Do not kid ourselves……

Mr Toh Han Li, CEO of Competition of Commission of Singapore (CCS) recently said “High prices in itself is not an infringement of the Competition Act…. we are not a price regulator. But it’s important to understand the reasons behind high prices.”

“Sometimes there are situations where players in the market may not have infringed the law, but there are some features in that market which are not making it work as well as it should be and I think the formula milk study is a good example.”

This was reported in The Straits Times on 5 June 2017. The CCS exists to ensure there is competition. But to the average person in the street, having competition is not an end in itself. Prices are. Yes, more competition usually leads to lower prices. But the key word here is ‘usually’. In many cases, it does not. There is no evidence yet that there is collusion or anticompetitive behavior in the milk powder business in Singapore. It appears all that has happened is that several milk powder brands have tried to improve their branding and position themselves as premium products so as to charge higher prices. There is nothing wrong with that. Singapore Airlines has been doing that for decades, and therefore commands premium pricing. Why can’t milk powder companies do the same?

But while this may intellectually satisfy people who dwell on economic calisthenics, the common folk are interested mainly in prices of products and services.

The same applies to healthcare, While the intellectuals and “competitionists” may scream with indignation that SMA’s Guidelines of Fees (GOF) were anticompetitive and hence rightly abolished, experience has shown that private sector prices have risen much faster since 2007 (when the GOF was withdrawn) when compared to the 10 or 20 years when GOF existed. And it is not just the professional fees, but hospital charges as well. Some reckon that private sector bill sizes (professional fees and hospital charges) have risen by about two to three times since 2007.

So where does this leave us? Higher and higher prices spiraling quite out of control, for one. And naturally, a less and less competitive private healthcare sector. It’s quite ironic isn’t it? The GOF was removed to spur competition but instead led to higher and higher prices rendering the sector uncompetitive as a regional healthcare hub. It is no secret that our private hospitals and specialists depend more and more on local patients with integrated shield plans and private healthcare insurance to sustain their earnings while the number of foreign patients continue to drop as a percentage of total patients seen by individual specialists and private hospitals.

Speaking of earnings, it is now time to talk about earnings of doctors vis a vis Third Party Administrators (TPAs). The new SMC requirements for doctors working with TPAs come into effect in days, from 1 July 2017 to be exact.

As expected, all the TPAs this Hobbit knows about have moved away from percentages. Because the guidance from SMC and the Three Professional Bodies (3PBs) was specific – A fixed fee is better and percentages should be avoided. So there are no percentages in the new TPA contracts offered.

But that’s where the good news ends. Many TPAs have taken the opportunity to raise their charges so that doctors have to pay even more to the TPAs. And many TPAs have missed the woods for the trees, or perhaps they have deliberately followed the letter of the law so to speak, but are still making doctors contravene SMC requirements in spirit and soul.

Time for a friendly recap –

Guideline H3(7) of the SMC Ethical Code and Ethical Guidelines (ECEG) states:

  1. the quantum of administrative fee should “reflect their (i.e. TPAs’) actual work in handling and processing the patients”
  2. “not be based primarily on the services you provide or the fees you collect”
  3. “not be so high as to constitute “fee splitting” or “fee sharing” or which render you unable to provide the required standard of care”,
  4. “If you pass on such fees to patients, you must disclose this to your patients”.

Here are some examples. One TPA has said it will charge $100 for a Table 1 operation and this goes up by between $100 to $200 per table until it reaches $1000 for Table 6B or above.

Of course, there is no mention of percentages. But doesn’t it smell like it’s still “based primarily on the services you (i.e. the Doctor) provide or the fees you collect”? The TPA does not explain in any detail how the resources and effort spent by the TPA to process a Table 1 procedure goes up by 10 times when it comes to a Table 7 procedure.

Apparently, there was another example whereby a repeat consultation charge by the doctor was $45. The TPA wanted to charge $40 with effect from 1 July, which leaves the specialist with $5!. Naturally, many doctors quit and the TPA had no choice but to revise their charges. But for discussion’s sake, had the doctors not quit and the TPA persisted in charging $40 out of $45, would this not amount to “so high as to constitute fee splitting”?

But nonetheless, the $45 charge-limit remains (and it is $70 for a first consultation). These charges are considerably lower than what the Restructured Hospitals charges for an unsubsidised patient. Which means to cover costs, the specialist has to prescribe drugs and order tests to breakeven (“over-servicing”) – This is the slippery slope that no one talks about.

The mathematics of this is quite easy. A specialist hopefully sees 200 to 300 outpatients a month or 8 to 10 patients a day (25 working days a month and many do not see this number). His rental can range from 10K to 25K a month (depending on whether he shares the unit or not with another specialist). His manpower and other costs come up to at least 15K a month. In other words, his fixed cost (conservatively) is at least 25K a month. It could well be as high as $40 to $50K a month. Let’s say his fixed costs is a modest $25K a month and he sees 250 patients, the cost per patient is about $100 a month, way more than the $70 or $45 for first and repeat consultation this TPA is paying. To make sure he doesn’t lose money from seeing patients from this TPA, the specialist needs to order (maybe unnecessary) investigation treatment to cover costs. And in case you haven’t noticed, he hasn’t even paid himself anything to see this TPA patient!! The $100 fixed cost per patient does not include his own pay!

This phenomenon arises because in trying to secure a particular contract, the TPA has to quote a very low consultation fee. The HR manager or insurance company staff is not wise enough to know that the consultation fee is so low and the TPA charges are so high such that in the end, the scheme is not sustainable unless the patient is over-serviced. In other words, the scheme renders the doctor “unable to provide the required standard of care” – the standard could well be a consultation without ordering investigations or treatment.

It’s a sad state of affairs that is not likely to go away anytime soon even though the new SMC requirements will come into force on 1 July. This is mainly due to four factors:

  • Subtle over-servicing is very difficult to prove.
  • Lay people are still interested only in (quoted) price (HR managers and Insurance companies who sign up with TPA)
  • TPAs only take money from doctors and not from insurance companies or employers
  • The authorities are unwilling to regulate TPAs directly and wish to influence them indirectly through the SMC and doctors

The last two points are peculiar to Singapore and hence very important. In most countries, TPAs charge insurance companies and employers as well and not only doctors for TPA services. In Singapore, almost all of a TPA’s revenues comes from the doctors paying them. Obviously, as previously described, there is a strong degree of moral hazard to such one-sided arrangements.

But the biggest problem of all is that at the end of the day, TPAs are unregulated. The common argument is that TPA charges are not a public health or patient safety issue. But if a private sector specialist is only paid $45 or $70 ($60 after TPA fee deduction) for consultation, way below what the restructured hospitals charge (and the same principle applies to GPs and Polyclinics), this will inevitably lead either to over-servicing or poor quality of care- isn’t this already a public health or patient safety issue?

The new fee arrangements proffered by many TPAs clearly demonstrates that TPAs are hell-bent on keeping their profits and margins while paying a cosmetic observance to the new SMC requirements. Doctors are still (if not more) exposed to these new and probably unethical fee arrangements. The attempt to influence TPA behavior through SMC guidelines has not borne real fruit, only the most annoying of obsequious superficialities. One wise gynaecologist compared this approach to a “trans-rectal THBSO” (i.e. theoretically can be done, but hardly the correct or best approach). In short, this approach failed miserably.

Let’s not kid anybody, “no percentages” does not mean there is no fee-splitting. “No percentages” also does not mean that the charges are not “primarily based on the services you provide or the fees you collect”. Let’s not smother ourselves in flaky semantics.

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