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

Vision

A medical schemes industry which is regulated to protect the interests of members and to promote fair and equitable access to private health financing.

Mission

The Council will act in an administratively fair and transparent manner with integrity and professionalism and will achieve our vision by:

• informing the public about their rights and duties;
• ensuring that all entities conducting the business of a medical scheme comply with the act;
• ensuring that complaints raised by members and the public are handled appropriately and speedily;
• improving the management and governance of medical schemes; and
• advising the Minister of appropriate regulatory interventions that will assist in attaining the national health policy objectives.

Strategic Objectives

• Secure an appropriate level of protection for beneficiaries of medical schemes and the public by authorising the conduct of medical schemes business and monitoring the financial performance and soundness of schemes.
• Provide support and guidance to trustees and promote the understanding of the medical schemes environment by trustees, beneficiaries and the public.
• Foster compliance with the Act by medical schemes, administrators, managed care entities and brokers and initiate enforcement action where required.
• Investigate and resolve complaints raised by beneficiaries and the public.
• Monitor the impact of the Act, research developments, and recommend policy options to improve the regulatory environment.
• Foster the continued development of CMS as an employer of choice.
• Develop strategic alliances nationally, regionally and internationally.

Source: Council for Medical Schemes, Vision and Mission, available www.medicalschemes.com (accessed 24 May 2010).

12A. Consideration of Mergers

(1) Whenever required to consider a merger, the Competition Commission or Competition Tribunal must initially determine whether or not the merger is likely to substantially prevent or lessen competition, by assessing the factors stout in subsection (2), and –

• (a)
  if it appears that the merger is likely to substantially prevent or lessen competition, then determine –

  • (i)
    whether or not the merger is likely to result in any technological, efficiency or other pro-competitive gain which will be greater than, and offset, the effects of any prevention or lessening of competition, that may result or is likely to result from the merger, and would not likely be obtained if the merger is prevented; and
  • (ii)
    whether the merger can or cannot be justified on substantial public interest grounds by assessing the factors set out in subsection (3);

  or
• (b)
  otherwise, determine whether the merger can or cannot be justified on substantial public interest grounds by assessing the factors set out in subsection (3).

(2) When determining whether or not a merger is likely to substantially prevent or lessen competition, the Competition Commission or Competition Tribunal must assess the strength of competition in the relevant market, and the probability that the firms in the market after the merger will behave competitively or cooperatively, taking into account any factor that is relevant to competition in that market, including –

• (a)
  the actual and potential level of import competition in the market;
• (b)
  the ease of entry into the market, including tariff and regulatory barriers;
• (c)
  the level and trends of concentration, and history of collusion, in the market;
• (d)
  the degree of countervailing power in the market;
• (e)
  the dynamic characteristics of the market, including growth, innovation, and product differentiation;
• (f)
  the nature and extent of vertical integration in the market;
• (g)
  whether the business or part of the business of a party to the merger or proposed merger has failed or is likely to fail;* and
• (h)
  whether the merger will result in the removal of an effective competitor.

(3) When determining whether a merger can or cannot be justified on public interest grounds, the Competition Commission or the Competition Tribunal must consider the effect that the merger will have on –

• (a)
  a particular industrial sector or region;
• (b)
  employment;
• (c)
  the ability of small businesses, or firms controlled or owned by historically disadvantaged persons, to become competitive; and
• (d)
  the ability of national industries to compete in international markets.

*Note: The Act did not determine parameters for assessing whether a firm had failed or was likely to fail. The Commission and Tribunal used guidelines formulated in the USA to make this determination. (See Exhibit 5.)

Source: Competition Act, 1998 (Amended), p. 21 available www.polity.org.za (accessed 19 April 2010).

US horizontal merger guidelines

“A merger is not likely to create or enhance market power or facilitate its exercise if the following circumstances are met:

• 1) the allegedly failing firm would be unable to meet its financial obligations in the near future;
• 2) it would not be able to reorganize successfully under Chapter II of the Bankruptcy Act;
• 3) it has made unsuccessful good-faith efforts to elicit reasonable alternative offers of acquisition of the assets of the failing firm that would both keep its tangible and intangible assets in the relevant market and pose a less severe danger to competition than does the proposed merger; and
• 4) absent the acquisition, the assets of the failing firm would exit the relevant market.”

Source: Competition Tribunal Republic of South Africa, In the matter of Phodiclinics et al (Acquiring firms) and New Protector Group Holdings et al (target firms) and Network Healthcare Holdings, Supreme Health Administrators and the Council for Medical Schemes (intervening parties), Reasons (non-confidential), Case Number 122/LM/Dec05, available www.comptrib.co.za (accessed 15 May 2010).