South African Medical Research Council 2011/2012 Annual Report, Council for Medical Schemes tariffs

Meeting report

South African Medical Research Council 2011/2012 Annual Report briefing
Professor Salim Karim, Acting President, Medical Research Council, firstly outlined the highlights of the Medical Research Council (MRC) in the 2011/12 financial year. One of South Africa’s proudest achievement was the 43% decline in mortality in children under the age of 5 years. He mentioned that the mortality rate for adults also reduced by 20% and life expectancy had increased by 6 years, reaching an expectancy of 60 years in the year 2011. This was due to the widespread provision of anti-retroviral therapy (ARV).

Professor Karim then mentioned that in recent years, there had not been a Tuberculosis (TB) drug, but that MRC’s TB researchers hade been part of the global effort in developing the first new drug against TB in several decades. This drug, TMC 207 (Bedaquiline), was manufactured by TBo Tech, and used a novel mechanism of action and potent activity against drug resistant TB. The drug was currently under review by the regulatory authority for licensing and also under consideration by the World Health Organisation (WHO) as a new drug for the cure of Tuberculosis.

MRC had also been looking into the main causes of respiratory disease and respiratory deaths. A repeated finding was that pneumococcal diseases have been a major contributor, not only to lung disease but to ear infections and meningitis. The MRC Respiratory and Meningeal Pathogens Research Unit produced the evidence to support the introduction of conjugate pneumococcal vaccine in South Africa. South Africa was the only African country funding implementation of this vaccine for children, and this had resulted in a decline in pneumonia and respiratory deaths.

MRC’s Gender and Health Research Unit produced the first description of the extent of rape in South Africa, which was that about 20% of women in the country experienced forced sex at some stage. The MRC research on gender-based violence received international recognition, which served as the basis for WHO policy.

Professor Karim noted that MRC had shown that mother-to-child transmission of HIV reduced to 2.7% in 2011, following its Health Systems Research Unit national survey. MRC was hoping to reach the target of reducing this transmission rate still further, to less than 1%. The biggest problem remained how to prevent transmission when breast-feeding. Research in Kwazulu-Natal had shown that Niverapine, which was given to babies, could have a dramatic effect on reducing transmission.

Mr Nick Buick, Chief Financial Officer, MRC, gave an overview of the Financial Report for 2011/2012. He firstly noted that the audit was unqualified. Revenue, from all sources, was at R538.5 million, an increase of 2% on the previous year, whilst “Other Income” had risen by 71%, as a result of books and publications accepted. Operating expenses also rose, from R552 million to R578 million, resulting in an operating deficit. MRC thus had to make use of reserves to the value of R15 million, but the net deficit was R1.4 million lower than in the previous year.

Mr Buick presented more detailed slides on revenue. He explained that revenue was generated from two sources, government and external sources. There were no significant increases in the government allocations, whilst other income had grown from R290 million to R300 million. More than 55% of the MRC’s total revenue was derived from external (non-government) sources.

He presented the analysis of expenditure (see attached presentation for more details), noting that of the total expenditure of R578 million, only 19% was allocated to extra-mural research, with the balance covering intra-mural and administration costs. Personnel accounted for R310 million, collaborative research for R110 million and other expenditure for R157 million.

He noted that the balance sheet showed quite a strong position. MRC was solvent, with total assets of R522 million at the end of the last financial year. The decline in cash reserves resulted from the need to fund the deficit. Liabilities had declined, mainly as a result of the deferred income balances, and taking into account the deficit from the previous year. Total assets had also fallen because of the lower cash and cash reserves figure. There was a negative cash flow, due mainly to timing of projects and contract deliverables.

Professor Karim then outlined some of the major challenges facing MRC. The first related to the government allocations. He repeated that 55% of the funding came from external sources, which was a huge risk, because it meant that MRC was limited to doing research that donors were willing to fund. The budget was increasing far below inflation increases, so MRC was in a state of “financial neglect”. MRC was, in fact, in a worse position than it was four years ago and was heading for repeated budget deficits. He summarised the budget, and said that salaries comprised the major component, at 87%. This meant that the government allocation only covered the administration costs, leaving no money for research. The expected budget deficit for 2012/13 would be R43 million. He noted that funding to all universities was seriously inadequate, that the approach to funding was outdated, and the academic institutions could therefore not meet the demands of a modern world-class research organisation.

