The Competition Tribunal prohibited a merger between Mediclinic Southern Africa and Matlosana Medical Health Services in the North West province, because it would result in higher tariffs for the two hospitals that will be acquired, an order from the Tribunal stated.
The Tribunal has made public its reasons for blocking the merger in a 113-page order released on Tuesday.
The proposed transaction would see Mediclinic acquire a majority interest in Matlosana – which owns and operates two multi-disciplinary private hospitals in the North West town Klerksdorp. These are Wilmed Park and Sunningdale.
A Mediclinic hospital in the province- Mediclinic Potchefstroom, is just 50km away from the two hospitals.
The merging parties had first notified the Competition Commission of the proposed merger in September 2016. After investigating the matter, the Commission in June 2017 recommended to the Tribunal to prohibit the merger on the grounds that it would result in a significant increase in healthcare prices in the region.
The Commission also argued that patient experience and quality healthcare at the target hospitals would diminish after the merger and the acquisition would give Mediclinic greater bargaining power with medical schemes. The merging parties however argued that the merger would improve costs of procurement and increase clinical quality and patient experience at the Wilmed Park and Sunningdale hospitals. But the Tribunal ultimately decided to uphold the Commission's recommendation and block the merger.
In a redacted order from the Tribunal, it gives reasons for blocking the merger.
The target firm, Matlosana is a member of the National Health Network [NHN] – a nonprofit company which negotiates tariffs and benefits with medical schemes on behalf of independent hospitals. The evidence presented on the proposed transaction is that after being acquired by Mediclinic, the two Matlosana hospitals tariff files would change to the Mediclinic tariff files. "Mediclinic has been able to achieve higher tariffs to date than the NHN," the Tribunal noted.
The tariff is a major component to the total costs to patients for hospital services. The Tribunal determined that there would be an increase in the bill to patients at Wilmed and Sunningdale, following the merger.
"The vast majority of medical aids raised concerns in relation to the anticipated effects of the proposed transaction on competition – specifically in relation to tariff effects," the order read.
Other factors to consider include that Matlosana grants "significantly larger discounts" to uninsured patients than Mediclinic on both theatre and ward fees.
"We have concluded that the proposed transaction will remove the lower tariffs that are available to uninsured patients at the target hospitals and given the significant differences in these tariffs, the proposed merger will significantly affect uninsured patients by limiting their ability to negotiate and switch to cheaper hospitals in the form of the target hospitals," the order read.
This is a matter of public interest as uninsured consumers are most vulnerable, the Tribunal said.
The order also stated that Mediclinic failed to demonstrate that there would indeed be efficiencies at the two hospitals following the merger.
The merger will also result in Mediclinic being the dominant player in the market for the provision of private, multidisciplinary acute inpatient hospital services in the area. Mediclinic would have a market share of 63%. "A market share that dwarfs that of the next largest competitor," the Tribunal noted.
This would have implications for medical schemes, particularly in restricting their choice to using the only hospital services in an area. This would also have an adverse effect on consumers, the Tribunal said.
The Tribunal was not satisfied with the remedies proposed by the parties to address concerns related to competitive harm, among other things.
"The proposed transaction will have a significant effect on the healthcare costs of both the insured and uninsured patients living in a specific region – the rural Potchefstroom and Klerksdorp region, given the targeted hospitals have significantly lower tariffs than Mediclinic," the order read.
"The proposed merger thus leads to an adverse public interest effect, with no countervailing positive public interest ground advanced to mitigate this."
Mediclinic Corporate Communication Tertia Kruger has confirmed the company will be appealing the decision at the Competition Appeal Court. The appeal is set to be heard on October 14 and 15, 2019.