van den Heever BMC Public Health 2012, 12(Suppl 1):S5 http://www.biomedcentral.com/1471-2458/12/S1/S5 motivations provided by the relevant parties to the initial negotiations. The overall process would generate price transparency and reasonableness in the bidding process. It would also systematically remove the abuse of market power as a basis for price setting. Importantly prices remain determined by way of negotiation between the principals rather than by government (i.e. an admi- nistered price) with government’s role to design a fair process for the negotiations [25]. The relationship between regulated medical schemes and the public sector The performance of the public sector has deteriorated considerably over the past fifteen years, for reasons unre- lated to resourcing [7], although some have argued on the basis of crude per capita expenditure differentials between medical schemes and the public system are to blame [26]. However, health workforce differentials between the public and private sectors, apart from spe- cialists, do not reflect an equity problem or a resourcing problem when the official registration data is corrected for errors [27-29]. Per capita expenditure differentials only suggest different cost-efficiencies and preferences between the two sectors and no plausible relationship to public health system outcomes is detectible. Both the 1995 and 2002 committees of inquiry dealing with health reform took the view that the relationship between the non-contributory and contributory regimes of the health system should be harmonized, recognising that both offered strong mechanisms which together could efficiently achieve universal coverage. However, for the complete system to be in place specific reforms in both the public and private sectors are required. The for- mer requires a better structuring of its institutions to enhance accountability and decision-making, while the latter inter alia requires risk-equalisation and cost man- agement. It was furthermore proposed that the public and private sector providers need to be available for con- tracting by both the public sector and medical schemes. However, although medical schemes have the capability to purchase public sector services, the public sector is unable to manage complex contractual arrangements or meet requirements regarding quality. Conclusions The South African health system provides an important case study for developing countries on mixed models for the expansion and deepening of coverage. Although it is an upper-middle-income country its experiences are nevertheless relevant to a much wider category of country contexts. Both the successes and failures are instructive. Whereas industrialised (high-income) countries have the option of achieving far deeper universal coverage via Page 12 of 13 predominantly universal mechanisms and entitlements, developing countries need to confront the reality of multi- ple financing and service-delivery mechanisms. Private markets will also emerge regardless of their desirability. Explicitly designed mixed system models are able to com- bine publicly provided and subsidised services together with regulated insurance markets to effectively achieve multiple social and public goals, while leveraging off pri- vate incentives and preferences. However, achieving social protection objectives through private markets requires strong regulators and an understanding of market dynamics that are not universally well understood or documented. The objective of universal coverage can be seen in two dimensions, horizontal extension and vertical deepening. Private systems play an important role in deepening cover- age by mobilising revenue from income earners for health services over-and-above the horizontal extension role of public systems and related subsidies. South Africa provides an example of how this natural deepening occurs whether regulated or unregulated. It also demonstrates how poor regulation of mature private systems can severely under- mine this role and diminish achievements below attainable levels of social protection. The mature South African system has demonstrated its sensitivity to regulatory design and responds rapidly to changes both positive and negative. When measures to enhance risk pooling are introduced, coverage is expanded and becomes increasingly fair and sustainable. When removed, however, the system becomes less stable and fair as costs rise and people with poor health status are systematically excluded from cover. This sus- ceptibility to regulation therefore presents an opportu- nity to policymakers to achieve social protection objectives through the strategic management of markets rather than exclusively through less responsive systems based on tax-funded direct provision. As private markets will emerge regardless of government policy, any failure to effectively regulate, encouraged by the belief that commercialised health markets are inher- ently in opposition to the public interest, will prove coun- terproductive as cost spirals occur and coverage fails to deepen. Understanding the specific requirements for a well-regulated private health system within developing country contexts therefore needs to become better under- stood if the objectives of universal coverage are to be ade- quately met in the next two decades. This is especially relevant for those developing countries experiencing rapid economic growth where burgeoning unregulated private health systems are likely to emerge. This should however go hand in hand with the development of a consensus on the essential ingredients for a well-functioning general tax funded publicly provided or funded health service.