THE private hospital industry's efforts to bring hospital inflation to within the Reserve Bank's target range of 3%-6% have paid off.

According to a study by independent economist Mike Schüssler, commissioned by the Hospital Association of S A (Hasa), the industry achieved an inflation rate of 5,2% for the 2005 financial year.

Hasa acting CEO Kurt Worrall-Clare says this is not only a substantial decline on the 8,1% achieved in 2004, but also less than SA's overall medical inflation rate of 7%, and is lower than the average increase of medical schemes, which was 6,9% over the same period.

The results were benchmarked against eight other countries. Though SA's consumer price index (CPI) was the fifth lowest in the sample group, hospital inflation was the third lowest. Moreover, whereas inflation in SA's private hospital industry declined, the country's CPI actually rose from 1,4% in 2004 to 3,4% in 2005.

"We are particularly pleased with the industry's achievements, especially in light of the fact that private hospitals had to contend with an overall 5,8% increase in costs year on year," says Worrall-Clare. "Productivity improvements helped drive costs down, which, in turn, played a role in keeping inflation in check. The Health Department 's medicine pricing interventions also contributed, as evidenced by the slight decline in pharmacy costs."

According to Schüssler, cost increases in private hospitals were primarily driven by staff costs. These account for 73% of private hospital expenditure and increased by 6,7% between 2004 and 2005 as hospitals were compelled to pay higher salaries to curb the outflow of nursing skills, both from the industry and the country.