Competition Commission Case Series – Phodiclinics' Acquisition of New Protector: Increasing Concentration?

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On 31 October 2006, executives at the Council for Medical Schemes (CMS) and private hospital group Netcare were eager to hear the Competition Tribunal's decision regarding the acquisition of the New Protector Group hospitals by Phodiclinics (Pty) Ltd (a division of the Medi-Clinic Group) and DHJ Defty. Phodiclinics had made the bid in 2005 after New Protector had been placed under provisional liquidation in late 2004. On 3 March 2006, the Competition Commission had recommended to the Tribunal that the transaction be approved without conditions. However, the CMS was concerned that, if the acquisition went ahead, it would increase concentration in the private hospital market and thereby fuel already-unacceptable price increases in the market. Dr Simon Roberts, chief economist at the Competition Commission, noted that the key to the “competitive dynamics in this sector was understanding who the sellers and who the buyers are – that is, the sellers are the private hospitals and the buyers, essentially the medical schemes”. He added, “Fundamentally, the medical schemes, faced by an oligopoly, would want more competition in the sector.” Netcare, on the other hand, as he pointed out, was a competitor to Medi-Clinic, and was more concerned about its competitive position in the sector that was dominated by itself (30.4% share), Life Healthcare (27.7% share) and Medi-Clinic (24.5% share). At a pre-hearing in March 2006, the CMS, private hospital group Netcare and medical scheme administrator Supreme Health indicated that they wanted to intervene to argue against the acquisition. Permission was granted and the subsequent hearings took place during September and October 2006. Awaiting the Tribunal's ruling, the CMS and Netcare now reflected on whether the Tribunal would support their contentions

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