Mediclinic Southern Africa (Pty) Ltd and Another v Competition Commission (172/CAC/Feb19) [2020] ZACAC 3; [2020] 1 CPLR 66 (CAC) (6 February 2020)

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[2020] ZACAC 3
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Mediclinic Southern Africa (Pty) Ltd and Another v Competition Commission (172/CAC/Feb19) [2020] ZACAC 3; [2020] 1 CPLR 66 (CAC) (6 February 2020)

THE
COMPETITION APPEAL COURT OF SOUTH AFRICA
JUDGMENT
Case
No: 172/CAC/Feb19
In
the matter between
MEDICLINIC
SOUTHERN AFRICA (PTY) LTD
FIRST
APPELLANT
MATLOSANA
MEDICAL HEALTH SERVICES (PTY) LTD
SECOND
APPELLANT
And
THE
COMPETITION COMMISSION
RESPONDENT
Coram:
Rogers, Victor and Vally JJA
Heard
:
14 & 15 October 2019
Delivered:
6 February 2020
JUDGMENT
[Non-confidential
version]
Rogers
JA (Victor JA concurring)
Introduction
[1]
The appellants appeal against the Tribunal’s prohibition of
their large merger. The first appellant is Mediclinic Southern
Africa
(Pty) Ltd (‘Mediclinic’), the second appellant Matlosana
Medical Health Services (Pty) Ltd (‘Matlosana’).
In terms
of the merger transaction Mediclinic will gain control of Matlosana.
The respondent, the Competition Commission (‘Commission’),

recommended that the merger be prohibited and now resists the appeal.
[2]
Mediclinic owns a multidisciplinary hospital in Potchefstroom (‘MC
Potch’). MC Potch is one of 50 hospitals which
Mediclinic owns
in South Africa. Matlosana owns two multidisciplinary hospitals in
Klerksdorp called Wilmed and Sunningdale and
a psychiatric hospital
called Parkmed.
[3]
Potchefstroom and Klerksdorp, both of which are in the North West
Province (‘NWP’), are just under 50 km apart (the

travelling time is 41 minutes), Potchefstroom lying to the east of
Klerksdorp.
[4]
It was and is common cause that Parkmed’s services are not in
the same product market as those provided by the three
multidisciplinary hospitals mentioned above, and that the acquisition
by Mediclinic of control over Parkmed does not raise any competition

or public interest concerns. The contentious issues concern
Mediclinic’s acquisition of control over Wilmed and
Sunningdale,
to which I shall refer collectively as the targets. All
references hereafter to hospitals are to multidisciplinary hospitals
unless
otherwise stated.
Background
[5]
There are three large corporate hospital groups in South Africa:
Netcare, Life Healthcare (‘Life’) and Mediclinic.
Many
independent hospitals are affiliated to the National Health Network
(‘NHN’), a non-profit company. Historically
NHN has been
permitted, by way of an exemption granted in terms of
s 10
of
the
Competition Act 89 of 1998
, to negotiates tariffs and other
benefits with medical schemes on behalf of its affiliated hospitals.
In November 2018 this exemption
was expanded to include procurement
on behalf of affiliated hospitals. (I shall refer to this part of the
exemption as the procurement
exemption.) Matlosana’s Klerksdorp
hospitals form part of NHN. Nationally, the numbers of hospitals and
beds operated by
these four groups, and by unaffiliated independents,
are as follows (the national market share, by number of beds, is
given in
brackets):
·
Netcare
:
54 hospitals/10 004 beds (24,9%);
·
NHN
:
62 hospitals/6611 beds (24,7%);
·
Life
:
57 hospitals/7987 beds (21,3%);
·
Mediclinic
:
50 hospitals/7164 beds (20,3%).
·
Unaffiliated
: 3065 beds (8,8%).
·
Total
beds
: 34 831.
[6]
The targets have 247 beds. If they are acquired by Mediclinic, the
latter’s national market share by beds will increase
by about
0,7%.
[7]
Apart from MC Potch, there is one other multidisciplinary hospital in
Potchefstroom, MooiMed, which forms part of NHN. The drive-time