MRC’s organisational structure had developed incrementally but was not adequately fit-for-purpose. Currently, it was hampered by lack of organisational coherence, whilst incremental and opportunistic growth over time had led to outdated units, duplication and departments with inappropriate functions. The biggest challenge in South Africa was the National Health Insurance (NHI), yet the MRC had no research programme to generate data and evidence to guide this change and to support the Department of Health in this initiative.

Prof Karim submitted that there were three key principles that could revitalise the MRC and pub it back on track. The first was full recognition of the need for scientific excellence to lead the generation of new knowledge. Government must accept responsibility for building and facilitating all medical research in South Africa, and make both extramural and intramural research equally important. Intra-mural (government funded) research must be prioritised to maximise its impact on health and ensure that limited financial resources could be used optimally in the health sector.

MRC should be able to afford twelve intra-mural units, and he proposed that its research should prioritise the Top Ten causes of death, which were HIV/AIDS, Cerebrovascular disease, Hypertensive heart disease, Tuberculosis, Lower respiratory infections, Ischaemic heart disease, Diarrhoeal disease, Interpersonal violence, Road injuries and Diabetes mellitus. MRC should follow the principles of scientific excellent and focus on these. If MRC received sufficient funding, it hoped to modernise MRC, created the 12 intramural units, and have six extramural funding mechanisms, with a Strategic Health Innovation Initiative for new drugs and vaccines. It hoped also to improve its administration for efficiency and effectiveness, and optimise laboratory and office space in the MRC buildings. Part of the upgrades would include the creation and implementation of new streamlined policies, revamping of peer-review systems and ensuring high quality and responsive Information Services.

Prof Karim noted that MRC had requested that its budget be doubled in two years. It was requesting a 50% increase in the MRC budget for the next year, from R246 million to R371 million.

Discussion
Ms D Robinson (DA) congratulated the MRC for its research and results produced, particularly in view of the shortage of funding. Parliament would support its requests for more funding. She asked if there were other alternatives for generating income, apart from government funding.

Prof Karim said that the government allocation was used for the administration budget, which was divided into administration, in-house research and research done at universities. 43% related to in-house research, and of that figure, 87% was spent on salaries. The source of the problem was that initially MRC had employed too many staff at one stage. The norm, internationally, was that 50% of the budget would be spent on salaries, and MRC was going to try to achieve that by prioritising, by focusing research on areas where MRC could maximise its income, and increasing the budget allocation available for intramural research.

Ms Robinson felt that research on NHI should be prioritised.

Ms Robinson said that she did not feel that enough time and money was spent by MRC on depression and other forms of mental health, despite the fact that 450 million people suffered from mental illness.

Prof Karim referred her to page 30 of the Annual Report which showed that Unipolar depressive disorders were among the diseases listed as the top causes of death and disease. He confirmed that the MRC did cover mental health in its research.

Ms M Segale-Diswai (ANC) noted that there was a problem of poor recording and reporting from health facilities, and questioned if MRC could rely on that information.

Dr Debbie Bradshaw, Unit Director, MRC, responded that MRC collected its data on life expectancy and deaths from a number of sources, including Statistics SA, Department of Health population registers and Department of Health and sought to correlate it.

Ms Segale-Diswai asked what was being done about drug defaulting, where patients were not taking their medication consistently, raising the danger of their bodies becoming resistant to drugs. She said that there was also concern where private doctors did not follow government protocol.

Prof Karim agreed that TB defaulters were the main reason for the growth of Drug-Resistant TB. When patients started feeling better, they stopped taking their medication, or did not take it regularly. There were studies done on how to help patients take and stay on their medication until they had completed the course, to prevent Total Drug-Resistant TB occurring. In relation to the private doctors, he said that many private practitioners tended to immediately prescribe Quinolone instead of first using simple antibiotics like Penicillin, so that the “first-line” drug use was the top line. He hoped that WHO would stipulate that the new drug Bedaquiline should be used strictly for TB, and not for small infections.

Ms Segale-Diswai asked if the MRC was involved with the regulations and research of mother-to-child transmission of HIV/AIDS through breast feeding.

