little management of the stakeholders. The MSC is the regulatory body that sets the rules by

which the PHCI operates. However, it interacts only with the schemes’ trustees and

administrators. There is no interaction between the council, the service providers, and scheme

members. Proper management of the system requires that stakeholders are responsible to a higher

authority, that there is a communication and decision-making process between stakeholders, and

that all stakeholders are working for a common goal. But what is the goal of this private

healthcare system? It should be access to affordable healthcare by all employed persons. There is

broad consensus for this view. But everyone does not have this goal. There exists very little

management of the stakeholders to obtain this goal. There is a wide divergence of interests, with

stakeholders putting their own goals first (for example maximum rent) at the risk of collapsing

the entire system.

It is obvious that what is needed is communication between systems and management of the

entire system, to manage stakeholder interests. There should be two-way communication between

systems, and each system should control itself. The obvious manager is the MSC, but it has no, or

very little, communication with all stakeholders. Consideration of Donald and Preston’s

stakeholder theory will explain why there is no “management” of stakeholders and why problems

have arisen.

In stakeholder theory, the organization acts as a “constellation of co-operative and competitive

interests possessing intrinsic value” (Donald and Preston, 1995). The system provides affordable

private healthcare. If the system grows, all stakeholders benefit. However, in the South African

system there is little or no communication between stakeholders. The little communication that

does occur is usually adversarial. There is competition and very little co-operation. Service

providers do not have meetings with trustees of medical schemes or administrators. Scheme

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members have no say in the design of products by the schemes. There is little meaningful

communication between scheme members and the MSC. In fact, the majority of medical scheme

members are not even aware how the system works, what the benefits and rules are (Stakeholder

Analysis Report, July 2001:13). Historically there has been great animosity between service

providers and administrators. There has been very little done to see where co-operation would

help, and how common objectives could be met. This is of concern, as each stakeholder has his

own objectives, which are different from the objectives of the system.

It is obvious that, while competitive interests exist, little or no co-operation exists. It is precisely

this intense competition and lack of co-operation that cause the only solution to healthcare to be

seen as the raising of premiums. Donald and Preston (1995) state that the fundamental basis of

stakeholder theory is normative, that is to say, all stakeholders have legitimate interests, and are

necessary for the functioning of the system. It often appears that each stakeholder champions his

own cause. For example, doctors are often of the opinion that the administrator is an unnecessary

obstacle between himself and the patient. When formulating rules, products and guidelines,

medical schemes do not even take into account the views of the consumers or of the members,

who pay for and consume the product. Furthermore, administrators often ignore input from

service providers and members as not important.

Many role players in the PHCI either deny or minimize the existence and role of other

stakeholders in this industry. Without recognition that other stakeholders are equally important,

each stakeholder will make use of the system for his own benefit. As long as some stakeholders

deny others their rightful place, management of the system will be difficult, if not impossible.

Donaldson and Preston state that in stakeholder theory all stakeholders must be equally involved

in the decision-making process. The two important players in this system are the payer (the

scheme member), and the service provider. But they have only a minor role, or none at all, in the

decision-making process. They do not contribute to policies, procedures and rules, but are

nonetheless affected by them. They have little opportunity to give opinions. I am not aware of

any medical scheme that has called upon doctors to advise what changes they would like made.

The only time they communicate is when there are acrimonious discussions about what the tariff

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hikes should be. It is ironic that the people, who have the most to lose or gain, have the least input

in decision-making that affects them on a daily basis.

Ackoff (1994) theorized that in any business or industry, the more people it employed and the

higher their salary, the greater the contribution that the organization makes to society. The PHCI

generates revenues of R37 billion and employs many thousands of employees. It is of vital

concern that this industry remains viable so that affordable healthcare remains within reach of the

majority of South Africans. Collapse of the industry would mean an absence of direct foreign

investment, withdrawal of skills, and increased numbers of unemployed. Service providers in the

healthcare industry are well paid compared with those in other sectors of the industry. These high

earners therefore contribute to the upliftment of society. The collapse of this industry would

threaten the income of these high earners and have a negative impact on society in general.

3.7 Conclusion Let there be no doubt that the current PHCI is comparable to the best in the developed world.

Evidence of this is the performance of heart transplants in private hospitals, healthcare “tourism”

where American and European tourists come for “cold surgery” and a holiday, and secondment

of South African ophthalmic surgeons to the United Kingdom to assist with the cataract waiting

list. (Edward West: Business report, 5 February 2003). Furthermore, a survey among medical

scheme members shows a high degree of satisfaction with the medical aids (Stakeholder Analysis

Report, 2001) It is apparent that the industry is well established, and gives first-world healthcare

comparable to anywhere in the world.

Stakeholders in the PHCI have differing goals.

Goal of members : to get better

Goal of MSC : to ensure that rules are followed

Goal of service providers : to make a profit

Goal of administrator : to increase the number of members on its books, to make a

profit

Goal of medical scheme : to provide a framework for affording health cover to its

members

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Although each stakeholder’s goal is different, they share a common ideology, which is to provide

private health cover to those who can afford it. If the industry is to remain viable, there needs to

be an understanding of the stakeholders’ goals and how they can be achieved without threatening

the stability of the industry.

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CHAPTER 4

STRUCTURE OF THESIS

CHAPTER 1 INTRODUCTION

CHAPTER 2 THE WRITER’S PERSPECTIVE

CHAPTER 3

BACKGROUND TO THE PROBLEM

CHAPTER 4

SYSTEMS THINKING. A MANAGEMENT

TOOL FOR PROBLEM SOLVING

CHAPTER 5

PROBLEM FORMULATION

CHAPTER 6

TOWARDS A SOLUTION

CHAPTER 7

TESTING THE ANSWER

CHAPTER 8

CONCLUSION EVALUATION REFLECTION LEARNING

APPENDIX A= Situation background B= system methodologies C= Analysis of failed schemes D= Analysis of viable schemes

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CHAPTER 4

A SYSTEMS APPROACH TO MANAGEMENT ENQUIRY AND PROBLEM SOLVING

4.1 Systems Thinking and Healthcare In any social system such as the healthcare system, there are usually complex real-world

problems. These social systems have relationships between the parts. It is not the property of

individual parts, but the property that emerges from the interaction of the parts, that we are now

concerned with (Paul E, 2001) Interactions between two individuals, such as doctor and patient,

produce a new effect, such as better health after treatment or not, which is entirely different from

the time when there was no interaction.

Systems thinking is a way of visualizing situations or organizations and the way different parts

of that situation interact, to produce new emergent properties. Systems thinking has these

characteristics (adapted from Alan Waring 1996:21).

A system does something: There is

Input Process Output

Addition or removal of a part will affect that system.

A part that is put in will be affected by that system.

A system can have hierarchical relationships.

Properties arising from interaction of parts can be unpredictable.

Factors that facilitate prediction, control and communication, promote system survival.

All systems have a boundary.

A system usually has an owner.

The external environment outside of the boundary always influences or impacts on the

system.

The private healthcare system is an open system that has to adapt to the external environment

(people seeking private healthcare). The PHCI is a complex real-world problem, which is part of

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our general social system. People in this industry have different beliefs, purposes and views of

the situation. Systems thinking is able to integrate all this into a single conceptual model that

allows these relationships to be studied. This model has fluid boundaries and can be enlarged to

encompass the whole industry, and therefore allows the interaction between parts to be studied. It

is a holistic way of understanding a complex social problem. Systems thinking will allow a

mental model of the PHCI to be constructed. Examining relationships between the different parts

of this model will allow the observer to identify strengths and weaknesses in the industry.

Systems thinking evolved as a result of the inability to provide solutions when problems arose in

complex social situations. It was easy to identify problems in simple mechanistic organizations,

but a solution to complex problems was often the treatment of symptoms, not the cause, and so

did not really help. It was only with the advent of systems thinking (Jackson, 1951) and the

ability to conceptualize the whole, that people were able to manage these complex problems. It is

surprising that this approach has not been used more often in the complex PHCI.

Systems thinking does not require an academic background to be applied. It can be used by

anyone with “common sense”. It is therefore a suitable model for the PHCI, where many workers

have had no business training.

Systems thinking is not about new management fads. It is a way of looking at organizations

holistically, and takes into account relationships between people and the effect of the external

environment on the system. In an industry with many stakeholders and many different

relationships, systems thinking is a workable model that lends itself to understanding problems in

this industry. Solutions in this industry can only be achieved through partnership, working

together, and understanding each other’s point of view. Systems thinking provides a platform for

achieving these goals.

Systems thinking is a structured way to look at the PHCI. Solutions are based on changes to the

system, not by treating symptoms, which is a short-term measure, but by analyzing problems in a

holistic manner.

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In order to get some sort of perspective on the problems facing the PHCI, one needs to be able to

make sense of the “mess”. A framework is needed on which to hang concepts, ideas and mental

constructs. This framework should be systematic and complete, not leaving out any aspects. It

should show how different parts of the industry interact, and also examine the results of those

interactions.

Systems Theory is based on the fact that organizations must be examined in the way that they

interact, rather than by analyzing their different components. A good example to illustrate this is

to imagine taking the best parts from different motor vehicles and putting them together. One

would not have a working vehicle as each part, though being the best, will be unable to interact

with the other parts, as each one was selected on the basis that it was the best, not on the basis

that they would work as a cohesive unit. It is only in the interactions of the parts that one can

have a working vehicle.

A systems view of an organization takes into account structures, geographical locations,

processes, and hierarchies, but is not restricted to any one of them. Rather, one observes the way

systems interact with each other, in order to understand the underlying dynamics. An advantage

of systems thinking is that it recognizes both formal and informal structures, is holistic in its

approach, and examines interactions between people and systems.

It is stated by systems theorists Senge (1990) and Jackson (1991) that structures determine the

effectiveness of systems. So, in understanding the healthcare industry, one must be aware of the

structure and its interactions. It is useful, in order to understand systems thinking, to start with the

social sciences.

4.2 Application of social sciences to systems thinking Systems thinking encompasses different views of human behaviour and social order. Burrel and

Morgan (1979) designed a method of categorizing human behaviour as it relates to society and

organizations. They suggested that all organizations could be viewed through different

paradigms.or “lenses”. Figure 4.1, adapted from Burrel and Morgan's Philosophy of Science (in

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Waring, 1979) demonstrates the different social paradigms that can be used in identifying

different systems approaches.

The two axes represent the individual (subjective/objective) and the societal view

(regulatory/radical). The objective view is that of individuals knowing what is expected, for

example the corporate man. The subjective view is that of individuals experiencing the world in a

shared manner, and reality is that which the individual creates. This creates the one axis, namely

the nature of human behaviour. The second axis demonstrates another dimension or worldview of

society. At the one end, the regulatory view is that society functions and there is no need for

change. At the other end is the view that radical change is necessary for society to function. This

is where conflict occurs, when some groups dominate other groups in a delicate balance.

These two axes allow four quadrants to be identified. These four quadrants represent paradigms

or worldviews. These worldviews determine what type of systems approach should be used,

depending on the worldview of the problem situation. The objective/regulatory view lends itself

to a functionalist approach, in which there is consensus about the problem. The

subjective/regulatory view lends itself to an interpretative or soft-systems approach, in which

there is no consensus on the problem. The objective/radical paradigm allows the use of an

emancipative approach that seeks to liberate the oppressed from the more powerful. It is used to

unmask power blocs. The fourth quadrant represents the subjective/radical paradigm, which seeks

to reclaim conflict and liberate the individual. It represents a humanist worldview and allows an

emancipatory systems approach to be used.

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Figure 4.1

Objective (Hard systems) Structuralist Paradigm or worldview

functionalist Paradigm (Emancipative) (Unmark domination transfer power)

(VSM)

Regulatory Radical

Interpretative Paradigm Humanist Paradigm (SSM) Reclaim conflict

Subjective

Source: Burrel and Morgan, in Waring, 1979

Figure 4.1 illustrates the different systems approaches and the social theory behind the different

approaches.

The four poles represent the following views.

Subjective – the world according to the individual.

Objective – the individual serves the system.

Regulatory – continuation of the existing system.

Radical – change is needed to improve the system. Systems thinking relates to activities that occur. How one thinks of systems thinking depends on

one’s worldview of the situation, for instance, one view of the situation can be that it is a failure,

and another view of the same situation by someone else can be that it is a success. Systems

thinking is meant to be a mental idea of what the observer perceives to be happening, according

to one’s worldview.

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4.3 Different systems thinking approaches The reader is referred to appendix B for an overview of all the systems approaches to problem solving. 4.3.1 Functionalist, Objective/regulatory view

This is a functionalist or structuralist worldview in which there is agreement among the

stakeholders, about the problem situation. This worldview lends itself to a “hard system”

approach, where there is consensus on the problem.

4.3.2 Interpretative Subjective/regulatory view

This worldview is regarded as an interpretative worldview. Here there is no consensus on the

problem, issues are clouded, and the various stakeholders hold different views about the nature of

the problem. This view seeks to find solutions through consensus-building and accommodation of

the different stakeholders.

4.3.3 Emancipatory Objective/radical view

This worldview is classified as a structuralist worldview. This view seeks to transfer power from

those who have it, to those who deserve it, in the worldview of the observer. This view has been

labelled an emancipatory approach.

4.3.4 Humanist Subjective/radical view

This quadrant represents the humanist worldview. This worldview sees social structures as

oppressive, and seeks to liberate individuals from these structures. This has also been labelled an

emancipatory approach.

It has been debated whether one can have a combination of worldviews, in other words, partly

interpretative and partly functionalist. There is no consensus. But what is apparent is that use of

all the approaches to a single organization will allow the observer to gain a better, clearer idea of

the situation, as he can view it from more than one perspective. This researcher feels that the

observer can hold more than one view of an organization, to gain a better understanding and

therefore a more viable solution to the problem. The researcher sees a common theme linking the

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different approaches that will allow a more comprehensive understanding of complex world

problems. The common theme is systems thinking, as it applies to all the approaches.

4.3.5 Post Modernist view of systems thinking

A different form of systems thinking that does not fall into Burrel and Morgan’s sociological

framework, is ”Post Modernism”. According to Jackson (1951) Burrel and Morgan’s approach is

“Modernist”. Post Modernism evolved to challenge the “normal” way of doing things, and the

authority of the State and the church over the rights of the individual. It champions the right of

the individual, and declares that there is no “right way” of doing things. Compared to the

approaches discussed previously, Post Modernism takes the opposite view. According to Jackson

(1951), Post Modernism allows multiple interpretations of the real world situation, does not

recognize science as the expert, has no common language, and thrives on paradox, confusion and

disorder.

The Post Modernist approach can be used where there is marginalization, conflict and

suppression of ideas and individual expression (Jackson, 1995) Many of these factors are present

in the PHCI industry, especially conflict between all the major shareholders. Post Modernism

allows a voice to those who are voiceless. (A summary of the differences between Modernism

and Post Modernism will be found in Appendix B.)

The systems approach allows one to view an organization in many different ways that allow

problems to surface. In order to understand social reality, one must understand “culture”,

meaning shared ideals, values and ways of doing things. The health industry has its own culture,

which is separate from the culture of individuals. All health organizations can be viewed as

systems. Systems thinking allows one to see how the different parts interact, and whether the

structures, people and processes are doing what they are supposed to do.

Healthcare is characterized by a rapidly changing environment, dramatic technological

breakthroughs, rapid escalation of costs, and high consumer demand. Systems theory is an ideal

tool with which to understand these changes. The South African healthcare industry is

characterized by persistent infighting, numerous stakeholders, and different and multiple

problems which appear insurmountable.

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A feature of systems thinking is that it always questions the boundaries. In healthcare, the

boundaries are changing rapidly, and systems thinking allows one to examine the interface

between the system and the environment, enabling one to change one’s mind about where the

boundaries should be.

Systems thinking helps one to give form to one’s mental models. As Jackson (1951) says,

systems thinking helps explain social thinking and social models. As healthcare is very much a

socialistic industry, the systems thinking model is ideally suited for analysis.

The ontological aspects of the healthcare industry have already been discussed. The epistemology

has been covered in the preceding chapter. However, the human viewpoint has not been

discussed, and this is critical to an understanding of the nature of the healthcare industry. Systems

thinking allows one to observe and examine this, and then apply a methodology to arrive at a

solution.

4.4 Critique of systems thinking In an article published in the Journal of Healthcare Quality, McDaniel (1994) says that many

efforts to reform healthcare fail because they do not employ a systems approach to healthcare

problems. He goes on to say that many reforms are based on treating symptoms, and

professionals unknowingly fall into this trap. This confirms the validity of using a systems

approach to healthcare management.. Paul Christopher (in Nursing Enquiry May 2001) states in

an article about problems in the nursing industry, that it is only by using a systems approach to

understand how different parts of the industry relate to each other, that solutions can be found to

the problem. He further states that systems thinking will allow an integrated approach to the

problem. Professor Earl Simendinger of Tampa University (in Journal of Healthcare

Management 2001) advocates the use of systems thinking in solving problems in the healthcare

industry. Jackson, in his book Systems Approach to Management (1951) developed an approach

that could be used to identify problems in terms of their complexity, and whether or not there was

agreement between the stakeholders on what the actual problem was. If a problem was simple

and there was agreement on the problem, then a simple functionalist systems approach, such as a

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hard-systems approach, could be used. If a problem was complex and there was no agreement,

then a variety of systems approaches could be used. This is illustrated in Figure 4.2.

Figure 4.2

Unitary Pluralist Conflictual Single Operational Soft Systems Emancipatory Research Complex Complex Adaptive (Complex) More (Conflictual) Complex From: Jackson, Applied Systems Thinking, (1951:95) From the above chart it can be seen that the private healthcare industry occupies the

complex/conflictual area of the chart. This chart allows one to assess problems on a scale of

complexity. If the problem is simple and straightforward a functionalist approach can be used. If

it is complex then a combination of approaches should be used. The systems thinking approach

allows a much deeper appreciation of the problem. It allows more complex solutions to address

the causes and not just the symptoms. It is the researcher’s intention to use multiple approaches in

keeping with the view that the solution of a complex problem usually requires more than one

methodology.

4.5 Factors for and against systems thinking

4.5.1 Factors against systems thinking

According to Jackson (1951), the main criticisms of systems thinking are that it

Grants organizations independent power and thought.

Sees survival as the only goal against other more pressing human or societal goals.

Private healthcare

system

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Excludes conflict, instability and internal tensions. It is not able to deal with these and

therefore has a managerial bias.

Allows powerful groups to control organizations without exposing this power.

Does not resolve power issues.

Conflict, deficiencies and cultural issues are not identified.

4.5.2 Factors in favour of systems thinking

Gives a holistic assessment vs a fragmented approach.

Provides a basis on which to make structural changes.

Provides better utilization of resources through decision support and structural changes.

Can be used in any system.

Stafford Beer (1979) was the founder of the Viable Systems Model (VSM) of systems thinking,

based on cybernetic principles. This model is critical to the understanding of the PHCI, as it

allows the development of a mental framework and an understanding of how the different parts

interact, and their relationship to each other. This framework allows other models and systems

thinking methodologies to be applied, in order to gain a deeper understanding that will permit the

construction of more creative problem-solving models.

In trying to address the problem in the industry, I will first use a structural functionalist VSM

approach to find the underlying structure and the problems within that structure. Then I will use

an emancipatory radical structuralist and Post Modernist view to identify the power relationships.

Lastly, I will use an interpretative or soft-systems approach to analyze failures and develop

solutions.

4.6 Viable System Model The Viable System Model (VSM) of Beer (1979) is a functionalist systems approach to

understanding the structure of the PHCI. This approach has its roots in cybernetics and systems

theory (Clemson 1984). It consists of the entities that perform functions (described later) and the

communications that exist between them. This methodology allows one to create a template

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around which the PHCI can be analyzed, and a diagnosis made about deficiencies revealed by

this analysis.

In the VSM, structure and relationships are taken as one. It has been shown repeatedly that

structure alone does not allow one to understand an organization (Rummler and Brache 1995).

4.6.1 Functionalist Approach

4.6.1.1 Introduction to the VSM

The VSM model has five systems, as follows:

Operations

Co-ordination

Control

Intelligence

Policy

Figure 4.3 is a graphical illustration of the VSM model. It shows what the different systems are

supposed to do. Appendix B gives a detailed description of all the properties of the different

systems. The reader is asked to refer to that, should a more extensive description of the properties

be required. What follows now is a brief description of what each system does, and how it relates

to the other systems.

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Figure 4.3 Viable System Model

INTERACTS WITH ENVIRONMENT Balances III and IV

(Adapted from Keating CB: 184)

ENVIRONMENT

SYSTEM I

SYSTEM I

SYSTEM I

MONITORINGIII

CONTROL INTERNAL

SYSTEM III

SYSTEM II CO-ORDINATES SYSTEM I’S

SYSTEM IV EXTERNAL

DEVELOPMENT

SYSTEM VPOLICY

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EACH LEVEL IS A VIABLE SYSTEM ON ITS OWN

Figure 4.3 illustrates how all the different SYSTEM Is (the actual operations of the organization)

are co-ordinated by SYSTEM II. SYSTEM III exerts control over all SYSTEM Is and II’s. It

does this by monitoring them and by sporadic audits. SYSTEM IV interacts with the

environment to develop strategies and new products, so that the viability of the system is not

compromised. SYSTEM V sets policy and balances the demands between SYSTEM III and

SYSTEM IV.

All systems are vital. None are more important than the others. Each is viable in its own right. All

systems need to work together. It is important to note that the basis of distinction between the

systems is activity not structure. It is not a hierarchy. All systems are equal and all contribute

equally to success. Individuals may be SYSTEM I or any other system, depending on their

functions. The VSM should not be confused with organizational charts. Each system is a viable

system on its own.

I will now take each system and analyze it in terms of its function, and the way in which it

performs this function. A more comprehensive table is available in Appendix B.

4.6.1.2 Systems I-V of the VSM.

SYSTEM V – The Board / Normative / Legitimacy

It is responsible for forming policies, giving strategic direction and maintaining balance between

SYSTEM III (short-term focus) and SYSTEM IV (long-term focus). It is also responsible for

long-term vision, strategic direction, policies, and long-term decisions.

SYSTEM IV – External This system is responsible for information about the external environment, market research,

development and planning. The focus is external and directed towards the future. SYSTEM IV

captures information. The focus is on strategic planning, market research and development of

new products. It is focused on the environment and interacts with it to determine future trends.

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SYSTEM III – Internal It is responsible for day-to-day operations, operational decisions, and allocation of resources and

monitoring. SYSTEM III does routine and sporadic audits. The focus is internal. This is the

control function. It interprets policy or the business model proposed by SYSTEM IV in terms of

information received from SYSTEM I and II.

According to Beer, SYSTEM 1 and III are autonomic in function. They can act independently

without SYSTEM IV and V, but are not capable of seeing threats or opportunities in the external

environment.

SYSTEM II This system co-ordinates and integrates all the different SYSTEM I functions. Its primary

concern is system stability. It prevents unnecessary friction between SYSTEM Is, and allows

them to integrate and work together. SYSTEM II is meant to be a controlling system of

SYSTEM I.

SYSTEM I

It takes responsibility for providing the actual service. Its main function is to implement the

organization’s primary task, which results in value (profit) for the organization.

SYSTEM I can contain many subsidiaries. Each SYSTEM I is autonomous, and interacts with

those above it and with others and the environment. It can be seen that SYSTEM I absorbs the

greatest variety. What cannot be managed is passed up the system so that an appropriate response

is obtained.

4.6.1.3 Applications of the Viable System Model (VSM)

The VSM is defined as a functionalist approach. It allows one to stand back and view the system

as a detached observer, (although we know that a participant always affects the system in focus).

It also allows other models to be applied to it. It allows one to describe the deeper structure and

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the mechanisms through which the systems relate to each other. It can be used to demonstrate and

depict any viable system. The VSM also allows one to depict the interaction with the

environment, and it allows the variety in the external system to be attenuated so that it can be

handled by the system. It has been used in this study so that a clear definition could be obtained

about the relationships between parts of the system. It was thought that empirical observation of

the system would show how the parts relate to each other and regulate themselves by their

interactions. Figure 4.4 shows the fundamental operation that occurs in the PHCI in terms of

input, output and process.

Figure 4.4

Input Process Output

Paying Treated

Members of the public paying members

and employees of

company wanting access

to healthcare

According to Beer, a system is viable if it is capable of responding to changes in the existing

environment or a new environment, even if it was not designed for this new environment.. Figure

4.4 shows how the external environment consists of the paying population seeking healthcare.

For a variety of reasons, the system has had to cope with excessive demands. Any system always

makes adjustments to cope with any stresses so that it can survive. Figure 4.5 shows it does this

by managing healthcare demand. It has been able to cope by raising contribution levels and so

decreasing the number of people who can afford it, and by increasing the number of private

healthcare providers attracted by the higher fees payable.

SYSTEM

Transformation is application of healthcare

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Figure 4.5 Attenuation

Demand for healthcare Filtered demand

The system remains viable by increasing its own requisite variety (attracting more healthcare

providers) and raising premiums (reducing demand) so that fewer, sicker members are now

attracted, who demand even more healthcare.

Beer states that the organization should have the best relevant model to suit the external

environment. The PHCI is currently the best model that is available, and it is slowly changing to

accommodate these shifts in the environment (for instance AIDS), shifting risk, and looking at

other strategies. Beer states that the organization’s structure and communication system must

reflect the nature of the environment. The environment is the private health-seeking individual.

The PHCI can cater for this demand, but the system is weak.

Beer further states that variety and balance in the external environment must be matched by the

people, managers and processes within the organization. Healthcare members seek many kinds of

healthcare – traditional, chemist, general practitioner, hospital, specialist, radiology, dentistry,

and pathology. The private healthcare industry has contracted with all these players, and can meet

their demands by agreeing to pay them for services rendered.

A key cybernetic law states that the degree to which a system can be regulated is limited to the

variety of the regulator. The regulator in this case is the MSC, which can regulate only if it is

aware of what is happening “out there”. It does this by having an executive committee that is

composed of the stakeholders in the industry.

MANAGEMENT

OF DEMAND

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A second cybernetic principle states that the regulation of very complex systems is achieved

through the interaction of the parts, which allows systems to organize themselves. Medical

schemes systems interact with the regulator, the service provider system interacts with the

administrator, and the patient system interacts with the service provider system. All these

systems, when they interact, control each other by various mechanisms. For example, the

regulator and the medical scheme interact, so that new policies or rules are put in place if the

system is in danger of being overloaded. There are many such interactions happening all the time,

and they tend to stabilize the system.

The VSM model allows one to deal with organizations that are vertically and horizontally

interdependent. In healthcare, all systems are interdependent and need to exist if they are to

function. The VSM model requires that attention be given to command and control structures, so

that system integrity is maintained. In the PHCI, the administrator and service provider exercise a

great deal of control over the members requiring healthcare. This model is able to relate to the

environment and can influence it or be influenced by it.

The VSM model is an ideal diagnostic tool to make recommendations for improving

organizations. It will allow one to examine the PHCI and then make strategic changes based on

that model, to improve performance. It also allows autonomy to be devolved down to the lowest

level. This factor allows one to understand how decision-making can be passed down to

consumers and service providers for maximum benefit to the system.

The major criticism of the VSM is its inability to manage power relationships. It emphasises

communication and control, which are very evident in the PHCI. The MSC/the Medical

scheme/Administrator all work under a complex set of rules and regulations which must be

applied against service providers and scheme members. The VSM model, however, hides the

power that some stakeholders have over others. It allows dominant groups to consolidate power.

It does not acknowledge that organizations consist of human beings who have different

perceptions and views of what the organization means to them.

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The major criticism is that the VSM allows a powerful group to subvert authority, and in so

doing, to increase power over other stakeholders. This is, in fact, a real possibility in the PHCI. It

also does not allow for human purpose and space for reflection. Socio-cultural beliefs are also

excluded from this model. Healthcare, being both a scientific and an emotional issue, requires

both to be demonstrated. The VSM, however, ignores human, power, and conflict issues. These

can be resolved by using the emancipatory (radical/subjective) approach, which empowers those

that have been sidelined by the more powerful.

In conclusion, analysis of the healthcare system using the VSM allows one to identify possible

weaknesses in the system, and to suggest strategic interventions. It allows a diagnosis to be made,

based on systems theory. 4.7 Emancipatory Approach 4.7.1 Critical System Heuristics

A lens that can be used to expose power relationships is Werner's (1983) Critical System

Heuristics (CSH) methodology. It is based on an emancipatory approach of systems thinking with

a view to liberating those it considers oppressed. Figure 4.6 gives an outline of how this approach

categorizes the different stakeholders of the system under discussion, to provide a systems

approach to power issues.

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Figure 4.6 People Provide source of control, Affected by the decision who Basis of power, say what benefit constitutes sources. Figure 4.6 forms the basis of the methodology used in applying this approach. It essentially

empowers those who are affected, but who have no power. It allows those that are powerless to

become decision makers and "experts".

While Ackoff’s (1978) argument about the importance of stakeholder management was accepted,

there was no methodology, which could provide a way of dealing with it. It was only in 1983 that

Werner (1983) proposed a suitable method. He did this by analyzing the existing circumstances

and compared them with what the circumstances should be, based on the views of all

stakeholders. This allowed people who were affected but had no power, to challenge the experts

on an equal footing. It allowed those that were oppressed, a voice or emancipation from “false

consciousness and power relations” (Jackson 1990). Emancipation was regarded by Marx (1844)

and Habermas (1974) as liberation of the oppressed, who were workers who did not have a say in

the system of goods production

A radical humanist wants to liberate the oppressed. Werner’s approach is based on humanist and

structuralist worldviews. Werner used a systems approach, which could be used in societies and

CLIENTS DECISION DESIGNER

DECISION MAKERS

WITNESSES

INVOLVED AFFECTED

EXPERTS

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organizations that were “psychic prisons” or “instruments of domination”. Werner’s work and

methodology are based on readings from Habermas and Kant

As pointed out earlier, stakeholder theory does not expose the power relationships in an

organization. Werner proposed a new way of thinking about these relationships. His CSH

challenged the usual examination of “how things are done”. He proposed that we need to decide

“what ought to be done” to reveal the normative content which is often hidden behind

powerplays. This methodology allows people affected by decisions, who previously did not have

a say, to contribute to design changes, thus including the human factors in decision-making. This

system allows decisions to be made within realistic boundaries, not on the manager’s

assumptions. This system also allows the regulators or managers time to reflect on their situation

/assumptions and beliefs. CSH allows “victims” to bring in their own value judgements and

challenge the view of the experts.

A further advantage of Werner’s system is that boundaries are not based only on the value system

of “experts”, but also on the value system of the oppressed or so-called “witnesses”. In so doing,

the experts are forced to defend their position. The one criticism of the system is that it relies on

utopian ideas that the powerful will be willing to take part in discussion and planning. If they do

not, the system fails.

Werner’s CSH methodology shows clearly how some stakeholders have more power or influence

than other stakeholders. I will use this approach to expose the power relationships that are not

addressed in the VSM.

4.7.2 Applications of CSH

CSH embodies an emancipatory approach, which sees individuals and societies ridding

themselves of assumptions and beliefs. It draws on the writings of Emmanuel Kant (1784) to

propose a methodology to “reveal the normative content”, in other words what should be or what

is right in the system under study. It takes into account assumptions that are not actively thought

about, and are held as beliefs and shared values. It also examines or exposes consequences for

those who are at the receiving end of any system. The assumptions that surface, form the basis of

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any planning that is done. It helps to unfold problems through critical reflection. It exposes the

basis on which decisions are made. It also helps the “victims” of the design to have a voice.

It further allows models to be developed which show who is oppressed and who is favoured. It

allows a solution to be developed for the victims (in this case, members of the scheme). This

approach furthermore allows victims to take part in improving the system. It is therefore a very

useful model to describe power relationships in any model.

A criticism is that once the power relationships are exposed, CSH does not provide a

methodology to take the process forward. In these circumstances, a different approach such as the

soft-systems methodology, employing the interpretative approach, would be a better method, as I

will demonstrate later.

Another criticism is that CSH does not allow one to look into the reasons why this power exists.

It does not explain why certain stakeholders become more powerful, or what the underlying

social and societal conditions are that allow this to develop.

Burrel and Morgan’s model of the social reality is based on a Modernistic view of organizations,

in which there is an orderly and clearly defined approach to system problems. The emancipatory

approach identifies powerless groups and liberates them. However, individual rights and conflict

are not addressed by this approach. In order to achieve this, a Post Modernist approach is needed.

4.8 Post Modernism Compared to the functionalist point of view, where there is agreement on the problem situation,

Post Modernism allows multiple viewpoints to be expressed. Many consultants use a Post

Modernist approach in their work to obtain a different perspective on the problem.

Post Modernism can be traced back to French philosophers like Michael Focault and Jean-

Francois Lyotard. (Jackson, 1951). Post Modernism allows a different approach to management

practice and understanding of organizations. It questions what is “real” and emphasizes the role

of the individual. It is characterized by paradoxes and confusion, and has no fixed methodology.

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However, it allows one to debate what the nature of an organization is. It states that reality is

multiple, and is created out of language and power relations. It questions assumptions “in the

hope of finding new and different truths”. (Palmer and Hardy 2000:263).

Post Modernism, according to Palmer and Hardy (2000), describes power as a web of

relationships in which all stakeholders are enmeshed. No-one is in control, but some are more

advantaged, and the truth that emerges is tainted by those that are advantaged. Palmer and Hardy

(2000) further state that privilege is the product of knowledge and power. This description can be

applied to the PHCI. Nobody is in control. All stakeholders are equally involved. But some, like

administrators, are more advantaged, and therefore they “colour” reality to suit themselves. In

other words, reality is the perception that a viewer has, as a product of all the influences that are

part of the consciousness of that individual.

This is especially true when there are stakeholders that are powerful and who are able to affect

the perceptions of “reality” by intruding on the conscious and subconscious mind of the

individual with distorting messages. (Jackson Systems Approach To Management 1951) Good

examples of these stakeholders in the PHCI are hospitals, and pharmaceuticals that have revenues

of R18 billion and are able to “dictate reality”. Post Modernism allows multiple realities which

are different interpretations and representations of the ‘truth”.

An image or perception is a product of different influences that intrude upon our conscious and

unconscious state. The Post Modern organization has blurred boundaries. Palmer and Hardy

(2000:266) state that Post Modernism is seen as “a spiderless web” in which the interconnections

transform the organization into a new form that was not predicted. If one takes the PHCI to be a

spiderless web, it can be seen that while there is no control, stakeholders are inevitably carried

into directions that were not envisaged. An individual, according to Palmer and Hardy, possesses

multiple identities that are different at different times and under different conditions. These

identities are based on the context in which an individual finds himself. It is important for

healthcare providers to be aware of the multiple identities and needs of healthcare seekers when

devising solutions for their needs.

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Post Modernism, while being criticized as “a way of doing nothing and getting away with it

(Jackson, 1951:350), forces us to reflect on organizational and management practice. It allows

one to get out of the trap of thinking “in the box”, and allows us to interpret organizations and

management processes in different and new ways. It stops us from having preconceived and fixed

ideas, so that creative changes can take place. This approach allows one to determine who the

empowered stakeholders are, and who are marginalized. It also allows one to challenge long-held

assumptions, such as “The expert is always right” and ”The doctor should always make the

decision.”

The use of Post Modernist methodology can cloud issues where individuals are left to make their

own decisions. This can cause anxiety in some people. According to Post Modernist theory, there

is no right way of doing things. As a result, you can create the way that you are most comfortable

with. This can allow individuals to hide behind inefficiencies where no work gets done, and the

situation is characterized by confusion. (Jackson 1951).

Post Modernism, according to Palmer and Hardy (2000), enables individuals to unmask existing

sources of domination and emancipate themselves from systems of power. It allows them to make

their own reality, based on their own view of the world. Others such as Habermas, feel that Post

Modernism is a recipe for anarchy. The researcher’s view is that it is a tool to be used in

conjunction with others to reveal the true nature of problems or situations in organizations. Post

Modernism often has contradictory and paradoxical outcomes, which are confusing to some. This

diversity allows one to think in new ways that would not have been possible before, and therefore

arrive at new and better solutions.

Post Modernism is a way of reflecting on what we think and how we perform our daily activities.

It is an ideal tool to examine the PHCI, which is beaurocratic by nature, with little room for

individual expression. It will allow us to come up with new ways of improving things in the

PHCI. In essence, Post Modernism liberates the individual from himself, (Palmer and Hardy,

2000) allowing him to look at the world in ways that were never imagined before. Clarity and

confusion at the same time! (Appendix B.9 reveals how a Post Modernistic approach can help

resolve problems in the American healthcare industry (Paul, 2001).

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It is well enough to understand the cause of problems in the PHCI, but it is something else to

understand what the different systems are, how they interact, and which systems are not

performing A useful method of discovering this is to use the Systems Failure methodology. 4.9 Systems Failure Approach Systems Failure methodology was first published in 1984 by The Open University. The authors

of this methodology were Bignell and Fortune. Systems failure embodies the concept of systems

thinking that states that organizations should be examined holistically and not broken down into

the individual parts. (The reader is referred to Appendix B for a flow chart of the systems failure

methodology that will be employed.)