between MC Potch and MooiMed is five minutes. Apart from the targets,
there is one other multidisciplinary hospital in Klerksdorp,
Life
Anncron (‘Anncron’), which belongs to Life. The
drive-time between Wilmed and Anncron is five minutes.
[8]
A hospital bill (‘cost per event” – CPE) comprises
three components:
(a)
Fees for ward
and theatre time according to the hospital’s tariff
.
Hospitals’ tariffs differ. Although one hospital may have a
higher tariff than a competitor, the tariff component of the
former’s
bill might in comparable cases be lower than the latter’s
because of more efficient time management (ie less
time spent in
theatres and wards).
(b)
Ethicals
(drugs) supplied
. Ethicals are by legislation subject to a single
exit pricing (‘SEP’) regime, the effect of which is that
the same
drug supplied by two competing hospitals will appear in
their respective bills at an identical unit cost. In comparable cases
one
hospital’s bill might nevertheless have a lower ethicals
component (and thus be more efficient) than another’s because

the same drugs are used in lower but adequate quantities or because
satisfactory cheaper substitutes (generic as against patented

versions) are used.
(c)
Surgicals
consumed or supplied
. Surgicals (which includes prostheses) are
not subject to the SEP regime. One hospital may be able to bill
surgicals at a lower
cost than a competitor because it has procured
the same surgicals at lower prices (superior bargaining with
suppliers), or because
the same surgicals are used in lower
quantities, or because satisfactory cheaper alternatives are used.
[9]
In the case of the targets, their CPE on an average weighted basis
comprises a tariff component of 68%, an ethicals component
of 11% and
a surgicals component of 21%. CPE at other hospitals is broadly
similar but there would naturally be differences.
[10]
Although traditionally a hospital bill is made up of numerous line
items for each service and item supplied (the fee-for-service
(‘FFS’)
model), medical schemes and hospitals sometimes negotiate alternative
reimbursement models (‘ARMs’),
a typical example of which
would be a fixed fee for a certain type of procedure. An ARM allows
the scheme to share some of the
cost risk with the hospital, since if
in a particular case the procedure turns out – perhaps because
of complications –
to be unusually expensive, the hospital
still only gets the ARM fee. From the hospital group’s
perspective, it will want
to be reasonably confident that, averaged
out over all the procedures covered by the ARM, the fees payable in
terms thereof will
be profitable, even if some of the procedures turn
out to cost more than the ARM fee.
[11]
More than 95% of patients who receive services from private hospitals
are insured by medical schemes. In respect of this group,
price
negotiation occurs not between hospital and patient but between
hospital and scheme. The hospital (or hospital group) typically

negotiates its tariffs annually with each scheme. Where a scheme
option permits a patient a choice between two or more hospitals,

quality of care and patient experience may play a role in the
patient’s choice.
[12]
For the fewer than 5% of patients who are uninsured, each hospital
has its own tariff, with hospital managers having more or
less
discretion to grant discounts. In relation to these patients,
therefore, hospitals compete  not only on quality of care
and
patient experience but on price.
[13]
Most schemes are national, ie have members throughout South Africa.
Each scheme typically offers a variety of benefit options.
For richer
options, members are not restricted in their choice of hospital. So
in an area served by two or more hospitals, the
member can choose any
one of them without financial prejudice.
[14]
For low-cost options, however, a scheme constructs a network of
designated or preferred service providers (although there is
a
distinction, for present purposes I can refer to them collectively as
DSPs). In order to be covered or avoid co-payment, the
member must go
to a DSP. Since usually only one of the several hospitals serving the
area where the patient resides is a DSP, the
patient has no choice.
[15]
Typically a DSP network comprises one or two anchor groups out of the
four large groups (Netcare, Life, Mediclinic, NHN) with
filler
hospitals, drawn from the other groups and from unaffiliated
hospitals, to provide coverage in areas not served by the anchor(s).

Hospital groups compete with each other to be included as anchors.
The attraction to a hospital group of inclusion is the increased