Prof Karim noted that in Kwazulu Natal and Zimbabwe, there were two good strategies used in breast-feeding, to reduce HIV/AIDS transmission, outlined as Option A and Option B in the WHO Regulations. South Africa chose Option A, use of Niverapine, to reduce transmission of HIV/AIDS from mother-to-child. MRC was also looking into Option B+, which was a new approach based on a set of studies undertaken in Africa which looked at triple therapy at commencement of breast feeding.

Ms Segale-Diswai asked if the shrinking of the budget had resulted in a back-log of research and, if so, asked which department was suffering.

Prof Karim responded that if the budget was shrinking, MRC would have to stop some maintenance, and also stop purchasing new equipment, in order to ensure that it could pay salaries. However, MRC was still using technology that was made redundant years ago, and therefore found itself having to use equipment at universities, as it could not afford its own.

Ms Segale-Diswai was concerned with the Auditor-General’s comments about supply chain management.

Ms Robinson noted that despite the unqualified audit, there still seemed to be some problems around expenditure. She asked how MRC would ensure that the money was spent properly.

Prof Karim noted, in relation to the supply chain management, that the problem in this financial year lay with money spent on couriers, and the MRC would be issuing a tender for couriers to deliver blood samples and documents.

Mr Buick added that in this year the supply chain for procurement was not compliant and efficient. MRC was looking at the policies, particularly those on supply chain systems and delegation of authority, and, as mentioned by Prof Karim, would be reviewing its major areas of spending, and opting for a tender for courier services. MRC was also training its researchers and making them aware of the implications of certain work and actions.

Dr Trish Hanekom, Board Member, Audit Committee, MRC, mentioned that the internal controls were quite weak when the Board took over in 2010, but had since been made more reliable. The concerns around the finances arose when the MRC was without a President and Chief Financial Officer.

Mr Buick stressed that irregular expenditure meant that there had not been compliance with supply chain procedures.

Dr Hanekom added that although the financial statements did note that there had been irregular expenditure, in fact that spending did have useful results. The bulk of that irregular spending related, as previously outlined, to courier services. There was no element of impropriety other than the failure to abide by certain procedures.

Ms T Kenye (ANC) requested an update on the African traditional medicines.
Prof Karim confirmed that there were major initiatives investigating the use of African traditional medicine, and MRC would like to see traditional medicines being properly licensed. This could be achieved by the different disciplines in the medical field working together.

Ms Kenye wanted to know how much money was spent on training, and the plan and strategy for growing African researchers.

Prof Karim could not give a figure, from memory, on the amount spent on training. Any post-graduate in the health sphere was funded by MRC, in the sense that MRC was a major funder at the universities, as well as having an in-house training programme. The programme “Young Stars” recognised the country’s brightest scientist.

Ms Khalipha, Human Resources unit, MRC, said that MRC had been busy with transformation, and was now comprised of 20% being Coloured, 20% being Indian, 15% White and 45% black employees. Of these, 59% were female and 41% were male. The recent recruitment statistics showed an increase in the number of African scientists, as well as other employees. MRC was using recruitment as a tool to drive transformation in the organisation. However, there were still challenges at certain levels, especially at senior management.

Ms R Motsepe (ANC) asked for an update on any industrial action that MRC experienced.

Ms Robinson also wanted to know more about the industrial action. She asked if dismissal of the staff would be done to meet the budget, and if this was the ideal situation.

Prof Karim noted that, as part of the revitalising and restructuring of the MRC, it had to make some conscious decisions to let staff go. MRC could not continue funding 23 in-house research programmes, especially in areas that did not feature prominently on the agenda. MRC had to restructure and reprioritise the organisation. At the moment, MRC had not in fact retrenched anyone, although this was contemplated. He confirmed that the MRC had not been faced with any strikes or industrial action.

Ms Motsepe asked about the value of the grant money spent.

Prof Karim noted that page 22 of the Annual Report touched on value for money. MRC measured its product in the form of publications, and articles published in journals.

Ms Robinson sought more information on Tele Medicine Work Stations, what they were, and if the public knew about them.

Prof Karim answered that Telemedicine was an initiative funded by the MTN Foundation, who had generously made available its technology and coverage, and had funded the MRC to purchase computers and equip it to put work stations in every clinic, with the aim that the staff at those clinics should be aware of and acquire knowledge on using the internet, and researching and obtaining information on health. This was a three way partnership between the MRC, the Department of Health and the MTN Foundation.

