Sunday Times

Big hos­pi­tals re­ject break-up idea

Pri­vate mo­nop­oly is bad for health care, in­quiry finds

- By PENELOPE MASHEGO mashe­gop@busi­nesslive.co.za Business · Health · Belgium · Mediclinic International · Africa · Belarus · National Health Insurance · Austria · Tony Blair · Iceland · Vanuatu · Van Province · Netherlands · Maryland · Netcare · Competition Commission · International Monetary Fund

● 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

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