HMI SEMINAR:

Facilities Market

Concentration

and Remedies

Dr Jenni Noble

9th April 2019

• Market concentration

• Supplier induced demand

• Licensing recommendations

• Hospital networks

• Annual negotiations

• Recommendations

Agenda

Market concentration and market share

28% 27% 26% 26% 25%

23% 22% 23% 24% 24%

22% 22% 22% 22% 22%

18% 19% 18% 19% 21%

10% 9% 11% 9% 9%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2014 2015 2016 2017 2018

Mediclinic Netcare Life Health NHN Other

2 182 2 176 2 143 2 175 2 169

0

500

1 000

1 500

2 000

2014 2015 2016 2017 2018

Mediclinic Netcare Life Health NHN Other HHI

Medscheme experience from 2014: acute and day facilities

Market Share by Medscheme admissions

2014-2018

Medscheme admissions-based HHI

2014-2018

3% increase in NHN’s market share; HHI moderately concentrated

Market concentration and market share

Medscheme experience from 2014: acute facilities only

Market Share by Medscheme admissions

2014-2018

Medscheme admissions-based HHI

2014-2018

2% increase in NHN’s market share; HHI remains moderately concentrated

28% 28% 27% 26% 25%

23% 23% 23% 24% 24%

23% 23% 23% 23% 23%

16% 17% 16% 17% 18%

10% 9% 11% 9% 9%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2014 2015 2016 2017 2018

Mediclinic Netcare Life Health NHN Other

2 211 2 203 2 170 2 200 2 187

0

500

1 000

1 500

2 000

2 500

2014 2015 2016 2017 2018

Mediclinic Netcare Life Health NHN Other HHI

• Acute: 68% of NHN beds

• Day clinic:10% of NHN beds

• Sub-acute: 9% of NHN beds

• Ophthalmology: 3% of NHN beds

NHN

Current membership* (March 2019)

6932%

7334%

2914%

3918%

32%

Number of facilities

105910%

744468%

143413%

10469%

470%

Number of beds

Day Clinic

Hospital

Psychiatric

Sub Acute

Rehabilitation

*Source: NHN monthly membership data

• Notified of approx. 2000 new acute and day beds from 2019

• 85% acute beds

• 9% from listed groups – approx. 60 acute beds and 120 day clinic beds

• Intended M&A’s of acute facilities

• NHN exemption conditions – may impact group

Market concentration

Consideration of future growth, mergers and acquisitions

Competition Commission Media Statement ‘National Hospital

Network granted conditional exemption’. 8 Nov 2018

• Some evidence of deconcentration since 2014

• Many new hospital entrants in areas of adequate/oversupply – result is higher

regional admission rates

• Preference would have been deconcentration without increasing beds in these

areas

• Industry has changed – greater issue is oversupply of beds per risk adjusted

insured population

Supplier induced demand (SID)

“Hospital beds that are built tend to be used”

Roemer’s Law

Licensing Fragmented licensing regime: e.g. cardiac cath labs

26

16

14

3

1 1 1 1 1

136 077 100 313

99 071

213 000

423 000

474 000

614 000

198 000

598 000

-

100 000

200 000

300 000

400 000

500 000

600 000

700 000

0

5

10

15

20

25

30

Gauteng Western CapeKwazulu Natal Eastern Cape Free State Limpopo Mpumalanga N Cape North West

Ratio c

ath

lab

s:

insu

red

po

pu

lation

*

Nu

mb

er

of ca

th la

bs (

Au

g 2

01

8)

Provincial distribution of cardiac cath labs and ratio to insured population

Cath labs Insured population /no. of cath labs

*Insured population StatsSA General Household Survey 2017

Expected

Recommendation for catheterization laboratories is 1 laboratory per 450 000 to 600 000 population (Heart 2003;89:827-

829).

Licensing issues

Mental health beds

• System is not considering population need in allocating licenses

2420

2076

3279

1027

2960

4449

4878

2912

0

1000

2000

3000

4000

5000

6000

0

200

400

600

800

1000

1200

1400

1600

Gauteng Western Cape Kwazulu Natal Free State North West Eastern Cape Mpumalanga Northern Cape Limpopo

Ratio m

en

tal h

ea

lth

be

ds:

insu

red

po

pu

lation

*

Me

nta

l h

ea

lth

be

ds

Provincial distribution of mental health beds and insured population ratio

Mental Health clinic (55) Acute Hospital (57/58) Subacute facilities (49) Ratio beds: insured population*

*Insured population StatsSA General Household Survey 2017

• Support an expedited centralized national licensing framework

• Support proposed data submission and reporting framework with reports in

public domain

• Suggest identification of corporate affiliation in practice code system

• Consider cost impact of system development

Licensing and practice codes

Network participation not determined purely on price

Hospital networks

• Typically proposed at national level

• Quantum depends on potential for increased volumes:

• Size of beneficiary pool

• Degree of exclusivity & potential volume shift

Network discounts

• Discounts may be differentiated based on concentrated markets

• No discounts for ‘filler’ status

• Hospitals in solo/concentrated markets may be added to networks to ensure access, but mostly do not offer discounts

Impact of local market concentration

Annual negotiations

• Most scheme options are non-network options

• Tariffs negotiated nationally - impacted by national concentration

• Negotiation power weaker where open access and national member distribution

• Network discounts impacted by regional concentration

• ARMs and information sharing – limited traction on risk transfer

Impact of national and regional concentration

• NHN growth has created additional competition - an alternative network

• CMS allowed EDOs - trustees more willing to establish networks

• Trustees supportive of tougher negotiations - improved mandates

Changes in negotiation power

• Review concentration analysis and recommendations based on

current and projected expansions, specialties, growth, mergers

and acquisitions - Need specific recommendations

• Licensing moratoriums may need to apply to all hospital groups

in identified areas

• Expedite implementation of licensing framework

• Include timelines associated with full suite of recommendations

• Synergy with other legislative and regulatory demands.

Recommendations

OU

R V

ALU

ES

THANK YOU