Medicross v. Prime Cure Holdings

Case no 11/LM/Mar05
Download Judgment: English

The Competition Tribunal examined a merger between Medicross Healthcare Group (Pty) Ltd (Medicross) and Prime Cure Holdings (Pty) Ltd, companies providing primary care healthcare services to medical aid schemes. The transaction envisaged that Medicross would acquire the entire share capital of, and loan claims against, Prime Cure.

Prime Cure manages and administers 45 primary healthcare centers, primarily servicing low-income areas. The Prime Cure healthcare centers receive approximately 800, 000 patients annually. It also manages and administers four independent general practitioner practices that operate outside its healthcare centers. In addition, Prime Cure has a contractual network of 2000 general practitioners and 800 associated healthcare professionals such as dentists and optometrists. Medicross manages and administers 53 health care centers, aimed primarily at high-income patients. These centers accommodate 413 general practitioners and 153 dentists.  It further manages 21 independent medical practices.

The merger would result in a significantly sized health care company. One of the primary reasons stated for the merger was for Medicross to entire the low-income consumer health care market.

The Court sought to determine if this merger between two of the largest players in the healthcare market was anti-competitive. The Court first examined the existing situation regarding public and private provision of health care. It determined that at the moment the Government has only begun the process of regulating the private health care market in order to ease the existing burden on public health care. As a result of this uncertain and fluid situation, the Court indicates that it is necessary to take a cautious, deliberate approach to examining mergers such as these, where the needs of those dependent on the public system need to be protected.

The Court then examined the nature of the market.  It first determined that the relevant market was the provision of capitated primary managed healthcare products for low-income consumers. And within this market, the merger would have involved two of the three major players in the market.  Furthermore, entry into the market by competitors was very limited.  While there is no history of evidence of collusion between market players, in this case the merger might facilitate collusion. The Court therefore found that the horizontal dimensions of this merger were likely to lessen competition.

As the Court found no countervailing efficiencies or public interest considerations, it determined the merger to be anticompetitive.

“The constraint in effecting this movement of people from public to private healthcare is finance.  Put simply, the vast majority of those who are presently reliant upon the public healthcare system cannot afford to fund private healthcare. They cannot, in other words, afford the monthly premiums charged by any of the variety of healthcare insurance schemes available on the market.  From a public policy perspective the upshot of this funding constraint is that the public sector is increasingly incapable of delivering quality healthcare to those who rely upon it while the private sector remains, as it were, structurally over-capacitated.  From the perspective of the private sector, it is unable, despite its excess capacity, to service a potential market of millions of South African whose healthcare needs are not adequately catered for by the public sector.  Hence medicals schemes and the array of services that cluster around them, have reached the limits of their market (the number of principal members of medical schemes has remained stagnant at approximately 7 000 000 for some nine years) and some important elements of the private system – notably the hospitals – are characterised by significant excess capacity.” Page 10.

“It is our view, then, that this extremely fluid context, the absence of an established and stable regulatory framework for this embryonic market as well as for some related and long-standing markets (for example, pharmaceuticals), demands that we adopt a particularly cautious and circumspect approach to private interventions, such as this merger, that will inevitably impact on the development of the market under consideration.  Public interest considerations impinging on the outcome of interventions in this area – be they interventions by the state, by regulators or by private market participants – are, for unimpeachably good reason, unusually intense and this also predisposes us to particular circumspection.” Page 14.