General practitioners are estimated to have a direct impact on 75% of health-care costs. But efforts by Rams (Representative Association of Medical Aids) to control primary health-care costs have not succeeded. Limiting the number of GPs may charge per consultation forced them to dispense medicines to supplement their income.

The authors say government has two choices in meeting its objective of reducing medical inflation and providing health care to the broad population: either by nationalisation of the whole industry, or by controlling private health-care costs to allow private care to become accessible to many currently serviced by the state.

The National Health Bill, due to come before parliament, provides for many changes: access to free primary health care for all, monitoring and regulation of drug prices, including a national list of essential drugs to reduce the number of drugs available to the public sector from 3 000 to between 200 and 500.

This could be extended to the private sector. Generic substitution may also become law. The responsibility of primary health care will be placed on employers who will be required to provide at least a basic health-care plan for employees.

All forms of health cover - insurance, indemnity, non-indemnity and managed care products - will be required to register under the Medical Schemes Act. Health schemes which offer cover on a discriminatory basis (age and health record) will be disallowed or will lose their tax advantages.

Most controversial are two proposals: an equalisation fund to which all schemes must contribute, and the disallowing of claims limits.

"As nationalisation is likely to be second prize from everybody's perspective, there is great pressure on the private health-care industry to get its house in order. The only viable means of gaining control of the costs of private health care is to introduce the concept of managed health-care," say the authors.

Fee for service currently constitutes 95% of private health-care costs. Estimates are that it will shrink to between a quarter and a third in three years' time as managed fee for service and capitation products are introduced. This is where service providers are paid a monthly per capita fee to manage the health of a body of people, and where doctors earn more by keeping their patients well.

Managed health-care has as its initial target market the 6.5-million people currently covered by traditional medical aid schemes.

The average monthly medical aid premium is conservatively estimated at R250 a person. Legislation obliging employers to provide a basic health-care plan for all employees opens the market for another 14-million people, albeit at lower premium levels.

Ramsden and Heymans have identified the major market players, summarised them and projected where they might be going. The players include: Health Management Services, which is owned by SA Druggists - itself one of two arms in the Sanlam stable as there is also Sanlam Health; Southern Healthcare JV; Fedhealth; Momentum Health; the Forbes Group's Medmanage; Norwich Life's Davidson & Ewing; Afrox Health; and Mediclinic's joint venture Medimo. Two potential new entrants are Medhold's Pharma Clinic and Dr Walter Ward's Universal Healthcare. Ward was the originator of Medicross Clinics, now part of HMS. Many attribute SAD's entry into managed health-care to him.

The players are analysed in tabular form covering risk assumption, services, patient base, supplier network, protocols and formulary and managed-care technology. Imported is not always beautiful - those who have tried to adapt from American technology have experienced problems.

Whether or not the company assumes risk, such as do the insurance companies, there are four critical success factors: a funding mechanism, membership base to provide a large risk pool, access to a network of service providers and risk-management technology for managed health care.

The authors outline the impact of managed health-care on the industry players. Hospitals that establish preferred provider status with managed health-care operations are likely to have higher occupancy level, but the length of stay will shorten and hospital margins could come under pressure.

Pharmaceutical companies will come under even greater pressure, according to the report. "Manufacturers and retailers have been the most serious offenders with regard to health-care inflation. They face a choice: to become a player in managed care as has SAD, where the risk is great in the short term but the long term offers growth potential, or to remain a supplier focusing on branded over-the-counter products, the Adcock Ingram route.

"The multinational drug companies seem to be without strategic direction at present and are probably at greatest risk."

The authors conclude that while there is room for everyone at present, the market will become more aggressive and the learning curve for new entrants will be a long one.

"In the long term, we are of the opinion that managed health-care operations that do not assume risk, such as HMS, will prove most capable of satisfying government health-care objectives, and the legislative framework will most likely evolve in their favour.

"While the health-care insurance products offered by companies such as Fedhealth and Momentum Health are extremely innovative and have satisfied a need in the marketplace, we do not see a long-term future as they are contrary to the spirit of changes in the health-care environment. The danger exists that a change in tax legislation will reduce the appeal of these schemes and mention was made in the Budget that they would be subject to review."

The authors note some preferred-provider agreements seem to have been shelved because of problems with the medical professionals. "It looks like round one to the doctors. But earlier problems with pharmacists have been sorted out and there seems little doubt that hospitals and medical schemes will re-establish preferred-provider relationships in line with the objectives of managed health-care concepts."

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