volumes arising from the fact that scheme members must use that
group’s hospitals in order to enjoy cover. The trade-off
is
that the scheme will expect the group to offer a tariff discount. It
is this discount which enables the scheme to offer a low-cost
option
to its members. Network negotiations, like tariff negotiations, occur
annually. Even with discounted tariffs, however, low-cost
options are
generally not independently sustainable; there is some element of
subsidisation from richer schemes.
[16]
Since schemes compete with each other for members, a scheme would
usually want to offer its low-cost members reasonably accessible
(ie
not too distant) DSP hospitals. Accessibility from the scheme’s
perspective is also important for those services falling
within the
legislatively defined range of ‘prescribed minimum benefits’
(PMBs), because where a member needs treatment
constituting a PMB,
the scheme must cover the cost in full unless the member fails to use
a reasonably accessible DSP. For this
purpose, the Council for
Medical Schemes (‘CMS’) regards 50 km as the outer limit
of reasonable accessibility. This
means that if the scheme does not
have a DSP within 50 km of the member’s residence, the scheme
will need to cover the full
cost of a member’s use of a non-DSP
hospital within the 50 km radius, even though the scheme has no
negotiated discounted
tariff with the non-DSP hospital.
[17]
Low-cost options are a small part of medical scheme business. In the
case of Bonitas, one of the large national schemes which
received
some attention in the Tribunal’s hearing, 66 000 (9,4%) of
its 700 000 members are on its three low-cost
options. This is
typical of other large schemes.
[18]
Because of the features summarised above, it has been recognised in
previous cases concerning hospital mergers that the geographic
market
for hospital services has a national and a local dimension:
(a)  In the
provision of services to insured patients, there is a national market
in which hospitals compete with each other
in their tariff and
network negotiations with schemes. For patients on low-cost options,
there is typically no local competition
for patients since they are
confined to a single DSP hospital. For richer options, where members
have a choice of hospitals, local
competition is limited to quality
of care and patient experience. There is no local pricing
competition.
(b)  In
the provision of services to uninsured patients, the market is wholly
local, proximate hospitals competing with
each other for patients on
price, quality of care and patient experience.
(See
Phodiclinics
(Pty) Ltd & others and Protector Group Medical Services (Pty) Ltd
& others
(122/LM/Dec05)
[2007] ZACT 17
paras 27-29 and 117;
Life Healthcare Group (Pty) Ltd v Amabubesi Hospitals (Pty) Ltd &
another
(11/LM/Mar10)
[2010] ZACT 40
para 5.)
[19]
It does not necessarily follow, from the preceding paragraph, that,
in the case of the provision of services to insured patients,
a
change in the local landscape may not have national pricing effects.
One of the issues in the present case is whether the increased

presence which Mediclinic would enjoy in Potchefstroom and Klerksdorp
as a result of the merger would make it a practical necessity
for
schemes to include Mediclinic as the anchor, or one of the anchors,
in their DSP networks in order to provide members with
a reasonably
accessible hospital in that area. Regional dominance giving rise to
this practical necessity would eliminate or reduce
Mediclinic’s
incentive to offer discounts as a
quid pro
quo
for its
inclusion in networks. This would result in higher tariffs for
low-discount options and higher premiums for low-cost members.
Tribunal’s
decision
[20]
The Tribunal, to whose careful and comprehensive reasons I pay
tribute, made the following key findings.
[21]
First
, that the product market is the market for private
multidisciplinary acute inpatient hospital services. This definition
excluded
single-discipline hospitals, day hospitals and day-case
services provided by multidisciplinary hospitals. (The appellants
dispute
the exclusion of day cases.)
[22]
Second
,
that the geographic market comprised the combined municipal areas of
Matlosana and JB Marks,
[1]
an
area which the parties and the Tribunal called MaJB. The largest
towns in the these two municipalities are Klerksdorp and
Potchefstroom
respectively. (The appellants dispute that Klerksdorp
and Potchefstroom are in the same geographic market. In what follows,
when
I refer to Klerksdorp I mean the greater Klerksdorp area, ie the
City of Matlosana, which encompasses Klerksdorp, Stilfontein, Orkney

and Hartbeesfontein.
[23]
Third
, that the hospitals providing the defined services
in MaJB, and their market shares, are MC Potch (31%), MooiMed (13%),
Wilmed
and Sunningdale (32% combined) and Anncron (24%). The merger
will result in Mediclinic’s market share in MaJB rising from

31% to 63%. (If the Tribunal’s definition of the services and
geographic markets are right, these percentages are not in
issue.)
[24]
Fourth
, that the tariff component of the target hospitals’
bills for medical schemes (ie for insured patients) will, upon
implementation
of the merger, immediately increase by […]%.
This is because Mediclinic will immediately implement its own scheme
tariffs
at the targets, and its scheme tariffs are on average […]%
higher than the targets’ scheme tariffs. Assuming no change
in
the targets’ current efficiencies in ward and theatre times and
in their use of ethicals and surgicals, this will cause
the targets’
CPE to rise by […]%, given that the tariff component makes up
[…]% of the targets’ CPE (
[…]). (If the
assumption of unchanged efficiency is sound, which the appellants
dispute, this calculation of the increase
in the targets’ CPE
is common cause.)
[25]
Fifth
, that the tariff component of the target hospitals’
bills for uninsured patients will rise substantially, because (a) the

targets’ tariffs for uninsured patients are […]%-[…]%
lower than Mediclinic’s, and (b) the targets’

hospital managers currently have the power to grant greater
discretionary discounts than Mediclinic hospital managers – up

