In every country in the world, the healthcare industry is a target for a great deal of debate and argumentation. There are many conflicting pressures on the healthcare business. On the one hand, there is the pressure of social justice, which demands that all citizens be given access to the care needed to sustain life and health. Then, there is the fact that healthcare is a supplier-driven industry, with those who supply care also creating the demand for that care by prescribing treatments and procedures. This makes costs difficult to contain. The fact that medical training requires a great deal of time and talent further inflates costs, as the profession must attract talent from other sectors, and retain it.
In South Africa, these and other issues are boiling to the surface, and will be the subject of a detailed competitive enquiry that, observers say, is likely to lead to significant changes to the way that healthcare is regulated in South Africa. – FDÂ
ALEC HOGG: Let’s take a look at our global emerging markets. Asian markets are trading right now.
GUGULETHU MFUPHI:Â Negative issues that may affect prices, expenditure, cost, and competition in the private healthcare sector have been pinned down to the regulatory framework governing the sector. These issues were identified by an independent panel appointed by the Competition Commission as the appropriate framework for an inquiry into the healthcare market in South Africa. Joining us to elaborate further is Darryl Dingley, Competition Partner at Webber Wentzel. Thank you so much for joining us today. Perhaps we can take two steps back and paint the picture as to where everything started in order to get us to where we are today.
DARYL DINGLEY: The genesis of the whole healthcare enquiry has been coming for a long time I’d say, over a period of probably two years. A lot of press about rising expenditure, rising prices across the sector…in fact, rising above headline inflation, and because of the rising expenditure, rising inflation, as well as the fact that only a small segment of the population can actually afford private healthcare, spurred the authorities on to initiate this inquiry. In fact, those factors led to the amendment of the competition and to allow market enquiries, which we see today. This is therefore the first market inquiry under the new regime – under the Competition Act – and certainly, if you compare it to the banking inquiry, it has a lot more teeth than the banking inquiry did. If you remember, the banking inquiry…the banks came forward, volunteered the information, and participated very much on voluntary basis whereas now, the panel can subpoena information and people to come and appear. They have much more/stronger powers, so this market inquiry is going to lead to I think, significant intervention in the sector.
ALEC HOGG: That’s interesting in that it’s one of the sectors that’s really working. It’s one of the world-class sectors. The sector’s pulling in a lot of money in foreign exchange from elsewhere, so we have to go and fiddle with it. Anyway, just to have a look at what’s happening internationally, Netcare, which is R42bn South African company, obviously will be in the sights of the Competition Commission when they go into this. It didn’t come out well on the U.K. investigation into private healthcare, from their Competition Commission. Are there any parallels?
DARYL DINGLEY: I think there are some parallels, but in South Africa, the major issue with the private hospitals has been the concentration and the fact that we only have three. The people are saying ‘aren’t the private hospitals responsible for driving these inflationary pressures’ and I think it’s a little bit unfair because there are a number of other factors affecting the rising expenditure. For example, increased utilisation: we’re getting a population that’s becoming much more aware of private healthcare, richer, able to afford a medical insurance – they’re going into hospitals – so a little bit of increased utilisation. Changing demographics and input costs for hospitals have also changed, so there are a number of factors. It’s a bit different to the U.K. in terms of their regulatory framework and how the hospitals operate in that sphere. In South Africa certainly, I think it’s not just about private hospitals.
It’s also about the funders, the levels of concentration, and the funding sector. It’s about the interaction between funders and pharmaceutical companies, and funders and doctors, and so there are many different interactions that are going on here. Don’t forget the State sector. I think that one of the problems we have here in South Africa is that we need to have a strong State sector. We need to have a strong Public Health sector because that effectively does, in the long run, constrain the private sector to some extent and it gives people choices.
ALEC HOGG: You sound like these interventionists who have screwed up all over the world, and now you want to do it to one of the sectors that’s actually working.
DARYL DINGLEY: Well, I think that out of the inquiry… In fact, it might come out that it is working and that the problems people have identified aren’t as real as they maybe made it out to be. That certainly could come across. If they’re going to look at the profitability of Netcare and the profitability of Life Healthcare for example, they might find that in fact, they are making normal returns for an industry of that nature. If you look at the capital invested in their returns, they’re pretty normal. They’re not making excessive profits that people like to popularise out there.
ALEC HOGG: Isn’t Discovery a little bit of a counterbalance to this? Clearly, they’re in the insurance business – medical healthcare business – they’re big. They’re powerful. They’re trying to screw the hospitals for the lowest costs all the time. You just worry sometimes when the market seems to be working, but of course, the State sector likes to get involved and how we know how successful that’s been with SAA, SABC, and Eskom.
GUGULETHU MFUPHI:Â Oh gosh, Alec.
ALEC HOGG: Do you want me to stop.
GUGULETHU MFUPHI:Â Stop there.
DARYL DINGLEY: I think the Competition Commission for example…a few years ago; you might have remembered that they said there couldn’t be this sort of collective bargaining between the Hospital Association, the Board of Healthcare Funders, and the different practitioner groups. In my view, it was actually working quite well then, before they came and said you couldn’t do that. Then you had the cultivating power of these different bodies and I think it was functioning quite well. The intervention at that stage, to say you can’t do that, has actually upset the balance because in that context you have powerful people such as Discovery negotiating with smaller groupings, and the balance is upset. Similarly, the private hospitals also have a lot more market power in terms of their negotiation techniques and ability to get the right prices etcetera, out of different service providers because of this imbalance. They are going to look at that. They’re going to look at previous interventions. They’re going to look at the regulatory framework and I think ultimately, we might end up with a better functioning sector than we have today.
GUGULETHU MFUPHI: Coming back to Alec’s comments regarding the State’s role here, shouldn’t they be picking up a few lessons from the private sector?
DARYL DINGLEY: I believe that they should. A few years ago, they increased nurses’ salaries in the public sector and the immediate impact was that all the nurses ran across to the State hospitals. What happened is that the private hospitals then had to increase their nurses’ salaries and they had inflationary pressure. The decisions that are made there often impact upon the private sector, and I think those issues need to be looked at quite closely.
ALEC HOGG: Unintended consequences of decisions made by people who don’t know what they don’t know. We see this all over the word and I guess we’re probably going to have another rerun of that movie, but you can’t change it. I can’t change it. All we can do is talk about it.
GUGULETHU MFUPHI:Â It seems as though the optimism here is dying, Alec.
ALEC HOGG: No, I’m very optimistic. I think the people in South Africa are the most fantastic people in the world. We’ve overcome so much ridiculous intervention. It’s extraordinary…the resilience we have with these people (my countrymen) and that’s why we’re going to get to Petrus de Kock later on and talk about active citizenship.
GUGULETHU MFUPHI: Don’t say that too loudly. He might not come in.
ALEC HOGG: No, I’m on his side for Brand South Africa – active citizenry. Get involved.
GUGULETHU MFUPHI:Â Get involved.
ALEC HOGG: Exactly.
GUGULETHU MFUPHI: Thank you so much Daryl, for getting involved in this discussion and hopefully you’ll be back to give us an update. That was Daryl Dingley, Competition Partner at Webber Wentzel.
In the meantime, you can get in touch with us and email us maybe, on your active citizenship. You can email us on [email protected] or on Twitter at cnbcafrica#powerlunch410.