A “system” is any process that takes an input and converts it into an output. Each organization

consists of many subsystems that interact to form new emergent properties. These properties are

the output of the system under consideration. Each system is contained in an environment or

wider system that sets the parameters and conditions under which the system in focus will

operate.

There is often no consensus on what constitutes failure. Failure perceived by one side may be

viewed as success by another side. In a war, the winning side will not perceive the event as

failure. However, failure can be characterized by the following (Fortune, 1984):

Unattained goals

Undesirable outputs

Shortfall between expectation and reality.

Systems failure is the name given to the mental constructs of the different systems in a failure

situation, and the inputs and outputs of those different systems. These systems are mental

constructs that allow one to make sense of the “mess”. The use of system paradigms, which are

mental constructs of what activities should be present in the system, allow one to perceive

apparent failures where desirable paradigms are absent, or where undesirable paradigms are

present. The PHCI consists of many interacting complex systems. Systems failure methodology

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allows one to identify the various systems and compare them with accepted paradigms, to see if a

failure situation exists.

Once the different failures are identified, they are then compared to the different paradigms and

are assessed for desirability. Because systems failure studies the “whole”, it tends to broaden

failure studies, leading to better solutions.

Once a failure is identified, the consultant can go back to an earlier stage and apply the

methodology again. In this manner, the system is iterative, and allows going back any number of

times until the situation becomes clearer. In the real world one is limited by time, lack of

information, and lack of participation by all stakeholders. Systems failure methodology is also

based on the subjective view of the person leading the investigation. However, if enough views

are canvassed, then this shortcoming can be overcome.

4.9.1 Application of the systems failure approach

Systems failure approach is a way of understanding failure by using systems thinking. It

examines the activities that contributed to the failure. Once understanding of the failure situation

is achieved, this understanding can be used to educate others, prevent similar failures, and deal

with the effects of the failure more effectively. Systems failure methodology employs a mental

construct of the different systems in the failure situation. Once a failure situation or a failed

system is identified, it is compared with an acceptable paradigm or value system. Based on this

comparison, deficiencies (if present) are identified in the failure situation. A failure situation can

be compared against many different paradigms until a clear picture emerges. In the final analysis,

the researcher needs to make a decision whether those paradigms identified were desirable, and

whether they contributed to the failure situation.

.

Systems failure methodology will be successful in analysing the PHCI for the following reasons.

It allows multiple views.

It does not say if an output is wrong or right (the same outcome for one person is good

and for another not acceptable).

It encompasses all stakeholders.

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It allows reiteration an infinite number of times to allow for a clearer understanding of the

different viewpoints.

I have chosen to use systems failure methodology to isolate failure situations (mental constructs)

that may be causing problems. It is yet another lens that can be used to highlight problems that

eventually point the way towards solutions in the PHCI. The methodology is based on systems

thinking and allows a holistic approach to managing problems in this industry. It looks at the

different activities in the industry, how they interact with each other and the results of those

interactions.

It is therefore an ideal system to identify problems in the PHCI, as it allows iteration, views the

system in its entirety, and allows maximum participation of stakeholders. The researcher has

found the failure methodology ideal to apply in complex situations, where confusion reigns, as it

allows a quick understanding of what the potential problems might be. It is often useful in any

problem situation to start with a failures approach, and then move on to more desirable system

methodologies.

Having identified the problems systems in the industry, one will now be in a position to find

answers. But how does one go about formulating an answer to a complex problem such as the

healthcare industry? The researcher proposes using Ackoff's Interactive Planning (IP) to suggest a

solution to this industry's problems.

4.10 Interactive Planning (IP) IP is rooted in the social sciences and was first postulated by Ackoff (1978). He believed that in

organizations one had to get the involvement of all stakeholders in order to reach a solution. He

felt that if stakeholders were not part of the process, they would not accept the solutions, and the

solutions that emerged would be sub-optimal. IP is based on systems thinking. Systems thinking

is based on the fact that organizations either succeed or fail according to the way in which the

different systems (or parts) of an organization interact. It is the product of that interaction which

is under discussion.

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The problem is how to get a shared mental map of all the stakeholders. Ackoff used a soft-

system approach (IP). Involving wider participation and planning for the future. IP makes the

stakeholders into consultants, as they plan their own future. It involves everyone, and overcomes

cultural objections to participation, by its open nature. IP methodology allows many stakeholders

to work simultaneously and independently at the same time. It then provides a platform where all

the different interpretations can be integrated into a comprehensive solution that is able to counter

any effects that may not have been anticipated.

This is an ideal model to use for the PHCI, as it allows wide discussion and continuous changes,

and builds on consensus by allowing all stakeholders to participate. It is holistic and integrated

into systems thinking, which has been used as the principle throughout this dissertation. (The

reader is referred to Appendix B for a flow chart of the methodology.

The other systems methodology that allows a similar approach is Checkland’s (1999) soft-system

methodology. While both allow for wide participation in formulating solutions, it was felt that IP

was more suitable, as it allowed a joint representation of the future. This meant that it would

allow discussion on what the future should be within a constructive framework. The soft-system

methodology of Checkland is more rigid on what the “ideal future” should be, and not as flexible

as IP in obtaining solutions. The negative aspect of both is that they do not overcome power

imbalances, and all assume that more powerful stakeholders will participate on an equal basis.

Ackoff says in his book Recreating the Corporate that it is better to do the right thing wrong than

to do the wrong thing right. Interactive planning by wide consultation allows you to determine

what the right thing is, and thereby prevents system errors.

The PHCI, in Ackoff’s terms, can be described as a social system, comprising many large social

systems. The PHCI’s performance is a product of the interaction of the different parts of that

industry. Figure 4.7 shows some of the systems that exist in the PHCI.

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Figure 4.7 Interactive management consists of the following steps: (see Appendix B)

Formulating the mess (Analysis of the situation).

Ends planning – The ideal desired state the organization wants to achieve.

Means planning – Creating methods and means by which the organization can attain the

ideal state.

Resource planning – Determines the amount, type, quality, quantity and time of

availability of the required resources.

Implementation and control – who is to do what, where and when.

This method of formulating a solution to the PHCI is ideal because:

It involves all the stakeholders in the organization. There are many stakeholders in this

industry who are not consulted, but whose input is vital to success.

It is “backward planning”, meaning “say where you want to be and then plan to get there”.

The ideal state in the PHCI can be postulated by all stakeholders and IP allows a

methodology for achieving that state.

It is not a one-off process, but is continuous. The healthcare industry is a complex

industry. Any solution will be complex and will require fine-tuning. This process is an

iterative process, so that one can go back and make changes to improve the process.

SYSTEM OF

MEDICAL AID

MEMBERSHIPSYSTEM OF RENDERING

PROFESSIONAL SERVICES

SYSTEM OF

PROVIDING

FACILITIESSYSTEM OF

MEDICAL AID ADMINISTRATION

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As pointed out earlier, the interpretative approach does not resolve power issues. I will use

Werner’s CSH to identify and resolve the power issues.

Emancipatory system thinkers have criticized Ackoff for relying on utopian and noble gestures

from those in power, who will relinquish the power and sit around the table. In the real world

there are vested interests, where people with billions at stake will fight tooth and nail to retain

what they think rightfully belongs to them.

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CHAPTER 5

STRUCTURE OF THESIS

CHAPTER 1 INTRODUCTION

CHAPTER 2 THE WRITER’S PERSPECTIVE

CHAPTER 3

BACKGROUND TO THE PROBLEM

CHAPTER 4

SYSTEMS THINKING. A MANAGEMENT

TOOL FOR PROBLEM SOLVING

CHAPTER 5

PROBLEM FORMULATION

CHAPTER 6

TOWARDS A SOLUTION

CHAPTER 7

TESTING THE ANSWER

CHAPTER 8

CONCLUSION EVALUATION REFLECTION LEARNING

APPENDIX A= Situation background B= system methodologies C= Analysis of failed schemes D= Analysis of viable schemes

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CHAPTER 5

FORMULATING THE PROBLEM

Having provided the theoretical background, I will now implement the various methodologies

discussed in Chapter 4 in order to identify the problems in this industry. I will employ a

functionalist approach to describe the industry as it stands, and an emancipatory and Post Modern

approach to isolate power relationships. Finally I will employ an interpretative approach to

identify systems that have failed or are absent in the industry. Use will be made of systems

thinking tools (Appendix B) to formulate the real problems in the industry.

5.1 Functionalist Approach

The functionalist approach can be used, as there is consensus on the current problems, structure

and functions in the industry.

5.1.1 Stakeholders, definitions and terminology

The following Table 5.1 adapted from Waring (1996) gives the researcher's perspective and

identifies the stakeholders. Table 5.1 Definitions and terminology used (from Waring Practical System Thinking) DEFINITION SHAREHOLDER IN PHCI Power figures that control the company. Not Medical Schemes Council / Government necessarily the owners. Worldview Worldview of public/Government

(capitalist; greedy; consuming resources; decreasing)

Beneficiaries or victims of the system. Customers (service providers / scheme

members) Those included in operating the system. Actors (administrators)

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The essential process. Transformation - untreated member

becomes a treated member. Constraints on the system. Environment - of increasing medical aid

contributions Figure 5.1 demonstrates an approach used by Keatings (2000) to describe healthcare systems. It

allows a holistic understanding of the system. It is an approach where there is consensus on

structure and functions, and allows structural deficiencies to be identified.

Figure 5.1 METHODOLOGY OF SYSTEMS THINKING

Methodology for conducting analysis of a systems structure (Keatings, Journal of Health Care

Management, March 2000)

System ofinterest

identification

StructuralAnalysis

RelevantEnvironmentSpecification

Structural Performance Assessment

ContextualIdentification

StructuralDefinition

Primary task - Isolate theparticular system forstructural analysis

Primary task - Identify therelevan environment for the

system of interest.

Primary task - Identify the important contextual patterns,constraints, and enablers to the

structure of interest.

Primary task - Identify the implementing mechanisms

accomplishing the viable system functions

Primary task - Evaluate the effectiveness of the

structure

Primary task - Develop structural implications based

on systemic analysis

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The “System of interest” in the above diagram is the PHCI, comprising people who pay

contributions to a medical scheme to have access to healthcare. It is a system where a person

pays a fixed amount every month to an organization that provides access to healthcare when

required by that individual. When working with systems, one must know which system, of the

many present in any organization, is the system in focus, and then increase the detail at that level.

This “environment” consists of individuals seeking healthcare. However, it is only open to those

who can pay. Also, as contributions increase each year, only those who can afford it, qualify. The

government is part of this environment, and because of inefficiency, the government ends up

paying for members who have run out of benefits. Also in this environment exist new diseases

such as AIDS, and rapid technological advances, both of which increase demand. The external

environment of those that are sick and entitled to care, is always increasing, putting greater

demands on the system.

The “external environment” of the PHCI consists of all individuals seeking access to healthcare.

It also comprises the Public Healthcare system, as it is the system of last resort for those who

cannot afford private healthcare, and for those whose medical aid denies access to treatment.

Table 5.2. (in Appendix B) is an analysis of the important systems of interest. It identifies

barriers, enablers, and patterns that occur in the PHCI. It will give the reader the background to

all the significant issues in this industry. It lays down the context of the problems in this industry.

(The reader is referred to Appendix B for the complete analysis)

The application of the methodology reveals that the PHCI is rapidly pricing itself out of reach of

the average consumer. This has resulted in increasing numbers of employed people depending on

the State health sector. Decision-making is beaurocratic and top-down in an industry that is

traditional in culture, and resistant to change. Highly skilled people work in this industry in a

first-world environment. The current incentive and reimbursement systems do not include quality

of health outcomes as payment criteria.

The analysis given in of Table.5.2 (Appendix B) indicates the key problem systems as identified

by the researcher. To obtain clarity on the relationships between the various stakeholders and

identify structural problems, it is necessary to apply Stafford Beer’s VSM model. Figure B.6 in

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Appendix B is a diagrammatic representation of the PHCI based on a functionalist systems

thinking approach. It is a detailed listing of all the activities in the PHCI and how they relate to

each other. The following is a detailed discussion of the different systems, the functions

performed, and the stakeholders performing the functions. (The reader is referred to Chapter 4

and Appendix B.4 for a more detailed list of the functions of the different systems.

5.1.2.1 SYSTEMS I-V of the VSM

SYSTEM I

This is where healthcare providers interact with members of the scheme, to provide them with

healthcare. The service providers follow rules set by the scheme and administered by the

administrator. The administrator controls the service providers and the members, and SYSTEM II

co-ordinates them.

SYSTEM I consists of the actual work of the system. It is where scheme members (SYSTEM I)

receive medical care. There can be many SYSTEM Is. Examples are:

SYSTEM IA - Member - Doctor interaction

SYSTEM IB - Member - Hospital interaction

SYSTEM IC - Member - Chemist interaction

SYSTEM ID - Member - Pathologist

SYSTEM IE - Member - Radiologist

It can be seen that SYSTEM I contains many subsidiaries. Each SYSTEM I is autonomous and

interacts with those above it, and with the others. It can be seen that SYSTEM I absorbs the

greatest variety. What cannot be managed is passed up the system so that an appropriate response

is obtained. An example of this is an application for an ex gratia payment, which is passed up the

system to SYSTEM IV. A decision is made and passed down to SYSTEM I.

SYSTEM I (implementation of healthcare) is governed by SYSTEM II and SYSTEM III. For

instance, the service provider of SYSTEM II is available for only 8 hours a day, 4 days a week,

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and requires appointments. SYSTEM III may allow only 5 visits to the general practitioner. If

these have expired, then he may not be able to get more. In this way, administrators at SYSTEM

III control SYSTEM I.

SYSTEM II SYSTEM II should be seen as a controller of SYSTEM I’s healthcare needs. SYSTEM II ensures

that there is an adequate response to SYSTEM I’s healthcare needs, and that these needs are

satisfied. If these are not satisfied, then SYSTEM I will report directly to SYSTEM III

(administrator) who can then instruct SYSTEM II (service provider) to provide these needs (for

example when benefits are exhausted). SYSTEM II can be seen as the family practitioner acting

as gatekeeper to co-ordinate SYSTEM I’s needs.

The service provider, by rendering a service, controls and meets SYSTEM I’s requirements,

which are the healthcare needs of the members. There is two-way communication between

SYSTEM II and SYSTEM III. Service providers send accounts/queries to them and receive

replies and cash. They are told how and when and under which circumstances to submit accounts.

Service providers contract with medical schemes to render services to patients for a pre-

determined amount. They are controlled and audited by SYSTEM III – the administrator.

SYSTEM II’s primary function is to synchronize and facilitate integration between all the

SYSTEM Is. When interfacing with all the different providers, the scheme members need to have

integration of all these functions. The family practitioner, acting as gatekeeper, is the best

available to perform this function.

SYSTEM III This is administrators, who are appointed by the medical scheme, and, according to policies set

by the scheme, pay out and collect monies. They are the controllers and monitors. SYSTEM II

ensures that members of the scheme (SYSTEM I) and service providers adhere to the rules laid

down.

SYSTEM III also needs to make its own checks of SYSTEM I and II. Are the accounts submitted

correct? Are there fraudulent claims? Is the amount charged correct? Has the benefit been

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exceeded? If there is a threat (such as no money to pay service providers) this must be

immediately passed to SYSTEM IV (the algodonic or emergency channel). This is the rapid-

response channel when a system’s existence is threatened. SYSTEM III gives service providers

detailed instructions on how to send accounts, what is covered, and when payment is made. It

tells SYSTEM I people what is excluded, how much money has been spent, and what is left. It

also tells the scheme (SYSTEM IV) what the current situation is, for instance whether claims are

rising or falling.

SYSTEM III does the data processing. Reports are produced, and used to control SYSTEM II

(for instance identifying abuse) and SYSTEM I (for instance benefits exceeded, so do not pay).

The task of SYSTEM III in the medical scheme is to give to SYSTEM V and SYSTEM IV (the

regulator) information which it collects from SYSTEM I (healthcare giver) and SYSTEM II (the

controller of heath-care demand).

SYSTEM IV

SYSTEM IV is executive management, which, according to the regulations, designs products to

attract members and service providers. It looks at the external and internal environment and

makes decisions. It appoints administrators, brokers and other intermediaries, to improve and

regulate membership.

SYSTEM IV scans the environment and sees what is needed. It then designs products or

implements changes to existing products, so that it can meet the paying public’s healthcare

requirements. It can warn the administrators (SYSTEM III) that they must reduce benefits or

raise contributions if there are insufficient funds

SYSTEM V

At this level there exists the Medical Schemes Council, which sets the rules and parameters

within which the system operates. It dictates conditions for which payment must be made, when

it should be paid, and how it is paid, and has the power to impose penalties if the rules are not

followed.

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SYSTEM V consists of members appointed by the Government/Health Department. They write

rules, policies, and procedures. This creates the enabling framework to encourage private sector

healthcare providers to provide healthcare. It must ensure that medical aid schemes are viable so

that they can deliver healthcare to the paying public. Both SYSTEM III (administrator) and IV

(scheme) are governed by SYSTEM V. SYSTEM V tries to balance the external demands of

SYSTEM IV (creating new products) with the internal demands of SYSTEM III (improving

internal efficiencies). SYSTEM IV and III have an autocratic relationship with SYSTEM V.

SYSTEM V does not share an identity with SYSTEM I (patients). It professes to be a regulator

and is at arm’s length from SYSTEM I and II, having no formal contact with them.

SYSTEM V formulates policy on the basis of all information passed to it by the medical scheme

(SYSTEM IV). It communicates policy down to the administrator (SYSTEM III) for

implementation by SYSTEM I and II (affects service providers and patients). It must be able to

balance the demands of the environment (members of the public on medical aid wanting medical

access) with the resources available to do so, via SYSTEM IV, which is the medical scheme. It is

the job of the regulator (SYSTEM V) to ensure that members of the public have access to

healthcare and are not unfairly discriminated against, and that their healthcare demands are met

by the scheme (SYSTEM IV). SYSTEM III reports to both SYSTEM IV and SYSTEM V.

Each system is a viable system on its own, and can be depicted as an autonomous system.

5.1.2.2 Deficiencies identified by the VSM

Using this definition of the VSM model, a number of problems and structural deficiencies were

discovered. Appendix B.5 summarizes the key problems identified in each of the systems. (For a

detailed report of the functions of the different systems, refer to Appendix B.4).

Based on the problems summarized in the Appendix B.5, using the VSM model (Figure B.6) and

also taking into account Keatings’ (2000) structural analysis methodology, the following

deficiencies were identified and are listed in Table 5.3.

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Table 5.3 SYSTEMS DEFICIENCY System I - Operations (Member / Service provider obtaining treatment) It does not interface or co-ordinate with other systems (e.g. specialists / hospital / GP's/ X-rays)

are all SYSTEM Is, but have minimal or non-existent communication. All SYSTEM Is need to

integrate so that they work together to satisfy healthcare needs of the scheme member. SYSTEM

II is usually absent or weak. So there is no co-ordination of SYSTEM I activities.

SYSTEM I has minimal contact with SYSTEM II so there is poor co-ordination. It does not have

contact with manager of health requirements of SYSTEM I scheme members. These health

requirements need to be managed by family practitioner so that there is control and management

of these needs.

II - Co-ordination This system is non-existent or weak. It needs to manage SYSTEM I’s healthcare needs. It should

be the family doctor or medical advisor of the patient. This function is non-existent.

III - Control - Has limited communication with SYSTEM I and II. All it does is either deny or accept

liability for claims.

- Does not or is not able to monitor SYSTEM I performance, i.e. does not measure health

outcomes.

- Has accountability from SYSTEM I but no performance reporting (i.e. cannot measure

level of care of treatment that is given to members). SYSTEM III has only financial

control over SYSTEM I and II.

III - Monitoring Monitoring system is poor. Uses only financial indicators. Requires other monitoring factors to

be introduced. Sporadic audits are too few and not effective. Should be done more often.

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IV - Intelligence

Environmental scanning and interpretation are minimal, as products are not correctly designed.

Focused more inwards and not outwards. Does not communicate with service providers of

SYSTEM I and II as much as it should.

V - Policy Not able to maintain balance between III and IV. SYSTEM III and IV's identities are not distinct.

5.1.2.3 Summary of problems demonstrated by the VSM There exists a lack of communication between all systems to the bare minimum. There is also a

lack of feedback and controls throughout the PHCI, as only financial indicators are used and no

non-financial indicators.

There is no manager of SYSTEM I. This system is non-existent, i.e. no-one manages the

healthcare need of the member. He does it himself.

SYSTEM II is very weak. There is no manager of the healthcare needs of the patient. It exerts

very little or no control over SYSTEM I. It is important that members have a manager who will

direct him to the most efficient place and person for services e.g. chemist, GP, specialist, hospital,

pathologist, or radiologist.

SYSTEM IV is very weak. It has poor product development. It is not separate from SYSTEM III.

There is very little two-way communication with SYSTEM V. It appears to delegate this

function to the administrator.

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SYSTEM V is hierarchical. It does not engage with the external environment as much as it

should. It makes policy without adequate consideration of the impact of that policy on the

different stakeholders. It has minimal communication with SYSTEM I and II.

This analysis of the industry does not expose the underlying human relationships and especially

the power relationships that exist in the industry. For this we will use the emancipatory approach

of Ulrich.

5.2 Emancipative Approach 5.2.1 Critical System Heuristics (CSH)

This is classified as an emancipatory approach, which reclaims human conflict and empowers the oppressed.

Ulrich initially divides all stakeholders into two groups – those involved in decision-making

(clients, decision takers and decision designers), and those affected by the decisions (witnesses).

The stakeholders representing these groups are identified in Table 5.4 below.

5.2.1.1 Stakeholders and Definitions

Table 5.4 DEFINITION STAKEHOLDER INVOLVED: (Those producing decisions) Regulator, Scheme and

Administrator * CLIENTS (Benefit from consequences Scheme members, of the decisions) service providers and

administrators. * DECISION TAKERS: (The people who Administrator decide what constitutes a measure of success for the decision) * DECISION DESIGNERS: (The experts who Regulators / Schemes give expertise and the basis of guarantee for the intended consequences)

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* AFFECTED: (by the decisions) Service providers and Scheme

members * WITNESSES: (Those who suffer as Service providers and a consequence of the decision) Scheme members Ulrich then proposes a set of 12 questions to reveal the normative issues in the PHCI. These help

to identify value judgements and the system boundaries as visualized by both the experts and the

witnesses (the affected who have no power) Appendix B.6 demonstrates the application of this

methodology.

5.2.1.2 Summary of findings from the CSH

Application of the methodology demonstrates that there are no clear lines of distinction between

the administrator and the scheme. In fact, I would say that most medical scheme members do not

consciously make that distinction, or are aware of the distinction. Schemes are too weak. They

exist only in name. They are non-profit organizations, but everyone who contracts to them is

profit-orientated.

The next major finding, using this approach, is to show how those affected have no say in

decision-making. The scheme member who is affected the most does not have a say in decisions

that affect him the most. This approach demonstrates the powerlessness of the scheme member.

Evaluation of this scenario reveals that the role players in the industry have different agendas,

strengths and goals. What is apparent is that the aim of the regulator, which is to increase the

number of people on private healthcare, has not been met. It is also apparent that the two people

who interact the most and have the most to lose, do not take part in decision-making, policy, or

product development that affects them the most.

It is also noticeable that the powers of hospitals and pharmaceutical manufacturers are not

revealed in this analysis. While they are beneficiaries of the system and do not have a say in

decision-making, they are able to demand and to obtain a premium for their services.

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The PHCI has been formed on the basis of assumptions, many of which have not been surfaced or

debated. The “victims” of this industry are the end-users (the members and service providers.

This excludes powerful service providers such as hospitals and pharmaceuticals. It can be seen

that Ulrich’s CSH helped to expose the powerful stakeholder interests that make the member a

victim, a situation which he has very little power to change. Ulrich's emancipatory approach,

while useful, does not allow the oppressed stakeholders a more powerful voice. The Post

Modernist approach is used for this.

5.3 The Post Modernist Approach I would like to use Clegg (1990) and Ostell's (1996) methodology to describe the PHCI in Post

Modernist terms. While a modernistic organization is hierarchical and bureaucratic, with little

ability to manoeuvre in a rapidly changing industry, Post Modernism is a way of resolving

conflicts and empowering individuals. (See Appendix B for this definition.)

5.3.1 Definitions and terminology

Technical: Operations, post-operative care, etc. Procedures and processes are very

technical.

Bureaucratic: Decisions are made at the top and passed down for execution. For

example, the specialist / matron / administrator tells you what to do.

Disempowering: Patients have no decision-making power in relation to administrator

or healthcare decisions.

Authoritarian powers: For example, the matron tells the nurse exactly what to do.

Short-term planning: No healthcare preventative programmes are put in place; the

system only treats crises and hopes for a short-term cure.

Not holistic: The current system does not consider the member as a holistic person and

treats parts of the person without consideration of the rest of the person. For example,

specific illness is treated but not the factors that result in that specific illness. Another

example is treating a back problem but not the work conditions that cause the

problem.

(Appendix B.8 demonstrates the application of the methodology.)

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5.3.2 Problems identified in the Post Modern approach

The methodology has revealed a number of assumptions that need to be debated so that

marginalized groups are allowed a voice. It is the debate that challenges those assumptions that

stimulates creativity in arriving at solutions.

The significant contribution made by using the Post Modern approach is to show the power

relationship between service providers and the way in which some service providers have more

power than other service providers. Ulrich’s CSH methodology did not make a distinction

between the service providers and treated them as one. However, the Post Modern approach, as it

deconstructs reality, is able to show how more powerful service providers were able to depict

reality in their own way, and in that manner influence thinking for their own benefit. For

example, the PHCI projects the image that it is the best alternative to the state health sector,

ignoring the fact that public-private partnerships (PPP’s), utilizing state hospital facilities, are

starting to take root, to make healthcare more affordable.

Post Modernism has helped more than Ulrich’s emancipative approach in relation to who is the

expert. The healthcare industry lends itself to many experts – experts in medical treatment and

experts in medical aid administration. However, the Post Modern approach shows the patient as

the only true expert, as he is the one most affected. Medical treatment is not able to help in many

conditions. A large percentage of medical conditions are iatrogenic in nature (Bolus, 2002). It is a

fact that the attending physician often takes autocratic decisions as the expert in the system.

However, the Post Modern approach recognizes the patient’s right as an expert decision-maker

with regard to his own illness.

A persistent paradox that always comes up is the accessibility of healthcare. While medical

schemes stress the access to healthcare, it is often denied for various reasons:

Not covered by the rules.

Benefits expired.

Provided by the State.

This shows how the industry portrays its image, but the reality is different.

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The Post Modern approach is one that truly empowers the patient. It allows a more flexible

approach, allowing all stakeholders their say. It exposes power relationships, but the more

powerful can always prevent discussion of power issues. It is a very flexible approach, which is

unlikely to be accepted by the “expert” stakeholders, as they have vested interests in their

continued position as experts and decision makers.

Palmer and Harding (2000:273) say that experts (healthcare providers) produce answers that are

consistent with their own training and experience in a way that makes sense to them. However,

for the patient this answer may be meaningless, thus relegating the expert’s opinion to that of

observer.

The PHCI is characterized by a fragmented approach. Each side that has more power is able to

portray reality from its own point of view. A Post-Modernistic view, however, allows a more

integrated approach which allows contradictions, challenges assumptions, allows multiple views,

and permits individuals (patients) to have a say. The Post Modern view says that one should share

power and have egalitarian relationships. In the PHCI, power is one-sided. This applies

particularly to the doctor-patient relationship where the doctor has all the power because he/she

has information not shared with the patient.

It is appropriate at this stage to use another methodology, as we now have a clear idea of the

different systems in the industry. The systems failure methodology, an interpretative systems

approach, is ideal to highlight failed systems, and also to determine which systems are necessary

but absent in this industry.

5.4 Interpretative approach Application of systems failure methodology to the PHCI

The systems failure approach conforms to the interpretative worldview of social reality and is

consistent with a soft-systems approach. (See Figure 4.1, Chapter 4). This approach involves all

role players in finding a solution, and is not prescriptive (The reader is asked to refer to Appendix

B.11 for a flow chart of how the methodology can be applied.)

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The approach to be adopted is the failure approach. This is a system-based approach. It is based

on the action research process, which focuses on alternative cycles of action and reflection, which

enhance learning. These cycles are reflected in Figure 5.3.

Figure 5.3

Action Research Process

Observe

Take action To change

Learning occurring here Reflect

Conclusions

Figure 5.3 shows that the methodology is an iterative process, meaning that the cycle of action,

observation and reflection, can continue until an acceptable answer is found. It is the researcher’s

opinion that this is a suitable approach to the PHCI because problems are complex and there are a

large number of stakeholders with opposing views.

The exact process to be followed is shown in a flow chart in Appendix B. Figure 5.4 illustrates

the formal health care system and its operations. It shows the medical schemes council, a

regulatory body, setting policy, the medical scheme creating a product or option within that

policy framework, appointing an administrator to administer that option according to rules set by

the scheme, and the administrator collecting contributions and paying service providers. The

external environment consists of the government, the public seeking healthcare, and the larger

community. System failures will be identified and compared with this formal system to see if

there are omissions or discrepancies. These failures will also be compared with other paradigms

or systems to see if they are present and if they are desirable.

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Figure 5.4 Formal Model of the PHCI

Medical Scheme Board • Designs products. • Appoints administrator, brokers, service providers • Makes the rules for the Scheme • Accept members and gives them benefits according to rules of the scheme.

Administrator Decision making system

Gives details of claims paid and contributions received

Acts on and

Medical Schemes Council creates regulatory structure

Collects data

Collects and pays contributions

Implements rules

Operates subsystem

Environment

Aids

Community

Environment

Government

Employed companies

Contracts with service providers

according to rules

Healthcare needs transformation healthcare needs satisfied

Wider System Boundary

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The following failures were identified. 5.4.1 Identification of failures

Failure to stop high contribution increases.

Failure to control healthcare demand.

Failure to formulate a viable policy framework by government.

Failure to communicate with all stakeholders.

Failure to share information.

Failure of feedback and monitoring information.

Failure to introduce more competition.

Failure to consult with members in decision-making.

Failure to align goals of all stakeholders.

Failure to resolve conflict.

Failure to manage high service provider costs.

Failure to give comprehensive cover to members.

Failure to provide access to healthcare when required.

Failure to keep contributions affordable.

Failure to increase numbers of members on medical aid.

Failure to invent new methods of payment.

Failure of system to prevent overloading of public healthcare system from fallout of

private healthcare industry.

These failures were then grouped in terms of the different systems to form a group of significant

failures.

Failures grouped together

Failure of system to manage healthcare demand.

Failures of system to communicate and share appropriate information.

Failure of system to provide access to healthcare when required.

Failure of system for joint decision-making and conflict resolution.

Failures of system to provide appropriate re-imbursement models.

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5.4.2 Failures compared to the formal system paradigm.

Failure of system to manage healthcare demand vs formal system paradigm

Comparison of this system with the formal system paradigm shows the absence of managing the

system to fulfil healthcare needs. There is no manager of healthcare demand. This system is

absent but desirable.

Failure of system to communicate and share information vs formal system paradigm

Comparison has revealed that there is communication, but only between administrator, scheme

and the medical council. There is no communication between operational units and administrator

system in regard to health outcomes (i.e. value for money spent). This system is present but weak.

This system is desirable.

Failure of system to provide access to healthcare vs formal system paradigm

This is a failure of the legislative framework to provide a set of rules that would give access to

healthcare and also reduce costs so that more people can join. This system is present, but not

effective. It is a desirable system.

Failure of system for joint decision-making and conflict resolution vs formal system paradigm

This paradigm is absent but desirable.

Failure of system to provide adequate re-imbursement models vs formal system paradigm

This system does exist at operation level. It is currently an FFS model. It will require this model

to be changed. This system is present but weak. It is a desirable system.

5.4.3 Failures compared against other paradigms

Failure of system to manage healthcare demand vs human failures culture paradigm

People have always been their own managers of healthcare. They decide when they need

healthcare and then go to the appropriate service provider. However, with advances in medical

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treatment it is necessary that this demand for healthcare be managed in terms of clinical

outcomes, and within the budgetary constraints of that individual or his medical scheme. The

culture of demanding the best, regardless of cost and clinical outcome, must change. This

paradigm exists but is not desirable.

Failure of system to communicate and share information vs power and culture paradigm

This paradigm has prevented the free flow of information. It is present but not desirable.

Failure of system to provide healthcare vs the control paradigm. Figure 5.5 Input Process Output QUANTITY QUALITY

Figure 5.5 shows the control paradigm. The input side reflects the total healthcare demands on

the system. The output reflects the quality of the health outcomes. The process is the application

of healthcare. The controller is the entity that regulates demand and controls the quality of health

outcomes.

By monitoring both input and output, and controlling healthcare demand and healthcare quality,

the system should be able to make changes so that healthcare is “rationed” and available all the

time. Currently the system allows all healthcare to be used up and none left for later when

required, or it denies access altogether by raising premiums. This system is necessary. It is

present but weak.

Failure to manage healthcare demand vs control paradigm

This system is desirable but absent.

Controller

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Failure of system for joint-decision making and conflict resolution vs communication paradigm

This system is desirable but absent.

Failure of system for joint decision-making and conflict resolution vs power paradigm

This is not desirable but is present.

Failure of system to provide appropriate re-imbursement model vs culture paradigm

The existing model is well established and accepted. Any changes require a mindset change,

which will be prevented by the culture paradigm. This paradigm is present but not desirable.

5.4.4 Interpretations and conclusions regarding the failures approach. The following paradigms were present but not desirable.

Failure of system for appropriate re-imbursement vs culture paradigm.

Failure of joint decision-making and conflict resolution vs power paradigm.

Failure of system to communicate and show information vs power and culture paradigms.

Failure of system to manage healthcare demand vs culture paradigm.

The following paradigms were desirable, but weak or absent

Failure of system to manage healthcare demand vs formal system paradigm.

Failure of system to communicate and share information vs formal system paradigm.

Failure of system to provide access to healthcare vs formal system paradigm.

Failure of system for joint decision-making and conflict resolution vs formal system

paradigm.

Failure of system to provide adequate re-imbursement models vs formal system paradigm.

Failure of system to provide healthcare vs the control paradigm.

Failure of system to manage healthcare demand vs control paradigm.

Failure of system for joint decision- making and conflict resolution vs communication.

Failure of system to monitor health outcomes and quality

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Conclusion from failures approach This approach has reinforced the power and culture paradigms discussed previously. They

prevent meaningful change in the industry. The lack of management of healthcare demand was

also shown in the VSM.

The other major finding was failure of communication and information sharing. This was

highlighted in the VSM model, but is much clearer in this approach. Many stakeholders may

argue that there is no conflict in this industry. The rhetoric, however, says otherwise.

5.5 Refining the problem I have shown the structure of the PHCI by using Beer’s VSM. Using this as a template I have

attempted, using Ackoff’s stakeholder theory, to show that it is only by balancing the conflicting

claims of the various stakeholders, that the industry will survive. Each stakeholder was shown to

be working for its own goal and not for the goal of the system or the industry. The VSM showed

that SYSTEM II, management of the healthcare needs of the members, was non-existent,

resulting in there being no co-ordination of the needs of the members. It also showed by a weak

SYSTEM IV, that the medical scheme was not fulfilling its role of creating products that take

into account the external environment.

It has also been shown that communication between member, service provider and administrator

was minimal. Ulrich’s CSH methodology showed that stakeholders affected the most have no

decision-making power, that the greatest power is in the hands of the administrator, and that the

Boards of Trustees of medical schemes are very weak. Relating this back to the stakeholder

model shows that policy and decision-making are really in the hands of the administrator, with

the scheme having a largely ceremonial role. This will also result in an imbalance in the system.

The Post Modern approach has shown how the scheme member is disempowered and more

powerful service providers are able to claim a higher percentage of the healthcare rand. Systems

failure analysis revealed the lack of communication between stakeholders and management of

healthcare demand. Using the culture lens, it could be seen that change is difficult because of

deep-rooted assumptions, beliefs, values and traditions. These prevented solutions from being put

in place to correct imbalances. Taking the above into account, a common theme begins to

emerge.

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5.5.1 Lack of communication (Viable System Model / Stakeholder theory)

The VSM has shown that the three most important people – the scheme, the service provider and

the members, do not communicate. This means that when the scheme considers design changes

and new products, it obtains information from the administrator and not the members and service

providers.

If this is viewed through the lens of Ackoff’s stakeholder theory, it would be impossible to

balance the conflicting interests of all stakeholders, as one would not know what these interests

are and how they could be satisfied. No communication means that stakeholders make

assumptions that may be incorrect, leading to conflict. No communication means no joint

decision-making – a further impediment to managing stakeholder interests.

Ulrich’s CSH shows that the service providers and members, while affected, have no power to

make changes. They have been left out of the decision-making process and the communication

that exists is top-down.

5.5.2 Power and the Medical Scheme

How is it that the member, while paying, is the least empowered?