to […]% as against […]%. Although the arithmetic was
not done by the Tribunal, this would mean – again assuming
no
change in the targets’ current efficiencies – that CPE
for uninsured patients would rise by […]% –
[…]%.
before taking into account discretionary discounts which might
amplify the increase. (The appellants again dispute
the assumption of
unchanged efficiency.)
[26]
Sixth
, that reliance could not be placed on actuarial evidence
which purported to show, by way of comparison between selected
Mediclinic
hospitals and the target hospitals, that under
Mediclinic’s control the targets were likely to achieve
efficiencies in ward
and theatre times, in the use of ethicals, and
in the procurement and use of surgicals. Both sides presented
actuarial evidence.
The appellants’ evidence was (a) that
the effect of its higher tariffs on the targets’ CPE would be
significantly
counteracted by more efficient ward and theatre times,
reducing the effect of tariff increases on the targets’ CPE
from […]%
to […]%; (b) that, through Mediclinic’s
more efficient management of ethicals use, there would be a […]%

decrease in the ethicals component of the targets’ CPE, which
would reduce the targets’ CPE by […]% ([…]);
and
(c) that, through Mediclinic’s more efficient procurement
and use of surgicals, there would be a […]% decrease
in the
surgicals component of the targets’ CPE, which would reduce the
targets’ overall CPE by […]% ([…]).
Taking all
these efficiencies into account, the targets’ CPE for schemes
would, under Mediclinic’s control, be […]%
lower than it
currently is. Even if one disregarded all the efficiencies in
surgicals, the efficiencies in ethicals would be sufficient
to
neutralise the efficiency-adjusted effect of the tariff increase.
(The Tribunal’s rejection of the actuarial evidence,
and of the
factual evidence which underpinned it, is hotly contested.)
[27]
Seventh
, that even if were accepted that Mediclinic hospitals
are currently more efficient than the targets in their use of
ethicals, a
merger is not necessary to enable these efficiencies to
be achieved; and that, in particular, the targets could improve their
use
of cheaper generics without having to be under Mediclinic’s
control. (The appellants dispute this conclusion.)
[28]
Eighth
, that although Mediclinic’s size has hitherto
enabled it to procure surgicals at lower prices than Matlosana, the
procurement
exemption will enable NHN-affiliated hospitals to achieve
the same procurement efficiencies, given that NHN has a larger
national
market share. In this regard, the procurement exemption only
applies to NHN-affiliated hospitals which are ‘small
businesses’
or ‘firms owned or controlled by historically
disadvantaged persons’, but there is a two-year grace period
during which
non-compliant hospitals may benefit from the procurement
exemption. The targets are not (or were not, when the Tribunal made
its
decision) compliant. The Tribunal felt unable to predict whether
Matlosana would become compliant, and thus confined its finding
of
improved procurement efficiencies for the targets to the two-year
grace period (1 November 2018-31 October 2020). (The appellants

dispute that NHN will be able, within the two-year period, to achieve
equivalent procurement efficiencies. They say the targets
are
unlikely to achieve more than half of Mediclinic’s current
procurement efficiency.)
[29]
Ninth
, that a merger implies that the merged firms’
pricing decisions will be coordinated to maximise profit, that the
present
merger will result in a highly concentrated market in MaJB,
that barriers to entry are high, and that the transaction will
substantially
prevent or lessen competition in the relevant market.
Although the Tribunal did not expressly state that the likely price
increases
at the targets would be a reflection of a substantial
lessening of competition (‘SLC’), this seems to have been
its
view. (Apart from disputing that prices will increase rather than
decrease, the appellants challenge the view that any price increases

which eventuate will be the consequence of an SLC.)
[30]
Tenth
, that although the evidence was limited, the targets
seemed to be performing better than MC Potch, and that the merger was
likely
to lead to a deterioration in non-price competition as
reflected in patient experience. (The appellants dispute this.)
[31]
Eleventh
, that, in addition to resultant adverse pricing and
quality effects at the target hospitals, the merger would give
Mediclinic regional
dominance in MaJB which would make it difficult
for schemes to exclude Mediclinic’s hospitals in Potchefstroom
and Klerksdorp
in their DSP networks; that Mediclinic could use this
regional dominance to minimise discounts and/or to compel inclusion
of its
hospitals in areas where it faces more competition, to the
prejudice of competing hospitals in those areas; and that this, too,

