Evaluating medical contracts II

This article uses Discovery Health as an example to address a broader dilemma: how should doctors determine whether or not to contract with a medical scheme?

We focus on Discovery simply because their structure allows us to model the situation with unusual clarity—but the underlying logic applies across schemes.

The most practical way to approach this dilemma is to distinguish between two perspectives:

• The patient’s (what plan they are on)
• The doctor’s (what contract they’ve chosen)

We’ve integrated these perspectives into a clear, two-axis table that cross-references the doctor’s available contract options with patient plan types (see Table 1). Then we combine the details in a comprehensive matrix (see Table 2). The result is a matrix that makes visible what has long been unclear: how contract decisions interact with patient plan types.

Now, let’s first clarify which plans and agreements are available to each:

In the table below we show a matrix combining the details of the plans and agreements from two perspectives.

DR = Discovery Rate
DSP = Designated Service Provider

To decide which contract is best, the doctor needs to step outside the plan structure and ask: what is the real-world financial logic behind this system?

We propose that two variables dominate all others:

Collectability refers to the doctor’s ability to charge and recover more than the Discovery Health Rate (DHR). It’s influenced by:

We define collectability numerically as:

• High: >80% of patients pay the full amount (via GAP or top-up)
• Medium: 50–80%
• Low: <50%

PMB frequency measures how often the doctor’s claims fall under Prescribed Minimum Benefits (PMBs), tightly regulated conditions that require schemes to pay.

Important clarification: PMB conditions become PMB cases only when they require hospital admission or similar regulated events. Only then does the scheme consistently pay at 300%, even if the doctor isn’t a DSP.

We define PMB frequency as:

• High: >50% of cases are PMBs
• Medium: 25–50%
• Low: <25%

The table shows the interaction. It does not show the answer. To decide which contract is best, the doctor needs to step outside the plan structure and ask: what is the real-world financial logic behind this system?

We shall use these two variables to build a grid — a 3×3 matrix — that shows where each contract option is optimal or adequate depending on the doctor’s environment.

When collectability is high, the practice reliably charges 300% of DHR, either via GAP cover or direct patient payment.

• Retain billing control
• Avoid administrative overhead
• PMBs covered without DSP status
• No clawbacks or imposed tariffs

This choice suits specialists in affluent urban areas serving well-covered patients.

Let us recall the grid in table 1:

• Patients occasionally pay top-ups, but not reliably. With low PMB exposure, DSP status matters less. These agreements offer stability without balance billing.
• The choice between Premier A and B hinges on the ratio of in-hospital to out-of-hospital procedures:
• Premier A (162% out-of-hospital, 137% in-hospital) suits consultative work.
• Premier B (higher rates for in-hospital) suits hospital-based procedures.
• This scenario suits mixed-income areas and practices needing predictability and margin protection.

• High PMB frequency necessitates DSP status to avoiddelays in claim adjudication.
• Pays 217% in-hospital (Classic Plans Only), 100% out-of-hospital (balance billing allowed)
• Provides security with reduced risk in high-PMB environments
• Retains some billing flexibility

Balance billing is rarely viable, so risk management is crucial.
• Predictable reimbursement
• Accept less potential upside for stability

Ideal for lower-income areas prioritizing administrative simplicity.

Dr Miller  is an orthopaedic surgeon performing joint replacements in a private hospital in Paarl . His patients are largely on Executive and Classic plans, with GAP cover. His PMB rate is moderate (around 40%).

Best option: Not Contracted — Miller  charges 300% DHR, gets paid via GAP, and avoids admin friction. PMBs pay in full, so he doesn’t need DSP status.

If you need a better understanding or deeper analysis of your practice, don’t hesitate to give us a call.