The department of trade, industry & competition has granted small private hospital groups an exemption from certain competition regulations for the next five years as it seeks to level the playing field in an industry dominated by three big hospital groups — Mediclinic, Netcare and Life Healthcare.
According to the Competition Commission, the “big three” group control 83% of the national SA private healthcare facilities market in terms of number of beds, and this percentage increases to 90% for the total number of admissions.
The department, in a government gazette published on Friday, has agreed to a request by the National Hospitals Network (NHN), a lobby group for small players in the private healthcare sector, to relax competition rules for its members, who collectively manage about 12,000 beds.
The section that NHN’s more than 100 members are allowed to bypass is section 4(1)(b) of the Competition Act. This section prohibits agreements or co-ordinated actions among competing companies that involve fixing a selling price, trading conditions or dividing markets.
The exemption came into effect in June and will last until May 2029. The decision means NHN’s members, which include Busamed, Nelson Mandela Children’s Hospital and Raslouw Private Hospital, are allowed to collectively implement the prices negotiated and agreed on their behalf by the NHN, “with medical schemes and/or medical scheme administrators”.
The department authorised NHN to represent its members in negotiations for global fees with medical schemes, administrators, the state and healthcare providers, and to carry out centralised purchasing on their behalf. The exemption allows the NHN to establish a benchmarking system to help its members to improve efficiency.
The department noted that while the exemptions might be seen as anticompetitive, they aligned with the Competition Act’s goal of promoting effective entry and growth of small and medium businesses.
Conditions
However, the department did not give NHN members a blank cheque. It outlined several conditions that NHN’s members had to meet for them to enjoy the benefits of the exemptions.
These include the requirement that large members of the NHN who do not qualify as either a firm owned or controlled by historically disadvantaged people take practical steps towards achieving overall transformation, including changes in ownership structures. The NHN committed to ensuring that ownership of companies in its network would reach 35% in the first year of the exemption, and up to 55% in the fifth year.
The large members in the NHN network agreed to allocate a portion of their centralised procurement spend from broad-based BEE entities. The department has set a target of NHN members procuring 10% of their goods and services from Broad-based BEE entities in the first year, with this rising to 50% in the fifth year of the exemption. The NHN must put in place a policy to promote the move from fee for service cost models between funders and facilities towards alternative reimbursement (ARM) contracting.
“The NHN shall be required, as part of its general annual reporting condition discussed below, to report to the Competition Commission on the progress made on implementing ARM contracting and/or submit ARM contracts that were negotiated annually,” the gazette states.
“The NHN must ensure that it implements its centralised procurement arm of the exemption at the benefit of its members. The NHN shall be required, as part of its general annual reporting condition to report to the commission on the progress made on implementing its central procurement arm of the exemption.”
‘Major competitive concern’
According to the NHN’s website, the organisation was established as a response to the competition imbalance between the independent private hospital market and the three large hospital groups.
“The aim of the NHN was for independent private hospitals to co-ordinate efforts at opening up the private hospital economy to previously excluded groups in order to mitigate the high concentration which was embedded in the big three hospital groups for the longest time.”
The healthcare market inquiry conducted by the Competition Commission a few years ago found that of the most important consequences of the dominance of the three large hospital groups is that no funder can afford not to contract with any one of the three big facility groups. The commission noted that the high concentration ratio and large market shares of each of the three large hospital groups was a “major competitive concern”.
With Nompilo Goba
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