represented harm flowing from an SLC. (The appellants dispute this
analysis.)
[32]
Twelfth
, that the remedies tendered by the appellants in
respect of the insured market were inadequate:
(a) The Tribunal
mentioned two remedies, the so-called MMHS-minus remedy and the
Mediclinic-plus remedy. Since the merging parties
themselves did not
support the MMHS-minus remedy, the Tribunal did not give it detailed
consideration.
(b) The
Mediclinic-plus remedy was that post-merger Mediclinic would, for
five years, apply a specified discount at the targets
against the
Mediclinic tariffs, the discount set at a figure to ensure that the
[…]% increase due to the tariff increase
was wholly
neutralised after taking into account any net balance of efficiencies
likely to be achieved by Mediclinic.
(c) The merging
parties proposed, conservatively against themselves (in their view),
a discount of three percentage points, which
(i) disregarded the
alleged efficiencies in regard to theatre and ward time and ethicals
and (ii) assumed that but for
the merger the targets could
during the grace period achieve about half of the surgicals
procurement efficiencies which Mediclinic
could achieve. (The
arithmetic proceeded thus: […]% [tariff increase in CPE,
disregarding time efficiency] – […]%
[Mediclinic’s
surgicals procurement efficiency] + […]% [assumed surgicals
procurement efficiency achieved by targets
during grace period] =
[…]%).
(d) The Tribunal
rejected the merging parties’ contention that the targets could
only achieve half the procurement efficiencies.
The Tribunal
considered, further, that a remedy limited as to period was
inappropriate but that a remedy in perpetuity would be
impractical.
The remedy in any event in any event did not address the adverse
consequences flowing from regional dominance. (The
appellants
maintain that, to the extent that it is found on appeal that there is
likely to be an increase in CPE at the targets,
the remedy remains
appropriate. The Tribunal could have lengthened the period of the
remedy and increased the extent of the discount,
depending on its
findings.)
[33]
Thirteenth (and finally)
, that the remedy proposed by the
merging parties in regard to uninsured patients was likewise
inappropriate. In that regard the
merging parties proposed that
Mediclinic be required to maintain the target hospitals’
tariffs and discount policies for
a period of five years, subject
only to annual escalation by not more than the Consumer Price Index
(‘CPI’). This remedy
the Tribunal held to be
inappropriate because of its limited duration and because of the
difficulty in determining what discounts
the targets would have
granted had they not been taken over by Mediclinic.
[34]
The Commission’s counsel supported the Tribunal’s
reasoning in all material respects. It is not unlikely that their

able representation of the Commission was of much assistance to the
Tribunal and found expression in the Tribunal’s decision.
I
thus mean no disrespect to their submissions if, in what follows, I
focus mainly on the Tribunal’s reasoning and the appellants’

criticism of it.
The
product market
[35]
In regard to the Tribunal’s first and second key findings, the
appellants counsel’s principal argument was that
even if those
findings were correct, the appeal should succeed. The appellants
nevertheless addressed written and oral submissions
as to why these
findings were wrong. In my view the market definition questions must
be addressed if the appeal is to be determined
on a principled basis.
Furthermore, the arguments about market definition, particularly the
extent of the local geographic market,
are closely allied to
predictions about SLC and harm to consumer welfare.
[36]
The economists agreed that outpatient services provided by the
hospitals (ie cases not involving admission to a ward and theatre)

should not be included in the product market. They differed, however,
as to whether day cases should be included in the product
market.
Although there is no uniform definition of a day case, it refers in a
general sense to a hospital admission where the patient
is in
hospital for less than a day and (perhaps) does not need an overnight
bed. The sorts of procedures performed as day cases
could often be
done at a day clinic rather than at a multidisciplinary hospital.
[37]
The Tribunal excluded day cases from the product market for the
reason that although the multidisciplinary hospitals could
readily
reallocate resources from multi-day cases to single-day cases, day
clinics could not, without substantial capital investment
and
regulatory approvals, reallocate their resources from single-day
cases to multi-day cases. In my opinion the Tribunal’s

