21 May 2012 by

Merger between Life Healthcare and Joint Medical Holdings Limited should be carefully considered

From Monday 21 May, the Competition Tribunal will hear a merger between Life Healthcare Group, a wholly owned subsidiary of Life Healthcare Group Holdings Ltd, and Joint Medical Holdings Limited. Life Healthcare is one of the three largest private health care groups in South Africa. Its facilities include hospitals, rehabilitation units, occupational health clinics and facilities that care for chronically ill patients. Joint Medical Holdings, the target in this merger, owns five hospitals in and around the Durban area. The Competition Commission has recommended that the Tribunal prohibit this merger

Chris Charter, Director in the Competition practice at Cliffe Dekker Hofmeyr is of the view that in in the present environment, with healthcare costs high on the policy agenda, any merger between hospitals would be approached with caution.

“Private (insured) healthcare is already seen as expensive and inaccessible to most of society. The necessity of the service and the travails of the alternative (State healthcare) results in low price elasticity, which means that consumers are unable to avoid paying higher prices. Where a merger appears to sew-up a local market, it’s not surprising that concerns arise. Medical aid funds are certain to be against the merger, as they will now have to negotiate tariffs with a single group,” Charter says.

Charter notes that concerns around hospital mergers are not confined to South Africa. In the United States, considerable merger activity in recent times has been met with some resistance from the Federal Trade Commission there. The Competition Commission will be supported by recent studies from the US, which suggest that hospital costs in markets with less competition are significantly higher. These studies included assessment of post-merger markets.

“No doubt the merging parties will be arguing that the merger will allow them to cut costs and be more efficient; that increased costs of healthcare (such as new machines and best practices) requires scale. It may also be easier to coordinate managed patient care when doctors work for the same company. It seems the merging parties may also be looking to argue that the move from 49% to 70% represents a change in equity only, with Life Healthcare already an influential shareholder and thus the merger will not change how the hospitals are run,” he says.

“Certainly,” he adds, “this merger potentially affects the man in the street and it seems fitting that it should be carefully considered.”
 

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