Success is just good business

In a rebuttal to the provisional findings of the Health Market Inquiry (HMI), Discovery Health says its growth and profitability is not a result of any market advantage or charging its medical scheme members higher fees.

Instead, its success is a function of innovation and operational efficiency.

“We disagree strongly with the view that Discovery’s sustained growth and success is a sign of market failure,” says chief executive Jonathan Broomberg.

“Discovery Health was started up 25 years ago without any members at a time when our competitors already had substantial scale and brand recognition.”

The Competition Commission’s HMI provisional report, unveiled by former chief justice Sandile Ngcobo, found Discovery’s astounding profitability was an indication of “market failure”.

And with the absence of new and emerging players to challenge Discovery’s dominance, there are no signs the market would self-correct, the HMI found.

While Ngcobo, who has chaired the inquiry since its start in 2014, supported Broomberg’s views about how skilled its management is in running the business, he painted a grim picture of Discovery’s dominance relative to competitors Metropolitan and Medscheme.

However, Broomberg says Discovery’s growth has been organic, given the competitive rates it charges for open schemes and closed/restricted schemes.

When compared on a like-forlike basis, Discovery’s premiums are on average 16.4% lower than the next eight competitor schemes, he says. “This is due to a combination of effective procurement, claims and fraud risk management.”

“Similarly, Discovery Health’s 18 restricted-scheme clients benefit materially from the full range of services, including major claims risk savings which result in lower premium increases over time,” says Broomberg.

He adds that publicly available data confirms the weighted average administration expenses and fees incurred by Discovery and closed schemes administered by Discovery Health are “in line with the overall market”.

He continues: “The fees charged are in fact the 14th-lowest out of 22 open medical schemes when measured on a rand-perbeneficiary-per-month basis, or 10th out of 22 open schemes when measured as proportion of contribution income.”