reasoning was correct. A similar view has been taken by the United
Kingdom’s Competition and Market Authorities (see
Ashford St
Peter’s NHS Foundation Trust/Royal Surrey County NHS Foundation
Trust
UK CMA Final report 16 September 2015 (‘
Ashford
’)
paras 5.18-5.22).
[38]
Indeed, and despite the appellants’ submissions, the merging
parties’ economist, Prof Nicola Theron, agreed with
the
Commission’s economists (the lead being Prof Liberty Mncube)
that day clinics cannot compete with the bulk of services
provided by
multidisciplinary hospitals and should not be included in the product
market. She noted, however, that the day clinics
nevertheless pose a
competitive restraint on a subset of services offered by the
multidisciplinary hospitals. Although Prof Theron
contended that
day-case services, when offered by multidisciplinary hospitals,
should be included in the product market, I agree
with Prof Mncube’s
view that it would be illogical then to exclude day clinics, which
compete with the multidisciplinary
hospitals for day-case patients.
[39]
In the light of my conclusion on the geographic market, it is
unnecessary to determine precisely how the day-case exclusion
should
be defined. The evidence indicated that some of the day cases
performed at multidisciplinary hospitals could not readily
be
performed at day clinics.
[40]
It is, however, convenient to mention, here, a complicating feature
of the day-case issue. Different hospitals have different
tariffs for
what can broadly be described as day cases. The day-case tariff is
usually lower than the ordinary tariff. There is,
however, no
uniformity as to what a ‘day case’ is.
(a) The targets only
have a special day-case tariff for ward time. A patient who is
admitted and discharged on the same date benefits
from the day-case
ward tariff. The duration of such an admission could thus be anything
short of 24 hours. There is no discounted
tariff for theatre time.
(b)  Mediclinic
has two day-case definitions with related tariffs. In relation to a
list of specified procedures, a patient
whose stay is less than 23
hours benefits from discounted ward and theatre tariffs. This is so
even though the patient is admitted
on one date and discharged on the
next. Short stays not qualifying for these tariffs benefit from a
different reduced ward tariff,
the qualification being the same as at
the targets – admission and discharge on the same date. For
this latter class of short-stay
patients, there is, as with the
targets, no reduced theatre tariff. I shall refer to these
qualifications as the 23-hour rule and
the same-date rule.
Although
Mediclinic’s tariffs are generally higher than the targets’,
patients who qualify under its 23-hour rule will
pay lower tariffs
than equivalent patients at the targets. I shall return to this when
considering pricing effects in the context
of public interest as
distinct from SLC.
[41]
The
Tribunal did not address another limitation proposed by the
Commission’s economists, namely the exclusion of services
in
disciplines where there was no overlap between MC Potch and the
targets. They listed, as excluded specialities, paediatric surgery,

pulmonology, cardiology, cardiothoracic surgery, gastroenterology,
nephrology, rheumatology, vascular surgery, neurosurgery and

oncology.
[2]
These exclusions
are potentially significant when one considers the evidence about the
geographic market, namely evidence of the
movement of patients and
doctors between Klerksdorp and Potchefstroom. To the extent that such
movement relates to services which
can only be obtained in one town
or the other, such evidence does not necessarily indicate that
Klerksdorp and Potchefstroom are
in the same local geographic market
when it comes to services available in both towns.
[42]
For example, neither of the Potchefstroom hospitals has an oncology
unit whereas Klerksdorp hospitals do. Potchefstroom and
Klerksdorp
might thus be in the same local geographic market in the provision of
oncology services but not in relation to general
surgery, which is
available at all the multidisciplinary hospitals in the two towns.
[43]
However, since neither side invited us to delve into this question,
it is preferable to disregard the suggested exclusion.
This might be
justified on the basis that hospitals in one town could perhaps,
without great inconvenience or cost, reallocate
resources to
introduce a speciality currently available only in the other town.
Stated differently, all the hospitals in both towns
are at least
potential competitors in all specialities (cf
Ashford
paras
5.23-5.28). As against this, the very introduction in, say
Potchefstroom, of a new discipline currently only offered in
Klerksdorp
might fragment the geographic market, since Klerksdorp
might lose all its drawing power in Potchefstroom in that discipline.
The
local geographic market
[44]
The obtaining of medical services by patients is generally not a
discretionary matter. If the required services are not available

nearby, the patient must go further afield. However, and for obvious
reasons, patients far prefer a hospital which is reasonably

