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Mediclinic says profitability due to efficiencies, not dominance

The private hospital group responds to the HMI’s findings by defending its operating model and profitability.

Mediclinic Southern Africa has defended its private hospital business, which has come under fire for being dominant, saying its sustained profitability is due to operational efficiency and management skills.

“Our profitability is something that we have achieved through our management style, big investments in advanced systems and technologies that have enabled the provision of high quality and cost-efficient care to patients,” Roly Buys, Mediclinic’s chief strategy officer, tells Moneyweb.

Buys was responding to the long-awaited provisional findings of the Competition Commission’s Health Market Inquiry (HMI) on SA’s private healthcare market, which was unveiled earlier in July.

The HMI panel, led by former chief justice Sandile Ngcobo, found that failures in regulation and governance have contributed to a lack of competition and high levels of concentration in the private hospital market. Hospital groups Mediclinic, Netcare and Life Healthcare have been fingered by the HMI for promoting a highly-concentrated market with limited competition. According to the HMI, the three hospital groups have a combined market share of 83% in terms of the number of beds and 90% in terms of the total number of admissions.

“One of the most important consequences of the dominance of the three large hospital groups is that no funder [medical aid scheme] can afford not to contract with any one of the three big facility groups or to totally exclude one of these groups from any provider networks,” the 484-page HMI report read.

If the market was less concentrated – for example, with six large private hospital groups instead of the current three – medical aid schemes “would likely have the option not to contract with one of the groups”.

This, the HMI says, would “create a completely different bargaining dynamic, to the benefit of patients”.

Buys, who disagrees with the finding that Mediclinic is one of the three dominant players, says there is robust competition between all hospital groups, including the National Hospital Network.

He adds that over the past five years the private healthcare market has seen the entrance of independent private hospital groups, including acute care hospitals and day-clinics, which has been good for competition and patients.

“We are seeing many hospital licenses that have been given to independent hospital groups and we see them building more hospitals. Most of the big hospital groups in the past five years have built at least two new hospitals but the independent players have built more. The hospitals built by independents would even be based right opposite ours and they have become direct competitors,” says Buys.

Among the independent hospital groups he mentions are Lenmed Health Group, Busamed Group, and day-care specialist Advanced Health.

Supply-induced demand

The HMI found that some of the costs incurred by patents for in-hospital care rather than out-hospital cannot be explained.

An analysis of medical scheme claims data by the inquiry revealed that the average private medical scheme spend per member increased by 9.2% per annum for a five-year period from 2010 to 2014. This was nearly four percentage points higher than average consumer price inflation over the five-year period of 5.6%.

After taking into account changes in medical scheme members’ plan type, gender, disease profile and membership movement, there was an unexplained increase in spend per member of more than 2% per annum after adjusting for inflation or in rand terms, R3 billion.

Buys says Mediclinic doesn’t support the accuracy of the HMI’s calculations as it uses headline inflation instead of stripping out medical inflation from the headline figure and using it as a benchmark.

The HMI has recommended a moratorium in terms of which Life Healthcare, Mediclinic, and Netcare would not be granted licenses for new facilities, or permission to increase the number of beds within existing facilities until their individual market share is not more than 20%.

Buys says a moratorium is not a sensible option.

“Hospital groups bring new facilities wherever there is a need. They respond to the need by building new facilities. A moratorium that says nothing about medical needs at all is really not a practical solution.”

Mediclinic plans to engage with the HMI panel about its disagreements with the findings.

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Where do the politicians and members of the commission go and take their family when they need medical care?? To one of the private hospitals!! Just like taking their kids to private schools.

Almost every major town, has or rather had, a functioning, adequate hospital in 1994. The competition for the private hospitals, by the affordable government hospitals went down the tubes in the last 20 years.
Now they complain of dominance by the private sector?
Fix what you broke and the private hospitals will have competition.
Don’t go breaking that which works.

R15k for a simple circumcision, ohh yes Mei, lhc and NTC share holders are happy to milk the sick. If you are a young person I say to you take you chances now while you are still healthy and do not join any of the medical schemes. Put half of the money you are currently paying in a special savings account for GP consultations. Let the old sick people quickly bankrupt the schemes and see who these companies are going to to milk

Mediclinic should become a SOE! “Efficiency” is not a current buzz word in South Africa!

Don’t worry Mediclinic, if you don’t loot and destroy the Government really struggles to see any value in what you do. While the public healthcare system dishes out dog-treatment to the masses Government would rather work on the HMI report. It’s all about priorities.

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