A view through the lens of the VSM shows that SYSTEM IV, the system that designs and

implements products which represent the member’s interest, is extremely weak. Why is it so

weak? A medical scheme is a non-profit organization run for the benefit of members. It is run by

a Board of Trustees who are elected by the members. However, only 50% of members are

elected, and the balance is nominated. (MSC Report 2001). The principal officer is often an

employee of the administrator, as was the case in the recently liquidated Phila Medical Scheme.

Furthermore, the scheme hands out all administration to an administrator, who collects and

controls the money and pays out for services rendered to scheme members, according to a set of

rules. It appears that when the scheme delegates this function to the administrator, it delegates its

power as well.

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SYSTEM IV in the VSM should be external and strategic. It should look at the external

environment and the regulatory framework and then design products that meet those demands.

Looking at this system through the lens of stakeholder theory, it can be seen that, in the PHCI,

this stakeholder and its role are not recognized. Most scheme members would not be able to

distinguish between the scheme and the administrator. Therefore its role is minimal, and it is not

able to deliver what it should, which is to protect members’ interests.

Viewed through Ulrich’s CSH methodology, the medical scheme and administrator are not seen

as separate entities. In that case the administrator (a profit organization) who is in control of the

money, will protect its own interest first (maximum profit) before ensuring that there are enough

funds for members’ healthcare needs. In terms of power, the scheme has minimal power, as the

control of the money falls into the administrator’s hands. (The recent statistics released by the

MSC show that administration costs increased by 56% over the previous year, confirming that

this power exists and is utilized.)

50% of medical scheme trustees are nominated, and as such are not representative of the

membership. These board members have been known to demand excessive remuneration at the

expense of the general membership. (SAMJ, 2002) This analysis has revealed that the current

structure of the medical scheme is not effective, and contributes to the escalation in healthcare

needs by not looking after the members’ interests. In a stakeholder view of the industry, it can be

seen that the scheme's interests are secondary to the interests of the administrator. The evidence is

the rapid escalation in non-healthcare costs from 7c in the rand in the1980s, to 16.9 c in the rand

today (MSC Report, 2001).

5.5.3 Management of stakeholder interests

In Ackhoff’s opinion, management of stakeholder interest in an organization is critical to its

survival. But who manages these interests in the PHCI? Theoretically this should be the

responsibility of SYSTEM V, which creates the regulatory framework. The current regulatory

framework is not conducive to increasing membership, (membership has remained static for three

years, according to the MSC 2001,) but has increased costs by demanding minimum benefits,

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community rating and solvency levels. This has caused contributions to rise, therefore making it

unaffordable for members to join.

We know from the analysis of the VSM that SYSTEM V – the system that balances internal and

external needs – gets no communications from SYSTEM II (co-ordination of healthcare needs)

and SYSTEM I (delivery of healthcare). We also know that SYSTEM IV is weak, so that its main

source of information is SYSTEM III. SYSTEM V can delegate this role to SYSTEM IV, but we

know that SYSTEM IV has delegated this role to SYSTEM III. Analysis of the VSM confirms

that the systems are not managed for the greater good. Healthcare systems should act as a

coalition of associations with a common goal. But this is not happening.

Let me illustrate. Service providers belong to statutory medical associations that govern their

behaviour. This is at variance with their role in the healthcare industry. While finance is

paramount in the PHCI, it plays no part in the rules that govern the professionals in the industry.

Furthermore, culture and power entrench certain positions in the industry, which makes it

difficult to change.

Ulrich’s CSH shows that all stakeholders are not involved in decision-making. This confirms the

hypothesis that all stakeholders are not managed for the benefit of the industry. It can be seen

that, in the current regulatory framework, no system exists that manages the stakeholders

collectively for the greater good. In the absence of this system, it is apparent that some

stakeholders will take more than they are entitled to, which will destabilize the system and cause

it to flounder.

If one reads the medical press, not a month goes by without one stakeholder accusing another of

manipulating the system for its own benefit. It is owing to this lack of stakeholder management

that the industry is currently in a crisis situation.

Table 5.5 is a summary based on all the problems from each stakeholder's point of view. The first

column identifies the stakeholder. The second column establishes what each stakeholder desires

as the ideal situation for that stakeholder. The third column identifies the problems as seen by that

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stakeholder. The fourth column attempts to explain the problem in terms of the different lenses or

perspectives that were used in analyzing the industry.

Table 5.5 Summary of the problems in the PHCI from the stakeholder’s perspective.

ANALYSIS OF STAKEHOLDER PROBLEMS

STAKEHOLDER

GOALS WANTS PROBLEMS IN THE VIEW OF THE

PROBLEM EXPLANATION IN TERMS OF

STAKEHOLDER THE DIFFERENT PERSPECTIVES

Patient member

Low cost. High premiums. VSM - No management of healthcare needs.

Unlimited access. Benefits reduced. - No communication with service Latest technology.

Receives accounts when insurer does not pay.

provider and administrator.

Unlimited benefits.

Benefits not for full year. - No information from service provider

Co payments. and administrators on state of system. Denial for treatment of chronic Stakeholders - theory Not involved in decision Conditions.. making. 20 % of salary for healthcare

costs Culture - Not able to challenge due to

especially low income members. 10 % for high income.

cultural hierarchy and tradition.

. Power - Not enough power to make changes. Restricted access to health care Competition - Absence of free market. Not enough information. Too few sellers.

Service Provider

Payment guaranteed.

Unpaid accounts / delayed payments.

No integration of healthcare needs of

Access to good facilities, technology,

No guarantee of payments. patient (VSM).

drugs, labs, support.

Interference with doctor-patient Lack of feedback (no feedback loops)(VSM).

Maximum income for minimal work.

relationship. No communication channels to the scheme

High prices for service rendered.

Denial of access to latest technology.

and administrator (VSM).

No interference with decision making.

High admin costs. No measurements of performance (VSM).

Loss of income. No appreciating other role players.( Stake- (GP's drops from 20 % to 10 % Holder and power.)

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of Healthcare rand). Not involved in decision making. Interference with medical

decision making.

Administrator

More members. Unprecedented claims. No feedback from patients and service

More revenue / profit.

Fraud from patients and service providers (VSM).

To pay less for services than contribution

providers. No communication with patients and

received. Overservicing from service providers.

service providers (VSM).

Greater profit or percentage of health-

Demand for latest technology. No control of SYSTEM I - healthcare needs(VSM).

care budget. Adversial relationships with service

Unable to audit SYSTEM I & 2 (VSM).

Large reserves. providers and members. Does not recognize other stakeholders (Stakeholder). No epidemics. Paper claims, poor accounts Competes with service providers for Reduced benefits / high premiums.

submission. healthcare budget (Stakeholder).

No performance data on service

Goals are not aligned with other stake-

providers and patients. holders (Stakeholder). Inability to control claims. Power from control of money (Power / CSH). Forced to pay high fees due to lack of free market (too few service providers and horizontal collusion) (Competition).

Medical Scheme

Membership growth.

Declining or static membership.

Weak Board of Trustees - does not exert

Access to healthcare for members

Escalating costs. independence (VSM).

(unlimited). High claims. No communication with service providers Protect scheme members from high

Adverserial relationships with and patients (VSM).

medical costs. service providers and members. No recognizing role of other stakeholders(Stakeholder). Lowest possible cost.

Not managing system for benefit of all /

goals not aligned (CSH). Loss of power as does not manage money (VSM). No distinct from administrator (CSH). No able to negotiate lower prices due to absence of free market (Competition). Stakeholder goals not aligned (Stakeholder).

Medical Schemes

Low cost. Contributions. Escalating higher than CPI

Inadequate feedback from weak SYSTEM IV.(VSM)

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Council Increased membership; help for public

. No able to manage conflict between

sector. Static membership. SYSTEM III & 1.(CSH) Rich to subsidize poor.

Overwhelming escalation of claims.

Not managing all stakeholder interests, I.e.

Healthy to subsidize sick.

Restricted benefits causing more

self interests and system goals not balanced(Stakeholder

Greater access for low income employed.

members to use state facilities. Some stakeholders enjoy more power so

employed. Healthy and rich leaving with loss of

control, decision making, agendas, arenas

Socialistic health services.

cross subsidization. and prevent change.(power)

Greater increase in admin costs vs

Weak Board of Trustees - exercise minimal

medical costs. control.(VSM) Brokerage / re-insurance

escalating. No frame work to involve members and

Shrinking healthcare rand. service providers in Decision Making.(Post Modern Unable to regulate a free market or level the playing field.(competition)

Table 5.5 summarizes all the different ways in which the problems facing the healthcare industry

can be viewed. It can be seen that each perspective sheds new light on the problem. Although

there are many problems, they can be grouped under broad readings that will allow better

understanding of them. The difficulty is how to manage the different stakeholders. What do they

want, how it can be achieved, and how does it differ from the goal? It is accepted by all role

players that greater numbers of people and affordable premiums are necessary. This is the

common goal. But each stakeholder has his own goal, which is different from that of the others.

Table 5.6 is a summary of what each approach revealed about explaining what the problems in

the industry are. The different lenses can be considered as looking at an object from as many

angles as possible to reveal the identity of that object.

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Table 5.6 Summary of problems from a systems point of view

AMALGAMATE ALL VIEW POINTS

Lens Perspectives Revealed VSM Absence of SYSTEM II. (Controller of healthcare needs). Weak SYSTEM IV. (Medical scheme).

Poor co-ordination and control of SYSTEM I’s.(Service Providers) Absence of feedback loops.(monitoring) Lack of established channels of communication between

SYSTEM III, 2, 1. SYSTEM III – monitoring and control is poor. Lack of information prevents audits.

Absence of measurable outcomes. Stakeholder theory No management of stakeholder interests. No communication between stakeholders. Lack of recognition of the role of other stakeholders. Stakeholders not equally involved in decision making. Lack of alignment of stakeholder Goals Stakeholder theory and Some stakeholders have greater control over money and other

critical resources. Power Other stakeholders are able to control decision making, agendas,

participants and arenas through control of resources. Some stakeholder power comes from tradition and ingrained

values, beliefs and assumptions. Medical Schemes Council has regulatory power given by the

government. Culture Stakeholders use culture of hierarchy to maintain power. Tradition and culture used to maintain values and beliefs to prevent

changes. Metaphors Private medical industry viewed as political organization and

competitive interests (working for own self-interest and power) (Gareth Morgan, 1996) Association of coalitions, but each one has a different agenda and

goals but a common specific value. Ulrich’s CSH Stakeholders that are affected the most don’t take part in the

decision making process. Medical scheme (SYSTEM IV) is not separate from the

administrator. Power lies in the hands of the administrator.

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Board of Trustees of Medical Schemes are weak (no power and do not exercise it).

Competition Too few service providers. “Regulated” tariffs – horizontal price collusion.

Stakeholders have insufficient information to make buying choices. Skewed system of re-imbursement. Absence of free market (informed buyer and many sellers). No idea of cost (subsidized by companies and state). Regulated private health economy. Vertical integration of suppliers (Netcare).

Post Modern approach Members not empowered to make decisions through lack of sharing of information. Greater power to some service providers so that they can capture a larger portion of the healthcare rand. Demonstrates power of the doctor in medical decision making.

System failure approach Power and culture are obstacles to good communications and joint

decision-making. No control and management of healthcare demand. No monitoring of Healthcare outcomes.

From Tables 5.5 and 5.6, the major problems at this stage can be summarized as follows.

Managing and controlling the healthcare demand of the paying medical aid member is not

present in the industry, leading to unprecedented exponential growth in demand for medical

services.

There is lack of communication between stakeholders in the PHCI, leading to poor decision-

making amongst all stakeholders.

There is no feedback or monitoring system that audits healthcare outcomes and service provider

quality, leading to a lack of information and disempowerment when members or schemes make

buying decision.

A weak medical scheme (SYSTEM IV of the VSM), power imbalances, and the regulatory

framework (SYSTEM V) do not allow for management of all stakeholders for the benefit of a

common goal that rewards all stakeholders equally.

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Power structures, culture, and lack of information have disempowered the scheme member so

that he/she plays no role in decision-making, and is relegated to the position of observer.

The anti-competitive market is currently perpetuated by the existing economic and regulatory

framework, resulting in higher administered medical prices benefiting some stakeholders at the

expense of others.

5.6 The use of system tools in problem formulation (The reader is referred to Appendix B.1 for the theory in the use of system tools.)

The next step consists of the use of systems thinking tools to map the findings.

The researcher proposes using the summary of the problems to form the basis of the

Interrelationship Diagraph (ID). This process will allow the identification of relationships

between the different problems. It will also allow the drivers (causes) and outcomes (results) to

be identified. It is important to note that this process has been carried out from the worldview of

the researcher, and a completely different outcome is possible if it is carried out from a different

stakeholder’s point of view.

Figure 5.10 is an ID of the problems in the PHCI. It allows analysis of the relationships between

all the problems. It will demonstrate which are the major causes of problems, and the results that

are produced by these drivers. Based on this analysis, the following drivers and outcomes of the

problem situation were found.

Strongest to weakest outcomes Strongest to weakest drivers Healthcare demand Information Competition Communication Power Stakeholder management Feedback and monitoring Culture Feedback and monitoring

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Interrelationship Diagraph of Problems in the Healthcare Industry Figure 5.10 The drivers and outcomes identified in the ID will be used to create a CLD, which shows how the

factors influence each other. This CLD will allow a comprehensive picture to develop, and will

also identify outputs that may not have been visualized earlier.

5.6.2 Causal loop diagrams of problems in the PHCI Having identified the relationships, and especially the drivers, that is the factors causing problems

in the industry, one is able to form a causal loop diagram. (CLD). (Figure 5.11) This is a

diagrammatic representation of the problems in the industry and how one problem influences

other problems. . This CLD is depicted in figure 5.11. This allows multiple influences or

relationships to be plotted, at the same time allowing one to make a complex picture of the

situation. This will allow a clear formulation of the problem.

ID OF PROBLEMS IN THE PHCI

HEALTHCAREDEMAND

COMPETITION

COMMUNICATION

FEEDBACK AND

MONITORING STAKEHOLDER

ALIGNMENT

POWER.

CULTURE

INFORMATION

Outcome

Outcome.

Driver

Outcome, Outcome.,

Driver,

Driver,.

Driver.

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Figure 5.11 shows a number of relationships in a rather complex fashion. The researcher intends

to unravel this CLD by discussing a section at a time, and showing the relationships that exist.

Each section will identify a driver and then continue to show how healthcare demand is managed

and controlled. The researcher is making the assumption that the management of healthcare

demand is an important goal, which is essential to manage the problems facing this industry. The

other key assumption is that there is a lack of stakeholder management, which is a major driver in

the inability to mange healthcare demand.

CLD FOR PROBLEM FORMULATION IN THE PRIVATE HEALTHCARE INDUSTRY

Figure 5.11

PRICE OFHEALTHCARE

HEALTHCAREMANAGEMENT

COMMUNICATIONS

POWER.

STAKEHOLDERMANAGEMENT

COMPETITION

CULTURE

S

S

S

O

O O

O O

S

S S

S

O

S O

O

O

S

S

S

S INFORMATIONON FEEDBACK

& MONITORING

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Figure 5.12 demonstrates the major driver as the lack of communication. In order to have any

system that can work, communication is necessary, as it is the oil that lubricates and keeps the

system functioning effectively.

Figure 5.12 demonstrates how decreased communication has four effects:

Decreased communication leads to decreased information on the industry, which allows

some service providers to have more power. These competitors are able to prevent new

entrants, resulting in increased healthcare prices and consequently a decrease in healthcare

management.

Decreased communications lead to decreased stakeholder management, which allows

certain stakeholders to become more powerful. This lack of information means that

Figure 5.12

CLD FOR COMMUNICATION

PRICE OFHEALTHCARE

HEALTHCAREMANAGEMENT

COMMUNICATIONS

POWER.

STAKEHOLDERMANAGEMENT

COMPETITION CULTURE

INFORMATIONON FEEDBACK

& MONITORING

S

S

S

O O

O

S

SS

O

O

S

O O

S

S

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stakeholders cannot be managed, resulting in conflict between the different stakeholders.

This means that no management of healthcare demand can occur.

Decreased communication also means that there is decreased competition, as stakeholders

have no knowledge of the industry, which results in higher healthcare prices.

Decreased communication leads to decreased understanding of culture, which prevents

change in the industry.

The presence of a strong cultural tradition in the PHCI has the following three effects (with

reference to Figure 5.13).

A strong culture allows vested power groups to become more powerful, as culture is a

strong obstacle to change.

Strong culture also causes increased competition as new entrants are unable to penetrate

the market i.e. the doctors do not embrace or want change.

A strong culture prevents stakeholder management as each stakeholder maintains his

independence and resists interference.

PRICE OFHEALTHCARE

HEALTHCAREMANAGEMENT

COMMUNICATIONS POWER.

COMPETITION CULTURE

INFORMATIONON FEEDBACK

& MONITORING

S

O

O

O S

O

S

O

O

S

o

o.

o,

o..

s'

o'.

(2.)

o',

STAKEHOLDERMANAGEMENT

CLD FOR CULTURE

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Figure 5.13 shows how the presence of a strong culture influences the cost of healthcare. Culture

reduces competition and therefore prices increase. Culture entrenches positions of power. This

can be seen in sayings like “It is the norm”, “It has always been the case” and “The best

treatment is in the private hospital, so I must go there”. Power reduces the ability of other

competitors to come in and compete in the market place – established businesses use their

financial power to prevent them from being established. This lack of competition increases the

price of healthcare and thereby reduces demand by pricing it out of reach of the average

consumer. A better understanding of culture can bring about better stakeholder management and

therefore better management of healthcare demand.

Figure 5.14 shows that lack of information on indicators in the industry results in poor

communication and inadequate stakeholder management.

Figure 5.14 Lack of information

PRICE OFHEALTHCARE

HEALTHCAREMANAGEMENT

COMMUNICATIONS

POWER.

STAKEHOLDERMANAGEMENT

COMPETITION CULTURE

S O

S

S

S

O

o

o.

o.. s.

s' o'.

s''

o''

s;

s;.

o;,

(1'')

(2'') (3'')

(4'')

INFORMATIONON FEEDBACK

& MONITORING

CLD FOR INFORMATION

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The lack of information in the PHCI has the following effects as seen in Figure 5.14.

Decreased information allows strong cultures to dominate and strengthen their powerful

positions.

Decreased information also prevents stakeholder management, which results in no

healthcare management

Decreased information also means that there is less to communicate. This in turn reduces

stakeholder management and therefore health care management.

Lack of information means that new entrants in the market are discouraged, resulting in

decreased competition.

Information is jealously guarded and not shared in this industry. Each administrator has his own

access to information, which he does not share. There is also difficulty in measuring health

outcomes. Both these factors mean that there is no common platform on which to share the

information. No information means there is no need for communication. If there is no

communication, there can be no stakeholder management. It is assumed that, for stakeholder

management to occur, one must have communication between stakeholders. Without stakeholder

management there can be no management of healthcare demand. In fact, the culture of the PHCI

is not to share information, as it is regarded as intellectual property and as such is considered a

valuable asset. Figure 5.15 illustrates that poor stakeholder management results in increased power for certain

stakeholders.

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Figure 5.15

This figure shows how both strong power blocs and lack of stakeholder management prevent new

entrants into the market and prevent the communication of information, which strengthens the

strong culture that allows dominant stakeholders to increase power. If there is no stakeholder

alignment, then certain stakeholders will become more powerful. This power will reduce

competition in the industry, leading to increased prices.

5.7 Trust in the PHCI There is a relative lack of trust in this industry that does not allow the stakeholders to align goals.

It is in everyone’s interest that this industry grows and survives. So why is it that there has not

PRICE OFHEALTHCARE

HEALTHCAREMANAGEMENT

COMMUNICATIONS

POWER.

STAKEHOLDERMANAGEMENT

COMPETITION CULTURE

INFORMATIONON FEEDBACK

& MONITORING

S

O

O

S S

S

O

o

o.

o,

o..

s'

S

o''

s;.

o;, s;

CLD FOR POWER AND STAKEHOLDER MANAGEMENT

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been better alignment and management of stakeholder goals? Why is it that there is so much

conflict and finger-pointing in this industry? Are some of the players so powerful that they do

not have to talk to other stakeholders? Do some stakeholders, like doctors, think that they are

indispensable and the industry needs them? Is it the culture of this industry to be fiercely

independent, to not communicate and to avoid change?

How is it that information on doctors’ practising habits, the costing of different hospitals, and

individual doctors’ health outcomes, is not open knowledge? Why is it that information is not

shared, but jealously guarded in this industry?

The answer is that there is a culture of mistrust in this industry, based on the fact that there is no

shared reality. No stakeholder knows what the other stakeholder is doing, whether he is

profitable, whether he has good health outcomes, whether he is viable. In order to have trust, one

must share information. Trust must first be established before information can be shared. This

trust is not present in this industry. But trust can only be established if there is communication.

And in this industry formal channels of communication do not exist. Lack of trust results in lack

of shared information. This lack of information prevents stakeholder management. Without

stakeholder management there can be no trust. Lack of stakeholder management also results in

lack of communication, which creates further distrust. This cycle will continue until all trust

breaks down, which is the current state of the industry. This situation can be depicted as follows

in figure 5.16.

Figure 5.16

TRUST IN THE PRIVATE HEALTHCARE INDUSTRY

Information

Trust

Communication

Negative re-inforcing loop.

Stakeholder management

s

s.s,

s'

s..

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There is a continuous cycle, which feeds on itself (negative reinforcing cycle) and prevents the

formation of trust. The researcher has identified the lack of trust as the main problem in the

PHCI.

So the question is: How do all stakeholders build a relationship of trust that allows

communication, reduction of conflict and sharing of information between all stakeholders, so that

there will be a common shared mental map resulting in alignment of goals? In the next chapter,

an attempt will be made to provide means to answer this question.

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CHAPTER 6

STRUCTURE OF THESIS

CHAPTER 1 INTRODUCTION

CHAPTER 2 THE WRITER’S PERSPECTIVE

CHAPTER 3

BACKGROUND TO THE PROBLEM

CHAPTER 4

SYSTEMS THINKING. A MANAGEMENT

TOOL FOR PROBLEM SOLVING

CHAPTER 5

PROBLEM FORMULATION

CHAPTER 6

TOWARDS A SOLUTION

CHAPTER 7

TESTING THE ANSWER

CHAPTER 8

CONCLUSION EVALUATION REFLECTION LEARNING

APPENDIX A= Situation background B= system methodologies C= Analysis of failed schemes D= Analysis of viable schemes

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CHAPTER 6

TOWARDS A SOLUTION

The researcher will attempt to show that any proposed solution will require a paradigm shift in

the attitude of all stakeholders if this industry is to survive and prosper. In any proposed solution

the scheme members must become architects and designers of change, and all stakeholders

should have a holistic approach to the industry, by not only considering their own concerns, but

also empowering those who have no power. This answer should promote empathy, relationships,

and networks among people, to achieve trust and support. Commitment, happiness, flexible

skills, individual freedom and choice will be required to be successful.

6.1 Managing Healthcare Demand The standard response to rising costs is to increase contributions. Testimony to this is the large

number of interim contribution increases that have been put through during the past year (2001).

But it is really the management of the healthcare needs that is important. In an FFS setting, many

fires stoke this need. The more often the member presents himself for treatment, the better it is

for the service provider, but the more detrimental for the member, both in the health sense and the

financial sense. However, if a “manager” is appointed, who manages this need in the most

appropriate manner, then it may not be necessary to raise contributions.

Every member of a medical scheme or every family (principal member and dependants) needs a

health team to look after their healthcare needs. The closest approximation to this that exists is

the call centres that advise patients on their current healthcare problems. Some examples of

healthcare management are as follows:

Put in place a system of preventative care, such as ensuring that children are

vaccinated.

If a member is ill, ensure that regular treatment is given and outcomes are satisfactory.

Give advice in times of medical uncertainty and acute illness.

Advise and refer to the necessary service provider when circumstances dictate.

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Advise and treat minor illness to prevent unnecessary costs.

Research and give advice on any medical problem.

In South Africa currently no such structure exists.

This theme is reinforced using other perspectives. In stakeholder theory it would amount to

management of the stakeholder interest, that is, the patient as stakeholder, and his aim to obtain

healthcare. This system would also prevent the use of culture and tradition to stop change, as the

patient would be empowered to make the change. If one examines this situation using Ulrich’s

CSH, it can be seen that those affected (i.e. members) who have no power, can be empowered by

adequate information.

6.2 The communication mystery Some examples of what the stakeholders need to communicate about are as follows:

Communication to service providers on the cost and health outcomes, and how they

compare with their peers.

Feedback to patients on the status of the scheme, the amount of healthcare consumed,

and general advice on health.

Communication between service providers and patients on costs, quality, outcomes

and alternative therapies.

Communications between all service providers on how to manage costs and care.

Communication between scheme and members to resolve grievances.

Communication between stakeholders about each other's culture or way of operating.

It is evident that, in the absence of communication and feedback loops, the system is not able to

balance all the conflicting interests of the stakeholders.

In any proposed solution, risk should not only be borne only by the patient (risk of no benefits)

and by the scheme (inadequate resources to meet demands) but also shared by service providers

who benefit financially by managing those patients’ healthcare needs.

Good decision-making can only occur when all stakeholders are empowered. This is currently not

the case. However, I have pointed out that once they are empowered with information, most

people become experts themselves and make their own decisions. In order to make this decision,

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the patient needs the medical information, and information about the financial and ethical

implications. His "healthcare manager" must supply this information. Once armed with this he

becomes the “expert”.

It is important for healthcare providers who think they are experts (for example hospitals) to

know that there are other ways of managing problems. For example, a patient with terminal

cancer does not need hospitalization. He needs hospice-type care at home, in a setting familiar to

him with people who are close to him, with help from a primary healthcare giver, which would

give him comfort, respect, dignity and absence of pain.

It is important for healthcare providers to be aware of the multiple identities and needs of

healthcare seekers, when devising solution for their needs. They will need to recognize the

different identities, needs and the social reality of those persons. Currently it is “one-size-fits-all”.

But each person is different and needs a tailor-made solution. Once again, it is in the actual

management of their healthcare needs, in relation to their context, that we will be able to satisfy

those healthcare needs.

Any attempt to create a solution must create a climate of trust or the attempt will be doomed to

fail.

It is likely that there will be a shared representation of this industry if stakeholders communicate

the following with each other:

If doctors explain why they find it so frustrating to practice.

If trustees of schemes explain why they have to continually raise subscriptions.

If hospitals explain how expensive nursing staff are.

If pharmaceutical manufacturers indicate how much money must be spent on research.

If the Medical Schemes Council explains that it wants a fairer system with easier

access to healthcare.

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Owing to the scientific nature of their training, medical professionals pay little regard to financial

issues and cost effectiveness. It will be necessary for them to change their scientific culture, and

look at medical problems from four points of view.

the medical problem.

the financial problem.

the patient’s view of the problem, and

the ethical dilemma

It is only when the professional service provider is able to integrate this approach that we will

have a model that can manage healthcare costs. For too long the medical professional has been

oblivious to the financial implications of every decision that he makes, regardless of whether the

professional is in the state or the private sector. The new medical professional will have to be a

team player who makes cost-effective decisions, that are in the best interest of the members and

all other stakeholders, and who will be accountable to his peers for his actions.

This does not mean that one can implement a total free market philosophy. Healthcare in most

countries is expected to provide universal access, regardless of the ability to pay. However, if it is

a regulated industry, then the regulations must lead to a level playing field and not favour one

stakeholder over the other, such as the power given to the administrator. Intellectual capital and

health-care usage patterns represent assets in this industry. It is understandable that stakeholders

will want to protect this information. In this industry useful information is sold to the highest

bidders, or retained as intellectual capital. But it makes no sense to keep this information if your

industry is about to explode. A method will have to be devised where all role players provide

relevant information so that all stakeholders have equal access to information.

The primary role-players have been described by a medical scheme trustee (of an insolvent

medical scheme) as the “triangle of death”. This triangle is depicted in Figure 6.1. It demonstrates

that all three stakeholders need to talk to each other. It also shows that all additional costs are

generated from the doctor-patient interaction. These additional costs represent 75% of all medical

costs (MSC Annual Report, 2001) From this it is obvious that management of the doctor-patient

interaction is crucial to managing costs in this industry. This is the same as SYSTEM II of the

VSM, which shows that management of healthcare demand is lacking in the industry.

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Figure 6.1 Triangle of communication

Administrator

Doctor Patient (scheme)

Hospital, pharmaceutical, specialist costs are generated by the GP-patient interaction.

These three role-players need to have a primary relationship of trust and harmony. It is only if

they have a harmonious relationship that all three will work together for the benefit of the system.

Once trust is established, regular communication and sharing of information will allow each

stakeholder to view the industry from that stakeholder’s point of view. Once this shared map of

reality is accepted, then, and only then, can there be any movement towards finding a genuine

solution.

It can be seen from Figure 6.1 that hospital cost, medicine and specialist costs arise out of joint

decision-making by the health professional and the scheme member. These are secondary

generated costs. However, these costs amount to 75% of the total medical budget, while GPs

receive only 8.9% of the budget (MSC, 2001). Some of this is caused by the power that hospitals

and pharmaceutical manufacturers have, by virtue of their financial resources, to influence the

doctor’s decision-making. Use and overuse of these services usually generate high costs. Doctors

are easily persuaded to make these decisions because financial costs are not part of the decision-

making process. This decision has financial implications only for the scheme member.

It is important that stakeholders align their goals so that cost-effective decision-making becomes

the order of the day. Stakeholders need to build a relationship of trust that allows communication

of information between all stakeholders, so that there is a common shared mental map of this

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industry. This map will allow stakeholders to align their interests to work towards a common goal

that will make the industry viable and sustainable

It can be seen that power and culture represent an obstacle to changes in the industry. Power and

culture issues must be identified and addressed. They are difficult issues, resistant to change, and

generally requiring mindset changes. This is a long-term process, which is achievable but will

take time to effect. Many people in this industry are highly qualified with many years of training,

so will require a change in attitude to accept a new method of decision-making. Legislation must

change so that people on medical aid can get treatment for the entire year. More people must be

attracted, so that the healthy subsidize the sick and the rich subsidize the poor. The need is for

greater numbers and for sustainable care the whole year round.

The researcher will use Ackoff's Interactive Planning to start developing a solution to the

problems in the industry.

6.3 Application of Interactive Planning Methodology

The reader is referred to Appendix B, which outlines the methodology and has a flow chart that

demonstrates the steps to be followed. For ease of reference, a summary of the steps necessary is

given below.

Formulating the mess (analysis of the situation).

Ends planning – the ideal state the organization wants to achieve.

Means planning – creating methods and means by which the organization can attain

the ideal state.

Resource planning – determines the amount, type, quality, quantity and time of

availability of the required resources.

Implementation and control – who is to do what, where and when.

The following reference scenario was visualized after application of the methodology (see

Appendix B.10). This is the future state of the PHCI if no changes are made and it continues as

before.

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6.3.1 Reference scenario

The system analysis, trend analysis and obstruction analysis point towards a future of increasing

medical aid contributions, low solvency margins, and decreasing or static membership.

Furthermore, the skills shortage will aggravate the non-competitive environment present in the

industry, allowing higher tariffs to prevail. The percentage of salary going towards medical aid is

too high and not sustainable.

The following is a summary of the expected effects of this scenario:

Loss of membership, especially of the healthy

High specialist costs.

High medicine costs

High private hospital costs, especially ICU and theatre.

Growing population that is dependent on the State.

More employed people not able to afford medical care.

Collapse of schemes where costs exceed contributions.

Mergers of smaller schemes.

High administration, re-insurance and broker costs.

Loss of skilled people

AIDS epidemic increasing demand, also removing skilled professionals such as

nurses, by illness

The interaction of all these problems is reflected in Figure 6.2. It demonstrates how membership

loss results in a continuous cycle of high contributions, which will lead to eventual collapse of the

industry by making premiums unaffordable. The CLD demonstrates that multiple factors cause

subscriptions to increase, and the continuing loss of membership will be accelerated

exponentially as the negative factors strengthen each other. Figure 6.2 shows how high premiums

result in loss of membership. This loss in membership has two effects: the departure of healthy

members, and loss of revenue for administrators and service providers. The loss of healthy

members removes the subsidy of those members, and service providers and administrators

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increase revenue by increasing prices because there is no competition. This results in a

continuous cycle of contribution increases that grow exponentially.

Figure 6.2 Reference Scenario CLD

6.3.2 Ends planning

This is the desired future. “Ends planning” is the desired outcomes and consists of goals,

objectives and ideals. It must be technologically feasible and operationally viable (Ackoff 1978).

It is meant to be an adaptive learning process, not the best system, but one that constantly seeks to

become the best. (The reader is referred to Appendix B for application of the methodology.)

CLD OF REFERENCE SCENARIO

Membershipdecrease

Decreased revenuefor administrators

Decreased income forservice providers

High contributions

Increased price

o,Lack of competition

Loss of skills bydeparting service

providers

Drop in healthcare outcomes

Decreased standard of living of care

Loss of investors,tourists

Decreased Economy

Departure of healthy members

Sick members remain

Loss of subsidy byhealty workers

o s

o.

o.,

s, s'

s..

o..

s,.

s,,s. o,.

o'.

o', Reduce

administrators

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Figure 6.3(Appendix B) illustrates the desired system that is theoretically possible. It reviews

how each stakeholder should be treated and defines how he must interact with other stakeholders

This system has two parts – one that is constrained(6.4)) by the external system and one that is

not.(6.3).

Please see Appendix B (10.5) for Figure 6.3 and Figure 6.4 for the desired system.

6.3.3 Identifying the gaps

This is the process by which the differences are highlighted between the reference scenario and

the desired version. These differences have been tabulated and are shown in Table 10.5

(Appendix B). The first column identifies the gap, or the process that needs to be performed. The

second column shows the classification given below:

Tentative goals – can be met now.

Tentative objectives – can be met later.

Ideals – can be worked towards.

The third column states whether the gap identified is present or absent, or what its current state is

in the Reference Scenario. The fourth column makes reference to its function in the desired

system and comments on its role in the idealized system. This table can be viewed in Appendix

B.

6.3.4 Analysis and identification of suitable gaps

The “gaps” identified above (Table 10.5, Appendix B) are methods of overcoming the system

failures identified earlier. The defects or gaps were identified on the basis of differences that

existed between the reference scenario (the outcome if no changes were made) and the desired

future state as visualised by the stakeholders.

Moving from the reference scenario to the desired future state entails the use of systems thinking.

Systems thinking allows one to identify the broad area in which we should drive our strategy, so

that the PHCI becomes more viable. Examination of Table 10.5 shows that a number of issues

need to be resolved. The discussion that follows takes one of those issues to its ultimate

conclusion. Interactive planning allows one to implement this plan. Table 10.5 identified a

number of gaps that should be implemented. Amongst the many gaps identified, the researcher

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felt that the gap of a different reimbursement model to manage the members’ healthcare needs

was the most important., for the following reasons:

Management of the healthcare demand of the members to minimise the exponential

increase in costs is crucial.

75% of secondary costs are generated by the GP patient interaction.

Identification of a weak SYSTEM II in the VSM analysis.

It is necessary that any proposed answer must incorporate all of these principles.

6.3.5 Evidence in favour of choosing this gap

The family practitioner has been recognized as the person who generates the most costs. The first

step is taken by the patient, who generates a cost by visiting his primary care practitioner.

Secondary costs – medicines, hospitalization, specialist referrals and investigations, are generated

by the family practitioner, hence the term “gate-keeper”, or flood opener, in healthcare

management.

As I have said, it is the management of the healthcare demands of the scheme member, which is

crucial to reducing the demand on the system. For example, if a member visits his family

practitioner and complains of chest pain, he could have a heart attack or he may have just a minor

chest infection. However, if the family practitioner decides that he does not know what it is, he

can generates the following costs:

X-rays

Blood tests

ECG

Specialist

Hospitalization

Angiogram

Intensive Care Unit

So it is important that the primary care physician manages this gate-keeping role. This primary

care “person” can be paid a fixed amount per member per month. This is known as a capitation

system and is used in many countries around the world, the National Health Service in the United

Kingdom being one of them. The major difference is that the gatekeeper is incentivised to prevent

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the person from coming back, i.e. he must prevent the person from becoming ill. This is contrary

to FFS where the GP is paid each time the person visits you, i.e. you are paid to keep the patient

sick.

Surprisingly, however, the one drawback of the capitation system is reduced quality of care, as

the service provider, in order to contain costs, reduces or denies benefits to the member, a short-

term benefit with long-term consequences.

6.4 The Ideal Model In order to show how the principle of management of healthcare needs can be applied, I will give

the outline of an ideal capitated model using Ackoff’s IP approach. The following principles must

be incorporated into any model if it is to have any chance of success. There must be management

of all the stakeholders so that they will work towards a common goal while working towards their

own goal. And there must be improvement in communication, trust, feedback and monitoring

between all stakeholders.

An ideal model will manage and control healthcare demand where all stakeholders are

empowered by information and conflicts are resolved by joint decision-taking. This model is

based on trust, by formalizing communication channels and sharing information. It is based on

the principle of aligning stakeholder interests, so that there is alignment of stakeholder goals with

minimal conflict between stakeholders. It is a system that reimburses the service provider for

keeping the members healthy.