accessible. While patients in outlying towns which do not have a
multidisciplinary hospital may have no choice but to travel 50
km or
more to a town having such a hospital, one would not ordinarily
expect patients in a town well supplied with hospitals to
travel to
another town. Quite apart from convenience, admission in another town
increases the overall cost, since the patient,
and family members
wishing to visit the patient, have to fund the cost of travel without
assistance from their medical scheme.
The Commission’s
economists noted that patients want to be hospitalised near their
homes and family. It must be borne in
mind, in this regard, that the
exclusion of day cases from the product market means that what is now
under consideration is the
likely behaviour of patients who will have
to stay in hospital one or more nights.
[45]
Evidence
was led
[3]
to show that MC Potch
(2015-2017 data) and MooiMed (2010-2014 data) drew only […]%
and […]% respectively of their
patients from Klerksdorp. They
drew […]% and […]% respectively of their patients from
Potchefstroom itself. Other
significant contributors to MC Potch (all
falling outside MaJB) were Fochville (56 km – […]%),
Carltonville (51 km
– […]%) and Parys (54 km –
[…]%) to the south and east of Potchefstroom, and Lichtenburg
(154 km –
[…]%) to the north. MooiMed drew […]%
of its patients from Parys and […]% from Fochville.
[46]
Wilmed and Sunningdale (2015-2017 data) drew […]% and […]%
respectively of their patients from Klerksdorp. Only
[…]% and
[…]% respectively came from Potchefstroom. In Wilmed’s
case, Lichtenburg to the north (105 km) was
the source of […]%
of admissions while Bothaville to the south (64 km) and Wolmaransstad
to the west (86 km) contributed
[…]% and […]%
respectively. In Sunningdale’s case, Lichtenburg ([…]%)
and Bothaville ([…]%) contributed
more than or the same number
of patients as Potchefstroom, Wolmaransstad a shade less.
[47]
Anncron in Klerksdorp (2010-2014 data) drew only […]% of its
patients from Potchefstroom (this dropped to […]%
in 2015).
Around […]% came from Klerksdorp. Lichtenburg, Trotsville
(Wolmaransstad) and Ottosdal (to the west) and Bothaville
each
contributed more patients than Potchefstroom.
[48]
The relatively high figure of […]% that Wilmed draws from
Potchefstroom is likely to be a result of the fact that Potchefstroom

does not have a hospital offering oncology and neurosurgery.
[49]
Although the economists on both sides offered detailed information
and analysis of patient flows, the Tribunal found the evidence
to be
of little value, since it was backward-looking and did not tell one
how patients in one town would respond to a ‘small
but
significant and non-transitory increase in price’ (‘SSNIP’)
imposed by a hypothetical monopolist of the hospitals
in that town.
Would a SSNIP by the hypothetical monopolist in Klerksdorp cause
Klerksdorp residents to switch in sufficient numbers
to Potchefstroom
hospitals to make the SSNIP unprofitable for the monopolist? If so,
one can conclude that Klerksdorp and Potchefstroom
are in the same
geographic market.
[50]
The Tribunal excluded, from the geographic market, hospitals falling
outside the MaJB area. Although outlying towns such as
Lichtenburg,
Wolmaransstad, Bothaville and Parys contribute a significant portion
of the patients admitted to the hospitals in
Potchefstroom and
Klerksdorp, there was no evidence showing what other hospitals are
used by residents of these towns. Hospitals
in Virginia, Kroonstad,
Vanderbijlpark, Vereeniging, Brits, Rustenburg, Mahikeng, Vryburg and
Frankfort are all likely to draw
what I can call rural patients from
the same outlying towns.
[51]
This
suggests that there is more than one local geographic market
implicated by the merger. There is a broader market in which
hospitals in Potchefstroom, Klerksdorp and other largish towns
compete with each other for outlying rural patients, and a narrower

market in which hospitals compete for patients in Klerksdorp and
Potchefstroom. Although the merging parties’ economist,
Prof
Theron, may not quite have articulated the existence of two local
markets, this notion seems to be behind the following formulation
of
her position in the economists’ joint minute:
[4]
‘
Prof Theron
considers that there are two levels of the relevant market: national
and local. In the local relevant market, the data
and relevant
evidence indicate that there is very limited competition between the
Potchefstroom and Klerksdorp hospitals. In a
larger market including
both towns, the market has to be expanded to include areas to the
west and east of Klerksdorp and Potchefstroom
and the hospitals to
which patients in these areas travel’.
[52]
The extent of the broader local market was not established in
evidence and it was not shown that Mediclinic’s acquisition
of
the targets would affect competition in the broader local market.
This was not the case the Commission set out to prove.
[53]
The contentious question is the narrower local market, the one
concerned with the residents of Klerksdorp and Potchefstroom.
Do the
hospitals in Potchefstroom compete for patients in Klerksdorp and
vice versa
? As I have said, the evidence shows that hitherto
there has been no significant movement of patients between the two
towns except
in relation to disciplines not available in one or the
other town.
[54]
In a
submission to the Commission, Discovery said that it did not think
that the targets competed with MC Potch. GEMS’ observation,