Ms Robinson asked if MRC collaborated with the National Health Laboratory Services (NHLS).

Prof Karim answered that MRC had major joint activities with the NHLS, and was expanding these to be able to use the NHLS laboratories that were already set up, for the purpose of improving research.

Ms Segale Diswai asked why cancer was not listed in the top ten causes of death.

Ms Robinson asked if MRC would consider more hospices for TB patients. She also asked if the MRC would close the doors on research for cancer, malaria and diabetes.

Ms Robinson asked if there was research done by MRC into other mental illnesses apart from unipolar, if the MRC was working with other organisations researching on mental illnesses, and if there were support groups for people sharing certain mental illnesses.

Ms Kenye requested clarification why MRC was not retrenching, despite the fact that salaries comprised the major portion of the budget, and what was the cause of this.

Ms Segale-Diswai raised the issue of bonuses and asked how these affected the budget.

Prof Karim explained that whilst a general expectation had grown up that everybody should get a bonus, in fact a bonus was limited to an outstanding employee, for excellent performance, and it was entirely discretionary. In the previous year, the Board had decided that not everybody should receive a bonus, and employees had approached the Commission for Conciliation, Mediation and Arbitration (CCMA) as they had felt entitled to it.

Guideline Tariffs for Medical Practitioners and Dentists: Council for Medical Schemes (CMS) Briefing
Dr Monwabisi Gantsho, Registrar, Council for Medical Schemes, presented the guideline tariffs for medical practitioners and dentists, arising out of the Consent Order of 2004 that was awarded by the Competition Tribunal. The parties included South African Medical Association (SAMA), Hospital Association of South Africa (HASA) and Board of Healthcare Funders (BHF).

Dr Gantsho started by presenting a graph that showed the total benefits paid per beneficiary per month. This showed that the cost per member per month had increased slightly in the year 2011. The beneficiary expenditure for medical specialists increased by 74.3%, indicating that the major expense lay with the practitioners, and he also noted that the costs for private hospitals had increased by 82.2%.  He said that the trend showed that there was a need for the pricing commission, to allow for negotiated prices in a centralised bargaining system.

The next graph that Dr Gantsho presented showed the healthcare benefits paid per beneficiary per month. The biggest slice went to private hospitals, followed by medical specialists, then general practitioners. He said that in order to contain this increase, there was a need for supply side regulation, where healthcare providers such as hospitals would be regulated.

The non-health care expenditure slide showed that the administration expenditure (comprised of risk + savings) was the largest component, with a 4.2% increase. It was currently sitting R8.1 billion. Money care was at R2.4 billion. Brokers were currently at R1.4 billion. Non healthcare expenditure was therefore decreasing.

The CMS complaints requiring a clinical opinion were about prescribed minimum benefits, and these had increased. An increasing numbers of CMS complaints also revolved around tariffs. Numerous cases were referred to Health Professions Council South Africa (HPCSA), the Competition Commission and the Competition Tribunal.

There were limitations to the application of the 2006 National Health Reference Price List as the 2012/2013 guideline tariff. The publications were outdated, and there were numerous new tariff codes that did not appear. The information was limited, with volumes and utilisation not taken into consideration. The tariffs also did not consider household income. There were several problems around that administered tariff. The CMS had considered what other options might be available. The immediate and short term solution would be to obtain an HPCSA guideline tariff, and to designate health care sectors while interim negotiations were taking place. He also noted that a Competition Commission Market Inquiry must take place. The
Medium and Long Term solution needed consultative and transparent processes to be done, to establish a statutory pricing authority. A statutory pricing authority could provide the final solution if it showed independence, technical competence and fairness to providers and the public. It must oversee negotiations, compliance investigations into undesirable practices, consider private hospital licensing, undertake a technical review of prices and give technical support for alternate reimbursement models.

Mr Humphrey Zokufa, Managing Director, BHF, agreed with Mr Gantsho’s presentation and assured the committee that this organisation was working hand in hand with CMS.

Discussion
The Chairperson noted that the main problem was that the prices of healthcare were going up, and they seemed uncontrollable.

Ms Kenye asked if there was no Ombud who could help with the pricing issues. She also asked why the document that Mr Zokufa mentioned was not open for the public.

Dr Gantsho responded that although there was an Ombud at the HPCSA who dealt with complaints, there was not one at CMS.

The meeting was adjourned.