The ideal plan relies on the principle that the family practitioner takes the critical role of

managing a member’s healthcare needs. This is equivalent to SYSTEM II of the VSM model.

The doctor is paid a fixed amount per month per member to look after the healthcare demands of

the member. In this system healthcare rationing is carried out at the service-provider-and-member

level, not by someone higher up who is not familiar with all the facts, as happens with hospital

authorizations. The doctor, by educating his patient to practise preventative medicine, will be

better off, as it will reduce the number of visits that the member must make to him, and the

member himself will benefit by adopting a healthy lifestyle. The doctor also takes limited risks

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for expenses generated for any subsequent referrals that he makes to specialists or for hospital

admissions. If he is able to minimize specialist and hospital visits, he and the member will be able

to share in the savings made. In this ideal system, the administrator meets regularly with

representatives of the service providers, employers and scheme members, as an advisory board.

This allows decisions to be made that are acceptable to all stakeholders.

The system recognizes that members will require optical and dental benefits. These are limited in

the same manner. A fixed budget is allocated according to the plan rules. Dentists and opticians

are allowed to have a say in these rules. Any excesses or savings are for the account of the dentist

and optician. The scheme does not take risks, and all risk is between the dentist or optician and

the primary care service provider for optical and dental benefits. There should be an independent

grievance committee that manages complaints. It is possible, in this system, that the chosen

doctor may deny access to treatment, in the opinion of the member. The member should then

have the opportunity to resolve this through an independent body. This independent body can

also resolve complaints by other stakeholders.

All doctors who render services to scheme members should belong to an Independent

Practitioners Association (IPA), and be subject to that body’s rules. Their clinical judgements

will be peer-reviewed by their colleagues, with information supplied by the administrator. This

information will contain both clinical and financial data. Doctors will be measured by the success

of their patient management. They will need to be answerable to their colleagues for any

problems that are identified. Scheme members, specialists and other service providers will need

to be educated in understanding the plan, as it is a paradigm shift for all stakeholders. This

education should not be confined to administrative issues, but should extend also to health issues.

The plan will work together with the family practitioners to strengthen preventative medicine

education.

An advisory board consisting of employers, scheme members, administrators and doctors should

meet every six weeks and give advice about changes they perceive should be made. All data and

information on utilization must be made available to the stakeholders. This will create a climate

of trust, in which transparency of information will allow joint, creative decision-making, with

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minimal conflict. It is recognized that denial of healthcare is an unwanted effect of a capitation

system. In order to prevent this, patients will have access to an independent grievance committee

and an ombudsman. The ombudsman will resolve problems. If a problem is not satisfactorily

resolved, the complainant will be able to approach the independent grievance committee. Doctors

will also have to be open to review by colleagues, to ensure that standards are maintained. They

will also be allowed to appeal to the ombudsman and the grievance committee to resolve any

complaints that they might have.

It should be noted that in the ideal model the fees paid should be based on:

the age profile of the risk group.

sex

presence or absence of chronic illnesses.

Doctors must be given a differentiated payment based on the above.

It will be necessary for re-insurance to cover epidemics or other uncontrollable costs for the plan.

In the ideal model decision-making should be done at meetings of the advisory board and ratified

by the healthcare managers. All stakeholders should be allowed to express their own views before

any decision is finalized. This ideal system will allow for maximum acceptance of decisions, and

will minimize conflict. The essential principles outlined above are given in more detail in Figure

6.3.

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Figure 6.3 SECTION 21

COMPANY

CAPITATIONSYSTEM -THE PLAN

CAPITATIONPRODUCTS

PRIVATE HOSPITAL,UNLIMITED GP +

SPECIALIST VISITS,USE FORMULARY TO

CONTROL MEDSCOSTS, UNLIMITED

CHRONICS

Ownership

Service providers Union Company Administrator

Board consists of

DOCTORS, SCHEME MEMBERS, COMPANYREPRESENTATIVES, ADMINISTRATOR. PROVIDES

POLICY + DIRECTION, RULES

OMBUDSMAN INDEPENDENT GRIEVANCE COMMITTEE

PPP

MEET WITH IPA REGULARLY - MONTHLY TO

DISCUSS ISSUES OF MUTUAL INCREASE

BROKER MUSTEDUCATE MAX.

3%COMMISSION

Administrator. CAN OWN OR OUTSOURCE

ADMINISTRATION, BUT NOT EXCEED 10 %

REQUIRE: (1) FINANCIAL REPORTS,

(2) UTILIZATION REPORTS, (3) HEALTH OUTCOMES REPORT

GIVE A FFS OPTION

HIGH INCOME(NOT THEMARKET)

MIDDLE LOW

Suits the market (50 % of South Africa earn < R5000

per month USE STATE FACILITIES FOR

HOSPITALIZATION FORMULARY TOCONTROL MEDS COST ALLOW UNLIMITED ACCESS TO GP'S. RESTRICT SPECIALIST VISITS

SAVINGS TO BESPLIT BETWEEN

DOCTORS &INSURANCE POOLUSED TO REDUCE

PREMIUMS

CONTRACTS WITHINDIVIDUAL

DOCTORS TOACCEPT CAP FEE

AND RISK MODELS

DENTISTS,OPTICIANS,

PATHOLOGISTS, RADIOLOGISTS

MUST NEGOTIATEFIXED FEE BASEDON A FORMULARY

OR MENU OFSERVICES TO BE

PROVIDED AT THEPRICE

PATIENT-DOCTOR EDUCATION

IPA'sresponsibility

Risk management

RE-INSURANCE COMPANY

IN-HOUSE INSURANCE

PROVIDED BY PLAN

RE-INSURE IF NUMBERS ARE

SMALL HOSPITALSLIMITED RISKFOR DOCTORS

UNLIMITED FOR SCHEME

UNLIMITED FOR SCHEME.

LIMITED RISK MEDICINES, CHRONICS

GP VISITS AND ACUTE MEDS UNLIMITED

RISK

No need for re-insurance

Management of savings and losses to be agreed with

IPA

Claim for high expases for certain diagnosis

Claim from

Not for profit

ADMINISTRATORFIXED FEES NOTMORE THAN 10 %

OFCONTRIBUTION

UNLIMITED RISK FOR

PLAN

LIMITED SPECIALIST

RISKF OR DOCTORS

JOINT RISK TAKINGMODELS TO CONTROL

HOSPITAL, MEDS,SPECIALIST COSTS

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6.5 Explanation of the ideal model

Figure 6.6 illustrates a flow chart of the process to be followed in developing the ideal model.

The following processes and stakeholder involvement are necessary.

6.5.1 Ownership

The ideal legal vehicle to use is a Section-21 non-profit company. The mission of the company is

purely to provide a means for stakeholders to access and provide medical care. Ownership of the

company is to be spread between doctors, companies and the union. Doctors should own at least

50% to ensure commitment, but control must be shared.

6.5.2 Structure and functions of the board

The board will have to appoint an administrator who, if necessary, can also be a shareholder, but

should never have a controlling share. The board that runs the company must have

representatives from doctors, service providers, administrators and scheme members, and must be

representative of all stakeholders. The function of the board is to create policy, rules and

procedures that allow access to medical care. The board will need to make some key

appointments, and it will have the following duties:

To appoint an independent ombudsman to deal with complaints.

To appoint an independent grievance committee to deal with problems. The

committee’s decision will be legally binding. Aggrieved parties, if not happy, will

have the right to appeal to the board, whose decision will be final.

To appoint an administrator.

To appoint brokers to improve membership, whose fees should not exceed 3% of

contributions.

To establish a working relationship with the IPA’s and meet regularly with them.

To formalize public-private partnerships (PPP’s) to assist with hospitalization, chronic

and AIDS management, and especially to create low-end products.

To appoint and meet with an advisory board consisting of all stakeholders.

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6.5.3 Risk-Taking Model

The risk-taking model between the plan, the service providers and members, must allow all to

share in the gains and losses. Contracted doctors must take limited risk for hospital, specialists,

and chronic medicines, and unlimited risk for acute medicines and GP consultations. Any risk

that is not manageable must be re-insured with outside insurers, especially if numbers are small

(<20,000 Doctors also must be sheltered from catastrophic risk, for example, premature babies

are not avoidable, and risk for this should be paid from a separate in-house insurance fund.

Management of savings and losses to be agreed upon with the IPA, the scheme and members.

This will allow control of members’ healthcare needs.

6.5.4 Contracts

The following contracts should be put in place between the plan and service providers:

Contract with IPA’s to render certain services.

Contracts with individual doctors to accept capitation fees and risk.

Contracts with dentists, opticians, pathologists, radiologists to accept a fixed capitation

fee to render the relevant service.

Contract with a recognised administrator for in-house administration if available.

6.5.5 Education of stakeholders

Member and doctor education is critical to the success of the plan. Brokers and plan employees

must be made responsible for this.

6.5.6 Communications

All stakeholders must have formal and informal channels to facilitate communication and

problem resolution.

6.5.7 Administrators

They must have experience in capitation. Administrators must be able to do the following:

Create a contribution table and give an estimate of the yield (that is the expected payment

in rands per month per beneficiary).

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Allocate this yield to the different expense centres according to decisions taken by the

board.

Prepare monthly financial reports to manage the different budgets.

Produce financial, utilization and quality review reports.

See that their own fees do not exceed 10% of contributions.

Be able to collect and pay moneys with accurate billing and reconciliation

Administrators must communicate regularly with all stakeholders. The administrators are

responsible for collecting and paying moneys and are accountable to the board.

6.5.8 Relationship between the plan and the Independent Practitioners Association (IPA).

The IPA will provide the following services:

Peer review and quality assurance programme

Risk-taking models

Disease management

Patient education

After-hours services

AIDS-management strategy

Preventative health services

Guaranteed unlimited access to primary healthcare

Nomination of members to the board

Adherence to the above is necessary for successful implementation of the model.

(The reader is referred to Appendix B for the methodology for implementation of the ideal model,

and a spreadsheet that identifies and details all the steps necessary to execute this ideal plan.)

6.6 Is it good enough? The ideal model described here is not in existence at present. There are currently many attempts

to adopt parts of this model to control and manage escalating healthcare costs. The chief

principles that are used in this model are as follows:

Appointing a manager to look after healthcare needs of individual members.

Establishing formal communication channels.

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Allowing all stakeholders to participate in decision-making.

Sharing and presenting information to establish a culture of trust.

Encouraging healthcare managers to take risk for managing their patients’ health.

Empowering members through education and formal grievance channels

These principles were formulated in response to the questions and problems framed in Chapter 5.

A solution has been proposed, but how good is this solution? Is it just an academic theory or is it

practical and applicable? The next chapter is devoted either proving or disproving whether this

really works.

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CHAPTER 7

STRUCTURE OF THESIS

CHAPTER 1 INTRODUCTION

CHAPTER 2 THE WRITER’S PERSPECTIVE

CHAPTER 3

BACKGROUND TO THE PROBLEM

CHAPTER 4

SYSTEMS THINKING. A MANAGEMENT

TOOL FOR PROBLEM SOLVING

CHAPTER 5

PROBLEM FORMULATION

CHAPTER 6

TOWARDS A SOLUTION

CHAPTER 7

TESTING THE ANSWER

CHAPTER 8

CONCLUSION EVALUATION REFLECTION LEARNING

APPENDIX A= Situation background B= system methodologies C= Analysis of failed schemes D= Analysis of viable schemes

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CHAPTER 7

TESTING AND CRITIQUE OF THE ANSWER

7.1 Is there merit in the answer?

The researcher’s solutions to problems in the PHCI are based on the following principles:

The role of a manager to meet the healthcare demand of the member is an important and

critical function in the management of healthcare needs. In the researcher’s view, this role has

been delegated to the family practitioner or general practitioner, but could be performed by

other less qualified healthcare givers.

Creating and encouraging an environment of trust between stakeholders by formal

communication channels and sharing of information is central to implementation of any

solution.

Co-ordination and aligning the goals of all stakeholders so that there is joint conflict

resolution, decision-making and respect for each other’s point of view, is essential.

These are the three pillars on which the ideal model is based

This is illustrated in figure 7.1, which is a CLD of how these principles interact in providing a

solution to the problems in the industry. It is based on trust between stakeholders. This trust can

only be achieved by improved communication of reliable information. This trust will allow

stakeholders to participate in joint decision-making. This joint decision-making will allow the

control of healthcare by managing risk and the members’ healthcare needs. It will allow

development of a strong SYSTEM II that will allow a healthcare manager to be appointed to meet

the members’ healthcare requirements within agreed parameters.

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Figure 7.1

CLD OF THE IDEAL MODEL

Trust

Participation andinvolvement of all

stakeholders

Join decision makingand conflict resolution

Stakeholder alignment

Quality information

Communication

Manage healthcare of

members

Riskmanagement by

serviceproviders

Control ofhealthcare demands

s

s.

s,

s' s..s.,

s,.

s`

s;

s-

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7.2 The case for a healthcare manager Risk-sharing with service providers is embraced in the concept of managing healthcare needs.

This management of the scheme member's healthcare requirements by a service provider is taking

the risk that payment for services rendered will be more than the services consumed by the

member. (He is paid a fixed amount per month per beneficiary to do so.) This allows decision-

making to be devolved down to the lowest level, between service providers and scheme members.

Interaction between service provider and the member is where effective management of

healthcare will happen – the service provider will need to make cost-effective decisions that

prevent the member from coming back. Poor decision-making will cost the service provider

more; for example, good diabetic control is necessary to prevent complications that necessitate a

high level of service, which will cost more. The doctor needs to motivate the member to keep to a

diabetic diet and ensure compliance, so that good diabetic control is maintained, which prevents

diabetic complications. In an FFS setting, the doctor gets paid even if he does not have control. In

fact, this system will reward the doctor for poor diabetic control as the patient will need to visit

him more often, generating a fee for each doctor visit.

Medscheme, the country’s largest medical administrator, said in an article on performance-based

reimbursement, that it wanted to make it mandatory that all principal members register with a

single family practitioner, regardless of which scheme they belong to (Insight, September 2002).

The Department of Health, in the report published on 14/05/2002, stated clearly that capitation

with doctor networks was a method by which healthcare costs could be contained (page 114-

115).

In a study that looked at alternative mechanisms for payments to general practitioners for district

surgeon services, McIntyre (UCT, 1997) proposed a capitated system as a method of payment.

(The service provider rejected this because, in the mind of the GPs, the current FFS was a more

viable system for him.)

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In a monograph published by Shivani Ranchod (UCT, 2001) it was shown that a capitated model

was the one most commonly used to provide a lower cost benefit. The author went on to say that

risk-sharing with providers was the way forward, and that private sector capitated networks were

necessary in reducing costs.

Jeanette Clarke of Glenmib Insurance Brokers stated that unaffordability is threatening the

industry. She stated that capitated provider networks where the providers took risk would be the

norm in the industry. "This system cuts out abuse, fraud and overservicing, as it does not reward

the provider for each encounter." (Cape Argus, 2002) This again shows that it is the management

of healthcare needs that will control cost, especially in the emerging and lower end of the market,

which characterizes the majority of the South African population.

John O’Malley wrote “He who controls patient referrals controls the delivery of

healthcare”(Journal of Managed Health, 2002). This is in keeping with the system of managing

the health demands of the patient. He felt that patients must not get medical care, but healthcare,

which prevents diseases, accidents, and so on. In the capitated system this is exactly what is

happening, as the doctor is paid to keep the patient healthy.

The Compensation and Benefit Report (USA 1999) stated that a large number of people were not

satisfied with the managed care industry models. One of these is the network model, in which a

group of doctors provide a service to a captive healthcare-seeking market. The other is the staff

model, which is the provision of healthcare to a captive group at a single facility, managed by

different healthcare professionals. Members wanted a greater choice of service providers and less

restriction. The primary network model was more acceptable to consumers (Kalish, 1998.

Michael Porter, writing in the Harvard Business Review 1994, said that it was wrong to shift risk

to patients and service providers. His opinion was that physician capitation leads to under-

treatment, as doctors earn more by reducing tests and referrals. He felt that the answer was to

make the industry more competitive. He felt that capitation is cost-shifting and not viable in the

longer term.

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Quick scans of articles in the medical press show that a number of leaders in the industry believe

that capitation, risk-sharing and gatekeeping are necessary to reduce costs. Among these are

Sharon van der Westhuizen (Twig Research), Heather McCleod (UCT Actuarial Department),

Neil Barends (MxHealth), Helen Riding (Alexander Health Consultants), and Gary Taylor

(Medscheme). They have publicly stated that a new reimbursement model, such as capitated

primary care networks, is necessary to reduce costs in this industry.

There is broad consensus within the medical industry that:

Increases in contributions are not affordable to the majority of South Africans.

An alternate mechanism of reimbursement is required.

Capitated primary care networks are a necessary part of that mechanism.

One method of ascertaining if a particular theory or model will work, is to apply the model in a

real-world situation. The reader is referred to a discussion in Appendix C about three medical

schemes that were recently liquidated. They were analyzed using the Systems Failure method of

analysis. It is the researcher’s intention to apply the ideal model proposed in Chapter 6 to these

liquidated schemes to see if it would have made any difference to the outcome.

7.3 Summary of the analysis of the three failed schemes Analysis of the three failed medical schemes reflects the following common pattern. All three

schemes had big increases in membership, which resulted in changed demographics, which in

turn resulted in new patterns of claiming. They exhibited the following common problems:

All three schemes could not manage, control or predict healthcare demand.

MCG and MMP both had administrative problems, but Phila, with a strong administrator,

had no such problems.

All three schemes had no effective feedback and monitoring system with regard to

healthcare outcomes, service-provider effectiveness, detection of service-provider fraud,

levels of membership satisfaction, service-provider satisfaction, and so on.

In the final stages just prior to termination, all schemes had huge claims with allegations

of service-provider over-servicing and/or fraud. This demonstrated that stakeholders were

intent on taking as much out of the scheme as possible, forcing and precipitating the rapid

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demise of the schemes. This showed that there was complete lack of stakeholder

management, which collapsed totally just prior to liquidation.

All three schemes also demonstrated a failure to communicate with stakeholders. Towards

the end, no information was given out, resulting in large-scale speculation.

The common cause of failure in any scheme is that claims received exceed contributions. As long

as contributions received exceed claims received, schemes will continue to exist. Escalation in

claims means that there is an escalation in healthcare demand. There are many reasons for

escalation in demand. However, this healthcare demand must be managed, as shown by the VSM

SYSTEM II.

The next common problem was the failure to align different stakeholders’ goals so that there was

alignment of interests. The failure of medical schemes resulted in the following problems for all

the stakeholders:

Members - had accounts to pay and no healthcare availability.

Service providers - had unpaid accounts. Unable to service members’

healthcare needs.

Medical scheme - ceased to exist.

Administrator - employees lost jobs.

Companies - could not provide healthcare to workers.

It can be seen that collapse of the schemes resulted in problems for all the stakeholders. It was in

everyone’s interest that a solution be found. The lack of communication was common to all three

failures. Stakeholders communicated via the press or the media. There were no formal channels

or communication forums where issues could be addressed. Each stakeholder communicated only

with its own members and not with other stakeholders. This lack of communication reinforced

the lack of information in the industry. This is illustrated in Figure 7.2, which demonstrates that

the lack of communication and information results in the absence of trust between stakeholders.

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Figure 7.2 Dynamics that contributed to the failure situation in the 3 schemes.

The absence of trust prevented stakeholder alignment and acted as a negative reinforcing loop,

where stakeholders protected their own goals, resulting in the following:

service providers inflated claims (all three schemes mentioned this in the final liquidation

report ).

members demanded healthcare treatment before the scheme collapsed.

administrators paid themselves early, accelerating the collapse of the scheme.

In this “messy” environment there is a strategy that could be used to resolve these seemingly

insurmountable problems. I would like to discuss how the ideal model could have made a

difference to each scheme. Each scheme will be individually discussed.

7.4 The MCG failure and the ideal model The reader is referred to Appendix C for a comprehensive analysis of MCG’s failure. Having

been personally affected by this liquidation, the researcher notes that the most outstanding event

was the absence of trust. In fact, it was a frankly adversarial relationship. There was very little

trust on both sides. The administrators thought that doctors were enriching themselves by

fraudulent means, and the doctors thought that the administrators were being paid too much or

were inefficient.

In this environment of conflict, tensions rose and stakeholders did not trust each other. When

information was presented, this was rejected by the stakeholders as being incorrect. If it had been

applied, the first principle, the formation of trust, would have helped. But it was too late in the

Trust

Stakeholder alignment

Information

Communication

s

s.

s,s'

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case of MCG. However, if there had been open communication with service providers and

dissemination of financial and clinical information, this would have allowed service providers to

assist in a solution.

Stakeholders had different goals. Service providers saw MCG as a “cash cow” to be milked.

Employers and employees regarded it as a system to obtain first-world healthcare. For the scheme

administrators, it was just their job. In order to get stakeholder alignment one needs trust.

While MCG had a board that consisted of the union, company representatives and administrator,

they did not have service provider representatives. As a result, decisions made could not be

effectively implemented. (For instance, a network capitated model did not get off the ground.) In

the researcher’s model, it has been advocated that all stakeholders be represented. MCG’s failure

was precipitated by bad decision-making. In the researcher’s view, bad decisions were made

because they left out service providers, who are the major influencers of the patients, and whose

co-operation is critical to making any changes.

The board of trustees at MCG recognized that it was important to manage the healthcare needs of

the members. They indeed had systems in place, which did this. So how is it that they were not

successful? There was no acceptance by stakeholders of this new model. Again, it is necessary to

influence the doctor, and in this instance the GP and the patient. Trust and open communications

are essential. The structure advocated by the ideal model, where doctors who render a service

comprise at least 50% of the trustees in the healthcare plan, is necessary to make effective

decisions.

A number of MCG members and service providers were unhappy about MCG’s modus operandi.

When approached, MCG management did not help or appeared not to want to help. The setting-

up of an independent grievance committee and ombudsman would have helped to resolve those

issues and would have given a platform for the powerless (doctors and scheme members) to

express their opinions. This would have made management aware of the problems, and the extent

of the adversarial feelings that existed. This could have alerted management that it would be

impossible to alter the current model if there was no acceptance from all stakeholders. This

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process of facilitating a formal channel for grievances is necessary, even if nothing can be done

about the problem. The fact that there is someone who is going to listen to your problem is itself a

process that will give satisfaction to the complainant. Existence of such a system would have

allowed stakeholder conflict resolution.

MCG’s decision to offer a different reimbursive model needed full participation of affected

stakeholders. In order to do this, adequate and correct information was necessary for the affected

stakeholders, the GPs and the scheme members. This has the best chance to succeed in a climate

of trust. If trust does not exist, as in the case of MCG, then stakeholders will hold opinions

different from those of the scheme, and will not trust anything that the scheme says. This trust

can only be formed if the doctors and the scheme members are involved in the decision to change

the system. MCG took into account only the view of the company (who wanted to pay less) and

that of the union. Doctors and service providers were not consulted. This resulted in widespread

resistance to the new approach, with scheme members also influenced by their respective GPs. It

is unlikely, in this climate, that any decision would have been implemented. The ideal model

emphasizes that the decision-making must be inclusive of all stakeholders. Had MCG applied this

model, perhaps it would still be in existence today.

MCG’s liquidation occurred in a period when little or no information on the scheme was

available. All the information that was available was unofficial, with many rumours doing the

round. Scheme members were not alerted to the fund’s critical position until just before

liquidation. Service providers experienced delayed payments, but no mention was made of the

reason for these delays. Previous to this, no information existed on service providers themselves

and any health outcomes. They were informed only when it was thought that they were to be

suspended for making excessive claims. No system was in place that regularly gave them data

about health utilization and process outcomes. The ideal model proposes regular meetings, where

full disclosure by the scheme is made regarding financial and clinical data. This model

emphasizes that service providers are to be profiled according to financial, clinical and health

data. This is to be made available to them on a regular basis. Had MCG done this, there would

have been adequate warning of the impending crisis, and these meetings could have been used to

strategize and harness the intellectual capital of all stakeholders to devise meaningful solutions.

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The board of MCG was not representative of all stakeholders, and as such was unable to make

effective decisions. It is necessary for all stakeholders to be represented, as visualized in the ideal

model. If this had been put in place, stakeholders who could see the consequences of those

decisions could have averted many of the strategic failures.

The MCG scheme did have a staff model Health Maintenance Organization and a doctor network

model. These, indeed, were far-sighted, and were employed before anyone else in South Africa

thought of using them. However, they failed miserably in implementation and therefore

contributed to MCG’s demise, as members paid for a managed healthcare plan, but received

benefits based on the more expensive FFS model. The primary reason for this failure was a lack

of communication to stakeholders and the inability to change the mindset of service providers. In

essence, application of VSM SYSTEM II would have prevented this failure.

The greatest problem in the industry is trust, and as this did not exist it was impossible to get the

network model off the ground. The management of MCG overestimated its acceptance, and

reduced contributions prematurely in anticipation of wholesale acceptance by service providers.

If MCG had created trust, published information, had formal and informal channels of co-

ordination and public forums where debate could occur, then perhaps this tragedy could have

been averted.

Figure 7.3 shows how excessive claims resulted in the inability to manage and pay these claims.

This created unhappy members and service providers, which prevented management of

healthcare demand, resulting in even more claims by the stakeholders. In this atmosphere there

existed little or no trust. This lack of trust, together with unhappy stakeholders, contributed to a

vicious circle in which MCG had no ability to manage the excessive demand for healthcare.

Figure 7.3 also labels 5 areas (A-E) where intervention, as proposed by the ideal model, would

have helped. These interventions are listed below figure 7.3.

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Figure 7.3 MCG Failure

CLD of liquidated schemes and where interventions could help

A - Communicate and send more information to service providers and members about claims management. B - Seek joint decision making with service providers to improve implementation. C - Involve membership in decision making via elected representatives. D - Require transparency and communication to improve trust. E - Manage healthcare needs by asking members to choose one healthcare manager.

Claims

Management of healthcare demand

Implementation

Co-operation

Trust

No communication

Membership healthcare needs

Service providers co-operation

Ability to pay

Manage of claims

A

B

C

D

E o

o.

o,

s

s.

s,

s'

s.,

s..

s,, s,.

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These interventions show where the ideal model would have made a difference. It is not offered

as a total solution, but as an iterative method of making changes that would allow a definitive

answer to the problem situation. It is clear that in MCG’s case the application of the ideal model

would have made a difference.

7.5 Midland Medical Plan (MMP) failure and the ideal model (The reader is referred to Appendix C for a comprehensive analysis of the failure of MMP).

MMP had no idea of the tremendous healthcare demand it was going to face from the new

membership it had acquired by a concerted marketing campaign. It had taken on a large, older

patient base, which placed a huge strain on the system. It was in no position to manage the

demands of these members. Without a strong VSM SYSTEM II, it had no system in place to

predict, control and manage this demand.

MMP had a classic FFS model. It would have been difficult to replace it with a classic capitation

model, as the members, most of whom were white and belonged to the higher-income group,

would have been resistant to any change that restricted choice. However, what could have been

done was to ask each member to select a family practitioner who would mange the member’s

healthcare needs. MMP could pay for visits to this doctor but not for visits to a non-selected

doctor. Then, by careful monitoring of financial and clinical data, such as script average, repeat

visits, specialist referrals, and hospital referrals, MMP could have exercised control over the

member's healthcare needs. The principle remains that the family practitioner should control the

healthcare needs of the member.

It is highly unlikely that even this method, if applied, would have been able to save the plan. It

may have delayed the liquidation but was unlikely to save the plan, as there were insufficient

numbers of younger, healthier and more affluent members to balance the older, sicker and poorer

members of the scheme. MMP did put in a staff model HMO to manage healthcare demand. This

had the drawback that the member had no personal relationship with the staff at the HMO, and so

did not want to go there. The majority of MMP's members therefore chose not to belong to the

HMO system.

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MMP, like MCG, had adversarial relationships with service providers, which would have

prevented any stakeholder management. If all stakeholders had come together and shared the

same mental map of the problem, then a solution could have been devised. However, each

stakeholder had his own view, and therefore no solution could be put in place to resolve this

issue. Had the MMP Board shared more information, regarded stakeholders as partners and

enlisted their help, then the scheme might have survived. But in the face of unpredictable demand

for healthcare, and with antagonistic service providers, it was inevitable that they would not

survive.

The researcher’s view is that the ideal model would not have made a difference to the liquidation

of this scheme, except by delaying it for a while. The other principle of involving all

stakeholders, and setting up formal channels of grievances, was unlikely to help in a structure,

which was inherently not viable. Schemes must have equal numbers of healthy and sick, richer

and poorer members, so that the claims and contributions are balanced. An inherent pensioner

population will make it almost impossible to do so.

7.6 Phila’s collapse and the ideal model (The reader is referred to Appendix C for a comprehensive analysis of the failure of Phila

Medical Scheme.) Phila was a scheme, which took on a largely middle-aged pensioner

population, which rapidly depleted its reserves. This scheme had a huge and unanticipated

demand for healthcare

Phila is an ideal example of a medical aid that would have benefited by adopting the ideal model.

Adopting a change from an FFS model to a capitated model, especially for the older, lower-paid

members, would have helped to manage the demand. When introducing this, the danger is always

that younger healthy members will move away, because choice is restricted. However, from

Phila’s point of view, it would have allowed them to have some control over healthcare demands.

While a pure capitation system could not have been implemented quickly enough, it could have

been quicker to ask all patients to choose a designated healthcare manager or family practitioner.

This would have given some control.

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It must be stated that scheme members regard freedom to choose a service provider as a very

important benefit in a medical aid scheme. It is therefore not an easy task to get them to choose a

single service provider. Research has shown that healthcare consumers want more choice, not

less, and want to be empowered to make their own healthcare decisions (HBSWK 18/12/2000).

Medical schemes that have strong marketing drives to increase membership at all costs, must be

aware of the implications of their actions. Growth in any business has a cost associated with it,

and this cost needs to be factored into the expansion plan. Phila had a huge marketing drive that

saw a majority of lower-income older members join the scheme.

If the ideal model had been in place, would Phila have acted differently? It is a moot point

whether a capitation system would have been accepted. However, it is clear that such a system

would have contained costs, as the healthcare decision-making would have been devolved down

to the doctor-patient level. A capitation arrangement would have suited the profile of the scheme

member, namely the middle-to-lower-income group, who demand a high level of GP services.

By establishing trust and communicating with shareholders as advocated in the ideal model, Phila

Medical Aid could have prevented the unprecedented avalanche of claims. Just prior to the

liquidation of the scheme service providers were sending in claims for R30 million per month,

compared to the contributions which were only R5 million per month. The court records indicate

many of the claims submitted in the last stages of the scheme were fraudulent in nature. It is

evident in this system that all trust between the scheme and service providers had broken down,

with service providers trying to “milk’ the scheme for maximum profit.

If all stakeholders had been involved in decision-making, then it might have been different. The

only stakeholders that would have expressed any concern would have been existing members.

The administrators and service providers are unlikely to have complained, as increased

membership meant increased income. In fact, the principal officer was an employee of the

administrator. However, the existing membership had already contributed R16 million to the

reserves. So it would have been obvious that new, older members would have claimed more,

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while paying a lower premium. It was unlikely that existing members would have agreed to the

new membership joining and depleting their reserves.

Is it possible to manage healthcare needs in an aging population without the benefit of younger

and healthier members? It is a difficult task, and probably is not sustainable. However, in such a

system, a combination of factors would have helped. The ideal model, in conjunction with a small

increase in contributions and a drive to attract younger members, could have helped.

There is a similarity in the demise of MMP and Phila, in that both had drives which increased

membership with higher-claiming members. However, Phila had good administration, which

MMP lacked. MMP also had a staff model HMO, which Phila lacked. No matter how well

healthcare demand is managed, if there are too many older people then the model is unlikely to

work, as there will be too few non-claiming younger members to pay for older and sicker

members.

So how could these three schemes have prevented collapse?

They should have had transparent communication of salient information to all stakeholders

concerned. There should have been open debate, and all stakeholders should have been informed

as to the collecting, distribution and payment of moneys that were contributed towards the

scheme. Maximum information allowing stakeholders to state concerns and to provide truthful

and extensive answers to questions should have existed. These discussions would have resulted in

some attempts at solutions.

The next step would have been to involve all service providers to manage healthcare needs of the

members. Where both members and service providers are aware of financial implications, then

joint decision-making can be made to sustain the viability of the scheme. There always remains

the possibility that both service providers and scheme members collude to defraud the plan, but in

an environment where information becomes transparent, there is a greater moral obligation to do

what is known to be correct. It must also be said that if a business model is not viable, then no

amount of change will help unless this model is changed.

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7.7 Conclusion In conclusion, the ideal model, in combination with other factors, would have helped prevent or

delay the liquidation of the schemes. The application of the ideal model to MCG’s case would

definitely have definitely helped to prevent its collapse. The failure of Phila and MMP reflect

what is currently occurring on a macro scale in the healthcare industry, with younger healthy

members leaving, and sicker members remaining.

Is there any other method of illustrating whether this theory can work? In order to do this, one

must look at the industry and see if there are any products that utilize these ideas. A number of

plans that use these concepts were identified. They will now be discussed.

7.8 The ideal model and existing schemes (The reader is referred to Appendix D for a full discussion on these plans and the use of

terminology pertinent to the discussion.) Of the four schemes, the Udipa model has been given

the most extensive analysis, as the researcher has been closely associated with this model. All

plans, with the exception of Udipa, which is 7 years old, have been introduced in the last four

years. All the plans have had increases in membership. All four have lower contribution rates

than traditional FFS plans. What all plans have in common is a strong SYSTEM II, that is, a

healthcare manager who controls the healthcare requirements. This system also allows for a

feedback loop. In a capitated setting, if a member visits his healthcare provider but does not get

better, then he can go back and visit him. But in an FFS setting, if the scheme member does not

improve, he can go to another service provider and start the system again.

Primecure and Carecross cater only for primary care needs, and are nurse-based models. In these

orgnanizations, it is the nurse who becomes the healthcare manager. The structures do not have

any system of controlling secondary (specialist) and tertiary (hospital) care, except by placing

monetary limits. The other two plans (Udipa and Medicross) have doctors appointed as healthcare

managers, who must control these costs.

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What are the principles postulated in the ideal model, which are followed in these plans? All take

primary care risk, and in doing so become a SYSTEM II of the VSM and act as managers of

healthcare needs. Only the Udipa model acts as manager of all healthcare needs, that is, primary,

secondary and tertiary. Carecross and Primecure only look after primary healthcare needs, and

exercise little or no control over secondary and tertiary needs, which are controlled by financial

limits. The ideal model envisages total care of all the healthcare requirements, and only the Udipa

model comes close to this, by allowing. Tertiary and secondary care risk to be shared between the

scheme and the service provider.

The Carecross and Primecure models limit specialist risk by limiting the number of consultations

with specialists. Again, this will amount to denial of medical care, and will put increased pressure

on the primary healthcare provider. According to the ideal model, the access to secondary

specialist care should be a joint decision between the primary healthcare provider and the scheme

member. Again, the scheme member must be empowered with financial and medical information

to make this choice.

Tertiary care, which amounts to 32% of the healthcare budget, represents hospital costs. These

costs are generated mainly by specialists and primary care givers. All schemes, except for Udipa,

control these costs by the following means:

authorization by junior employees.

setting financial limits

curtailing length of stays

paying fixed prices per procedure

denying admission by application of rules

scrutinizing accounts, and

setting fixed mark-ups for billing purposes

Udipa controls this risk by taking risk with primary care service providers, and by setting

financial limits. This has resulted in hospital costs of R60 (Udipa, 2002) per beneficiary per

month, compared to R103 (MSC Annual Report 2001), showing how management of healthcare

needs results in decreased costs.

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All four models have greatly strengthened channels of communication to service providers, but

not to members. Service providers are generally given adequate reports, with numerous

utilization and patient-encounter information. All four give no information on health outcomes or

service provider quality of care. Quality of healthcare outcomes and accreditation of service

providers is a global problem. Tradition and hierarchy put up high barriers to this information.

Much work needs to be done here.

However, all four models have stated that alignment of goals of the different stakeholders is a

necessary process. In the researcher’s view, none have created the climate of trust necessary for

all stakeholder goals to be aligned. None involved membership. All plans involved service

providers to a greater degree. More co-operation is seen between the service provider and

administrator. However, scheme members’ involvement is minimal or non-existent. The ideal

model shows that their involvement is critical for success.

None of the four models have an ombudsman or grievance committee to listen to complaints. As

such, they have no formal grievance channels except to appeal to the MSC. None of the four

models have decision-making by all four stakeholders. Decisions are all top-down, that is, made

by the board and enforced by SYSTEM III, the administrator. The Udipa model has a system of

including all stakeholders, but it is not effective as a joint decision-making system.

While all four schemes have managed healthcare needs, they need to involve membership to a

greater degree, as envisaged by the ideal model. Scheme members need also to be empowered

through formal grievance channels, with an opportunity to appeal against decisions that members

feel are unfair. Scheme members also have insufficient information to make decisions. In the

researcher’s opinion, the application of this ideal model shows that systems thinking could make

the existing models stronger and more viable. The researcher has shown how the current system

has been made non-viable by the disempowering of the members and some service providers.

