Discovery Health Medical Scheme has asked the Competition Commission to dismiss Afrocentric Health’s complaint that it is undercutting competitors, contending it lacked merit.
The dispute between Discovery and Afrocentric currently before the Competition Tribunal, in which one medical scheme essentially accuses the other of undercutting it on price, reflects core policy issues that need to be considered when using instruments of competition regulation, writes Business Day in an editorial.
Business Day reports that Afrocentric, Medscheme’s holding company, claimed that since 2014, DHMS and its administrator, Discovery Health, had been unfairly negotiating low rates with hospital groups, disadvantaging all other medical aid schemes and contravening the Competition Act. Discovery Health has a 54% market share, with nearly 3m clients. It administers 15 medical schemes, with DHMS being its biggest client.
Discovery Health denied the allegation, saying it did not disclose a cause of action, lacking any substance to show that section 4.1 of the act had been contravened. The firm argued the act only prohibited practices between competitive firms in a horizontal relationship with each other. Discovery Health claimed their relationship with member schemes was vertical.
A 2004 commission ruling stipulates schemes are to negotiate individually and independently with each hospital group. Medical aid administrators are also to negotiate for each scheme separately.
The report says Arnie Subel SC, for Afrocentric, pleaded that the complaint be heard as its merits were evident. He argued the conduct by Discovery Health and DHMS was anti-competitive as the former used its market power in DHMS as a bargaining tool to secure the lowest possible rates for all medical schemes under its administration.
“Discovery Health is the kingpin in the collective bargaining process,” acting as a representative for the scheme, said Subel. He maintained that through the negotiated tariffs with hospital groups, DHMS members were able to enjoy better rates, while smaller schemes under Discovery Health also benefited by securing rates that were 20% lower than average.
Subel argued that the alleged anticompetitive behaviour distorted the medical schemes market and had resulted in financial losses for Discovery Health competitors that may see competitors exiting the market, thereby reducing competition.
Afrocentric’s heads of argument read that hospital groups who were unable to recover costs with Discovery Health were compelled to negotiate with remaining medical schemes at higher tariffs.
According to the report, Discovery Health’s advocate, Wim Trengove SC, and Discovery Health Medical Scheme’s advocate, Robin Pearse, argued that Afrocentric’s complaint was fatally defective.
The tribunal asked for time to review the matters brought before the court and would make its decision soon after analysis.
Business Day reports that allegations by Afrocentric that Discovery is undercutting it have already been extensively canvassed in the market inquiry into the country’s healthcare sector, which the commission launched some years ago. Discovery has made its case in some detail at that inquiry, which has yet to conclude its deliberations.
The report says that that is one reason why the tribunal might not be the place for this, along with various other legal arguments that Discovery has put in challenging Afrocentric to show why the tribunal should hear the case at all. The tribunal will now decide whether to do so or not.
But, the report says, the case tends to reflect some of the rather strange uses to which SA’s competition regulation is being put these days.