Big hospitals reject break-up idea

Private monopoly is bad for health care, inquiry finds

● SA’s largest hospital groups have rejected proposals that they be broken up in order to lower health-care 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 Southern Africa.

The inquiry, which was set up by the Competition Commission to investigate the private health-care 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.

Speaking at the annual Hospital Association of SA (Hasa) conference in Joburg this week, Anthony Norton, director of law firm Nortons, said the recommendation was a non-starter.

Norton, who is representing Netcare at the inquiry, said: “The reference to divestiture is quite oblique in the report.

“It is raised as a potential consideration but there is not a lot of detail. You don’t get a sense of what type of divestiture we are talking about. Is it confined to the big three hospital groups? What type of assets would need to be divested?”

Netcare, the biggest hospital group in the country, owns 54 hospitals.

He added that the recommendation could be in violation of the constitution.

Section 25(1) states that, “No one may be deprived of property except in terms of law of general application, and no law may permit arbitrary deprivation of property.”

Section 22, however, does state, “Every citizen has the right to choose their trade, occupation or profession freely. The practice of a trade, occupation or profession may be regulated by law.”

The recommendation for a moratorium means Netcare, Life Healthcare and Mediclinic Southern Africa 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% by number of beds.

The inquiry found high levels of concentration in SA’s private-hospital market, with the three groups accounting for 90% of the market in terms of hospital admissions and 83% of registered beds.

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% in the past year, while Mediclinic’s valuation has plunged 26.78% over the same period. Netcare has dropped by 4.38%.

The health-care industry is one of many sectors in SA that are highly concentrated, resulting in an economy dominated by monopolies. Other such sectors include banking, transport, subscription TV and mobile data.

In its latest country report, the International Monetary Fund (IMF) recommended that SA promote competition to break up high levels of concentration as a way to foster economic growth.

Norton’s views on divestitures were echoed by Prof Nicola Theron, managing director at Econex, a competition and appliedeconomics 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.

“You have to get over the bar of anti-competitive conduct and the abuse of market power,” she said.

“If you want to impose a recommendation as drastic as … divestiture of hospitals, you at least have to meet the standards for anticompetitive behaviour, you have to meet the threshold for high prices [and] excessive profits before you can propose such significant intervention.”

HMI panel member and economist Cees van Gent said he could not discuss the details of the recommendations 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.

“Although we fall under the umbrella of the Competition Commission, a market inquiry is broader than a competition enforcement action.

“A market inquiry normally looks at what happens until we find evidence that something went wrong,” Van Gent said.

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 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.

“You are in SA so you are used to that situation [where] you have three big groups and that’s it,” said Van Gent.

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.

“Which leaves the three parties, of course, with quite a bit of clout,” he said.

You have to meet the threshold for high prices [and] excessive profits before you can propose such significant intervention

Prof Nicola Theron

Mediclinic representative and MD of Econex