A summary of the essential differences and similarities between the four plans is given in

Appendix D, for the sake of completeness.

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7.9 A critique of the ideal model using a Post Modern approach Evidence for support of the ideal model has been found in the literature and in the application to

failed and existing medical schemes. It now remains to be seen whether it stands up to the

scrutiny of the Post Modern approach as advocated in the use of systems thinking by Jackson

(1951). The Post Modern approach seeks to liberate the oppressed individual, and is an ideal tool

to expose any power relationships that would hinder the proper execution of the plan.

Analysis of the answer in terms of the Post Modern view

Narrative analysis

Destinator (determiner of rules and values) The general practitioner

Receiver (receives values) General practitioner, service providers,

administrator

Subject (occupies central role) Scheme member

Object (desired goal of subject) Access to healthcare

Adjuvant (entities assisting subject) The health plan

Traitor (resistors who stop goal attainment) General practitioner

Deconstruction (reveals values / deep structures and looks for contradictions)

Focus on marginal elements Scheme member

Expose false distinction General practitioner knows best

Examine what is not said Shows how denial of treatment is good

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for him. Paying attention to contradictions Gives unlimited GP consultation and

acute medicines but denies other treatment.

Paying attention to disruption Changes managed care provider but does

not get better. Use of metaphor Unlimited GP consultation and medicines

but everything else is at GP’s discretion and not under member’s control.

Reflect on what was said Managed care is good but quality is reduced.

Reason for analysis Expose defects in the answer.

Owner of the system GPs, companies, scheme members

Beneficiary of the system General practitioner

Deliberation Scheme member has no say, no voice and no control how his contributions are spent.

Assumptions GP knows best. This system is best.

Terminology (new) Empowerment of the oppressed – scheme members.

New ways Stakeholder involvement

Paradox Improved quality but in practice reduced.

Exceptions Abuse of service provider by scheme member

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Analysis of the answer using the Post Modern approach shows that the ideal model places too

much reliance and power in the hands of the healthcare manager, who is usually the GP. There is

also very little room for joint decision-making, as the member is not empowered with sufficient

information.. Some control of the healthcare manager is necessary in terms of the Post Modern

analysis. Also, the system must empower the scheme member independently of the manager of

healthcare needs. The ideal model, however, does allow for an independent ombudsman and a

grievance committee that can attend to stakeholder problems. It is essential that this committee be

structured correctly so that these concerns can be impartially judged and managed, and the power

of the service provider is curbed.

This power should be supervised and controlled. An alternative system will need to be developed

to manage this power. Ackoff's view of stakeholder alignment confirms that only through sharing

of decision-making can sustainable solutions be found. The solution that has been proposed will

need to be adjusted so that scheme members have a greater say in healthcare decision-making so

that the system will be more sustainable and viable in the future.

I have said that there is no communication. However, some stakeholders may view this as

incorrect and say that there is maximum communication under these circumstances. It may well

be that my view is considered to be wrong, and not a true reflection of the industry. It is my

personal view, based on review of the literature and my personal experience in the industry over

20 years. Communication does exist, but not the kind of communication necessary to manage the

various concerns of the different stakeholders and encourage the development of trust, which is

absolutely necessary to align stakeholder interests.

The only method of true empowerment is to be armed with knowledge. Scheme members who

are informed can defend themselves and ensure fair access to healthcare services. This

information includes both medical and financial data in an understandable format, which then

allows informed decision-making.

In view of this analysis, some changes will need to be made to the ideal model to ensure the

viability of the model into the future. The ideal model has acknowledged that the member is

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crucial to the viability of the PHCI. The next chapter reflects on the strengths and weaknesses

identified in the ideal model, and ponders on the future directions that could be taken.

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STRUCTURE OF THESIS

CHAPTER 1 INTRODUCTION

CHAPTER 2 THE WRITER’S PERSPECTIVE

CHAPTER 3

BACKGROUND TO THE PROBLEM

CHAPTER 4

SYSTEMS THINKING. A MANAGEMENT

TOOL FOR PROBLEM SOLVING

CHAPTER 5

PROBLEM FORMULATION

CHAPTER 6

TOWARDS A SOLUTION

CHAPTER 7

TESTING THE ANSWER

CHAPTER 8

CONCLUSION EVALUATION REFLECTION LEARNING

APPENDIX A= Situation background B= system methodologies C= Analysis of failed schemes D= Analysis of viable schemes

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CHAPTER 8 CONCLUSION AND EVALUATION

For the author, the motivating factor in writing this dissertation was to improve affordable

accessibility to healthcare for the average South African. It was hoped to design a new system so

that more people could have access to good medical care using capitated doctor networks.

Medical inflation has outpaced salaries by a large amount annually, making healthcare

unaffordable for many

As an active medical practitioner, the researcher will obviously reflect a practitioner’s point of

view, as his income is dependent on the viability of this industry, and it is fair to make the reader

aware of this perspective. However, he has been able to critically examine this position. The

answer that has been proposed also confirms that the GP must have a critical and powerful

position in the proposed system.

There is a large part of the South African population that views healthcare as a right and not a

privilege. This is a subject that in most countries is resolved at a political level. It has been known

to cause political parties to lose power. The author believes that the answer lies in the capitalist

free-market system in an industry that regulates a level playing field. Participation by the State

sector in any solution can reduce the strain on the private healthcare system, and together with

affordable premiums, can improve access to quality healthcare.

Is is hoped that this dissertation will stimulate debate and discussion, as it has been written from a

service provider’s point of view. It has involved critical reflection of my own behaviour and that

of my colleagues. The ideas, concepts and theories that have been discussed are not revolutionary

or groundbreaking. But what I have done, with the use of systems thinking, is to synthesize the

existing concepts into a comprehensive review of the problems that plague the industry.

In the researcher’s opinion, this is a very complex problem. It has not only financial implications

but also emotional implications that are fundamental to the effective functioning of society as a

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whole. Money, personal health, justice and equity are perennial personal and political problems.

Managed care and the capitation model, as advocated in this thesis, have come under pressure in

the USA, where new legislation has been passed to curtail activities of Health Maintenance

Organizations. There has been resistance to managed care and the capitation models, as they have

not allowed greater participation by scheme members in determining their medical management.

The researcher has recognized this, and the Post Modern approach has been extensively used to

empower the individual in the ideal model.

Ackoff’s social sciences approach, especially Interactive Planning, allows communication to take

place in a way that encourages trust and the sharing of information. This can only happen through

a consensual approach. The strength of the thesis is that this approach will allow understanding of

culture, which facilitates the sharing of ideas and concepts, which can lead to a better

understanding of the issues.

8.1 Is the solution relevant? It is not difficult to make the case for strengthening of the PHCI. It is the only industry that

delivers an adequate standard of care, and for many South Africans is the system of choice. There

are many South Africans who, even if desperately ill, avoid the State sector. The PHCI in South

Africa has first-world standards. Many individuals from third-world countries and Western

economies come here for medical care. This has even been given the name “Medical Tourism”. It

is therefore in the interest of all South Africans that this industry survives, prospers and grows.

Universal access to healthcare for all is advocated by many nations. In South Africa, with the

collapse of the State health services, the PHCI has become even more important, especially in the

field of tertiary healthcare. It is the researcher’s view that, with a new system, more people will

have access to healthcare. The advent of AIDS and the aging of the population will create even

more demand for healthcare, resulting in further strain on the system.

There is a view that a National Health plan, using the State hospitals and public healthcare

professionals, is the real solution. An important part of this dissertation is analysis of the

interaction between the private and state healthcare sectors. Any line drawn between the two can

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only be artificial. Healthcare givers work in both the State and private sectors. Scheme members

utilize both private and state sectors. The analysis is perhaps too narrow in excluding the

involvement of the State sector in managing healthcare needs. It would be necessary to do a

similar analysis of the State sector, to see what the problems are and how they can be improved.

An upgraded functioning and effective State sector, utilized by the paying private sector, would

assist the private sector in containing costs. Most countries have a large State sector and a smaller

private sector. Support for this view has been found in the healthcare systems of countries such as

Cuba, U.K., Canada, Australia, and some European countries, whose citizens enjoy a higher

standard of healthcare. Does this mean that the answer lies in national health or social health, and

not piecemeal improvement in the private healthcare system? Perhaps this dissertation, by

focusing only on the private sector and failing to look at both sectors as one system, has reduced

its meaning and relevance.

8.2 Is the answer useful? Trust, communication, reduction of conflict, sharing of information and understanding the culture

of all stakeholders, together make the glue that is necessary to keep this industry together. This

dissertation has shown how these factors can be seen as one aspect of the solution for the PHCI.

However, it has not been shown how these concepts can be used in other areas of the industry, or

whether they would be successful in resolving other problems in this industry.

The proposed answer promotes trust as the first step in aligning stakeholder interests. Even in the

best of times, trust is difficult to establish, and requires a great deal of time and effort by all

parties. The problems in the industry do not allow one the extravagance of unlimited time. It will

be difficult to achieve a climate of trust in the short term.

This dissertation has attempted to develop a strategy that could be used, but it has not given a

detailed account of how to implement this strategy. For this, the reader is referred to Ackoff’s

Interactive Planning as a guide to implementation. This thesis is, therefore, in no way a

comprehensive answer to all the healthcare problems. The following are a few areas that will

require further work:

Amalgamation of schemes to make them larger and therefore more viable.

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Making medical aid membership for certain categories of employed individuals

compulsory, to reinforce the principle of the healthy subsidizing the sick.

Strengthening the Board of Trustees of medical schemes to make them independent, and

in so doing, reduce administration costs.

Allowing and promoting more competition across the board.

Measurement of health outcomes.

Will medical professionals ever take finance into account when making decisions? The answer

would be that medical professionals should do this, but this has always been a problem, as a

newly trained doctor with a scientific culture is unlikely to take costs into account. His medical

training will not allow him to do so Eight years of training usually instil a truly scientific and

academic point of view. To extend this will require medical schools to make changes in the

teaching of undergraduates. It is obviously desirable to have a utopian situation where the best

medical care can be given regardless of cost. This socialist idea is regarded by many healthcare

workers as desirable and necessary. However, reality dictates otherwise. Patients often make their

own medical decisions based on their own financial resources, ignoring the advice of the medical

professional, if that advice is not affordable. In that case, the medical professional should take

into account the financial circumstances, and then make the right decision.

The academic world tends to be more idealistic than the real world. In the researcher’s view, the

medical fraternity is not yet ready to accept the reality that medical decisions must be based not

only on science, but also on cost. It is certain that people will object, and say that healthcare must

be available to all, regardless of cost, but in reality it is only those with adequate financial

resources that can get the best medical treatment.

Sharing of information, as advocated in the ideal model, is difficult to achieve in an industry

where information is regarded as intellectual capital. It may be that regulatory change is required,

that will compel stakeholders to reveal information.

Another area of concern is the ability to accredit service providers, and measure health outcomes.

This has been seen as a necessary step to communicate and develop trust. Measurement of health

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outcomes is a difficult and subjective process. Often there are few measurable indicators that can

be used. Health professionals themselves are secretive, and are reluctant to be assessed. It is easy

to confirm how often doctors have performed a caesarean section in the last twelve months, but

not how well it was performed. Did the procedure take long, how quickly did the patients

recover, was there excessive post-operative pain? Better reporting of health outcomes is

necessary, but in practice is difficult to achieve. The researcher’s view is that a start should be

made, as even utilization and frequency figures are not available at present.

8.3 Is the answer valid? Is it really possible, where billions are at stake, that people will readily give up positions/or assets

that are highly profitable? In practice this would be very difficult or highly unlikely. It is only a

catastrophe or a similar event that will provide a catalyst for this industry to react and change.

The ideal model requires alignment of stakeholder interests and in this industry some

stakeholders have enormous power. The methodology used in this dissertation may not be

sufficient to challenge and change power blocs. Vested interests are often a barrier to change.

Ackoff (1951) however, chooses not to agree with this, and feels that the process will gradually

get those who hold the power to become part of the solution. He feels that power issues can be

resolved by making the participants act as consultants, and incrementally involving all of them.

Of course, the powerful do not become willing participants. The ideal model, as proposed by the

researcher, will only work if the stakeholders agree to participate in the process. The researcher’s

view is that power blocs can prevent the implementation of any proposed solutions, and currently

there is no adequate process of dealing with this.

The answer advocated is a strong SYSTEM II, the healthcare manager, who manages the needs

of the patient. This is based on a utopian model in which the manager of healthcare needs will act

in the best interest of the health of the member, and not in his own best financial interest. It is

possible that this healthcare manager will achieve financial gain by denying healthcare treatment

to the member. In any system where people take risk, they will tend to minimize this risk. A

short-term method of reducing this risk is to deny medical treatment. This has been the major

problem with a capitation system. Often the healthcare manager exercises greater power over the

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disempowered member. The reseacher’s own experience has shown that this does occur, but is

difficult to monitor and detect. Member empowerment is a critical issue. Stakeholders talk about

it, but none of them do it to any significant degree. A large part of the medical aid population is

not aware of their rights, and having little knowledge of basic medical facts, they are likely to be

short-changed by more powerful, well-informed health professionals. It has been suggested that

this problem can be resolved by peer review. However, is it known that doctors tend to “cover”

for each other and are reluctant to point fingers at professionals in their own ranks. There is much

work that needs to be done here.

Can the patient be relied upon to make his own decisions on medical problems, or should the

doctor do it? Traditional medicine practised in society has recognized that the doctor has this

power, and the patient has accepted this without question. However, a patient who has been

informed of all the choices and the implications of those choices, is able to make a better decision

than the doctor. This statement is contentious, and likely to be widely debated within the medical

community. This is the dilemma faced by the medical profession. (It is perhaps a reflection of

the researcher’s Post Modernistic learnings.)

The system methodology used is dependent very much on the worldview of the researcher or

advisor who does an analysis. In the present analysis, systems thinking has been helpful in

understanding the different human activity systems, and how they relate to each other. The formal

system has really been depicted using the researcher’s point of view, and may not necessarily

reflect consensus opinion. If this is true, then some of the systems identified will change to

reflect a different reality, and conclusions reached will be materially different from those

proposed in this thesis.

The healthcare trend in the USA is for patients to be empowered, so that they have more choice

(Liss, 2001). The ideal model suggested in this thesis, however, restricts members’ choices to a

selected panel of accredited service providers. Once having selected a healthcare manager, the

patient has no further choice. The only choice the member has is which service provider to select

and when to go there. All subsequent choices are then made for him. This may explain why this

system is not as popular as it should be.

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8.4 Ethics Medical professionals, when qualifying, take the Hippocratic oath. This oath promises that they

will serve the patient to the best of their ability. However, in the ideal model, the doctor, while

knowing what is best for the patient, may be unable to treat him because of financial constraints.

For example, a patient with active AIDS can, in most cases, be well controlled on medication.

But often the patient has no money, or his scheme does not offer the benefit, or the benefit in not

sufficient. The State is also not able to provide this medication. This causes an ethical dilemma

for the doctor.

Similarly, in a capitated system as advocated by the ideal model, the healthcare manager will

make decisions based on the finances of that member and the system. These decisions can deny

treatment considered necessary by both member and service provider. Many health professionals

feel that this is not ethical, and are not willing or able to make this decision. Any act is considered

ethical if it improves the net welfare of all concerned, and recognizes the rights of individuals

(Emmanuel Kant, 1724-1804). On this basis, the capitation system, by saving money, allows

more people to access healthcare. The capitation system is legal, and is consistent with being

“just”. It does respect the rights of all individuals, but the patient’s rights are managed by the

healthcare manager. In this aspect it is not ethical. However, in the view of the researcher,

because it is consistent with justice, and will result in the greater good (by increasing access to

healthcare), it is therefore ethical. This answer is supported by Valasquez (Fall, 1983) in his flow

diagram of ethical decision making. He maintains that any human action with two effects, one

good and one bad, is unethical unless it meets four criteria:

The morally good effect is greater than the morally bad effect (that is, reduction in costs

and therefore improving access to healthcare)

The morally bad effect is not intended (i.e. the loss of the patient's rights)

The action taken is morally good in itself

The good effect is not the result of the bad effect because both flow from the same action

The capitation model satisfies all the above criteria.

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In discussions with Tony Pope, who heads Medicross (HMO with 30000 members), he said that

many doctors feel that any risk-taking model is not ethical. He said that doctors are not actuaries,

and they should not take risks. Risk-sharing is advocated as part of the ideal model. Many health

professionals have often felt that their medical integrity has been compromised by such models,

as they are influenced more by finances (personal financial gain) than by what is medically

required for the patient’s health.

Is the doctor a socialist or a capitalist? Should he act to maximize his income, or should he

maximize care to those he serves, regardless of income? The researcher’s view is that there

should be a balance between the two. Good medical practice advocates a balance between the

two, as being acceptable to the individual and society. It is unlikely that this question will be

resolved at once – it will continue to come up in the years ahead. Doctors want to do what they

know best, to treat patients to the best of their ability without regard to cost. But reality is

otherwise.

8.5 Reflections, learnings and future paths Application of systems thinking in an attempt to resolve the crisis in the healthcare industry, is a

first in South Africa. It is the researcher’s intention to stimulate further approaches using systems

thinking as a tool in resolving problems in this industry.

This dissertation has allowed the researcher to integrate systems thinking into his repertoire of

skills in order to create possible solutions to problem situations. The researcher’s involvement in

systems thinking over the last three years has resulted in the ability to look at situations from

many aspects and many different points of view. He has learned to view a subject from multiple

perspectives, and not to draw a conclusion until at least one opposing point of view has been

expressed. The process itself lent itself to new understandings. This attempt to improve a problem

situation has looked, not at symptoms, but at the underlying causes of the symptoms.

Systems thinking can be likened to common sense. It allows a more comprehensive answer that is

self-sustaining. It is a simple yet sophisticated system. The VSM was particularly useful. The

discovery of a weak SYSTEM II in this model allowed construction of a model around which to

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hang concepts and give explanations and predictions, which were fundamental to the researcher’s

understanding of the situation. It was in the application of the VSM that the researcher found the

theoretical backing for the capitation system. The VSM is a simple but effective model that he

found could be applied to one’s personal and business life. Systems thinking, and the use of ID,

CLD’s, tools that have allowed the researcher to interact with stakeholders so that all could share

in the thinking and thereby create new solutions, were discoveries made along the way.

This dissertation was also important in that it has allowed publication, for the first time, of the

only successful managed-health, risk-taking capitation model in South Africa, namely the Udipa

Plan.

In the past, the researcher always looked for a simple answer to any situation. But any attempt to

find a solution to the PHCI cannot be simple. This dissertation is an attempt to demonstrate that

an alternative can be found. The researcher’s experience in managing such a system was an

attempt to motivate and share with others, so that similar approaches could be adopted and used

for the benefit of all South Africans. There was a realization, during the writing of the thesis, that

there were many deficiencies in the researcher’s current management of a healthcare

organization. Many of the recommendations made here were put into practice. The effects of

those are yet to be measured.

The ideal model, as proposed, has uncovered a number of areas that require further work. In

particular, the educating and empowering of members can help tremendously to improve

delivery. It is the researcher’s view that, though there is sufficient breadth in this dissertation

there is not adequate depth. Strategies to empower patients, decision-making models, and details

of adequate reporting, have only been touched upon, and require further research. Refinement of

the capitation system is necessary to make it more acceptable to the end-user. The integration of

the public and private sectors needs to be investigated. New methods of making the public and

private sectors more responsive to the consumer need to be explored. A more capitalistic or

business philosophy must be applied to management in the public sector. . New legislation to

make medical schemes more representative of membership is required. Medical schemes must be

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more responsive to members’ needs, and they need to demonstrate an independence that will

allow them to make impartial decisions.

It is highly likely that healthcare in the next five to ten years will be radically different from the

way it is practised currently. It will be interesting to review this thesis in the year 2013, to see if

this model has really worked. It is hoped that this dissertation will be of value, as the ability to

help others in society, and to help them grow, is one of the greatest opportunities that one can

have in life.

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APPENDIX A A.1 Major challenges facing the European Healthcare System

COUNTRY PROBLEMS Sweden - Long waiting times remain. - Relative shortage of healthcare professionals. - Diminished capacity and quality of municipal community care.

- Patients have to face out-of-pocket payments in long-term healthcare.

- Rapidly aging (and considerably aged) population. - Increasing inequality across social groups.

- Differences in availability of providers between urban and rural areas. - Issue of cost-containment has remained high on the political agenda. - Increased pressure from the Left and Green opposition parties to raise public expenditure in areas such as education and health.

- Increase of per capita healthcare expenditure in the future.

United Kingdom - Healthcare in the UK has been under-funded. - Long waiting lists for hospital appointments.

- Ambitious targets for increasing National Health Services workforce numbers (consultants, GPs and nurses) as well as targets for service improvements.

- Set-up to monitor and improve performance.

New Zealand - Nearly 90% of New Zealanders (and particularly those on lower incomes) thought that the healthcare system needed fundamental change.

- Equity of access remains a key issue. - Out-of-pocket expenditures have risen. - Funded through patient capitation. - Healthcare system is under-funded. - Citizen participation in decision-making has been reinforced. - Quality of care is a current policy priority.

- There are few outcome measures in place. to evaluate hospital or physician performance.

The Netherlands - Long waiting times/lists. - The system cannot provide services to which insurees are entitled. - Restructuring of the three health insurance components.

- To have one National Insurance scheme which would be managed by the sickness funds.

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Germany - Cream-skimming by sickness funds by advertising themselves on the Internet, etc. - Sickness funds, to really develop a disease management programme, would require the right to selectively contract providers. - Renewed growth in healthcare expenditure in 2001.

France - The dissatisfaction of doctors and other professionals and the increasing difficulty of concluding agreements with healthcare professionals. - The number of doctors will decline as a result of past decisions to impose quotas. - Patients’ rights and the use of ”patients’ voice” in the system. - The age of the population. - Costs and sustainability of public finances. - The emphasis on public health issues.

Denmark - The aging of the population. - Pressure on healthcare expenditure and pensions. - Limited human resources.

- To reduce waiting times to fewer than two months for all treatment areas.

- Alternative organizational models. - Public-private collaboration in healthcare. - Tax-based and universal healthcare system. Australia - Hospital waiting lists for elective surgery, shortages of trained

nurses. - Medical malpractice. - “Buck-passing” - High consumer costs.

- 36% of below-average income earners believed that the health system needed to be redesigned. - Improving cost-effectiveness. - Improving quality and health outcomes. - Improving access and equity. - Huge disparities in health status.

(Adapted from the European Observatory on Healthcare Systems 2002)

A.2 Sources of Power (Gareth Morgan) Formal authority.

Control of scarce resources.

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Use of organizational structure, rules and regulations.

Control of decision processes.

Control of knowledge and information.

Control of boundaries.

Ability to cope with uncertainty.

Control of technology.

Inter-personal alliances, networks and control of “informal organization”.

Control of counter-organizations.

Symbolism and the management of meaning.

Gender and the management of gender relations.

Structural factors that define the stage of action.

The power one already has.

The sources of power provide organizational members with a variety of means for enhancing

their interests and resolving or perpetuating organizational conflict.

(From Gareth Morgan’s Image of Organization page 172-173) A.3 Sources of Power (Palmer and Hardy, 2000) Luke’s Three Dimensions of power

First dimension (decision-making): the ability of A to make B do what s/he otherwise would not do.

Second dimension (non-decision making): the ability to mobilize the bias of decision-

making processes to exclude issues and participants from the decision-making area and confine the agenda to “safe” questions.

Third dimension: the ability to shape people’s perceptions and preferences in such a way

that they accept the existing order, either because they cannot see any alternatives, view it as natural, or because they value it as beneficial.

Fincham: Perspectives on power

Processual: power at the level of social interaction, e.g. coalition formation, manipulation

of information. Institutional: mandated authority and social structure, e.g. class markets, occupations.

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Organizational: hierarchical mechanisms, e.g. selection, career, dominant coalition. Hardy’s four dimensions of power

First dimension (power of resources): the control of scarce, critical resources and management of dependencies.

Second dimension (power of processes): the ability to control decision-making processes,

agenda, participants and arenas.

Third dimension (power of meaning): the ability to use symbols to create legitimacy for desired actions or ‘delegitimize’ undesired actions.

Fourth dimension (power of the system): power embedded in the system – in the

unconscious acceptance of values, traditions, structures, etc. – which cannot be consciously mobilized.

Sources: Adapted from Luke, 1974; Clegg, 1989; Bradshaw-Camball and Murray, 1991;

Fincham, 1992; Hardy, 1994

A.4 Factors driving health costs 1. UTILIZATION - Technology; Rapid advances in technology stimulating

greater healthcare demand for new services e.g. radial keratotomy for short-sightedness.

- Service provider-induced – super-specialization - legal, e.g. over-servicing - illegal e.g. kickbacks

- Patient-induced - legal – demand for the “best” - illegal – fraud

- New medication, e.g. cholesterol-lowering medication. - Under-utilization, e.g. private hospitals run at 60%

occupancy, therefore requires high rates to maintain profitability.

2. INFRASTRUCTURE - Lack of basic infrastructure, e.g. squatter camps with lack of running water/electricity causing preventable diseases. - Poor roads leading to increased accidents.

- Excessive pollution – resulting in ”poisoning” of population e.g. respiratory diseases.

- Inadequate policing – resulting in more crime / road accidents, muggings, etc.

3. LIFE-STYLE - Obesity DISEASES - Drug addiction.

- Sex – AIDS, Sexually Transmitted Diseases.

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- Exercise (lack of) - Smoking - Alcohol - Crime / violence - Motor vehicle accidents - Stress - Poverty - Aging population (mainly white)

4. ADMINISTRATIVE - Administrators’ share of the percentage increasing exponentially.

- Re-insurance (as means of profiteering, e.g. Discovery) not justified, but increasing.

- Brokers – “churning” i.e. moving members from one scheme to another as a means of generating commissions

- Co-administrators – Another name for brokerage, to get around the 3% regulatory limit.

- Marketing excessive in open schemes. 5. REGULATORY - Employer and tax subsidy – reduce end-user cost (do not

ENVIRONMENT know true price). - Discourage healthy from joining (high premiums).

- Patent protection for pharmaceutical manufacturers. - Method of reimbursement fee for service providers

encourages service provider to keep patients sick. - No compulsory membership of the employed leading to loss

of cross-subsidization by the healthy.

6. LACK OF COMPETITION - Oligopolies- hospital / pharmaceutical manufacturers.

- Horizontal collusion – doctors’ agreement on consultation fees.

- Vertical integration, e.g. Netcare / pharmaceuticals. - Lack of service providers owing to emigration.

7. ECONOMY - Slow growth / slow wage increases vs contribution

increases. - Rapid rand devaluation – most technology and medicine is

imported. Leading to high input costs.

A .5 Analysis of functions of each stakeholder in the PHCI Delivery of healthcare The purpose of this system is to provide affordable private healthcare.

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Untreated member Treated member

Medical scheme “guarantees” payment for this and therefore facilitates access.

1. The scheme member - Premium-paying scheme member.

- Wants to be healthy/get better/prevent illness.

- (Has a healthcare need). - Decides what policy he should have to do

so -e.g. Exercise / healthy food / get medication, etc.

- Chooses a healthcare manager from a wide selection.

- Interacts with healthcare manager / service provider to obtain treatment, e.g. goes to hospital.

- Improved / treated /healthcare needs are met 2. The service provider

Decides to be a service provider

Accredited/establishes infrastructure

Administers and attracts scheme members

Renders service to scheme members (Controls, satisfies and directs healthcare needs).

Process of service

application

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Satisfies healthcare needs of scheme members

3. Administrator

Appointed by medical scheme

Acquires structures, people, equipment

Processes information received from members and service provider

Makes decisions (based on rules – e.g. guarantees payment)

Makes payment, receives contributions and provides feedback to members and service provider

4. The scheme Licence to operate granted by MSC

Elects a Board of Trustees

Designs a product to access healthcare

Sets rules / policies / procedures for product

Appoints administrator / brokers

Acquires members

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5. Medical Scheme Council Government / appoints

Head of Medical Scheme’s Council and

Executive Committee

Appoint senior management

Acquires processes / structures / people

Makes rules, policies, procedures

Monitors, implements and accredits

Medical schemes and administrators

(NB has no regulatory control over service providers and scheme members)

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A.6: Illustration of how the private healthcare industry operates.

This figure illustrates the workings of the PHCI. It demonstrates how payment of money by both

the company and the employee helps facilitate the access to healthcare by the scheme, which is

able to do this by guaranteeing payment to the service provider.

Figure A.1

Workings of the private healthcare

Company pays Employee pays

Pay contributions toa medical scheme

The scheme designs a set of rules,regulations and procedures thatfacilitate access to healthcare

It appoints an administratorimplements policy,

contributions and paysprovider

Member wantinghealthcare

Facilitates thisprocess ofacquiringhealthcare

Members hasacquired healthcare

Governed by theMedical Schemes

Council

Contributes 50 %

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A. 7 The flow of money in the Private Health Care Industry

Figure A.2 attempts to track the flow of money in this system to gain a better understanding of

how the industry operates.

Figure A.2 (Money in) (Money out) (Money out) 10% Profit motivation – free market All of these want

more Maximum individual share

(Money in) (money out) (motivated by profit)

Money essentially comes from two sources: the members and the company. Other income is

investment income, but this is minimal. This money is paid out to service providers, brokers,

administrators, and re-insurers. Remaining funds are put into reserves, which by legislation have

minimum solvency levels. Government contributes R7.5 billion indirectly by allowing

contributions as a tax deduction.

MONEY

COMPANY MONEY IN EMPLOYEES

BROKER (profits)

ADMINISTRATOR

SPECIALISTS DENTISTS OPTICIANS STATE HOSPITALS PRIVATE HOSPITALS PHARMACIES GP’s OTHERS – PHYSIO/PATHOLOGISTS, ETC.SERVICE PROVIDERS SCHEME – TRUSTEES (not for profit) REGULATOR (not for profit)

PATIENT, EMPLOYEES

HEALTHY + SICK PAY MONEY

FLOW OF

GOVERNMENT VIA TAX SUBSIDY

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When government takes this R7.5 billion and applies it to the 7 billion beneficiaries, the tax

benefit is R560 per person (Department of Health Report – May 2002). This equates to a higher

subsidy per person than is received by those who are not on medical aid. This position is not

acceptable to the government, as it wants an equal subsidy to all communities. The Department of

Health further states that because it and the employer subsidize the premium, the cost is not felt

by the Medical Scheme member. It says that this encourages and hides inefficiencies in the

system. It is of concern to the government that, in spite of large amounts of money (R37 billion

for 7 million) that are available, members still continue to experience a reduction in benefits, and

according to government, many end up in the public health sector (Inquiry into the South African

Health Care System. May 14/2002).

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APPENDIX B B.1 System Tools

Interrelationship Diagraphs This is a tool that allows thought processes to proceed in multiple directions, rather than in a

single, linear direction. It is an ideal team process as it allows the production of creative

solutions, provided that the team members reserve judgement during this process. In this process

all the ideas are laid out individually. The team then looks for the influence relationship between

the ideas. Relationship arrows are drawn depending on which is the driver (arrow from) and

which is the outcome (arrow to). This is depicted in Figure B1.

Figure B.1

Driver Outcome

At the end of this exercise, the number of arrows going to or leaving an idea, determine if it is a

driver or an outcome. If there are more arrows in, then it is an outcome, and if there are more

arrows going out, then it is a driver.

Behaviour-over-time graphs show how events behave over time. This is depicted in figure B2.

Figure B.2 Up

or

Sales Down

Time

IDEA A IDEA

B

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Figure B2 shows that sales can go up or down over time. A number of factors can influence this.

This is where Causal Loop Diagrams (CLD’s) are useful because they allow one to illustrate

these factors diagrammatically. An influence diagram shows how one situation can affect another

in a diagrammatic form. Many influence diagrams used together form a CLD. The CLD allows

one to depict a theory about why certain events occur.

CLD’s allow diagrammatic representation of the facts. They usually refer to a specific behaviour

over time. They help in defining a problem and allow diagrammatic representation of the idea.

They are an aid to mental visualization of concepts. They allow one to develop “What if?”

scenarios as a mental exercise. CLD’s are therefore a graphical representation of complex,

interdependent problems. Variables can influence each other either positively or negatively. By

this is meant that if variables A increases, then variable B can increase or decrease. If both

variables A and B move in the same direction, this is depicted by using the symbol 's'. If the

variables move in opposite directions then this is depicted by the symbol "o" ‘o’

‘o’

A increase B decrease A decrease B increase

"s" "s"

A decrease B decrease A increase B increase

A balanced loop (equal o’s and s’s) means that the system will remain in balance. A reinforcing

loop (more ‘o’ than ‘s’) means that the loop will eventually go out of balance and destruct, unless

a new balancing loop is created.

All CLD’s have a story behind them, which must be told. A number of different types of CLD’s

have been postulated by Senge in the 5th discipline (Senge et al, 1994). They are an ideal tool to

depict. Systems thinking, as they allow one to see how a complex situation works, and the factors

that influence the working of that situation.

B.2 Analysis of four systems approaches The following table B.1 shows properties of the four different approaches to systems thinking

that have been used in this thesis. It will help the reader to clearly visualise the differences

between the approaches.

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Table B.1 (Adapted from Alvesson and Deetz, 1996 in Jackson 1951)

Features Functionalist Interpretative Emancipatory Post Modern

Basic goal Demonstrate law- Display unified Unmask Reclaim conflict like relations culture domination among objects Method Nomothetic Hermeneutics Cultural and Deconstruction Science Ethnography Ideological genealogy critique Hope Efficiency, Recovery of Reformation of Claim a space for lost Effectiveness, integrative values social order voices Survival and Adaptation Organizational Machine, organism Culture, political Psychic prison, Carnival metaphor brain, flux and system instruments of transformation domination Problems Inefficiency, Meaninglessness, Domination, Marginalization addressed disorder illegitimacy consent conflict, suppression Narrative style Scientific/ Romantic Therapeutic Ironic, ambivalent Technical, embracing directive Strategic Time identity Modern Pre-modern Late Modern Post Modern Organizational Control, Commitment, Participation Diversity, creativity Benefits expertise quality of work expanded Life knowledge Mood Optimistic Friendly Suspicious Playful Social fear Disorder Depersonalization Authority Totalization

normalization

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B.3 Functionalist Approach to Systems thinking (Keatings, 2000) The following table is the application of methodology as proposed by Keatings to the PHCI in

Chapter 5. Table B.2 is an analysis of the important systems of interest. It identifies barriers,

enablers, and patterns that occur in the PHCI. It will give the reader the background to the all the

significant issues in this industry. It lays down the context of the problems in this industry.

Table B.2 Keatings’ Functionalist approach.

Contextual element Description

Identity The unique characteristics which give the operation a constant reference point, offering stability and constancy in the face of change

Scheme members wanting healthcare Transformation Acquire healthcare

Vision The idealized direction of where the operation wants to transform

o Private healthcare o Increase the total number of members on medical aid

Objectives/mission The specific targets that the process activities pursue, and the

purpose the process seeks to achieve

The target is to widen the net so that those that are employed but not on medical aid, will be able to get it. Reduce premiums so that healthcare remains affordable

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Primary task/products The main activities and products of the system that generate value for customers

The main activity is application of treatment/care to those requiring it, by agreeing to pay service provider. Design customer-friendly product. Increased use of state facilities Involve stakeholders

Strategy The approach (es) for establishing direction to accomplish system

objectives and provide direction for operational action

Healthy subsidize sick Rich subsidize poor Larger number provide greater viability

Priorities The primary concerns to which operational resources are directed

The primary concerns are to prevent schemes from denying treatment to members, ensuring financial stability of the industry

Performance The external metrics used to determine adequacy of system

performance This is measured by:

Number of members (increased or decreased) Growth in contributions Growth in different components of the stakeholders’ share Consumption of healthcare of stakeholders Mortability and morbidity statistics over time Number of new private hospitals/total number of beds Change in numbers of service providers Change in numbers of schemes Measurement of health outcomes Number of schemes on the watch list

Support systems/ The enabling support and infrastructure mechanisms

Processes (internal and external)

which both enable and constrain the operation

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Those that enable are:

Undertaking to pay service providers

Access to high quality first-world care

Those that constrain: Rapid depletion of benefits Rapid decrease in contributions

Critical issues The most pressing concerns of the operation

Rapid increase in contributions outstripping wage increases, with reduction in benefits

Management style The distinctive ways in which management presence influences operation

Hierarchy / Bureaucracy

Staff skills The recognized competencies necessary to perform the primary work of the operation

All skills exist. From administrators & brokers to highly skilled specialists

Reward/incentive The recognition, formal and informal, for performance of individuals, units, and the overall system

Does not exist. No feedback and monitoring. Those that exist have perverse incentives.

