High Court Ruling on the Reference Price List Legal Challenge by Specialists and other Societies

Introduction and background to the RPL conflict

During 2004 the Competition Commission found tariffs published by various Professional Societies such as the South African Medical Association (SAMA), the Hospital Association of South Africa (HASA), the Board of Healthcare Funders (BHF) and other Associations to have been in contravention of the Competition Act and fined the various Associations for publishing such tariff lists.

The Council for Medical Schemes (CMS) subsequently published tariffs for 2005-2007. The CMS acknowledged that these tariffs were however the “ result of a historical accident “ and embarked on a process of negotiations with various Associations to rectify this position. Submissions were made by some Associations and more realistic tariffs were published for “ selected” Associations in 2005 & 2006. These Associations included Psychiatry, Audiology, Speech Therapy, Optometry, Physiotherapy and Anaestheology.

Whilst not yet reflecting the “ true“ costs of healthcare, it was a step in the right direction and there was a positive interaction between Associations and the CMS. The Department of Health (DoH) however intervened with this process during 2006, introduced a new Regulatory Framework and has been at loggerhead with the Private Sector ever since.

In order to comply with the Regulations that were published in terms of the National Health Act (NHA) No 61 of 2003 the various Associations spent millions of rands and many thousands of hours to conduct costing surveys, review coding structures and made detailed submissions to the DoH in 2006 , 2008 & 2009. Notwithstanding all of these submissions the DoH constantly refused to acknowledge these submissions and persisted in publishing a Reference Price List ( RPL) that is incomplete, did not take into account the costs of private practice and in many instances was irrational.

The arrogant views of DoH senior staff were that “they are there to govern and not to consult”. The Private Sector had by now reached a stage that they had no choice but to seek legal recourse. Accordingly an application to set aside the RPL was made to the Gauteng North High Court in September 2009. An interim order was granted and the matter was set to be heard by the High Court on 22-24th February 2010.

A summary of the Court proceedings on 22-24th February and the judgment delivered on 28th July 2010 is set out below

Summary of Judgement

The RPL used by medical schemes to determine the rate at which they will reimburse healthcare providers were declared null and void this week. This ruling is applicable to the 2008 & 2009 RPL and is retrospective. Acting Judge Piet Ebersohn found the process by which the rates were determined to be unfair, unlawful, unreasonable and irrational. The judge said the process had resulted in tariffs that were “unreasonably low” – one of the reasons cited for the exodus of doctors from this country.

The judgment has created a huge vacuum that has the DoH, the CMS, medical schemes, medical scheme administrators and healthcare providers pondering as to a way forward. Many medical schemes use the RPL as the basis for their benefits, and the setting aside of the RPL could affect their rules that relate to the payment of claims. The time is now opportune for the Funding Industry to constructively engage with healthcare professionals and not to fall back on their old ways of making unilateral decisions without due consultation.

Industry commentary on the Judgement

Department of Health

The DoH , which came in for harsh criticism from the Judge for the way it handled the publication of the RPL, said through its spokesperson, Fidel Hadebe, that it was not in a position to comment on the matter until it had fully studied the judgment and what it meant for the department. The DoH has 21 days within which to lodge an appeal against the judgement.

Council for Medical Schemes

Dr Monwabisi Gantsho, the Registrar of Medical Schemes, said the CMS was not responsible for the RPL but believes it was important to ensure that there was no void. Gantsho is of the view that the removal of the RPL will not impact on medical schemes’ existing rules. HealthMan does not believe that this is in fact so, as Medical Scheme Rules cannot refer to a RPL that has in fact been declared null and void by the High Court. The main concern about private healthcare tariffs, Gantsho said, was not the absence of the RPL but the absence of a legislated framework that allowed for multilateral negotiations on tariffs. He said a range of options was being considered by the CMS, and he would advise Dr Aaron Motsoaledi, the Minister of Health, accordingly. Should the CMS intervene in a way that attempts to “ bypass “ the judgement, the necessary legal steps will be taken.

South African Private Practitioners Forum (SAPPF)

The SAPPF was one of the lead applicants in the legal challenge against the DoH. Dr Chris Archer, the chief executive officer of the SAPPF, said his organisation’s key message now was one of reconciliation with the Department of Health. Archer said a new methodology for determining guideline tariffs, which would allow practitioners to earn a reasonable salary and make a reasonable return on the investments they had made into their practices, needed to be developed to stop doctors leaving the country.He said practitioners would be unable to implement the required much higher charges immediately, because this would bankrupt the funding industry, but a process that acknowledged the problems needed to be found.

Board of Healthcare Funders

Heidi Kruger, head of communications for the Board of Healthcare Funders (BHF) said the BHF was waiting for a legal opinion on the implications of the judgment for schemes. She said the judgment paved the way for the Minister of Health to set up a more robust process to determine guideline tariffs. HealthMan’s view on this matter is that any new process set up by the DoH to determine tariffs will have to go through the same tests of legality and reasonability. The problem lies not in setting up of a process, but in its implementation. The Judge was quite clear that there should be total transparency.

Hospital Association

Kurt Worrall-Clare, the chief executive of Hasa, said a new system of determining benchmark tariffs that was mindful of the differences between the various providers in the healthcare sector needed to be developed, and the hospital association was willing to discuss this with the Department of Health.

