Competition policy in healthcare (market) Trudi Makhaya 1

The role of competition law in economic transformation Apartheid legacy: Limited market competition and economic concentration Extensive government intervention Exclusion of the majority from participation in the economy Institutions to encourage competition – competition law, competition authorities – seen as ‘doorstep institutions’ that help society move towards an ‘open access’ order Liberalisation and competitive markets seen as part of solution in SA 2

Purpose of the Competition Act The purpose of this Act is to promote and maintain competition in the Republic in order- to promote the efficiency, adaptability and development of the economy; to provide consumers with competitive prices and product choices; to promote employment and advance the social and economic welfare of South Africans; to expand opportunities for South African participation in world markets and to recognise the role of foreign competition in the Republic; to ensure that small and medium-sized enterprises have an equitable opportunity to participate in the economy; and to promote a greater spread of ownership, in particular to increase the ownership stakes of historically disadvantaged persons. 3

The South African competition regime Institutions and legislation Competition Act of 1998 Commission, Tribunal, Competition Appeal Court Success in blocking anti-competitive mergers and busting cartels Few abuse of dominance cases with findings of anti-competitive behavior – 8 findings, 3 companies paid fines (SAA, Foskor, Telkom, Sasol under appeal) 4

Public interest considerations Mergers subject to a public interest test outlined in the Act Employment Impact on industrial sector or region Ability of firms owned by historically disadvantaged to compete Ability of national industries to compete in international markets Exemptions from the Act Ability of small business and those owned by HDIs to compete Crafting remedies that deal with economic transformation (small business development funds – Pioneer, Walmart, AFGRI) Nationwide Poles – attempt to include public interest considerations in enforcement cases (overturned) Ways to interpret the act – narrow, expansive, opportunistic 5

Competition authorities in healthcare HASA/SAMA/BHF consent orders that led to the cessation of collective bargaining between healthcare providers and healthcare funders, to be replaced by bilateral pricing discussion Various mergers in private healthcare Netcare/CHG Life/JMH Phodiclinics/Protector group of hospitals Exemption application from the HPCSA for its rules that may violate competition law Complaints about designated service provider networks/ selective contracting by healthcare administrators – CC has not referred these to Tribunal 6

Market Inquiry Scope Examine factors that distort, prevent or restrict competition in a market – general state of competition – not conduct of a particular named firm Independent Panel UK experience Extensive submissions Evidence-based analysis of theories of harm Challenges from market participants on process (access to data) and remedies 7

Theories of harm Market inquiries proceed from assumption that a ‘market’ can be identified, defined and analysed; and that the deficiencies to be examined relate to the workings of ‘competition’ within that market. ‘Theories of harm’ – hypotheses about harm to competition Harm will express itself through: negative impact on consumer welfare through prices, choice, quality and innovation negative impact on the public interest elements outlined in the act, namely diversity of ownership, ability of small businesses to compete and employment. Panel identifies theories of harm related to the market power of funders, facilities and practitioners; barriers to entry; imperfect information and the regulatory framework. 8

Public interest & constitutional context ToR recognises that private healthcare provision takes place within the context of a constitutional commitment to the universal provision of healthcare (para 13) Ability of the state to provide adequate healthcare might be hampered by costs of private healthcare provision that are not fully borne by that sector (externalities) Recommendations have to be directly related to remedying the identified deficiencies in competition. However, Panel could also be mindful that Recommendations are supportive of the state’s ability to meet Constitutional obligations 9