Insurers should start financing physicians’ equipment budget

Medics are not concerned about sources of financing, they only need to have the equipment. PHOTO | FILE 

By EDWARD OMETE

In Summary

• If properly structured, medical insurers can reduce up to 37 per cent of their costs.

Last year I attended a presentation by health care professionals titled Profit maximisation strategies
for hospitals and insurance companies; ethical versus illegal. Drawing experiences from practices in several continents, it sought to show how cost of care can be brought down.

Of note was that strategies adopted by medics and insurers across the various countries are almost similar. While challenges existed opportunities were also many if the give and take was well regulated.

Looking through some of the figures from the more mature medical insurance markets, it showed that despite their costs being higher than Kenya’s, they were still profitable. A few things could be gleaned from the discussions that followed.

The first observation is that Kenya’s costs can be classified into three. Type “A” costs associated with signing up the client like marketing, insurance agents commissions, licensing and administrative costs.

Type “B” costs are physician’s charges for treating the clients. These, while not really under control of the insurers, can gobble up to 60 per cent of the costs but are reducible.

Type “C” costs are under claims processing and payments. This last group is under the control of the insurer and, therefore, amenable to reduction with efficiency.

Type A costs are usually variable and will depend on the operations and management of the insurer and the knowledge of the customers about the importance of medical insurance. It is estimated that up to 20 per cent of costs are gobbled here. The average agent commission is 10 per cent and documentation... eats up the remaining 10 per cent.

Depending on the strategies adopted, this can be reduced by six percentage points. One strategy is to adopt a common “insurance uptake” marketing campaign. As it is, the threshold for achieving significant uptake is rarely reached. Part of the reason is disjointed marketing campaigns.

The B category of costs is further subdivided into consultation, diagnostics and medication. Consultation fees is well regulated and unlikely to reduce in the future. In fact they will go higher. The diagnostics arm takes about 25 per cent of the costs that are attributed to equipment financing.

Importantly though, if the fixed costs of the equipment is high, only large patient numbers can help lower the charges. Insurance companies can cut their costs here through two strategies.

More than 90 per cent of physicians use bank loans to get diagnostic equipment. Physicians don’t care whether the financing comes from banks, individuals or insurance firms as long as we have the equipment.
Insurers can, therefore, “earn’ some revenue from their premium collection through financing medics to get the equipment they need. This trend was previously not common but it is now catching up. A few local insurers have set up credit arms.

The second strategy is based on the economic maxim “Rational people look at the margins.” Insurers can help physicians lower their marginal costs. Two physicians in the same town offering similar services to different insurance firms are not operating optimally.

Last year my firm analysed the operational overheads of physician practices that showed each of them pays for five different licences annually. Just for these, Sh300,000 is lost before factoring in employee duplication and labour under capacity.

In the end, if properly structured, medical insurers can reduce up to 37 per cent of their costs.

info@healthinfo.co.ke; @edwardomete