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Decision-making The formal and informal, methods for making decisions that affect the system

Decision-making is normally under strict hierarchy and bureaucracy. There is little room in this industry for individual choice and joint decision-making. Decisions are made at the top and passed down. People on the ground are not empowered to make their own decisions. Informal decision-making is most probably related to illegal decision-making where the member and service provider tries to subvert the system for their own benefit.

Work climate Expectations, feelings and impressions of individuals concerning working conditions within the system

Working conditions generally acceptable. Many people aspire to these jobs

Cultural patterns The recurring dynamic patterns which influence decisions and

actions in the system Tradition, hierarchy, and bureaucracy characterise the industry

Support systems/ Those that enable are:

Undertaking to pay service providers Access to high-quality first-world care

Processes Those that constrain Rapid depletion of benefits Rapid decrease in contributions

B.4 Detailed functions of the different systems in the VSM model The following Table B.3 relates to the understanding of the VSM model of Beer as discussed in

Chapter 4. It has been adapted from Keatings (2000)

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Table B.3 Demonstrates the primary functions of each system.

Viable System Primary functions

System name

SYSTEM I Operations Produce organizational products and services.

Provide direct interface with the operational environment.

Execute the direction of SYSTEM III based upon agreed-

upon standards of performance.

Function as an autonomous unit.

Provide for internal design and execution of work.

Interface with SYSTEM II for co-ordination with other

operational units within the system.

Provide operational information to SYSTEMS III and III*.

SYSTEM II Co-ordination Maintains co-ordination among operational units (SYSTEM

Is).

Ensures efficiency by identifying unnecessary or redundant

resource use across operations (SYSTEM Is).

Identifies integration issues to SYSTEM III.

Identifies and manages emergent conflict between

SYSTEM Is.

SYSTEM III Control Operational planning and control for ongoing day-to-day

System performance and efficiency.

Develop operational response to inputs from systems I, II

and III.

Operationally interprets and ensures implementation of the

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policies and direction from SYSTEM V. Interface with

SYSTEM IV to re-design operations based on

environmental shifts.

Provide resources and expectations for SYSTEM I

performance.

Design for accountability and performance reporting by

SYSTEM I.

SYSTEM III* Monitoring Provides sporadic feedback on operational performance as

required by SYSTEM III.

Investigates and reports to SYSTEM III concerning deviant

operational conditions and trends – crises or trends.

SYSTEM IV Intelligence Strategic planning for system development.

Environmental scanning, analysis, and interpretation.

Maintenance of models of the environment, entire system,

and future. Interface with SYSTEM III concerning

operational implications of long-term concerns.

Disseminates essential intelligence information throughout

the system for action. Informs SYSTEM V of strategic

policy implications stemming from environmental analysis.

SYSTEM V Policy Maintains system identity.

B.5 Application of VSM methodology to the PHCI (Chapter 5) The following figure B.6 illustrates application of the VSM to the PHCI. The reader will notice

the different activities of the stakeholders that have been identified by the VSM.

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VSM MODEL

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Table B.4 shows the structural deficiencies identified in the VSM model and this relates to the

application of methodology as advocated in Chapter 5.

Table B 4 Structural Deficiencies.

Minimal direction from system of agreed-upon standards of SYSTEM I

performance. Minimal or no interface with SYSTEM II for co-ordination. Operations

No co-ordination with other SYSTEM Is. Provides only financial

information to SYSTEM III and not quality, i.e. health outcomes.

SYSTEM I constraints arise when benefits are exceeded or not provided

for. Service provider may not administer what is requested. Performance

is measured by satisfaction received after treatment. Also SYSTEM I is

not recognized by SYSTEM V, the legislator, as part of the same system.

SYSTEM V's sphere of influence extends only to SYSTEM III

(administrator). SYSTEM II participants have other regulators and are

not under the control of SYSTEM V e.g. health services professional

council.

No co-ordination exists between SYSTEM I units (e.g. hospital SYSTEM II

authorizations are done by SYSTEM III which is not qualified to do so). Co-ordination

Inefficiencies not identified and resources not utilized optimally. Not able

to manage conflict between SYSTEM Is. Minimal to non-existent feed-

back to SYSTEM III.

SYSTEM II functions to provide services to SYSTEM I (patient).

SYSTEM II is under the control of SYSTEM III, which checks on

SYSTEM I and 2. Possible conflict can arise if SYSTEM II does not

accept that SYSTEM I has a valid claim for treatment. SYSTEM II can

deny access for members to SYSTEM I.

This will result in conflict.

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Minimal inputs (feedback loops from SYSTEM I and II. Provides SYSTEM III

minimal resources and expectations (outcomes) for SYSTEM I Control &

performance. Connection between SYSTEM III and SYSTEM I is monitoring

autocratic. No room for negotiation. Also autocratic between

SYSTEM II and SYSTEM III.. Often shows a tendency to become

auto-poetic. Can do so because it controls the allocation of money.

This is a threat to the stability of the entire system. This is done at the

expense of the total system, e.g. charging more than it is entitled to and

thereby threatening the viability of the entire system. Most important

system. Maintains operational performance on a day-to-day basis.

Can only monitor financial information. Does not monitor any other SYSTEM III

indicators. This system is very weak. Has minimal performance reporting. Monitoring

Autocratic arrangements with SYSTEM I & II. Very important for

monitoring of system I & II.

Minimal interaction with SYSTEM I & II. SYSTEM IV

Weak scanning of environment and strategy direction. Strategic planning Intelligence

is done more by SYSTEM III than SYSTEM IV. No distinction between

SYSTEM III & IV. Weak link with SYSTEM V.

Trustees need to consider the external environment when designing new

products. This is not done. They are too close to SYSTEM III

(administrator) sometimes no distinction between the two. Most are not

adapting to the future, i.e. social health insurance. Insufficient

communication between SYSTEM V and SYSTEM IV to warn

about impending problems especially in relation to SYSTEM III.

Often administrators are appointed not at arms-length

because SYSTEM IV is too weak to assert independence. SYSTEM IV

often regarded by other stakeholders as not important.

Weak link with SYSTEM IV. Develops own vision without regard to SYSTEM V

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other systems. Needs to separate SYSTEM III (inward looking) and Policy

SYSTEM IV (outward looking). Denied inputs from SYSTEM IV as

SYSTEM IV is very weak. SYSTEM V needs to promote access and

sustain viability of the private healthcare industry. Currently not able to

do so. Does not interface with SYSTEM I and II. There is a clear lack of

communication. SYSTEM V is also not getting first-hand information. Is

not able to balance external and internal needs as costs are increasing to

rapidly so that the system is forecast to totally collapse.

B 6 The Emancipative Approach (Ulrich, 1983) Table B.5 shows the application of the 12 heuristic questions to the PHCI as proposed by Ulrich

(1983) in Chapter 5. It is a summary of all the questions and the answers to normative questions

posed by Ulrich. There are 3 questions for each stakeholder group identified below in both the 'is'

mode and "ought" mode. This allows those affected to express their view of what the situation

should be. The first column identifies the stakeholder. The second column states the current

situation and the third column states what "should be" in the views of those oppressed. The last

column gives the researcher’s opinion. The second column has also highlighted the stakeholder

and the view expressed by that stakeholder.

Table B5 of the 12 Heuristic Questions.

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Table B.5

TWELVE CSH QUESTIONS (Value judgement) A

THOSE INVOLVED THOSE AFFECTED COMMENTS IS OUGHT

1. Who is the client of the decision? Specialists / hospitals / medicine Medical scheme member Shows that the people benefiting fromt the Who ought to be the client of the decision? manufacturers / administrators or public requesting decisions are the ones making the decision, ie.

(see charts). private healthcare. the administrator. Other participants who benefit but are not part of decision making CLIENT process are specialists, hospitals and medicien manufacturers and retailers (have grown there share of the cake at the expenses of others). The people who should benefit are the scheme members and members of the public who want affordable private healthcare. They are denied benefits by high premiums limited benefits and managed care interventions.

2. What is the purpose of the High premiums - unaffordable Affordable healthcare The Medical Schemes Act was promulgated in decision in terms of actual consequences static membership premiums. Increased 1998 to facilitate greater medical scheme

What ought to be the purpose of the membership. membership. However, membership is remained decision in terms of actual consequences. CLIENT static for the last five years and premiums

escalated by more than CPI.

3. What is to be the measure of Development of a 1st world healthcare

Increased membership We have unlimited access to 1st world health-

success? system with access to latest technology /

Equal division of money. care for 7 million people, but 31 million have to

What ought to be the measure of success drugs and hospitals. CLIENT Better and more benefits. contend with an overburdened state healthcare

4. Who is to be the actual decision Administrator and Regulator Medical Scheme and members Decision-maker is the administrator. Policy

taker? (Changes the measure of success) formulation is by the regulator. Product What ought to be the actual decision taker DECISION TAKER development is the scheme's responsibility.

(Changes the measure of success) In reality decisions should be made by the

scheme but are not.

5. Conditions of success decision making is / Money / contributions controlled by Control of money and benefit Whoever controls the money is in charge. controlled by decision taker. administrator / benefit structure structure should be in the Schemes. Schemes do not have control over their money.

What conditions of success should be hand It is the administrator. He collects and pays out controlled by the decision maker? DECISION TAKER the money. The scheme needs more control of

thi this function.

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6. What is not controlled by the Prices / fees / regulator. People Regulations, Service provider fees. Decision-makers must not control money. decision taker? (What is the environment) funding own expenses. Environment is Public wanting Functions must be separated. The environment

What should not be controlled by the healthcare. of the administrator is the service provider fees, decision maker? DECISION TAKER companies and employees wanting healthcare,

paying members of the public. Making of regulations should be governments duty.

7. Who is the decision taker? Administrator Scheme / Regulator Medical schemes need to stamp their authority. Who should be the decision taker? Planning should be doen by the regulator and the

DECISION DESIGNER scheme and not the administrator.

8. Who is to be the expert? Administrator Scheme At the moment the administrator is the expert, Who ought to be the expert? but the scheme and regulator should really be

DECISION DESIGNER the experts and must make decisions. Expertise relates to constructing contribution tables.

9. Who is to be the guarantor of the decisions? Administrator Scheme / Regulator The scheme and regulator should guarantee the Who ought to be the guarantor of the success of the business model and not the

decisions? DECISION DESIGNER administrator, as it is the case now.

10. Who are the witnesses that are effected? Scheme member Scheme members / Scheme member is affected, but has not role. Who should be the witnesses? Service providers Service providers, paying Only method is by electing trustees to the

public wanting private scheme. Has no other mechanism. Service WITNESSES healthcare. providers ar ealso affected, but are not involved accept in determining prices.

11. Are the "effected" given an opportunity NO - service provider and scheme Greater representation on the Currently the affected have no structured to emancipate themselves? members have no influence on Medical Scheme's Council method to have a say. Should strengthen the

How should the infected be giving an regulation and product design. and the Board of Trustees. board of trustees to have a greater say with opportunity to emancipate themselves? Opinions not canvassed. advisors not linked to administrators. Medical

scheme members should have a greater say in WITNESSES determining the regulatory environment.

12. Worldview - is of the involved or the Based on "administrators". They What do members want and The current worldview is that each stakeholder affected (Which one) know best. Service providers how it can be achieved by lays blame at the other stakeholder for the state

are the culprits introducing managed involving all contributions of the system. The strongest stakeholder (who care, reduce benefits, raises has the power) raises contribution, reduces premiums. Some stakeholders are benefits and manages health access down- destroying the system. wards to remain viable. Service providers and scheme members need to meet and consider WITNESSES what are their needs and how they can be met. Scheme members want lower prices and more benefits.

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Auditing function

Co-ordinates and manages gate

Keeping function for Healthcare demand

LOCAL REGULATORY

EACH LEVEL IS A VIABLE SYSTEM ON ITS OWN

200

GIVES DIRECTION VIA LEGISLATION CREATES THE FRAMEWORK THROUGH FORMAL CHANNELS

CREATES RULES POLICIES AND PROCEDURES AND PRODUCTSPROVIDES STRATEGIC DIRECTION

(SYSTEM I - A) PATIENT/

SERVICE PROVIDERAND PATIENT

INTERFACESYSTEM

TWO

IMPLEMENTS POLICIES, COLLECTS CONTRIBUTIONS, PAYS SERVICE PROVIDERS

(SYSTEM I - B) PATIENT/ DOCTOR

SYSTEMTWO

CHECKS ON SERVICE PROVIDER IF PLAYING ACCORDING TO RULES

Outside environment consists of members of the public who are able to contribute to the medical scheme

MONITORING AND CONTROL BY FEEDBACK

(SYSTEM I - C) PATIENT/ HOSPITAL

SYSTEM

Members of the public who don’t use the state, but only private service providers and fund own expenses.

SYSTEM V MEDICAL SCHEME COUNCIL

SYSTEM IV MEDICAL SCHEME BOARD OF TRUSTEES

SYSTEM III ADMINISTRATOR

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B.7 The Post Modern Approach The following definitions were used as the basis to describe the PHCI in Chapter 5.

Table B 6

Modern vs Post Modern organization

Modern Post Modern

Organization Organization

* Mechanistic * Organic

* Technical * Social

* Objective * Subjective

* Bureaucratic * Democratic

* Disempowered * Empowered

Environment Environment

* Laissez-faire policy * Industry policy

Goals Goals

* Specialized mission * Diffuse mission

* Short-term planning * Long-term planning

* Authority-driven * Market-driven

Emphasis on outcomes Emphasis on processes

* Specialized * Holistic

* Predictable * Spontaneous

* Stable * Creative

* Analytical * Intuitive

Interpersonal emphasis Interpersonal emphasis

* Roles * Relationships

* Hierarchy * Networks

* Obedience * Individuality

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* Orders * Inspiration

* Direction * Support

* Contracts * Community

* Utility] * Empathy

* Individualized rewards * Collective rewards

* Mistrust * Trust

Intrapersonal emphasis Intrapersonal emphasis

* Role * Person

* Inflexible skills * Flexible skills

* Performance * Happiness

* Cognition * Affect

* Compliance * Commitment

Source: Adapted from Clegg, 1990;Ostell, 1996 in Palmer and Hardy, 2000

B.8 Application of post modern methodology The next Table demonstrates application of a post-modern approach to the PHCI as proposed by

Taket and White (2000). It applies to the post modernistic methodology referred to in Chapter 5.

Table B 7 Methodology for the post modern approach. (Adapted from Jackson,

1951) Taket and White’s methodology of the Post Modern Approach

Application of Methodology to the Post Modern Approach for Analyzing the Private

Health Care Industry (Taket and White 2000)

Narrative analysis (Reveals the value systems and beliefs hidden in the narrative)

Destinator (determiner of rules and values) Medical Scheme / Council of Medical

Schemes

Receiver (receives values) Service providers / Patients

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Subject (occupies central role) Scheme member

Object (desired goal of subject) Access to healthcare.

Adjutant (entities assisting subject) Manager of healthcare needs / gatekeeper /

GP / Nurse.

Traitor (resistors who stop goal attainment) Administrator / Scheme

Deconstruction (Reveal values / deep structures and looks for contradictions)

Focus on marginalized elements Service providers / member not part of

decision making.

Members who cannot afford private

healthcare.

Expose false distinction Specialist can only treat. Doctors know

better than patients what is good for them,

originals are better than generics.

Examine what is not said Administrators: - Do not readily disclose re-

insurance, brokerage and admin fees and

hide them amongst other items. Benefits are

generally inadequate for a large

Number of members last between3-9 months.

Generics are good.

Pay attention to contradictions 100 % benefit – (100 % of a small fixed

amount) is misleading.

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Whilst paying contributions weekly you have

no benefits and no access to healthcare.

- Give hospital cover, but no specialist cover

– so can go to hospital, but who is going to

treat.

Pay attention to disruption Limited chronic care – eg. go out of

medicines benefits in 9months – so then no

care.

Examine use of metaphor Helping you in sickness – but limited to strict

rules – that don’t help when you need it.

Reflect on what was said Powerlessness of the member. Pays but have

no say.

Alternative public health care system is a

nightmare.

Requires systems so that the marginalized

voices are heard and are part of the decision

making so that expert views are challenged.

Medical Schemes Council says Act allows for

greater access but in practice membership

numbers are stable.

Reason for the analysis Liberate the member who is least empowered

and exploited.

Owners of the system Society Government

Beneficiary of the System The oppressed member.

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Deliberation Stakeholders need to agree that there is a

problem. Must

(Recognize the problem) debate the issues in an open platform. High

cost of medical care.

(Discuss the problem)

Assumptions - Doctors know best.

(To be challenged) - Only way to manage costs is by increasing

contributions.

- Hospitals, doctors, administrators,

pharmaceutical manufacturers and

distributors are taking more than their

share. Risk is only between scheme

members and administrator. Not service

providers.

- High tech is good.

- Generic medicines are bad.

- Expensive medicine is good.

- Government facilities are bad.

- Good care can only be obtained in a private

hospital.

- The fee for service model is the best.

Terminology (new) IPA’s Empowered through information.

That can describe Capitation, Management of healthcare

demands. Communication, trust.

New ways PPP’s; Trust, shared mental maps.

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Decision-making moved down to scheme

member.

Risk sharing.

Patient empowered Managed care.

Sharing of information.

Paradox (present) Higher contributions but less care. Pay

contributions but

(in the current situation) still not covered for healthcare – get

accounts. Pay a lot, but don’t get better, (eg.

die in Intensive Care Unit).

Exceptions Capitation models

(to the rule).

B.9 Application of Post Modernism to Healthcare This section relates to post modernism as discussed in Chapter 4.

The following table demonstrates how a post-modern approach can be applied to healthcare

management in the USA.

Table B. 8 Simple rules for the design of the 21st century healthcare system in the United

States

Traditional approach New rule

Care is based primarily on visits Care is based on continuous healing relationships

Professional autonomy drives variability Care is customized according to patient’s needs and

values.

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Professionals control care The patient is the source of control

Information is a record Knowledge is shared and information flows freely.

Decision-making is based on training Decision making is evidence based

And experience

“Do no harm” is an individual Safety is a system property

responsibility

Secrecy is necessary Transparency is necessary

The system reacts to needs Needs are anticipated

Cost reduction is sought Waste is continually decreased

Preference is given to professional Co-operation among clinicians is a priority

Roles over the system

(Source: Plse, Wilson, Tim. British Medical Journal, 9/29/2001, Vol. 323, Issue 7315:p746)

B.10 Interpretative Approach -Interactive Planning This section should be read in conjunction with interactive planning as discussed in Chapter 6

(6.3) The following chart B.10 illustrates the steps to be followed in Interactive Planning as

visualized by Russell Ackoff. This chart is to be used in conjunction with Chapters 4 and 5 in

understanding the methodology of Interactive Planning.

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B 10.1 The flow chart for interactive planning

Figure B10 The Interactive Planning Cycle

The Systems Thinking World

1 Formulate

the mess

2 Ends Planning

The

Real

World

3 Means

Planning

4 Resource Modify if necessary

1.1 Prepare Systems Analysis

1.2 Prepare Obstruction Analysis

1.3 Prepare Initial Idealised Designs

1.4 Prepare Reference Scenarios

2.1 Prepare Reference Projections

2.2 Modify and consolidate until a comprehensive design by consensus is obtained

2.3 Compare reference scenario and idealised design

2.4 Select gaps to be filled by planning

3.1 Formulate alternative means of filling gaps

3.2 Evaluate and select means

4.1 Estimate resources that will be required and when

1.4 Prepare mindfulness audit

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Planning

Design of

Implementation

and Control

B 10.2 Methodology for application of interactive planning.

Interactive management consists of the following steps:

Formulating the mess (Analysis of the situation).

Ends planning – The ideal state the organization wants to achieve.

Means planning – Creating methods and means by which the organization can attain the ideal

state.

Resource planning – Determines the amount, type, quality, quantity and time of availability of

the required resources.

Implementation and control – i.e. who is to do what, where and when.

4.4 Determine extent to which gaps can be filled and how

4.3 Define resource gaps 4.2 Estimate what

resources will be available and when

5.2 Design systems for implementing and controlling performance

5.1 Design implementation Implementatio

5.1 Design implementation

Implementation

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B.10.3 Formulating the mess

The reader is referred to Chapter 3 to the rich picture of the private health care industry, to be

familiar with the problems in this industry.

This enables one to formulate and picture what will happen to the organization if no changes are

made. It does this by analyzing current threats, opportunities, trends, anticipated future trends and

opportunities. At the end of this we will arrive at what is called a “reference scenario”. This is a

projection of where this industry will be if no changes are made.

Inputs required in formulating the reference scenario.

System analysis

Obstructive analysis

Reference projection

System analysis

Environment

AIDS

The sick

7 million people on medical aid.

Another 7 million working, but not on medical aid.

Government regulations

System-What is it?

Figure B.10.2 shows the scheme member acquiring health care. The acquisition is facilitated by

the medical scheme that agrees to pay the service provider by contracting with an administrator to

administer the payment.

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Figure B.10.2

Stakeholder Analysis

Government - Public system is overburdened

- Wants more help with healthcare

- Rich have easier access

Company - Paying too much, wants to cap contributions.

Community - Wants access to affordable healthcare.

Service provider - Wants a fair price, good working conditions.

Employees - Want reduced contributions, first-world care.

Members - Want to take part in decision-making.

Investors - Want access to first-world healthcare structure.

Tourists - Want access to first-world healthcare structure.

The sick - Want affordable healthcare.

Medical Scheme Council - More members on medical aid. Equitable trendment for all

stakeholders.

Regulations and laws

These have a limiting effect on the industry so as to make it at a highly regulated industry.

Statutory bodies govern numerous workers in the industry. The main act is the Medical Schemes

Act, which came into effect in 2000. It works on the principles that:

Healthy subsidize the sick.

SEEKING HEALTHCARE ACQUIRED HEALTHCARE

PROCESS

MEMBER + SERVICE PROVIDER INTERACTION = SERVICE RENDERED

EMPLOYED MEMBERS SEEKING HEALTHCARE

SCHEME AND ADMINISTRATO

R ALLOWS ACCESS TO

HEALTHCARE

HEALTHCARE NEEDS SATISFIED

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Rich subsidize the poor.

Community rating is applied, i.e. anyone can join, regardless of health.

However, health industry players complain that community rating, requirements for high

solvency levels and minimum benefits have caused high contributions (Alexander Forbes and

Glenrand MIB health care consultants) The “competitor” in this industry is the government. If

this system collapses then the government wants to introduce a social-health or national-health

policy and reduce the role of the private sector.

Suppliers

Suppliers to this industry are the service providers. They are:

Doctors

Nurses

Specialists

Private hospitals

Government hospitals

Pharmaceutical manufacturers and wholesalers

Pharmacists

Physiotherapists

Psychologists

Dentists

Opticians

Step-down facilities

Past and present performance

There are three indicators that will give an idea of the systems viability:

Members on medical schemes have remained constant at 7 million.

Solvency levels have dropped.

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Medical aid contributions have risen from 10 % of salary to 15-20 % of salary for blue-

collar workers.

These indicators show an industry that is pricing itself out of business.

Structure and management system

The healthcare industry remains a highly regulated, bureaucratic organization with a strong

hierarchy, decision-making carried out high up, and implementation effected at the working

interface.

Operations

Currently there is excess capacity in this system. Private hospitals are running at 60% of capacity

and many private doctors are leaving because of poor earnings potential in South Africa. The

entire system is regulated by the Medical Schemes Council (MSC), a government-appointed

body.

Rules:

Rich subsidize poor.

Healthy subsidize sick.

Everyone must be accepted.

Must have a minimum level of benefits.

Style

The private healthcare industry is an established industry where there is little change, strict

hierarchy and regulated working environments, with enforcement of codes of dressing and

behaviour. It has a strong cultural and traditional background that has not changed over many

years.

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Obstruction analysis

This identifies problems that prevent the organization from reaching its goals. They can be

categorized as follows:

Internal discrepancies

Internal conflict

Internal discrepancies

This is the difference between what the industry is saying and what is actually happening.

Culture of blame

When there is a problem, the blame is always directed elsewhere, not at themselves. In reality all

are guilty.

Medical schemes

Medical schemes make promises to pay all accounts of service providers on time, but in reality

they pay months later. Brochures say “100% benefits”, but benefits are only 100% of a low fixed

amount. They say that “they are there to help you” but give minimum benefits which expire

quickly and leave you without health cover for the last three months of the year.

Schemes say that they are “available” but delegate this to administrators who are located far away

and have hours of business not suitable for the members.

Schemes give generous benefits for hospitalization but no benefits to doctors who must treat

patients in hospital, so that this benefit cannot be utilized.

Schemes promise to pay the service provider but members still face high bills. Members have to

pay premiums and also pay accounts from service providers.

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Schemes promise to look after your health, but give you limited chronic benefits that deny you

access to care. Often, for the last four months of the year you have no treatment.

Government

Government wants medical scheme members to use State facilities but has no food, blankets or

medicine for them.

Doctors

Doctors always say that they care for the sick, but they are not prepared to do so when members

cannot pay.

Medical Schemes

The MSC wants more members but regulations do not encourage more members.

Internal conflicts

Conflict between the private healthcare industry and government

Conflict between doctor networks, private hospitals and pharmaceutical manufacturers and the

Competition Commission about price fixing and unfair business practice.

The private healthcare industry and government do not agree, as government wants to socialize or

nationalize health services. This would result in a loss of income for the administrators and some

service providers.

Conflict exists between medical schemes and the MSC about minimum benefits, solvency levels,

and community rating, as they escalate costs.

Conflict exists between administrators and the MSC about the high administration costs (16% of

every healthcare rand) and statutory requirements.

Conflict between stakeholders

Conflict between stakeholders, each blaming the other for the high cost of healthcare.

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Conflict between GPs and specialists, when GPs do the work of specialists, and specialists do GP

work.

Conflict between service providers and administrators about late and non-payment for services

rendered to scheme members.

Conflict between members and the scheme about non-payment of service providers’ accounts.

Reference projections

These allow a picture to emerge of where the industry will be if no changes are made. These have

been covered in Chapter 3.

B.10.3.1 Trends Analysis Chart

Based on the above reference projections a trend analysis chart can be drawn. The vertical

column represents the trends and the horizontal the indicators, which show in which directions

the trends are growing. It allows group discussion and the ability to create the reference scenario,

i.e. the future if there are no changes.

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Table B10.3.1 TRENDS ANALYSIS

TRENDS INDICATORS Trends Mem- Health Doctors Employed Admin Re-in- Health- Private Medicine ber- care costs but not on expen- surance care hospital costs ship demand medical diture broker out- cost number aid fees comes Economy (Growing) Aids Healthcare Regulations Lack of Competition Managed Primary care Contribution increases more than wages Skills Shortage

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B.10.4 Ends planning

This is the desired future. Ends planning is the desired outcomes, and consists of goals, objectives

and ideals. The ideal desired future must be technologically feasible and operationally viable. The

process of planning for the desired future It is meant to be an adaptive and iterative learning

process. It does not claim to be the best system, but constantly seeks to become the best system.

Mission of the Ideal Design

To increase number of medical aid members.

To contain contribution increases, so as not to exceed salary increases and remain affordable.

Desired properties of the Ideal Design

Inputs

It is a R37 billion industry with good infrastructure and facilities.

The information system must be redesigned to give more relevant information that reflects health

outcomes.

Corporate process

Scheme governance must be strengthened. The independence of scheme members must be

strengthened.

There must be more competition between administrators to reduce costs.

Government regulation must facilitate increase in membership, e.g. compulsory for

employed people to belong to a medical aid.

It must be compulsory for all stakeholders to participate in decision-making.

The regulatory framework must help reduce high medicine prices. The State must provide

access to medicines at lower cost, especially retroviral medicines. Regulations must allow

parallel importation of generic products from low-cost countries.

The system must encourage use of State facilities.

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It should facilitate increased competition between all service providers.

It must change the re-imbursement model to manage the health of the patient. Service

providers must be rewarded for keeping patients healthy, and not for every patient visit.

It must create new products that cater for the low-income earner using the State and a

manager to manage healthcare demand.

It must facilitate the process so that the 7 million not on medical aid are able to join, and

assist in risk-sharing, i.e. more people, less risk.

It must assist schemes that have high-risk profiles to amalgamate with other schemes or

have some other mechanism to lower risk profiles.

It should provide AIDS-related benefits in partnership with government and international

donors.

It must be able to shift risk to service providers, scheme and members together, and not

only the scheme members.

The differences between the reference scenario and the ideal desired state allows one to compile a

list of gaps that need to be filled to reach that desired future. This has been done in Table 6.1.

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This is the ideal desired system. It is designed by all stakeholders and is iterative. It allows

sharing between stakeholders of the ideal desired system.

The Desired System This system has two parts – one that is constrained by the external system and one that is not. .

Figure B10..3 illustrates the unconstrained desired system.

Figure B10.3 THE DESIRED SYSTEM (NOT CONSTRAINED)

Increase number of Medical Schemes Council Compulsory medical [principal members to

scheme membership make the scheme viable for any employed person. (Minimum membership 10 000 principal members).

Legislate for more power to the scheme. Trustees Must be accredited. Must reduce must be stronger. Must be cost and give better feedback. able to reduce influence of Monitoring and communication administrator. with MSC and membership and service providers to be improved.

Must not be adversarial. Must monitor

Creates different opportunities health outcomes. More communication with Service providers must scheme and administrator be allowed and between themselves to work and practise

together to cater for HMO type members.

Primary care service provider must be able to manage healthcare needs of member. Service providers must empower

scheme members by sharing information.

MEDICAL SCHEME

SERVICE PROVIDER SCHEME MEMBERS

ADMINISTRATOR

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Figure B10.4 Figure B10.4 illustrates what is practical and possible at this stage. It is drawn from the

researcher's point of view as to what is possible in this industry at present. It is similar to Figure

6.3, but leaves out those ideas that are not feasible in the industry at present.

Figure B.4 Constrained version of the desired system Large companies with

more than 100 employees. It must be compulsory to have minimum

benefits.

More power to govern themselves.

Must represent the Trustees. Should

have at least 10 000 principle members

to be able to take risk. Should have some rudimentary Accreditation is assessment of health outcomes compulsory. Costs from different service providers. should not exceed 10

% of contributions. Must

get a fixed rand amount to eliminate

perverse incentives. Staff model or Doctor network Fee-for-service product network model High benefits but hospital care in Private and state facilities Private hospitals only. upgraded state facilities Capitated care and Secondary and tertiary secondary care. care in state facilities.

MEDICAL SCHEMES COUNCIL

MEDICAL SCHEMES

ADMINISTRATOR

SERVICE PROVIDERS AND PATIENTS

Lower income Middle Income High Income Products

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Identifying the gaps This is the process by which the differences are highlighted between the reference scenario and

the desired version. These differences have been tabulated and are shown in Table 6.1. The first

column identifies the gap, or the process that needs to be performed. The second column shows

the classification given below:

Tentative goals – can be met now.

Tentative objectives – can be met later.

Ideals – can be worked towards.

The third column states whether the gap identified is present or absent, or what its current state is

in the Reference Scenario. The fourth column makes reference to its function in the desired

system, and comments on its role in the idealized system.

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Table B10.5 of the Gaps between the Reference Scenario and the Idealized State GAPS CLASSIFICATION REFERENCE SCENARIO DESIRED STATE Compulsory Goal Absent. So only sick join and Present – will provide medical aid healthy don’t join. more members to membership reduce risk. Strengthen Goal Absent – Currently only 50 % Will allow more medical schemes of members are elected and members to have a say board of trustees officer is usually an employee of in decision making. the administrator Accreditation of Objective Absent – administrators currently Present – accredited administrators charging too much. Not cost- limit administration

effective. fees. Charge fixed rand amount.

Improved Ideal Very little two-way communication All stakeholders will stakeholder occurs. Talk to each other to communication resolve differences on

a regular informal and formalized basis.

Pay to manage Objective Fee for service Change system of re- healthcare de- inbursement. mand of the member Develop low- Objective Product is available but state Doctor network Income product. facilities not attractive. providing primary care Using state in upgraded state and primary care facility. network Reduce power of Ideal Only three hospital groups limited Introduce more service provider specialists and patient law protec- competition to lower by strengthening tion for pharmaceuticals. prices and improve competition quality by legislation. Upgrade state Objective Currently no medical aid paying Create good state health facilities members want to use state facility for doctors to

facilities treat and look after patient.

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Reduce re- Objective Currently brokers shuffle scheme Fewer schemes and insurance members to generate commission brokers accreditation required to reduce

costs. Continuous Ideal Current members receive benefits Manage healthcare healthcare access in 6 months and then rely on the demand so that access

state is for the whole year. Align stake- Ideal Each stakeholder takes the most Stakeholders openly holder interest for himself. discuss goals and how

they can be achieved together in a win-win situation. Reduced cost of Ideal Currently medicines are 23% of Regulation must allow medicines cost. Highest prices in the for import of parallel developing world. products. Encourage

new pharmaceutical manufacturers to establish facilities.

Empower scheme Ideal Currently members are the least Provide maximum members empowered. Only voice is through information through the board of trustees which is only both formal and 50% representative. informal channels to

educate scheme members. 100% to be elected by scheme members.

Encourage and Ideal Very few specialists command Train more specialists retain specialist high fees. so that fees can be skills reduced by

competition. Measurement of Ideal Currently very little measurement Able to measure, health outcomes of health outcomes. Control predict health outcomes by improved billing and software systems. Accreditation Ideal No data or information on Require data on all and monitoring service providers, that is service providers that of service facilities, processes, health includes information providers outcomes processes, structure

and health outcomes.

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Joint decision- Objective Currently have conflict and All stakeholders to making and disruptive decision-making have joint decision- conflict making power resolution Regulatory Ideal Currently, minimum benefits, Require changes to changes to im- solvency margins and community regulations to reduce improve ratings prevent improvement risk and encourage access to in membership membership. medical schemes Trust, encourage Ideal No sharing of information. Establish trust so that sharing of information can be information shared. between stakeholders B.10.5 Means planning

Simply put, means planning is the model or plan that is to be used together with a discussion of

the variables (controllable and not controllable) that will bring about the required change in

behaviour from the reference scenario to the ideal system. This model has been discussed in the

main body in Chapter 6.

B.10.6 Resource planning

This is to determine what resources are necessary, how they will be acquired, when they will be

required, the quantity required, and the type of resource required. Each resource must have

answers to the following:

How much is required.

Where it will be required.

When it will be required.

How much is available - the exact amount required.

This should then entail a discussion of how shortfalls and excesses will be managed.

This step has been left out.

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B.10.7 Implementation and control

This is a matter of who is to do what, when, and how the plan is to be carried out so that

objectives are achieved. Control is achieved through monitoring of results, planning,

implementation and making corrective actions when necessary. Many plans fail because of

failure of implementation. Personnel responsible for implementation, if they are different from

decision-makers, must have direct access to decision-makers. With control goes learning, which

eliminates repetition of mistakes. Control without learning improves performance but does not

prevent the person or business unit from making the same mistake twice. It is clear that learning

is an important by-product of the implementation process. This flexibility without restructuring,

and the ability to “learn and adapt rapidly”, emphasizes the democratic nature of interactive

planning (Systems Approach M.C. Jackson. Page; 239).

Implementation can be carried out in two steps:

A. Process flow chart that outlines the process flow, steps to be taken, time period for

completion, and relationships between different activities. Persons responsible can be

indicated on the chart.

Implementation and control form. This comprises the following:

Nature of task - Goal.

- Objective

- Ideal

Person responsible for task.

Assumptions on which the task is based

Steps to be taken (assumption of which steps are taken).

Person responsible for steps.

Timing and money allocated to each step.

Expected effects and time when expected. (Assumptions used to state this).

An example of one implementation form that has been completed is available. Also a process

flow chart has been created. See spread sheet B 12. This chart outlines all the necessary steps and

can be used by the reader as a guide to setting up his own system.

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The following are variables and processes that need to be taken into account in order to create a

flow chart and an implementation policy.

.

Variables (Controllable):

Healthcare demand

Price (capitation value)

Number of service providers (accredited)

Investigations done (x-rays and pathology)

Risk-taking models

Medicines dispensed (acute)

Quality of service providers

Level of primary care services

Chronic medicine costs

Specialist referrals

Hospital referrals

Referrals for auxiliary medical services

Variables (Not controllable)

Hospitalization costs

Legislation

Economy

Epidemics, e.g. Aids

Specialist costs

Medicine prices / hospital charges

Demographics of member population

Participation level of service providers

People seeking healthcare.

Epidemics already given 4th above

The following are steps necessary in a process flow chart (not in chronological order.)

Identify market.

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Create contribution tables with budgets and expected yields based on current

demographics.

Identify service providers who provide primary care.

Make arrangements with private hospitals or state hospitals.

Develop treatment protocols.

If private hospitalization, arrange preferred provider contract with selected hospital.

Set up reserve fund for dispute resolution and unforeseen risks.

Arrange public-private partnership with state if using state hospital

Set up administration facility or outsource to accredited administrator

Appoint ombudsman.

Change mindset of service provider – use influences.

Allow time for mindset or paradigm changes

Reassure service providers by using examples.

Change mindset of prospective members of scheme.

Change non-dispensing service providers to dispensing service providers.

Appoint preferred pathologist and radiologist and determine cap rate.

Educate primary care givers in a capitation system.

