Profit is the only prognosis

The health care industry is increasingly coming under the beady eye of the Competition Commission and Competition Tribunal.

The mandate of these two regulators is to ensure that the conduct of entities in the marketplace — such as hospital groups — serves the public interest. Their aim is effective competition, and to eliminate the abuse of market dominance and hush-hush deals in smoke-filled rooms between alleged commercial rivals.

Hospital groups, in the form of the Hospital Association of South Africa, have already felt the commission’s bite. The Council for Medical Schemes recently referred a commercial venture involving doctors in the Netcare group to the commission, believing it might not be in medical scheme members’ best interests.

At the same time, the tribunal is hearing detailed evidence on a proposed empowerment deal between two other hospital groups — Afrox Healthcare, the subject of the deal, and Medi-Clinic, which is putting up some of the cash.

South Africa prides itself on its private health care system. But its hospital component largely comprises three groups: Afrox Healthcare, Netcare and Medi-Clinic.


Most of their income comes from medical schemes and their members, and they account for more than one-third of the almost R50-billion that flows annually through the medical schemes. The money comes from a static membership of about seven million, and each year all three groups do similar things to extract higher profits from a stagnant pool.

Netcare exposed one of these methods in its joint application with pharmacists, to the high court, aimed at warding off the Medicines Act’s potential damage to profit levels. Huge buyers of medicines and pharmaceuticals, the hospital groups are able to make whopping profits from the margins they give themselves when they sell them to patients. Despite this, they plead poverty each year and blame drug companies for high prices.

Each hospital group has links with a large group of pathologists. In fact, before the Health Professions Council ordered pathologists to distance themselves, their groups were often owned by hospital companies. How about that for anti-competitive behaviour?

Deals are still regularly done between different doctors with rooms in the same hospitals. Gases used and measured in operating theatres are subject to similar deals; and each time a hospital group purchases some piece of high-tech medical gadgetry, the charging system will ensure profits flow to it. As a result, good old-fashioned ultrasound machines now have to be in colour, 3-D and connected to phones or other communication systems. CAT scanners, MRI scanners and other radiology equipment also line shareholders’ pockets — the size of the return depending on how often patients can be induced to use them.

The parent company of a hospital group sells the gases to the group it owns. The latter then resells it, making a handsome profit on the way. None of this is criminal. Private hospitals, doctors and pharmaceutical companies are all just businesses in search of the magic buck.

It is not the number of sick bodies in beds that counts towards the bottom line. It is the accumulation of many different mark-ups in one cosy clutch of health care providers that does the trick. An example of a R5 000 bill for a hospital stay of a few hours included the drugs used for sedation; 3-D, full-colour ultrasound; a consultation with a pathologist in rooms conveniently located near the doctor’s rooms; and the use of the hospital’s ECG machine. The bed bill amounted to a mere R600, while outgoings were limited by having a single, badly paid nurse chasing around the eight-bed ward.

The name of the game is to monopolise treatment for specific areas of the anatomy, squeezing out competition and turning a healthy profit by imposing sometimes unnecessary and needlessly expensive diagnostic tests and medication, all of which is billed to a medical scheme.

If several different hospitals compete for the same market, it might hold prices down. But this is South Africa, where cellular phones, car tyres and hospitals are all prone to market failure. Enormous pools of economic power are concentrated in few hands.

If the three major hospital groups keep extracting a larger slice of a pie that isn’t growing, the losers can only be you, me and our medical schemes.

Pat Sidley is communication and education officer for the Council of Medical Schemes

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