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BUSINESS TIMES South Africa’s largest hospital groups have rejected proposals that they be broken up in order to lower healthcare costs, calling the idea drastic and “perhaps unconstitutional”. In a bid to aid transformation and enhance competition in the market, the Health Market Inquiry, in its provisional report, has recommended divestiture and a moratorium on new licences for SA’s biggest hospital groups, Netcare, Life Healthcare and Mediclinic. The inquiry, which was set up by the Competition Commission to investigate the private healthcare sector, together with the National Health Insurance Bill and Medical Schemes Amendment Bill, has raised questions about the future of health care in SA, particularly in the private sector, as the government ramps up its efforts to provide affordable, quality service. Divestiture would see hospital groups letting go of or selling some assets or business units. However, the recommendation does not elaborate on how the divestiture could work. Non-starter Speaking at the annual Hospital Association of SA (Hasa) conference in Joburg last week, Anthony Norton, director of law firm Nortons, said the recommendation was a nonstarter. Norton, who is representing Netcare at the inquiry, said the reference to divestiture is quite oblique in the report. He said it is raised as a potential consideration but there is not a lot of detail. He added that the recommendation could be in violation of the constitution. The recommendation for a moratorium means Netcare, Life Healthcare and Mediclinic would not be granted licences for new facilities nor permission to increase the number of beds in their existing facilities until the market share of each hospital group was 20 percent by number of beds. The inquiry found high levels of concentration in SA’s private hospital market, with the three groups accounting for 90 percent of the market in terms of hospital admissions and 83 percent of registered beds. Under pressure The inquiry’s recommendations come as the share prices of some the country’s largest hospital groups are under pressure. Life Healthcare’s shares have weakened 8.70 percent in the past year, while Mediclinic’s valuation has plunged 26.78 percent over the same period. Netcare has dropped by 4.38 percent. Norton’s views on divestitures were echoed by Prof Nicola Theron, managing director at Econex, a competition and applied-economics consulting firm. Speaking on behalf of Mediclinic, Theron questioned the inquiry’s methodology, saying there was a disconnect between factual investigation, the evidence and the recommendations. She said the inquiry had made use of an outdated economic framework and that its structural findings of high concentration in the hospital market were not enough to warrant intervention. HMI panel member and economist Cees van Gent said he could not discuss the details of the recommendation while the consultation process was still under way. However, he said he was aware that the hospital groups had raised questions about the divestiture issue and emphasised that it was more of a suggestion than a recommendation. Van Gent defended the methodology saying that the inquiry was broad, unlike a competition enforcement action. He added that the inquiry had also looked at the market structure to see if it was guaranteeing the best performance for the patient in the future, or whether it could warrant any anti-competition actions. Barriers to Entry Barriers to entry played a big role in the market concentration of the big three hospital groups, said Van Gent, adding that having only three major private hospital groups made it easier for collusion to take place. Van Gent added that patients should have more choice when selecting hospitals. To put the issue into perspective, he said, the Netherlands, where he lives, has 60 to 70 independent hospitals for patients to choose from. Of the population of about 16-million people, almost 9-million make use of private hospitals. The dominance of the big three has also had an impact on medical aid schemes, which are compelled to enter into contracts with all three hospital groups. Van Gent said if the schemes could bypass the bigger hospitals to make use of others, which may be more affordable for their members, then the hospital groups might refuse to service their members in parts of the country where they were dominant and that leaves the three parties with quite a bit of clout.
Created at 2018/10/24 01:20 PM by Mediclinic
Last modified at 2018/10/24 01:20 PM by Mediclinic