Educate specialists in capitation system.

Educate members in the plan and preventative medicine

Set up risk-taking model – for specialists , chronic medicine, and hospitalization costs

Execute dummy run of system to check if working.

Specify which reports are necessary e.g. peer review / yields / budgets / expenditure

against budget.

Develop relationship with IPA’s.

Define areas of responsibility with IPA.

Appoint advisory board consisting of administrator, union, company, service

provider.(union representative must be a member of the plan.)

Appoint opticians and determine capitation rate.

Appoint dentists and determine capitation rate.

Formalize communication channels with all stakeholders.

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First three months work with FFS within a budget. (if claims exceed budget all service

providers to share equally in the loss).

Formalize method of apportioning surpluses to members.

These steps have been put into a flow chart, B.10.8 that shows how such a system could be

formed.

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Flow chart of implementation

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26Agree on quality, quantity and format of reports from administrator. Accumulate reserves

Identify medical scheme to host option. Agree on cap fee for IPA, admin. for inhouse insurance.Identify market. Appoint ombudsman. Agree on peer review stats, yields, budgets, managed accounts, reconciliations of billing, creditors and bank accounts.Identify primary care service provider. Appoint advisory board. Have dummy run. Remove glitches.

Convert market to accept capitation model. Establish electronic channels for data submission to plan.Convert primary care service providers to accept capitation model. Convert non dispensing service Fee for service within a global budget.Influence pathologist, radiologist, optician, dentist to accept capitation model. providers to dispense.

Appoint administrator with managed care ability. Educate primary care givers in system.Define functions of administrator. Agree with risk takers for cap budgets.

Confirm fee for pathologist, radiologist to accept capitated fees. Budgets for risk models. Get agreement from IPA.Confirm fee for dentists and optician to accept capitated fee. Educate specialists in system.

Discuss and get acceptance of capitated fee with primary care givers. Educate hospitals in system.Define individual risk taking models with individual service providers. Educate members in system.

Identify relevant IPA's. Formulize regular communication channels.Develop relationship with IPA's and define areas of responsibility. Schedule monthly management meetings.

Discuss risk taking model and peer review responsibility of IPA. Monthly meetings with IPA's.Appoint hospital - arrange discount or partnership (state hospital). Two monthly meetings with advisory board.

Define areas or risk taking between plan and service provider. IPA - establish small groups for risk taking and Formalize grievance procedure for members.covered when selected Formalize grievance procedure for service providers.doctors is not available.

Discuss primary care, specialist care, chronics as individual risk taking models. Establish IPA - liaison committee.Discuss hospital risk pool as a group / IPA risk model.

Administrator to have Appoint Board to manage plan.(must have primary care service provider). Schedule weekly meetings with IPA and managed to iron out.local presence/premises

Create contribution table and benefit structure. Commence doctor selection process with scheme members.including premium for insurance. Establish chronic medicine formulary.

Determine yield. Establish chronic medicine committee to approve chronic application.Based on yield develop individual risk budgets.

Agree with IPA on format of monthly reporting to service providers.Have a reserved fund for unexpected problems.

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This flow chart illustrates all the major steps necessary to start the ideal system. It gives an

approximate indication of the time scale necessary to start such a system. Six months is

considered a minimum, but a year would be preferable if previous managed care expertise is

not available. The longer time period is necessary to allow for a mindset change, as this is a

new paradigm in managing, for most of those healthcare givers. I have given approximate

indications of when each process should be started. It is possible that I have missed some

minor steps, but all the major ones necessary have been listed.

The reader should also note that implementation plan is iterative and the schedule should be

changed to meet requirements of a particular situation. Stakeholders should be encouraged to

go back and forth to make those changes that will be most effective in their particular setting.

Each step that is written down must have a separate implementation form. I have compiled

one so that the reader can become familiar with its working.

The following section gives the assumptions used in creating an implementation policy and

one example of how to implement a step.

B.10.9 Implementation Form (An Example)

Theory behind the form

Figure B.5 details the steps necessary for implementation, control and learning. The first step

identifies the person and what he is expected to do. The second step gives the money, time

and assumptions behind the steps. The third step outlines the assumptions behind the

outcome, and when the expected effects of those steps will be experienced. The fourth step

checks to see if there are deviations from the expected outcomes. Discussion and resolution of

these unexpected outcomes results in learning organizations.

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Figure B.5 Flow chart of implementation

Person responsible

Goal

Objective Based on this

assumption.

Ideal

Actual steps necessary to accomplish task.

Assumptions behind the steps.

Money required.

Timing required.

Assumptions behind outcome.

When expected.

What outcome is expected.

Corrective action required – learnings from task

According to Ackoff there are only four reasons why there are deviations:

Information / assumptions in means planning was incorrect.

Implementation was carried out incorrectly.

Environment change was not anticipated or controllable.

Means selection process was incorrect.

TASK

STEPS THAT

COMPRISE THE

TASK

OUTCOME

DEVIATIONS FROM

OUTCOME

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Table B.10 Implementation Form for a step in the ideal model (Ackhoff)

Nature of task: Define risk-taking models with IPA.

Person responsible: Doctor on the Board / CEO

Assumption: Doctors will only accept this risk if it is discussed and

the implications are made clear to them .By assuming risk

doctors will limit hospitalization and specialist costs for the

scheme

(on which task is based)

Steps to be taken: Meeting with administrator.

Give expected yield and budgets.

Give expected patient numbers per doctor and total for IPA.

Discuss which is the risk under discussion, for example hospital

risk.

Limit doctors’ risk to maximum of 5% of their income.

Give worst-case and best-case scenario.

Explain how losses and surpluses will be apportioned.

Get agreement in principle.

Timing: These will take a minimum of 3 months.

Money: Will need four people at R200 per hour at 12 hours for each

person,

12 x 4 x 500 = R24 000.

Expected effects and time

Doctors may not accept risk-taking. Many feel it is not ethical. Some will reject it outright.

Others can be influenced to accept the model. At least 90% acceptance is possible if figures

are accurate and yields are reasonable.

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Assumption: Most doctors work with an FFS mindset and have never taken risk.

Initially guarantees may have to be put in place and can be removed

later.

Deviations: Deviation can be expected, as risk taking, especially when first

encountered, will have a lot of resistance. Allowance must be made for

more meetings and adequate sharing of information. If a culture of trust

is not established, it is unlikely that doctors will assume risk.

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B.11 Flow chart of the failures methodology

Source, System Failures, The Open University,1984)

Situation

Pre-analysis

Representation of situation and

selection of apparently significant

Comparison with formal system model

Comparison with further paradigms

Interpretation stage

Augurs bodes well ill no discrepancies A B many discrepancies C D

Lessons from interpretation stage

Reasons for iteration

Understanding

viewpoints

techniques perspectives

Formal system model

Other paradigms

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Appendix C C.1 Analysis of MCG using the System Failure Methodology I have decided to do an analysis of a large medical aid scheme that collapsed in 1994. I hope

that the answers and reasons for the collapse will help in strengthening my evidence for

reform of the private healthcare system. I am also using this evaluation as evidence for my

theory.

System failure analysis is mental maps in the mind of the observer to explain the failure. (the

reader is referred to Chapter 4 to gain an understanding of System Failure Analysis.) The

MCG medical fund was established in 1968 by the Midland Chamber of Industries. At its

peak (1990) it had in excess of 40 000 members (Final Liquidation report. May 1994) At the

time of liquidation it had 37 000 principal members (excluding dependants) employed at 648

companies primarily in the Eastern Cape with the majority in Port Elizabeth and East London.

MCG was a non-profit organization administered by the Midland Chamber of Industries.

Control rested in the hands of a Central Committee. They comprised union members,

company representatives and the administrators of the fund. The situation at MCG can be

represented by the following rich picture Figure C.1.

The principal officer of the fund, Ian Jeffrey Dimbleby, said that annual contribution increases

in the region of 30% were becoming a greater proportion of the average member’s income.

This was unacceptable to both the company and the scheme members. In response, the

company set up a staff model managed health organization, and put 5000 members on this

system. Those 5000 members were incurring annual losses of R1 million on the previous FFS

system.

A second managed healthcare system was constructed, in which IPA’s (Independent Practice

Associations) were formed. A list of participating doctors were paid on a capitation basis,

where members were entitled to a limited number of consultations, and doctors were paid

regardless of whether those consultations were utilized or not.

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This managed care programme was commenced in November 1992. However, owing to

administrator and employer difficulties, by mid-1993 this was not completed. However,

members were paying managed care fees, but were enjoying full free choice benefits (i.e.

paying for a VW, but getting a Mercedes). This was aggravated by the fact that many

companies were incentivised to change by being offered immediate managed care rates while

still on fee-for-service. Therefore in 1993 a significant portion of MCG’s income had dropped

while still servicing FFS claims.

Other factors contributing were (as demonstrated by figure C.1). Members had more dependants than the contribution scale provided for (therefore

additional members were free).

Service providers’ fraud.

Service providers over-servicing.

Non-members using members’ cards (with service provider and member collusion).

Service providers “milked” the system.

For the above reasons, in 1993 a budgeted loss of R11.3 million occurred. This eliminated

MCG’s reserves and interim increases of 15% were put in place during 1993. Investigation

showed that there was poor administration. Budgets compared with actual expenditure and

income was inaccurate and too low. This was for 1993 (historical) and for 1994 (forecast). As

a solution, a new administrator and contribution increases was proposed. The new

administrator was accepted, but the employee representatives on the Central Committee

rejected the contribution increases. The following month MCG medical fund was put into

liquidation.

In order to obtain a systemic understanding it is important to view the formal structure and all

the systems that took place within this formal structure. The situation can be summarized in

Figure C1. This illustrates in pictorial form the problems that occurred in MCG just prior to

its demise.

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Figure C.1

RICH PICTURE MCG

HEALTH COST (BIG INCREASE)

SALARIES (SLOW INCREASE) money out

Slow/reduced flow Union power Companies refused to pay ` Forced reduced

contributions Money in Slowing down Members not prepared to pay Grabbing a big slice (By hook or crook) Reduced money in Slow Money out as strong Service provider’s demand Advance payment.(Hospitals)

Last minute desperate measure.

IMPOTENT BOARD PARALYZED DUE TO CONFLICT

CENTRAL COMMITTEE (BOSS) (POLICY MAKING) INFLUENCED BY UNION

GREEDY SERVICE PROVIDERS OVERSERVICING / FRAUD

FIXED BUDGET SHRINKING PIE

COMPANY’S ARE BYSTANDERS, HAVE

LITTLE SAY. AGGRAVATED COLLAPSE

BY HOLDING BACK CONTRIBUTIONS

USED TO CONTROL GREEDY SERVICE

PROVIDERS MANAGED CARE

PLAN

ADMINISTRATORS NOT COPING DID NOT FORESEE SYSTEMS NOT ADEQUATE. MANAGEMENT DECISION-MAKING POOR.

BUSINESS MODEL FOR THE PRICE OF A VW YOU GET A MERCEDES

FLAWED DECISION MAKING PROCESS

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Figure C.2 illustrates the functions and structure of MCG at the time of Liquidation. This flow

chart shows the decision-making process and the operations where contributions are collected

and payments made

Figure C.2 The Formal structure and functions of MCG

MEMBERS OF THE COMMITTEE CONSISTS OF: Make rules Determines policy Balances internal and external demands

Regulatory framework

Implements Devises strategy

Communicates with the Board – creates products

Do processing Monitor

Queries from members / Service providers Pays service providers

EMPLOYEES, COMPANIES,

PRINCIPAL OFFICERS, HEAD OF ADMIN

CENTRAL COMMITTEE

(THE SCHEME TRUSTEES)

EXECUTIVE

Brian, etc

ADMINISTRATORSTAFF

IT / PROCESS

SERVICE PROVIDERS /

PATIENT INTERACTIONS

TREATED MEMBER / PATIENT

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Control was in the hands of acentral committee. They appointed an administrator that was part of MCG. The administrator collected contributions and paid service providers according to the rules of the plan.

C.1.2 System identification In order to identify the system, a pneumonic – CATWOE – was used which represents the following:

Customers: (beneficiaries or victims of the system; not necessarily customers of the

company).

Members, service providers, employees

Actors: (those involved in operating the system) Administrators, representatives of employees and companies

Transformation: (the essential process). Allow access to healthcare

Weltanschauung (en): (world-views of the actors). Service providers seen as “stealing”, “greedy” and collapsing the system

Owners: (power figures who control the existence of the system; not necessarily

owners of the company). Central Committee, Union Members, Companies

Environment: (constraints on the system). Increasing claims, decreasing contributions

The following systems are in place.

System of forecasting controlling and monitoring demand.

System of capturing / auditing / paying claims.

System of collecting and paying money.

System of scanning the external environment.

System of controlling / interacting / paying service providers.

System of controlling and interacting to satisfy members.

System of making rules, policies and procedures.

System of communicating with all stakeholders.

System of monitoring, health outcomes, financial indicators.

System of good decision-making.

System of implementing rules, policies and procedures.

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The approach to be adopted is the Systems Failure approach. (Readers are referred to

Appendix B.11 for a flow chart of the actual process that is involved.) This process was used

as it allowed an understanding of how all the systems interacted, and by comparison with

accepted systems, identify where failures occurred. Existing systems are compared against

what is accepted as a necessary system to identify discrepancies.

C.1.3 Apparent systems failures

Failure of system that forecasts expenditure and demand.

Failure of system to control healthcare demand.

Failure of system of capturing and paying claims.

Failure to balance external demands of healthcare with internal resources (money

system).

Failure of system to predict stakeholder views / decisions / attitudes.

Failure of system to consult with stakeholders and service providers.

Failure of system of implementing policies.

Failure to predict consequences of rules and policies and actions.

Failure to implement policies and monitor if system is working.

Failure of system to engage with other stakeholders and be mindful.

Failure of the system of the decision-making process.

Failure of system to inform decision-makers.

Failures grouped together Analysis of the above demonstrates the following broad groupings.

Failure of system to communicate / interact and educate all stakeholders.

Failure of information and administration system.

Failure of implementation system.

Failure of monitoring system.

Failure of system to predict and control healthcare demands.

C.1.4 Failures compared against the Formal System Paradigm (FSP)

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These failures are then compared to the formal system, which is depicted in figure C.3. This

shows the formal system paradigm that should have existed. Comparisons will be made

against this by the various failures identified.

Figure C.3 FORMAL SYSTEM

External boundary Boundary wider system Healthcare Demands Low prices Unfair Companies want Low premiums Service providers Want guaranteed Payment Environment (External) Aids, etc.

Internal boundary Monitoring Monitoring information Information System boundary

CENTRAL COMMITTEEFormulates, provides

resources. Make operations legitimate.

Capturing claims, making payment

EXECUTIVE

DECISION MAKING SYSTEM

PROVIDES RESOURCES. TELLS PEOPLE WHAT THEY

IMPLEMENTATION

OPERATIONS

PERFORMANCE MONITORING

SYSTEM (i.e. audit)

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Failure of communication system vs. formal system model Figure C.4 illustrates the flow of information in the FSP. Figure C.4 Communication system The following points emerged from analysis of figure C.4. Distorted information was received by service providers, resulting in the following:

Adversarial relationship existed with service providers.

Minimal information flowed to stakeholders i.e. scheme members and service

providers.

Service providers were regarded as enemies killing the system, and not partners.

Failure of administration and information system vs formal paradigm

Figure C.5 illustrates the processing of data in the FSP.

Figure C.5 Information processing system Administration system – raw data

INFORMATION

MEETINGS ADVERTS E-MAILS PHONE

PAMPHLETS

INFORMATION TO STAKEHOLDERS

INPUT OUTPUT PROCESS

DATA IN PROCESS DATA

SOFTWARE, HARDWARE,

PEOPLE, PROGRAMMES

USABLE INFORMATION INFORMATION OUT (Reports, etc)

INPUT PROCESS OUTPUT

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Figure C.5 shows the formal information processing system. The following conclusions can be drawn.

The above system was weak as revealed in the report. Was not able to deal with

complexity – had three different systems going simultaneously.

Decision-making people did not have the true picture – resulted in poor decision-

making.

Information going to the Board was inadequate.

Failure of implementation vs Formal System Paradigm Figure C.6 demonstrates a formal system of how policies or rules should be implemented. Figure C.6 A formal implementation system

This figure demonstrates the process of policy implementation. There was no monitoring of

this system and it was weak. Decisions were made for stakeholders i.e. service providers,

companies and employees without input from those affected by the decision.

Failure of monitoring system vs. Formal System Paradigm The monitoring system obviously existed in MCG, but the quality and timing of the

information was inadequate. The fund managers did not monitor the consequences of their

decision-making. Even if they did monitor the situation it was complex and changing rapidly.

The failure to monitor resulted in inability to predict future demands/trends. Poor marketing

resulted in poor decisions. Poor monitoring of information also resulted in inability or not

having the tools to help control demand, e.g. peer review, checking of hospital accounts, etc.

Failure to predict and control healthcare demand vs. Formal System Paradigm

RULES, POLICIES, PROCEDURES THAT MAKES DECISIONS

PROCESS OF DELEGATING,

MONITORING AND CHANGING STRUCTURES

AND PRODUCTS

IMPLEMENTED DECISIONS

INPUT PROCESS OUTPUT

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The system to predict and control health care demand can work if there is adequate

monitoring. As the monitoring was inadequate this system was weak.

C.1.5 Failures compared to other paradigms Failure to communicate with all stakeholders vs the communication paradigm Figure C.7 shows the formal information processing system with the originator of the

message, the movement of the message, and the interpretation of the message.

Figure C.7 A formal communication system (Fortune, 1984)

Service providers and patients were not notified about the problems or invited to form

solutions. There is no system to communicate with stakeholders. If it was present it was very

weak. Any information that was sent was also perceived to be incorrect.

Failure of communication vs. the human factor paradigm i.e. culture and power

The culture at MCG was to view the service providers as the enemy. The administrator also

had the power over money. Therefore very little of what was happening was communicated to

those affected, i.e. the members and service providers.

Failure of administration / information and implementation vs. the control paradigm Figure C.8 demonstrates a simple feedback system.

ORIGINATOR ENCODER CHANNEL DECODER RECOVER

INTERPRETS

INPUT OUTPUT

INFORMATION ABOUT THE SCHEME

PROCESS INFORMATION WITH STAKEHOLDERS

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Figure C.8 A simple control system. Feed forward Feed back Purpose: to minimize deviation from the desired value. Figure C.9 demonstrates the system as it existed in MCG. Figure C.9 The MCG feedback system. Shows that insufficient controls existed. Insufficient data Inadequate Inadequate information in means poor reports out. The system did not monitor the reports and statistics that were coming out. They were too old,

outdated, or not useful. Inadequate information results in improper implementation of

policies. This system was weak or absent.

Failure of Implementation vs. Control Figure C.10 demonstrates a formal implementation system. Figure C.10 A formal implementation System Communicate changes and Check if system is implications to all stake- implemented Holders and working properly. This is Feedforward feedback (missing or weak)

INPUT PROCESS OUTPUT

CONTROLLER

DATA IN PROCESS INFORMATION, REPORTS, STATISTICS

CONTROLLER

RULES, PROCEDURES, PROCESSES DELEGATE

NEW PROCESS / PRODUCT

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There was an obvious failure of implementation (final liquidation report) which was not

monitored and therefore no corrective action was taken, i.e. decision to implement managed

care was not correctly and timeously implemented. This system was absent or weak.

Failure of implementation vs Human factors (culture and power) This was not done because service providers had the power to resist and scheme member’s

culture did not allow this system to be introduced.

Failure of Implementation vs Communication paradigm Figure C.11 shows that stakeholders did not receive the correct information. Figure C.11 Information Flows in MCG This process did not occur because there was a lot of “noise”(perceptions, assumptions,

beliefs that existed and prevented proper communication). The decoder of the message was

the service provider who took it as an attack on his income and independence.

Failure to monitor vs the control paradigm Figure C.12 shows the distribution of data in MCG to the decision-makers. Figure C.12 Formal information distribution system

PROCESS EXTERNAL DECISION MAKERS INTERNAL BOARD

INFORMATION ON IMPLEMENTATION OF NEW RULES

PROCESS INFORMATION RECEIVED BY SERVICE PROVIDERS AND MEMBERS (DECODER)

NOISE

REPORTS DATA

DISTRIBUTIONOF DATA

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Members of the Board did not have adequate data to make informed decisions. The process

was present, but weak. There were multiple systems making reporting more complex and

other non-financial reports that were not available to the board.

Failure to predict and control healthcare demands vs the control paradigm Figure C.13 demonstrates a formal healthcare controlling system, which monitors both

volume going in, and the quality coming out.

Figure C.13 Healthcare monitoring and controlling system Quantity Quality Feedforward feedback This system requires a feed-forward system in order to work. One must know what the

demand is, and how much demand existed in the system. This was created by members and

service providers. This volume could never be handled. Feedback was about quality and there

was no way of measuring this quality. There is complete absence of this system.

Failure of system to predict and control healthcare demand vs. human factors (culture) This was due to a culture of entitlement. This paradigm existed, but it created problems. Failure of system to predict healthcare demand vs. forecasting and planning This process did not exist as it could be seen that interim increases were necessary. The

administration system became more complex (variety of products) and this created new

difficulties in predicting demand.

C.1.6 Interpretation of failures The following Tables, numbered A to E, show the various failures based on desirability, and

whether discrepancies were present or absent. Those systems that were not desirable but were

present, contributed to the failure situation. Those systems that were desirable but had many

PROCESS HEALTHCARE DEMANDS

SATISFIED HEALTHCARE DEMANDS

CONTROLLER

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discrepancies, also contributed to the failure situation. All other situations did not contribute

to the failure.

Failure of Communication with stakeholders

CA Desirable Not desirable No discrepancy Human factors,

Power and culture Many Formal System Paradigm / Discrepancies Communication paradigm Failure of Information and administration system CB Desirable Not desirable No Discrepancies Formal System Paradigm Many Control paradigm Discrepancies Communication Paradigm Failure of Implementation CC Desirable Not desirable No Discrepancy Human factors Many Formal system paradigm Discrepancies Control Paradigm Communication Paradigm

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Failure of monitoring system CD Desirable Not desirable No discrepancy Control Many Formal System Paradigm Discrepancies Communication Failure of ability to predict and control demand CE Desirable Not desirable No Discrepancy Human factors (Culture) Many Formal System Paradigm Discrepancies Control Paradigm Forecasting & planning Paradigm

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C 1.7 The following paradigms contributed to the failure

The following paradigms were desirable but absent or weak.

Communication system vs. Formal system paradigm

Communication system vs. communication Paradigm

Information and administration system vs. the Formal system paradigm

Information and administration system vs. control paradigm

Information and administration system vs. communication Paradigm

Implementation system vs. Formal system paradigm

Implementation system vs. control paradigm

Implementation system vs. communication paradigm

Monitoring system vs. Formal system paradigm

Monitoring system vs. communication paradigm

System to predict and control health care demand vs. Formal System Paradigm

System to predict / control health care demand vs. control

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System to predict and control health care vs. forecast and planning paradigm

The following paradigms were present but not desirable.

System to predict and control healthcare vs. culture (human factors paradigm)

Implementation system vs. (human factors) power and culture paradigm

Communication system vs. Power / culture, human factors paradigm Further interviews were done to clarify the situation and see if evidence existed to substantiate

all the failures.

C.1.8 Understandings from the project It was evident that there was very little communication with stakeholders. Even if there was, it

appeared to be insufficient, or decision-making was not by consensus, and was adversarial. It

was obvious in MCG’s case that raising contributions did not work and was rejected. It also

confirms that stakeholders’ vested interests can cause problems. In MCG’s case the workers

voted against an increase as they wanted lowest premiums and highest benefits, which they

were in fact getting, as they were paying, managed-care rates but getting FFS benefits.

Should stakeholders have been given more information, alternative solutions could have been

implemented. The administrators also had a culture of always blaming service providers. In

fact, at one meeting there was almost a physical fight between administrators and service

providers. So, instead of being partners, they were enemies. The administrators also played

the power game by withholding payment to weaker stakeholders so that they would follow

MCG’s approach.

The information and administration system was weak and could not cope with the variety. It

was confronted with 3 models.

FFS model.

Managed-care model

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IPA network model

It did not have the flexibility to adapt to changing demands in a complex environment.

It is always difficult to predict and control demand or access to healthcare. As previously

discussed, there are many factors – some within one’s control and some outside it. In spite of

having many years of data, they were not able to predict demand, or cater for healthcare

demand, or control it if it became excessive. In order to do so, one needs to scan the external

environment, be mindful, and prepare for various scenarios. They had no idea of what quality

of healthcare was coming out of the system, and of how much demand existed inside and

outside of the system. Furthermore, with comparison to the culture paradigm, it is obvious

that a culture existed in both scheme members and providers to extract the maximum from the

system, again showing how conflicting demands of different stakeholders put the system out

of balance.

The monitoring system that existed was weak and not able to cope with the variety. Very little

of the monitoring system was communicated to the control committee. What was

communicated, was not always accepted as correct by committee members.

There was gross failure to implement the system of managed healthcare that was agreed upon.

Managed healthcare took a year to implement. Management did not have all the information –

no tools to measure, no feedback system to measure successful implementation, and

furthermore no means to communicate those new policies to affected stakeholders effectively.

Service providers and patients were not fully informed.

As stakeholders enjoyed a culture of getting a Mercedes for the price of a Volkswagen, they

were reluctant to change. Service providers, regarded as enemies, refused to co-operate. This

created even more problems of implementation.

C.1.9 Comparison of the failure to the stakeholder and VSM Model of healthcare This failure situation confirms Russel Ackoff’s statement that an organization can only

survive if it can balance the conflicting goals of all its stakeholders. The administration

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wanted higher contributions, the members wanted more benefits at a lower rate, and service

providers were extracting maximum gain in an FFS setting, which they did not want to

change. These stakeholders all need to be managed to make the organization effective. Also,

stakeholders should have a co-operative attitude instead of an adversarial approach. One

should not deny the existence or importance of any stakeholder. MCG denied the importance

of service providers and paid the price for it.

If one compares this to the Viable System model, it can be seen that the central committee

SYSTEM V was weak and ineffective. It did not balance internal and external demands.

Members had conflicting interests. The VSM also showed up a weak SYSTEM II, which was

management of healthcare demands of the member.

It is obvious in MCG’s case that the external demands were so great that the system could not

cope. The only ways to balance the system were to put more money in, or reduce the

healthcare access, or manage the demand in a different way. MCG looked at only one

scenario (raising contributions) and this was rejected, causing its demise. It is obvious that the

management of healthcare needs in the current environment is the key to the answer.

C 1.10 Conclusion

Summary of key factors in MCG's demise

Lack of communication.

Lack of implementation of accepted policies.

No recognition of other stakeholder interests.

No alignment of goals – vested interests dominated.

Inability to manage and control healthcare demand.

C.2 Analysis of Phila medical scheme using the system failure methodology Phila medical scheme was established on 6th June 1995. In January 2001 it had 11 370

principal members and 19 091 dependants and R2.6 million in reserves. It comprised mainly

Eastern Cape Civil servants in the period from 1995 to 2000. In 2000 it took on an additional

5 100 principal members. Most of these were between the ages of 56 to 94. These members

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claimed 124% of contributions. The scheme, when taking on 5 000 new members, was not

able to discriminate against older and sicker members who were entitled to membership based

on the new Medical Schemes Act that had came into effect. (Previously it was able to accept

only healthy members).

As a result Phila started the year 2000 with R16 million in reserves and at the end of 2000 had

only R2 million left. At the start of 2001 it increased its fees by 25% and another 6% in June,

making a total of 31% for the year. However, young and healthy patients left the scheme and

older and sicker patients remained. This was further aggravated by service provider fraud on a

large scale.

This resulted in a decrease in members’ contributions in 2001 and an increase in claims. What

further aggravated the situation was that people who joined were on lower salary scales and

therefore their contributions were less. So new people were:- Older

- Sicker

- Lower income earners.

The administrator reduced its share of administration fees, but this did not help. In October

and November, Phila was receiving claims for R1 million per day, i.e. R20 million per month,

and contribution income was only R5 million. At that stage the scheme was forced to apply

for voluntary liquidation. On the 1st of December all scheme members were transferred to

Bonitas medical scheme.

Figure C.14 identifies the structure and functions of Phila medical system. The principal

officer of the scheme, and an employee of the administrator, was Y. M. Motsisi. She headed a

board that made policy decisions and determined rules, policies and regulations. The board

appointed Medscheme as an administrator. Medscheme collected contributions and paid

service providers according to the rules made by the board.

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Figure C.14 Structure and functions of Phila Medical Scheme

PRINCIPAL OFFICER Y.M. MOTSISI

BOARD MAKING POLICY DECISIONS

EXECUTED BY ADMINISTRATOR

COLLECTED MONEYS AND PAID EXPENSES

ACCORDING TO RULES, POLICIES OF THE

PRODUCT – WHICH WAS MANAGED BY MEDSCHEME.

COLLECTED CONTRIBUTIONS

REPORTED TO MEMBERS

PAID SERVICE

PROVIDERS

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C.2.1 System identification Figure C.15 demonstrates what the system does. It is a system that allows access to healthcare

by payment of premiums to the scheme.

Figure C.15 The system of interest in Phila

Process Input Output Pay money Get access to

healthcare The following stakeholders were identified.

Customers Members of the scheme, service providers. Owners Administrators, Trustees of the Scheme, Principal officer. Transformation Access to healthcare. Environment Increasing claims, decreased contributions, service provider fraud,

more older members. C 2.2 Apparent failures The following failures were identified based on a systems analysis of the scheme.

Failure of system to anticipate effects of legislation.

Failure of system to adequately forecast contributions and membership.

Failure of system to control healthcare demand.

Failure of system to monitor increasing claims and decreasing reserves and contributions.

Failure of system to check fraudulent claims.

Failure of system to communicate with service providers and members.

PLAN Rules,

regulators Processes

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Failures Grouped together Analysis of the above showed the following major failures:

Failure of system to predict and control demand for healthcare.

Failure of system to monitor healthcare demand.

Failure of system to recognize the need to act timeously.

Failure of system to communicate with stakeholders.

C 2.3 Failures compared to the Formal System Paradigm

Figure C.16 illustrates the formal system in Phila. It shows the central committee delegating

implementation of policy to the administrator. The administrator is then responsible for

monitoring, payment and collection of money and producing reports for the central

committee. Communication occurs between the administrator and service providers and

members, but not with the scheme.

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Figure C.16 The Formal System Paradigm in Phila FORMAL SYSTEM Outside environment Fraudulent service providers Patients demanding and Wanting more Failure of system to predict demand for healthcare vs. Formal system paradigm Figure C.17 System to predict healthcare demand.

Feedback and monitoring

CENTRAL COMMITTEE DECISION MAKING

12 MEMBERS AND PRINCIPAL OFFICER

DELEGATES AUTHORITY TO ADMINISTRATOR

MAKES

DECISIONS

IMPLEMENTS

OPERATIONS

COLLECTS CONTRIBUTIONS. PAYS ACCOUNTS

COMMUNICATES WITH MEMBERS AND SERVICE PROVIDERS

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Figure C.17 illustrates that information and the ability to evaluate this information is

necessary to take appropriate action.

Input Process Output Information Evaluate Action The Trustees were inexperienced in healthcare administration and could not predict the

demand for healthcare.

Also they were not able to anticipate the affect of the Medical Schemes Act on the

demographic profile of the membership. New membership that came on had huge demand

and this should have been known by the trustees when accepting new members. This

paradigm was desirable but absent.

Failure of system to monitor healthcare demand vs. Formal System paradigm Trustees and administrator need to monitor healthcare demand in a population group. There is

no information that this was done regularly. However, it appeared to be weak or absent as the

lack of action in 2001 demonstrates. This is a desirable paradigm but is weak or absent.

Failure of system to control healthcare demand vs. Formal system paradigm Medical schemes need to acknowledge that healthcare demand is unlimited and difficult to

satisfy. There are many tools available to schemes to manage this demand. This was not done.

It is obvious that during the year 2000 when the new members were put on the scheme there

must have been early signs that claims were excessive. The Trustees should have predicted

this early and acted timeously to increase income and decrease healthcare claims. However, if

one is not experienced one is unlikely to make good decisions. This is a desirable paradigm

but absent.

Failure of system to communicate with stakeholders vs. Formal system paradigm

It is obvious that both service providers and patients should have been informed that claims

were increasing rapidly. It is apparent that they were left in the dark. As the news leaked on

the grapevine, healthier and younger members abandoned ship, leaving older and sicker

members to sink. This is a desirable paradigm but absent.

C 2.4 Failures compared against other Paradigms

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Failure of system to predict healthcare demand vs. the forecast and planning paradigm In a demographic population based on age and sex any administrator or scheme should have

tools that will predict demand. This paradigm was desirable but absent.

Failure of system to control healthcare demand vs. the control paradigm Figure C.18 demonstrates a formal healthcare controlling system, which monitors both

volume going in, and quality coming out.

Figure C.18 System of controlling healthcare demand Figure C.17 shows that managing healthcare demand is necessary. Input Process Output Healthcare demand Manage demand Satisfied demand There was an obvious increase in healthcare demand beyond the system capability. This

demand should have been controlled and managed.

Failure of system to act vs. the human factors perception paradigm It must be presumed that at some stage the Board was aware of the problems faced by the

scheme. It appears that they did not have the experience or expertise to act on those problems.

This is a desirable paradigm but absent.

C 2.5 Learnings from the failure Again it is seen that management of healthcare demand is important in controlling costs.

Trustees that are given the job of looking after members’ interests need to be mindful of the

external healthcare-seeking environment. It is important to be aware of the demand, and the

ability to satisfy that demand, and also to control it so that it can be satisfied by the existing

resources available to the scheme. It is important that early action is taken to remedy

problems when it is easier to do so. To try to raise contributions when the scheme has lost

control, is leaving it too late and is treating the symptoms and not the cause.

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Should one have good monitoring systems in place, and if accurate, timeous and effective

reports are given to Trustees, the reports still need to be analyzed and acted upon. Medscheme

is the largest administrator and is efficient, so reports must have been available and perhaps

not acted upon.

In order for a person to take the correct action, he must have experience in the industry, be

aware of the regulatory framework, be mindful of the external environment, and be able to

interpret and act upon the findings. In a relatively inexperienced Board that lacks these skills,

it is likely that mistakes will be made. The Trustees should have recognized that, according to

the demographics of the new members (54 to 94 years old), they would claim more. They

should have put in new procedures and rules to control this anticipated increase in demand.

There is once again absence of communication between stakeholders, which is so vital. In this

scenario it can be seen that each stakeholder had his own goal, which was not the same as that

of the other stakeholders.

Older and sick members - Wanted to pay less and get access to first-world healthcare.

Low-income workers - Wanted first-world healthcare, but paid low premiums.

Service providers - Wanted maximum income by defrauding the scheme.

Scheme - Wanted maximum members and low premiums. Gave first-

world healthcare.

Administrator - Charged more for managed healthcare.

Young, healthy members - Wanted to pay less, as they were low claimers.

It is obvious that all these stakeholders had different agendas and would push the organization

in different directions. This confirms Russel Ackoff’s theory that all stakeholders must work

for a common goal for an organization to be viable.

Membership patterns showed the healthy and young leaving. This is confirmed by the high

claims received just before liquidation of R1 million per day. Monitoring, predicting and

controlling healthcare demand is a common factor in all the liquidations.

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Failure to anticipate and forecast demand accurately is an important skill required by

management in all the liquidations. Communicating with stakeholders is always important.

This allows everyone to become part of the solution. Scheme members, who are the ones

affected the most, are the last to know. This failure to communicate has been a common

theme in the liquidations.

A key concept in the system is that the young and healthy subsidize the sick and old, that

richer members subsidize poorer members. In Phila’s case this subsidy was removed as

younger richer healthy members left the scheme, and older, poorer and sicker members

remained. So in effect the scheme was bound to collapse.

C 3 Analysis of MMP using the system failure methodology

Midland Medical Plan (MMP) a medical scheme with 25 000 members, mainly in the Eastern

Cape, was put into liquidation in May 1994.

It had a traditional FFS model and also had a staff model health Maintenance Organization. It

had experienced a major growth in the business thanks to a high-powered marketing drive.

This resulted in the writing-up of a large amount of new business funded by an aggressive

commission-based structure.

This had two effects: (i) A large proportion of the new business was high-risk owing to the age of the

membership, resulting in a disproportionate increase in claims in comparison to

their income.

(ii) The computer system was not able to deal with the increased volume, resulting in

delayed payments.

The principle of cross-subsidization was lost, as there were more older and sicker members

and fewer healthy and younger members. Without any mechanisms in place to control costs,

and an administration system that could not cope, service providers were kept waiting 3-4

months to get paid. When large service providers demanded cash upfront, the scheme was not

able to meet their demands and declared itself insolvent.

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Figure C.19 graphically illustrates the problems experienced by MMP.

