The devil in the detail of NHI procurement

Anthea Jeffery | Aug 22, 2019
The procurement complexities of NHI alone will suffice to cripple delivery … as bureaucrats at national and district levels trip over each other in tendering for items, entering into contracts, and paying for products.

According to the National Health Insurance (NHI) Bill, once the new system becomes fully operative in 2026, the NHI Fund will become ‘the single purchaser and single payer of healthcare services’ for all South Africans, already numbering some 58 million.

The NHI Fund will then take on the task (among many other things) of procuring all the healthcare products needed on a daily basis by all accredited hospitals, clinics, private medical practices, pharmacies, and traditional healers, to name but some examples.

At present, the procurement function is divided among provincial administrations, medical schemes, private hospitals, and other private practices – while traditional healers source their own supplies. Under the NHI, however, all procurement will be carried out by the NHI Fund and its subsidiary entities.

The procurement process will start with the Office of Health Products Procurement (OHPP).  The OHPP will set ‘the parameters’ for the procurement of all ‘health-related products’, including ‘medicines, medical devices, and equipment’. The OHPP will decide which products are to be bought, and will include these on a ‘National Products List’. The OHPP (in conjunction with the ‘Benefits Advisory Committee’, and perhaps also the ‘Benefits Design Unit’ in the NHI Fund) will also decide on ‘the Essential Medicines List’ and ‘the Essential Equipment List’.

These three lists, together with an approved ‘Supplier’ list, will constitute the NHI’s ‘Formulary’. This Formulary will need to be approved by the health minister ‘in consultation’ with the NHI Fund and the National Health Council (a health policy advisory body established under the National Health Act of 2003). The Formulary will also have to be reviewed, amended, and re-approved each year, so as to take account of ‘changes in the burden of disease, product availability, price changes, and disease management’.

This complex and time-consuming bureaucratic process will be needed, of course, because the market mechanism will no longer be available to determine supply and demand. Instead, deployed cadres will decide on all the health products likely to be required by the country’s population from one year to the next.

Quite how procurement will then proceed is difficult to tell. According to the NHI Bill, ‘an accredited health establishment’ – say, a rural public clinic – must ‘procure according to the Formulary and suppliers listed in the Formulary must deliver directly to that...health establishment’. The same rule will apply to ‘an accredited health care service provider’, such as a GP or a traditional healer.

But the OHPP must also be involved in the procurement process, for it must ‘support the process of ordering and distribution of health-related products’ at both national and district levels. At the district level, moreover, the ‘District Health Management Offices’ to be established in every district municipality must also be drawn in, for these offices are supposed to ‘conclude and manage contracts with suppliers’ with the help of the OHPP.

What then of the NHI Fund’s own relevant sub-units? These include not only a ‘Purchasing and Contracting Unit’ but also a ‘Procurement Unit’. What part they are to play in the procurement process is not explained. But bureaucrats at national and district levels will be tripping over each other, it seems, in tendering for items, entering into contracts, and paying for products supplied.

How suppliers are to be paid remains unclear, however. The ‘Provider Payment Unit’ in the NHI Fund will presumably be responsible for this task, as supplier payment is not a listed function of the OHPP. But the NHI Bill contains little to confirm this.

Various other issues also remain uncertain. How will the Provider Payment Unit ensure that products of the correct quantity and quality have in fact been delivered to all the accredited facilities and practitioners that have ordered them from accredited suppliers (albeit with the help of the OHPP, the District Health Management Offices, the Purchasing and Contracting Unit, and the Procurement Unit)?

How long will it take the Provider Payment Unit to make those payments it accepts as due? This is a particularly pertinent issue, given the number of contracts likely to be in place across the country, and the state’s notorious inability to pay many of its suppliers within 30 days. How many suppliers, particularly overseas ones, will stop supplying the NHI if payment is frequently delayed? How many local ones will go bankrupt while waiting for the NHI to pay?

Also relevant is BEE preferential procurement. According to the NHI Bill, the OHPP – with its crucial overarching role in procurement – is subject to all the BEE rules set out in the Preferential Procurement Policy Framework Act of 2000 (the 2000 Act) and the Broad-Based Black Economic Empowerment Act of 2003 (the BEE Act).

Under the 2000 Act, BEE suppliers to the state or SOEs may charge more (10% on contracts worth R50m or more, 20% on contracts below this threshold) and still win tenders. In practice, the preferential pricing allowed is often far greater, with BEE ‘tenderpreneurs’ commonly charging between 100% and 400% more than standard prices. The 30% sub-tendering rule – which has already generated a violent ‘construction’ mafia on building sites across the country – will apply to health contracts as well.

Back in 2016, before the 30% rule came into force, former Treasury chief procurement officer Kenneth Brown warned that ‘fraud and inflated prices’ were already tainting up to 40% of the state’s procurement budget. Giving the NHI sole responsibility for procuring all health products will simply expand these problems into these often lucrative supply chains.

Under the BEE Act, the target for preferential procurement is 80% of the total annual purchases of SOEs and other state entities. Complex rules govern what suppliers are to be used, while 40% of annual purchases must come from 51% black-owned companies and another 12% from firms that are 30% black women-owned. In the health sphere, the necessary BEE firms will often not exist – so the use of BEE ‘middlemen’ will become widespread. This will add to costs and encourage corruption among the tens of thousands of bureaucrats needed to administer the NHI behemoth.

Some commentators still seem to believe that the NHI will succeed in making ‘free’, high-quality healthcare available to all South Africans at lower costs than currently apply. But the procurement complexities of NHI alone will suffice to cripple delivery. This in turn will help drive out both health professionals and the skilled middle class.

The BEE procurement bonanza for the political elite will be great, of course. But ordinary South Africans, and particularly the poor, will have ever more reason to lament the State’s inefficient and corrupt monopoly over healthcare – and to wish that the moderate majority had come together still more strongly to say a resounding ‘No!’ to the NHI.

 

Dr Anthea Jeffery, Head of Policy Research at the IRR, is the author of People’s War: New Light on the Struggle for South Africa, now available in all good bookshops and as an e-book in abridged and updated form.

 

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