No need to break up private hospital groups, says health market inquiry

The Competition Commission’s health market inquiry (HMI) has backed down on its recommendation that SA’s biggest private hospital groups sell off some of their assets to enhance competition in the sector.

This development is likely to be met with relief by investors in JSE-listed Netcare, Life Healthcare and Mediclinic International.

The HMI was established to probe the barriers to effective competition in the private healthcare sector and began work in January 2014.

In its interim report, published last July, it found competition in the private hospital market had largely failed, partly because it was such a highly concentrated market, dominated by the three JSE-listed groups.

It recommended divestiture and a moratorium on new licences for the three largest firms. A moratorium on new licences would have meant the hospital groups could not open new facilities, or increase the number of beds in existing ones.

Netcare, Life Healthcare and Mediclinic International together account for 83% of the private hospital beds.  

In its final report, published on Monday, the HMI maintains its findings about the three groups but no longer recommends divestiture.

It does, however, recommend that regulatory oversight of the sector be improved, and proposes the introduction of a supply-side health regulator, which will formulate a new approach to licensing hospitals based on need.

It also recommends the Competition Commission review its approach to “creeping mergers” to address the high level of concentration in the market.

The inquiry found Netcare, Life Healthcare and Mediclinic dominate the private hospital market, and commanded 86.9% of admissions in 2016.

“We have found the three large hospital groups, both individually and collectively, are able to secure steady and significant profits year on year. The hospital groups make it very hard for newcomers and fringe players to grow and to compete on merit,” the report says. 

“The three groups are able to distort and prevent competition by binding the best medical specialists to their hospitals with inducement programmes … Further, the three largest groups all but dictate year-on-year price and cost increases for funders (medical schemes).”