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Figure C.19 RICH PICTURE of MIDLAND MEDICAL PLAN (MMP) Exponential increase in claims. High increase in membership Feeding new members in C 3.2 Structure and functions in MMP

MARKETING

HIGH POWERED

COMMISSION DRIVEN

CEO

INEXPERIENCED

CLAIMS EXCESSIVE

ADMIN

- POOR - INEXPERIENCED

“CAN’T MANAGE CLAIMS”

COMPANIES CLAIMING MORE THEN THEIR CONTRIBUTIONS

POOR ADMINISTRATION

LACK OF MONITORING

SERVICE PROVIDERS ABUSE LEGAL AND

ILLEGAL

EXCESSIVE PATIENT FRAUD

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Figure C.20 demonstrates the structure and functions in MMP. It consisted of a Board that

made the rules, policies and procedures. It appointed an administrator (itself) that

implemented the policy.

Figure C.20 MIDLAND MEDICAL PLAN - Structure and functions.

MADE POLICIES

EXECUTED STRATEGY

IMPLEMENTED DECISIONS

BOARD

EXECUTIVE MANAGEMENT Made Decisions

MIDDLE MANAGEMENT OPS AND CONTROL

PAYMENT TO VARIOUS SERVICE PROVIDERS

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The formal system paradigm is similar to the one used in analyzing Phila. Following a similar

process as outlined in the previous two analyses, the following findings were made.

C 3.3 Summary of Failures Identified

Using a failure approach the following paradigms were desirable, but not present or weak.

Failure of administration and information system vs. the Formal System Paradigm.

MMP did its own administration but was not efficient at it.

Failure of monitoring system vs. the Formal System Paradigm.

The executive and the Board had no information on the healthcare demands and the

level of claims.

Failure of system to predict effects of policy vs. the Formal System Paradigm.

There was the failure of the Board to predict the outcome of its marketing campaign

and the implications for itself.

Failure of the information system vs. the control paradigm.

The administration system could not cope, so the information was outdated and

incorrect and not usable.

The following paradigm was present but not desirable.

Failure of system to predict and control healthcare demands vs. human factors (culture /

power) paradigm.

There was a concerted effort by all service providers and patients to get as much as they could

out of the system, either by legal or illegal means.

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C 3.4 Learnings from this failure Failure to manage healthcare needs Again it is clear that there was no management system in place to manage the healthcare

needs of the scheme members. Admittedly they did have a staff model Health Maintenance

Organization. but these are not popular as they prevent established doctor-patient

relationships from continuing. It was obvious that most of the members did not want such a

model. It was this management of healthcare demand that is necessary but was absent in

MMP.

Failure to monitor health care demands and outcomes

This second problem that comes up consistently is the failure to monitor demands and

outcomes. There are very few criteria that can estimate demands – age and sex are the only

common ones, and others would be the demographics, and chronic illnesses that exist in a

population group. This demand, as seen in the Formal System Model, was further stimulated

by both service providers and members. There was also no measurement of health outcomes.

The Board did not know if the service given by service providers was satisfactory.

Failure to predict demands and control this demand

The failure to predict demand and to control this demand is another factor that has come up.

The marketing drive and poor administration, while contributing to the failure, were not the

real cause. It is only when the contribution income is not sufficient to meet the claims that

there will be failure of the scheme.

I shall now contrast these finding with Ackoff’s Stakeholder Model. It is obvious that each

stakeholder in the business had his own goal.

The Board wanted more members.

The management wanted more money through high membership.

The service provider wanted maximum profit per member.

The scheme members and companies wanted to get back all their contributions and

more.

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C.4 Conclusion of the failures approach

If this is contrasted with the summary of the six key problems, the following common

findings were seen:

Lack of management and control of healthcare needs.

Lack of feedback and monitoring system.

Lack of stakeholder management (each one for himself )

In the summary these are the common factors that until today still form the base of problems

in the healthcare industry.

A common theme now emerges from here; this finding lays the foundation for a new system

of reimbursement. This model must anticipate, manage and control healthcare demand in a

given population. It must also communicate with stakeholders so that all stakeholders’

interests are considered. The scheme members must be able to take part in the decision-

making process.

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APPENDIX D ANALYSIS OF VIABLE SCHEMES

D.1 Explanation of terminology Figure D.1 illustrates the levels of care that are available, and for which risk can be taken. It is

seen that the least expensive is preventative health cover, and the most expensive is tertiary

health cover. While primary care is given by GPs and secondary care by specialists, it does

happen that some GPs also render secondary care. Doctors need to be given incentives to

manage each level appropriately. Preventative medicine is the cheapest and the most

effective, for instance educating and motivating members not to drive under the influence of

alcohol.

Figure D.1 Levels of care applied to scheme members Levels of care (Discussion of four models)

Scheme member

Least expensive

Not sick Preventative primary care

Sick Primary care

GP

Investigation Secondary

care

Specialist

Hospital

Theatre Tertiary care

ICU Most Expensive

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Appendix D consists of a discussion of four models of a healthcare system using a capitated

system. The four models discussed are:

Udipa Model

Carecross Model

Medicross Model

Primecure Model

The researcher has had extensive involvement with the Udipa Model and the major part of the

analysis is on this model. The other models have only a summary of their major features. At

the end is a Table that summarizes the major differences and similarities.

D.2 The Udipa model for the control of healthcare costs (A capitated model) Udipa is a Managed Care organization. The Acronym stands for Uitenhage and Despatch

Independent Practitioners Association. Udipa was started in 1996 in response to escalating

healthcare costs. It was started by a group of family practitioners to promote access to

healthcare services to the employees of companies in the Uitenhage–Port Elizabeth

Metropole. They included opticians and dentists, but not specialists. The group was formed

as a response to a crisis.

D.2.1 Historical analysis of crisis that gave rise to Udipa

Volkswagen, as the major employer in Uitenhage, found that healthcare costs were escalating

rapidly beyond their control and impacting on their profits in 1995 (Approximately R30

million per year). Volkswagen had contracted with an organization called CARE. (a JSE-

listed company).This company contracted to provide healthcare at approximately 60% of the

then current cost to the company. They were going to do this by employing about 10 of the

current GPs (out of 40) to provide healthcare in a staff model health maintenance

organization, i.e. doctors would work for a company that would give them a fixed salary. In

return they would contract to provide healthcare to the members of the scheme at premises

owned by the scheme.

This system, if implemented, would result in the balance of the 30 doctors losing up to 50%

of their current income. It also meant that patients would not be able to see their family

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practitioner of choice, and would be forced to see somebody else. The doctors, when they

realised what was happening, got together to form an organization to provide healthcare at

approximately 75–80% of current cost. This organization was led by Dr.S.Pillay the main

driver of the process. This was still not acceptable to Volkswagen. However, workers, when

they realized what was happening, supported the doctors, by threatening Volkswagen

management with strike action.

The Uitenhage and Despatch Practitioners Association has been in existence for seven years.

During that time they have targeted the working class market in Uitenhage, i.e. the blue-collar

worker earning between R3000 and R5000 per month. They were able to reduce medical aid

contributions between 25% and 33% compared to traditional FFS medical aids. This resulted

in:

Savings for industries (estimated R10 million).

Savings for the healthcare member.

Minimal third-party accounts for members.

Increased accessibility to medical care for low-wage earners.

The Udipa Plan gained a membership base of 20 000 souls. It was able to reduce costs by

eliminating inefficiencies in the traditional FFS medical aid, i.e. instead of paying doctors a

fee for every visit a patient made, the doctor was paid a fixed amount per patient per month to

cover all the expenses. This would include GP visits, medicine given, specialist visits, and

hospitalization. It would include physiotherapy and nursing services, but excluded dentistry

and optometry. Dentists and opticians were also paid a capped or fixed fee for their services.

The principle was that the person covered by medical aid would choose a general practitioner,

optician and dentist to whom he would go for all his services. This doctor, dentist or optician

would then decide what treatment was necessary for the patient. This meant that the patient

would not be given unnecessary treatment, as the doctor did not gain financially if he over-

serviced the patient. In this way the costs were kept to 60–80% of the traditional medical aid

rates. Udipa is at least 30% cheaper, and in some income categories even 50% cheaper than

current contribution rates (of competitors) for unlimited GP and specialist visits.

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D.2.2 The structure of Udipa Udipa currently comprises 29 doctors, 8 dentists and 5 opticians. The dentists and opticians

are part of a strategic alliance, and while represented on the executive committee, have

limited decision-making power. Udipa further has a strategic alliance with Ecipa – a group of

120 GPs in Port Elizabeth – a distance of some 35km away, and WIPA, who are a group of 9

white practitioners in Uitenhage. The system has 12000 souls on the scheme, generating an

annual turnover of R40 million. Premiums are between 60–70% of a “normal” FFS medical

aid.

Where necessary, Udipa has strategic alliances with other doctor groupings as well, to enable

it to provide medical services outside of the Port Elizabeth–Uitenhage Metropole. Udipa is

further divided into smaller “business units” or groups. There are five groups of

approximately 5–8 doctors each. Udipa itself has four white practitioners and 25 non-whites,

including African, Coloured and Indian doctors – a truly South African mixture.

Figure D.3 illustrates the division of groups. Figure D.3 1. Whites 200 patients 17 doctors 2. Coloured 3. Indian rs 100 – 200 patients 6 doctors 4. Black <100 patients 6 doctors

Each group has its own vested interests, holds its own meetings and discusses its own agenda

outside of the formal Udipa structure.

40% of Udipa doctors have <200 patients, and 60% of Udipa doctors have >200 patients.

Doctors who have fewer than 200 patients are not considered viable, and this is where many

of Udipa’s problems exist.

D.2.3 Udipa viewed as a System

Udipa is a system that allows companies and individuals to pay contributions, so that access

to healthcare is afforded to the employees of those companies.

GROUPS

Township doctors City doctors

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Figure D.4 illustrates the process involved in Udipa. FigureD.4

Input Output

Requires Healthcare Healthcare satisfied needs

The Environment of Udipa consists of legislation, unions, doctors, companies and employees.

Figure D.5 demonstrates the functions within Udipa, using systems thinking. A contribution

Table and benefit schedule is drawn up in consultation with the union, companies and doctors

who are going to take risk. This product is then marketed to various companies in the region.

Process

Udipa Plan

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Figure D.5 WHAT DOES THE SYSTEM DO?

SYSTEM MAP GENERAL MEMBERSHIP HAVE

Udipa is a system of designing and selling a product that allows access to healthcare for one

year at a fixed rate for that year. Variables in the system identified above are benefits /

contributions / membership numbers / number of service providers and companies. The

stakeholders are the contracted doctors, companies, unions, employees of the plan, and other

suppliers of services.

D.2.4 The Capitation Fee

ELECTED REPRESENTATIVES

EXCO & CEO

BENEFITS &

CONTRIBUTIONS

FINANCE + MARKETING COMMITTEE + CEO

BECOME MEMBERS

OF PLAN

EMPLOYEES

COMPANIES

+ UNIONS

SELL

TO

PRODUCES BENEFITS

+ FOR A FIXED

AMOUNT PAID

GIVES TO MARKETING COMMITTEE + CEO

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While Udipa pays out a capitated fee, this fee is broken down by age and sex into 10

categories. If someone has an older patient base, he/she will be able to receive a higher

proportion of the capitation fee, to cover the healthcare needs of an older person. This seems

to be a South African first, as the researcher is not aware of any other system that is able to do

so. However, payments need to take into account disease profiles, such as. hypertensives,

diabetics, etc. who also consume more health resources. This is not easy, because service

providers may try to manipulate the system in order to gain a higher income.

D 2.5 Public-private partnership (PPP) model

The Udipa model was the first PPP in healthcare for South Africa. All Udipa doctors worked

free for 3 hours once a week in a state hospital. In return, the doctors were given a ward in

the provincial hospital, which was upgraded and used for private patients. Furthermore, Udipa

paid 30% more than the accepted rate to the hospital towards a Community Social Fund that

was to be used for capital projects in the hospital. During the first three years R2 million was

contributed towards this fund. This arrangement had to be terminated when the State facilities

collapsed to unacceptable levels.

D 2.6 The essential process The system works as follows: a patient chooses a contracted family practitioner. That family

practitioner is paid a fixed amount per month per joined patient. From this fixed amount he

has to meet all the expenses that he generates. This will include:

Hospitalization

Medication

Specialist referrals

Physiotherapy, etc.

If the doctor is good, and keeps the patient healthy, for instance stopping smoking, and taking

exercise, then the patient will not cost him money, and he will make a “profit”. If the patient

is “ill” then he will have to “pay” other service providers to make him better, or see him more

often at a cost to himself.

The system will work provided that each doctor has an adequate number of patients (at least

200) and their demographics are average. (Not too many sick or old patients). This, in

essence, is the Udipa system, owned and controlled by 30 GPs.

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D 2.7 Method of reimbursement

This was achieved by paying the contracted doctor a fixed amount per month for every

Medical Scheme member who chose him. The doctor is the gatekeeper, and he is responsible

for payment for any further services generated by that member. This means that the doctor,

after having treated the member, is responsible for any further costs relating to hospitalization,

specialist referral, physiotherapy, etc. The system is based on the principle that the contracting

doctor can make a “profit” if he keeps the patient healthy. In other words, instead of paying

him only when the member gets sick, he is paid every month to keep the member healthy. The

patient has the option to change service providers if he is not happy, but only within the

network. This gives a degree of choice to the member. It means that the family practitioner

has to take the risk that his patients will not cost him more than what he is getting paid, and

that he will ensure that he gives good service so that the patient will not leave him.

The Udipa system has been able to limit the increases. It provides a regular monthly income

to the contracted doctors, and unlimited visits by the scheme member to his selected doctor.

D 2.8 Co-operation and viability within Udipa

In order to survive, the Udipa system must have the co-operation of the contracted doctor.

Without his buy-in and willingness to render medical services, the system will not work.

Should a group of doctors decide to resign because of their unhappiness with the system, the

viability of the entire system would be threatened. Udipa requires a minimum number of

members below which it is not feasible to continue. This is estimated to be 10 000, but 20 000

is preferable.

D 2.9 Marketing

As a family-practitioner-based business, Udipa needs to ensure that it captures its target

market. Currently it has 12 000 souls. It has approximately 50% of the market at

Volkswagen and lower percentages at various other companies in Uitenhage. The income

group is mainly blue-collar workers in industry. As this is regarded as Udipa’s primary target

population, penetration in this market is low, and could be increased. To remain competitive,

it currently pays very low commissions, and as a result is not actively marketed by healthcare

brokers.

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A questionnaire sent out to Udipa patients confirmed a high acceptance of the plan. Marketing

is very important as the larger the pool becomes, the less risk there is in the system, and the

more viable are the participating doctors.

D 2.10 Risk taking D 2.10.1 Introduction

In the current system, Udipa has transferred total risk for GP consultation and medication to

the service providers. However, it has transferred only 10% of the risk for specialist services

and hospitalization to the contracted doctors and retains 90 % of that risk. (Concept of shared

risk) The specialist risk is minimal and usually well controlled by the GP. However, with the

introduction of new technology and the advent of AIDS, hospital risk has risen.

Medical insurance implies a certain amount of risk taking. It is usually the insurer and the

patient who take the risk, and not the service provider. The risk for the patient is that his

benefits may be exhausted, and for the plan the risk is that it may not have sufficient funds to

pay claims. In the Udipa system there is very little risk for the patient. The risk is divided

between the insurer and the service provider. There are no co-payments in the system.

Managed care legislation says that healthcare providers can take risk only for those services

that they control. . The service providers take full risk for GP consultation and medicines, but

share risk for specialists and hospitals with Udipa.

D 2.10.2 Individual risk

In a managed care setting a doctor needs a minimum of 200 patients to survive. Those

doctors who have fewer than 200 patients have a problem, especially if the percentage of the

sick or chronic patients is greater than healthy patients. A Health Maintenance Organization

in the USA recently decided to pay any doctor with fewer than 100 beneficiaries on an FFS

basis, as their risk pool was considered too small. (Modern Physician, September 2000)

D 2.10.3 Group risk

In the Udipa system there are five groups of 6 doctors. This allows them to look after each

other’s patients when the chosen doctor is not available and also to take collective risk for

hospital expenses. There is a fixed budget for hospital expenses. If this budget is exceeded

then the individual doctor must share up to 10% of this loss. The balance is shared by the

group and the Udipa Plan. Similarly, any profits are divided between the groups.

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D 2.10.4 Udipa’s risk

Ultimate risk lies with Udipa. Generally the specialist risk is easily manageable, but the

hospital risk is not, as individual doctors carry only 10% of the loss, the balance is borne by

Udipa. Individual doctor’s risk can be limited by increasing the Udipa membership base,

creating a higher average number of patients, which gives protection against potential high

claims. Risk taking will only be controlled if it is actively managed.

D 2.11 Groups & peer review

Peer review statistics essentially allow groups of doctors to review data within their group as

to how they treat patients. For instance, average cost of meds per doctor could be compared,

or the number of repeat visits per doctor could be monitored. It is a method where under-

servicing of the patient (a common complaint in this type of healthcare system) could be

avoided. Group meetings also give doctors an opportunity to compare notes, discuss cost-

effective strategies, and co-operate on other issues as well.

D 2.12 Why Udipa works

It is necessary to state here that, while this model is not perfect, it has survived as the only

medical plan in Volkswagen for 7 years. Volkswagen has gone through a number of medical

schemes and none have lasted for more than two years. So why is that Udipa has lasted so

long?

In my analysis of problems facing the medical aid industry in South Africa, I stated that it is

necessary for all stakeholders to have the same goal. Only if this happens can it work. Udipa

was formed at a time when all the stakeholders in the Uitenhage medical industry needed to

have a paradigm mind shift.

To illustrate:

Company - Wanted reduced premiums.

Workers - Wanted to pay less but see their own doctors.

Service providers - Wanted to retain the ability to see their own patients and

retain their income.

Udipa - Wanted a plan that increased accessibility to medical

care

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by all employed people.

The advent of this system allowed all stakeholder goals to be aligned. Furthermore, the

system was able to break the competitive monopoly of the private hospital, by using the State

facility. The PPP allowed the State to benefit financially, and was also able to use the

expertise of the doctors to manage the State clinics in return for the use of the government

hospital. In the end the:

Employers – Have reduced premiums.

Workers – Have paid less but have unlimited healthcare and see

their

own doctor.

Service providers – Have a fixed monthly income, can still see own patients

and can earn more if they maintain their health.

Udipa plan – Has improved access to healthcare by reducing

premiums

and increasing benefits, something that was unheard of

before, as medical aids always increased premiums

when giving more benefits.

It can be seen that it was when all stakeholders communicated and had the same vision, that

this system became viable.

The Udipa system works by strengthening the VSM model SYSTEM II, namely the manager

of the healthcare needs of the patient. It must control, regulate and satisfy the healthcare needs

of the patient. Who better to control this need than the family practitioner himself? He will

advise when necessary, give treatment when necessary, and refer when necessary. He will not

over-service, over-treat, or refer when not necessary, as this will be financially detrimental to

him. Furthermore, should he work to educate his patients to practise preventative medicine, he

will improve his income even further. In an FFS setting, the doctor has no incentive to limit

costs or control healthcare demands. So it is not surprising that the FFS model continues to

generate costs. For every restriction, patients and service providers find ways around them

and contribute further to escalating costs.

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The Udipa system is dependent on communication. There is monthly communication between

the service providers (risk takers) and the medical scheme (Udipa plan). This allows service

providers to discuss problems and allows the scheme to make changes that are necessary for

the smooth running of the system. The scheme also meets with company and union

representatives every three months so that problems between the company, the scheme and

service providers can be aired. This again lends itself to a stronger system, as minor and major

problems are resolved in open discussions.

Administration (Udipa)

Service provider Member

There is constant communication between all three important stakeholders that allows them to

express opinions and get answers that allow the system to function effectively.

D 2.13 Critique of the system

The main disadvantages of this system are that patients can be denied access to treatment

when it is necessary. The major criticism levelled at this system is that it delivers inferior or

sub-standard care to the member. As the doctor is financially responsible for healthcare of this

patient, he could be tempted to deny treatment to increase his income. This is, indeed, a short-

term measure that will result in immediate financial benefit for the doctor, but in the longer

term it will cost him more.

A universal problem is measuring of healthcare outcomes. How do you know if doctor A has

better treatment outcomes than Doctor B? Can we measure if Patient A has had better

treatment than Patient B, who has a similar or the same problem? In an FFS setting this is not

necessary as the patient is limited by himself or the scheme when his benefits are exhausted.

Denial of treatment does not come from the service provider, but lies between the member

and the medical scheme. However, in a capitated system it is important to monitor health

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outcomes and to measure the professional behaviour of the network doctor, as access to

necessary care can be denied by the doctor.

One should be measuring:

Average value of script.

Hospital days per 100 patients.

Specialist referral per 100 patients.

Chronic patients per 100 patients.

Repeat visits per 100 patients.

Deaths per 100 patients.

Consultations per month per 100 patients.

Patient satisfaction level.

Furthermore, service providers must be accredited and monitored, using among others, the

following parameters.

Accredit his facilities:

Measure his CME attendance.

Test clinical knowledge.

Acknowledge postgraduate qualifications.

Establish his availability.

Peer review of statistics and patient treatment data, to verify professional behaviour,

and monitor and evaluate performance.

One could also have an independent person or committee to attend to complaints that patients

and/or service providers might have. It must be said that many of these systems do not exist

in Udipa, and need to be implemented in order to improve health outcomes, and in so doing to

improve the long-term viability of the system.

D.2.14 Governance

One of the problems in the healthcare industry is a weak SYSTEM IV – the medical scheme.

It is not able to exercise its power. It is unable to make decisions that are not influenced by the

administrator. Discovery, for instance, has a revenue stream of R1.2 billion from

administration fees. It is meant to be controlled by a Board of Trustees. However, it has been

able to increase its share of the health pie by large increases in the administration fees, as well

as taking out excessive re-insurance. (MSC Report 2001). The administration of Udipa is done

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by the plan itself. It has been able to keep this down to a maximum of 10% of the yield, which

amounts to R25 per beneficiary, compared to Discovery’s R84 per beneficiary. Furthermore,

as Udipa acts as the scheme by collecting and paying contributions, it retains power to

influence the system, as its primary purpose is to improve access to healthcare for the

employed.

In order for the system to survive, all stakeholders need to come to the party. It is important

for Udipa to have this position of strength, as it is necessary to continuously monitor and

make changes to make the system more viable. It is precisely because it can act as insurer

(medical scheme) and administrator, that it can effectively harness the commitment of all

stakeholders.

It was pointed out earlier that scheme members are disempowered through lack of information

and the traditional culture and hierarchy of the medical establishment. Are they more

empowered in the Udipa system compared to the FFS system? The answer is Yes and No. In

order for the service provider to make decisions regarding the healthcare of the member, he

must inform the member. The member must not only get health information but financial

information. As the family practitioner is in charge, he will be the person who has to resolve it

in the end.. This will result in better communication with the patient. But it must be said that

it is also easy for the service provider not to give the full information to the patient in order to

deny any request for more expensive treatment and or referrals. However, this would be a

short-sighted strategy. The capitated model works on the basis of an empowered patient who

trusts his chosen family practitioner to make the correct decisions regarding his current and

future healthcare needs.

D.2.15 How does the competitive environment affect Udipa?

D.2.15.1 Pharmaceuticals and competition

In Udipa, doctors take risk for medication dispensed. This includes chronic as well as acute

medicine. The doctor is responsible if the scripts he has issued cost more than what is allowed

by the budget. In doing this Udipa has been able to ensure that at least 90% of all medications

dispensed are generic. The debate between efficacy of generic and original medication

continues to rage. However, it should be pointed out that certain developed Western

economies, the USA and the UK have higher generic usage than the South African FFS

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medical aid industry. By capitating the service providers, Udipa has devolved decision-

making down to the lowest level between service provider and patient, to decide if generic or

original medication is to be dispensed.

D.2.15.2 Private hospitals and competition

When Udipa started, all patients were seen in the State hospital. This meant that they were not

held hostage to the high rates charged by private hospitals. Also, where there were two private

service provider hospitals, they were able to obtain large discounts. This was especially so in

Port Elizabeth. So by having a selected hospital provider, or using the State hospital, they

were able to reduce costs. Costs were also reduced by sharing risk with service providers.

Those service providers that had low hospital utilization were able to share in the profits, and

if there were losses they had to contribute to them. In this way Udipa was able to control

utilization.

Currently all the patients in Uitenhage are seen in the private hospital, as the State facilities

are not acceptable to the members, seeing that they lack basic amenities such as hot water,

food, nursing staff, etc. Currently private hospital costs amount to R103 per beneficiary, but

in Udipa this has been contained at R60 per beneficiary.

D.2.15.3 Competition and doctors

Scarcity of specialists means that costs are not easily controllable. However, the Udipa system

allows those doctors who have the ability to manage some of the problems that are referred to

specialists, to earn additional income. Any over-servicing in the Udipa system is for the

doctor’s account. This means that specialists’ costs are kept to a minimum. Doctors in peer

review sessions are also able to pass on information about those specialists who are “cost

effective”.

In a landmark case, the IPA of Udipa was found guilty of horizontal collusion by the

Competition Board. It is necessary for doctors to discuss prices and agree on the risk that is to

be taken. Without a discussion on these prices it is impossible for the group to make a

decision. The Udipa system depends on the IPA taking risk collectively, and also for peer

review of those doctors that have profiles that are not within acceptable limits, or for

complaints levelled against them for unprofessional and unethical behaviour.

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In this model the doctor also has to “assume risk individually and collectively”. The health

department has recognized this and has advised that government make changes that allow

IPA’s to function in this environment. While it is true that horizontal collusion normally

results in higher prices, government has accepted that this is necessary as a method of

bringing down prices in the healthcare industry. (Department of Health, May 2002)

D.2.15.4 Problems specific to the capitation model

It has been found that doctors who have more than 200 beneficiaries are able to cope with

management of risk. Risk-taking between 100 and 200 members depends on the

demographics of that patient base. Doctors who had less than 100 were the ones who had to

most difficulty in managing with a capped fee. It was also found that doctors who were not

able to manage the risk asked their patients to switch to an FFS medical aid and were not

happy with the Udipa system.

Many members have felt that there should be more communication from the office. Some

members have felt marginalized and not able to contribute to decision-making. It shows once

again how important communication is in aligning interests of all stakeholders.

Risk-taking models have caused the greatest dissension and controversy. The doctor who has

1000 patients has a different risk profile from the one who has only 100 patients.. It is

important to note that the risk-taking model was not imposed, but had to reflect extensive

two-way discussions between the plan and the risk takers who together shared the risk. The

largest risk was for hospitalization, followed by chronic medication. What has also stimulated

heated debate were the different practice profiles that were evident between the different

members and how they reflected on their clinical ability. Risk models that were proposed

favoured either one group or another. However, if there was is consensus the decisions are

grudgingly accepted.

The plan runs an FFS chronic programme. This was the most difficult one to control as

colleagues had to judge their peers’ own clinical judgement. What it did show was how, in the

FFS system, doctors tried to gain the maximum income by using:

Expensive medication.

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Making borderline patients chronic.

Shifting patients from other schemes onto the system to take advantage of generous

chronic medication benefits.

This system is currently under review.

D.2.16 The effect of AIDS on Udipa Uitenhage has a high incidence of HIV-infected individuals. This is bound to impact on the

scheme in the future. It is difficult to quantify the impact. It is hoped that government

funding, foreign grants, and free services from Udipa doctors will help in treating and

controlling this epidemic.

D.2.17 Conflict in Udipa The Udipa plan has also caused a rift in relations between the GPs and other service

providers.

D.2.17.1 Conflict between specialists and GPs in Udipa

This is based on the fact that:

There are very few referrals.

Referrals that are made are usually only for a single visit.

Specialists are often asked for advice only where they are unable to charge.

D.2.17.2 Conflict with private hospitals

The Udipa network doctors also do not use the private hospital except when absolutely

necessary. This has resulted in decreased admissions to the hospital. The plan is therefore not

welcomed by those specific service providers.

D.2.17.3 Conflict with Pharmaceutical Manufacturers

Original or ethical drug manufacturers lose out, as mainly generics are dispensed. However,

generic drug manufacturers support the system.

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D.2.18 Static Membership

Even though Udipa is at least 30% cheaper, many employees have not chosen this product.

The reasons, according to employees, are:

Not able to go to the chemist.

Insufficient specialist referrals.

No savings account.

Limited choice of service providers.

Limited out of area benefits.

Non-availability of selected doctor.

Product regarded as inferior.

High contribution rates, better marketing and patient education can easily be the catalyst for a

changed system. However, no movement in this direction has occurred. This can only happen

if scheme members are informed about the system, how it works, and what the responsibilities

of the different stakeholders are. Patients that are not empowered are not able to make good

decisions. Udipa has not executed any plans in this direction.

D.2.19 Understanding and explaining the problems in Udipa

Many of the problems experienced in Udipa can be traced back to my original reason that lack

of co-ordination of stakeholder interests or goals will make an organization less viable.

The major stakeholders in the Udipa model are: - Companies

- Service providers

- Administrator Can be regarded

as one - Scheme in Udipa

- Members of the scheme

There are regular communications between all these stakeholders except between the service

providers and members of the scheme. Information on peer review, measurement of health

outcomes, and accreditation of service providers, is required by scheme members. There is no

channel of communication that voices concerns of scheme members about service providers,

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or of providers about scheme members. (Most medical schemes do not have any formal

channels of communication between the scheme members and service providers.)

Scheme members need to know:

How the plan works.

Their obligations

The service providers’ obligations.

Information on service providers.

Information on health outcomes and different service providers.

Channels for grievance procedures.

Access to information on healthcare needs.

Ability to appeal decisions that deny access to healthcare.

With the absence of these formal channels it is likely that acceptance of the Udipa plan will

face resistance at the member level.

D.2.20 Explanation of conflict between participating doctors in risk-taking in the Udipa

model

Conflict occurs when stakeholders are not able to achieve their goals and it appears that others

have achieved theirs, in other words, that the system is favouring some stakeholders over

others. Let me illustrate:

Chronic patients in Udipa are given an annual cap. The doctor has to send in a motivation for

a chronic patient. If this application is accepted then he will get paid for it. If he goes over the

budget allocated to him then he will need to claim from the insurance pool. However, practice

profiles are different and it so happened that white doctors, who had big pensioner profiles,

claimed a larger part of the budget. Black doctors with smaller pensioner profiles made very

small claims. The black doctors felt that the chronic claims in white doctors’ practices were

too high, and that poorer black patients were subsidizing richer white patients.

It therefore became necessary to change this model so that the conflict could be resolved. Two

thirds of the chronic budget was fixed and paid over to the doctors and one third was put into

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a pool to assist those who had a higher chronic ratio, to cover any losses that they had. Any

losses in excess of that would be for the doctors’ own accounts.

Conflict can also occur if one group of stakeholders has more power than another group.

While all service providers are treated equally, there is a group of service providers that

control and manage the plan’s finances and administration. It is perceived by other service

providers that this group, through the control of money and information, have greater power.

They also perceive that this power can be used to favour the same service providers over

others, creating more conflict. This is also true of administrators who, by virtue of control

over the money, have been able to pay themselves higher fees annually, which outstrip

medical inflation.

While it is true that some service providers in Udipa who are also managers and directors in

the administration company have control over finances, decision-making is placed firmly in

the hands of the service providers. All major decisions are debated by the service providers. A

decision is implemented only once there is acceptance of this decision. The Udipa plan allows

for maximum participation. This is part of the reason for its success. The only fixed rules are

the budgets, which are drawn up after discussion with service providers. Once these are in

place, then the risk is not taken by the plan, but by the service provider. The service provider

doctor network must decide how it is going to take risk. Risk sharing can be individual, small

group, or large group. It is this two-way communication that has made Udipa the only

working IPA model in South Africa where doctors take risk. There is no doubt that there is

more stakeholders’ alignment in the Udipa model than in other medical schemes.

A major expense for medical aids is hospitalization. Most schemes spend the most on

hospitals (+ 30%) and 9% on GP services (MSC Report, 2001). However, in the Udipa plan,

private hospitals account for 20% and GPs are responsible for 40%, including acute

medicines. This has shown in essence that cost savings were achieved by reducing the private

hospital share and increasing the gatekeeper’s amount. How is this done? Control is not by

authorization, but by taking risk with service providers who are responsible for admission.

Decisions are made by service providers, who decide when to treat in hospital and when to

treat at home.

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D.3 CARECROSS: A capitated model Carecross currently has 35 000 patients seen in 375 medical centres staffed by 700 general

practitioners. It claims to have the lowest doctor-controlled cost in the market. The facilities

are owned by the doctors.

This is not a true capitated model. Network doctors are paid a fixed fee for acute medicines

and consultations. They work within a global budget, i.e. they have FFS capped within a

global budget. They are allowed limited pathology and radiology tests according to a

restricted formulary. Secondary and tertiary risk is taken by the medical scheme. There is no

risk-sharing here except by the member and the plan.

The Carecross document goes on to say that GPs must act as efficient co-ordinators of care.

This re-inforces my assumption in the VSM that management of the members’ healthcare

needs are important in controlling costs.

Dr Martin de Villiers, who is a consultant at Carecross, says it is necessary to have alignment

of shared vision from key stakeholders. He says that all stakeholders have an interdependence

and interconnectedness, and that success depends on relationships. This brings me back to

Ackoff’s stakeholder theory that for an organization to be successful, stakeholders must align

their goals.

Although this model relies on the GPs being the manager of the patient’s healthcare needs, it

has not been able to make the paradigm shift in the service providers from FFS to a capitated

risk-sharing model. Unless it is able to do so, it is not likely to be successful. The scheme also

depends on volume or monetary limits to control healthcare utilization. No allowance is made

for specialist care except at hospital level. Investigations are very limited and could result in

sub-standard care. The inability of the GP to refer could result in:

inappropriate care by a GP not trained to handle that problem, and

excessive and repeated visits to the GP for conditions that should be handled by a

specialist, causing financial loss to the chosen GP.

Authorization for admission must be obtained from the scheme, and if this is not given then

the GP has to manage the patient in a manner that is not optimal.

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D 4. The Primecure model This is a staff model based Health Maintenance Organization. It is the most successful

primary care model. It is a nurse-based system where the nurse acts as gatekeeper and

manager of the member’s healthcare needs. Each centre is staffed by one medical doctor who

sees the referrals from the nurse and acts as a specialist to the nurse. Basic pathology and

radiology, as well as minor procedures are done at the centre. The patient can choose to go to

any Primecure centre without limits to the number of visits. No risk is taken for secondary

and tertiary care, which are for the scheme’s account. It currently has 170 000 members and

caters for the very low end of the market, workers earning less than R3000 per month. The

only risk for primary care is taken by the plan.

D.5 The Medicross Model This model is a cross between an HMO and a doctor-network model. Medicross consists of

about 150 centres spread over South Africa. Each centre is staffed by + 4-6 doctors, an

optician, pharmacist and dentist. Minor investigations and surgical procedures can be done at

these centres. They have 30 000 lives under cover. Medicross is 100% owned by Netcare,

which is the largest hospital group in the country, owning + 50 hospitals. It demonstrates

vertical integration in the industry where a single entity provides all three levels of medical

services from primary care to ICU care in hospitals.

The doctors who work here take full risk for GP consultations, chronic medicines, acute

medicines, treating minor ailments, and basic pathology and radiology. They also take limited

risk for specialist care and no risk for hospitals. Specialists in the system have a gain-sharing

model, which allows them to retain a percentage of the profits, but they do not participate in

losses.

Medicross have utilized the SYSTEM II healthcare manager, as advocated in the ideal model,

and have also made specialists a healthcare manager by changing their reimbursement model.

They have also used financial controls to influence decision making by the doctor and further

limited this power by dictating what should or should not be done.

The following table D.1 illustrates the essential differences between the different managed

care capitated models. The first column identifies the plan. The second column refers to the

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level of care rendered to the scheme member. The third column identifies the facility where

the service is rendered. The fourth column shows which health professional renders the

service, the fifth the entity or person who takes risk for a particular level of care, and the last

column indicates the method of reimbursemen

Table D.1 Chart of capitated service providers

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Table D.1

CHART OF CAPITATED SERVICE PROVIDERS Plan Type of care Facilities where Type of Risk taker Reimbursement Investigations service are service provider method allowed reduced

Udipa Primary Service provider's own facilites GP Doctors Capitation Unlimited preferred provider

Medicross Primary Owned by Netcare GP Doctors Capitation Limited to formulary HMO Primecure Primary Owned by HMO Nurse Plan Capitation Minor don at rooms Care cross Primary Service provider GP Plan F.S. Limited to formulary facilities Udipa Secondary Service provider GP & Specialist GP FFs for specialist Unlimited big and hospital Capitation for GP service provider Medicross Secondary Service provider Specialist Plan FFS Unlimited in hospital and hospital

Primecure No for secondary care N/A

Care cross Secondary Hospital Specialist Plan & GP FFS Unlimitd in hospital Udipa Tertiary Hospital GP & or specialist Plan & GP FFS for specialist Unlimited by preferred Capitation for GP service provider Medicross Tertiary Hospital Specialist Plan FFS Unlimited in hospital. Care cross Tertiary Hospital Specialist Plan FFS Limited by hospital limit Primecure No tertiary care N/A

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