Webber Wentzel Attorneys

Martin Versveld, a partner at law firm Webber Wentzel, which represented the SAPPF and other Associations in the case, said schemes were likely to have to change references to the RPL in their rules when they submit their rule changes for 2011 in the next few months. He said schemes might have to look at basing their benefits on the tariffs set by the Health Professions Council of South Africa (HPCSA). The HPCSA sets the highest rates doctors may ethically charge without obtaining patients’ informed consent. Typically, the HPCSA’s tariffs were three times the RPL tariffs.

Legal Costs of the Proceedings

Ebersohn ordered the DoH to pay not only the legal costs of the Applicants that took the matter to court but also the costs, including professional fees and meeting costs incurred in preparing submissions made to the department during the flawed RPL process. The costs order is likely to run into many millions of rands as it covers all costs incurred following the publication of the Regulations in July 2007.

It will however not cover costs incurred by Associations that were not part of the legal proceedings. The court challenge was brought by the SAPPF, 22 other medical professional associations, the Hospital Association of South Africa (Hasa), and emergency services providers ER24 and Netcare 911, Radiology, Pathology and Anaestheology were not Applicants in the matter.

Salient Features From the Judgement

Unreasonable Low RPL Tariffs

In his judgment, Ebersohn said “the fact that the 2009 RPL reflected rates that were unreasonably low meant that private healthcare providers would continue to struggle to cover their costs (let alone make a reasonable return on investment). Ultimately, there was the real risk that the effect of the RPL decision would play out on patients, who might face the burden of a declining number of doctors within the country and who might be confronted with general and specialist practitioners who, in an attempt to make ends meet, would be forced to focus on a high-volume turnover of patients at the expense of the quality provision of medical services”

The process used by DoH to determine doctors’ costs was flawed

The RPL that forms the basis of many medical scheme benefits was not only drawn up in terms of invalid regulations but the process failed the tests of legality, fairness, reasonableness and rationality.

Much of the court challenge hinged on the practice cost studies that healthcare providers submitted to the DoH to assist it to determine the cost of private healthcare services. The department dismissed most of these studies, claiming they did not meet the required sample sizes or they used unacceptable costing or coding methodologies. The judge made the following points in his ruling:

• The DoH was, in terms of the National Health Act, supposed to consult with the National Health Council before promulgating the RPL regulations. The department had failed to provide any evidence of these consultations. Neither did the DoH offer any evidence that it had consulted with the Technical Advisory Committee prior to publication of the RPL. The Technical Advisory Committee was also a defendant in the Application, but did not oppose the SAPPF application. The Judge found this lack of evidence to be far fetched and clearly untenable.
• The then Minister of Health, Manto Tshabalala-Msimang, delegated to Thami Mseleku, her then director-general, the power to determine the process of deciding the RPL. This was impermissible, as was many of the other actions taken by senior staff members of the DoH.
• Mseleku decided on the methodology that should be used to determine the costs of healthcare services. He then admitted that this methodology was ill-suited to determining costs for providers such as hospitals and emergency services but failed to deal properly with proposed alternative methodologies. The publication of a methodology that he knew was ill-suited was “irrational, unreasonable, and arbitrary”.
• Mseleku called on stakeholders to provide alternative methodologies, but he did not have the power to deviate from the methodology he set. Thereafter he failed to deal properly with alternative and more suitable guidelines proposed by the Applicants.
• Individuals were prevented from making submissions, and only associations or professional councils that represented 95 percent or more of the relevant medical discipline were allowed to submit data. This excluded the Hospital Association of South Africa, the two emergency services providers and most of the groups that represented various medical professions from submitting data to the department, which was “very unreasonable, irregular and nonsensical”.
• The term “ stakeholder “ was found to be vague and irrational. This vagueness renders the Regulations invalid. Netcare 911 and ER24 were not deemed to be “ stakeholders “ by DoH.
• The DoH failed to provide reasons for rejecting many of the practice cost studies. This was “manifestly and singularly unhelpful”. The Court found the SAPPF and other costing submissions to have been based on extensive research, including a comprehensive costing study which involved considerable person hours and significant costs.
• The draft 2009 RPL was published before the DoH had even started to verify any of the few submissions it had accepted. This was done notwithstanding the fact that both HealthMan and Webber Wentzel wrote to the DoH and advised the DoH that they cannot publish a RPL.
• Changes to the tariff structure proposed by a number of medical disciplines were not implemented nor evaluated in the 2009 RPL, whereas those for one discipline ( Audiology) were accepted.
• Whilst the Applicants were thorough in its application to Court presenting in excess of 7700 pages of evidence , the DoH responded with a mere 360 pages and failed to respond to a number of material aspects of the case.
• The correspondence before Court revealed a consistent failure on the part of the Director-General to engage meaningfully with, or listen to submissions from, or thereafter to provide reasons and rational responses to proposals by the Applicants.

Ebersohn said it was incumbent on the DoH to produce “an effective RPL which set rates at an appropriate, reasonable level that was grounded in the reality of the costs of operating private medical practices. He said that regrettably, this did not occur, and the 2009 RPL fell well short of the statutory requirement. The RPL Regulations is therefore declared invalid and is set aside.

Conclusion

The HealthMan Directors and staff would like to thank all Doctors and members of the other healthcare groups that constitute the Applicants for their belief in the legal process that was embarked upon on their behalf. Without your moral and financial support through tough and testing times, this crucial victory would not have been possible.

We would also like to express our gratitude to the leaders of the various specialist and other groups for their well balanced guidance to their group members and unfaltered support of the committee members who steered the process. Also a thanks to the HealthMan Directors and staff for their time, effort und unwavering commitment- often under extreme and difficult circumstances.