that in a rural setting a significant number of patients might be
willing to travel 50 km or more, may be true of residents of
towns
which do not have hospitals, but may not be true for the residents of
towns like Potchefstroom and Klerksdorp. It is significant
that most
medical schemes have network hospitals in both towns,
[5]
suggesting that they are aware that members from one of the towns
would find it most unpalatable to be forced to use a hospital
in the
other town. Anncron, in its written response to the Commission,
[6]
stated that its catchment area was about 150 km², but it did not
name Potchefstroom as being part of the catchment area. The
size of
the catchment area was attributed by Anncron to the fact there were
no private hospitals in the catchment area, a statement
which would
obviously be incorrect if Potchefstroom were part of it.
[55]
Let us consider first the case of the insured patients, making up
more than 95% of admissions. In their case, price is a non-issue,

since it is negotiated nationally between the hospitals and schemes,
and the merger will not materially affect national market
shares. So
the SSNIP test has to be reformulated as a lowering of quality
equivalent in significance to a SSNIP. Would such a lowering
of
quality by a hypothetical monopolist in Klerksdorp cause patients to
go to Potchefstroom hospitals and
vice versa
?
[56]
Even
this reformulation has an air of unreality about it. Day cases, which
fall outside the product market, constitute a significant
part of a
multidisciplinary hospitals’ business – in Mediclinic’s
case, around […]% of admissions
[7]
.
It is difficult to envisage a lowering of quality tainting only
overnight cases. Our hypothetical monopolist is not a monopoly
owner
of the day clinics and day hospitals in Klerksdorp. Since the
hypothetical monopolist would stand to lose business to his

Klerksdorp day-case competitors if standards dropped, this would
serve to maintain hospital standards in general.
[57]
Be that as it may, one must suppose a lowering of standards by the
hypothetical monopolist equivalent to a SSNIP. Would this
cause
patients to divert to Potchefstroom in sufficient numbers to make the
SSNIP unprofitable? There are two features of the market
which
militate against an affirmative answer. First, quality of care (or
‘patient experience’, an expression used in
the
evidence), unlike price, is imprecise and lacking in transparency.
Second, one is dealing with services which most individual
consumers
need only infrequently. The individual consumer has limited
experience for making comparisons.
[58]
In the case of a commodity which consumers regularly buy, it is
reasonable to suppose that they will become aware of a significant

price increase and will look around for a cheaper substitute. In the
case of hospital care, it is difficult for a patient to make

comparisons. Assuming the patient finds his or her second experience
in the same hospital less satisfactory than the first, how
will the
patient know that anything better is to be had at another town
(assuming he or she ever needs to be admitted again to
a hospital)?
One can ask another hospital what its prices are; one cannot sensibly
ask whether it offers better patient care than
another hospital. And
if the patient requires to be admitted to hospital on a third
occasion, standards may have changed once again
at the hospital he or
she used on the second occasion.
[59]
One must remember that the SSNIP, reformulated as a lowering of
quality, does not mean a catastrophic collapse of standards,
only a
‘small but significant’ drop in quality (what this
amounted to, in the case of degradation of quality, was not
the
subject of expert evidence). Hospitals and the nursing profession are
subject to legislative regulation. It would not be a
reasonable
application of the test to postulate a deviation from standards such
as would constitute actionable negligence or professional
misconduct.
One must also bear in mind that the degradation of service in our
hypothetical enquiry is not a lowering of care by
the doctors who
treat the patients, only a degradation of service in ancillary
hospital care. The most important consideration
for patients is the
reputation and skill of their doctors. A patient may want nurses who
are friendly and food which is palatable,
but this is hardly critical
for a hospital stay which, for most patients, is unlikely to exceed a
week or two.
[60]
Many patients will be guided by their doctors in their choice of
hospital (cf
Netcare Hospital Group (Pty) Ltd and Community
Hospital Group (Pty) Ltd
(68/LM/Aug06)
[2007] ZACT 83
para
31). The evidence in the present case showed that although
specialists in the one town sometimes consult at hospitals
in the
other town, they hardly ever perform procedures there. Time and
convenience are important to busy doctors. A small lowering
of
hospital standards at Klerksdorp is unlikely to cause a Klerksdorp
specialist to start referring patients to hospitals in Potchefstroom.

The SSNIP to be postulated is not, I repeat, one of such dimensions
that a specialist could not properly continue to perform procedures

at the hypothetical monopolist’s hospitals.
[61]
I thus
am not surprised to find that a recent working paper by two members
of America’s’ Federal Trade Commission begins:
[8]
‘
As
economists have known since Hotelling (1929), demand declines rapidly
with distance in retail and health care markets. For example,

Gowrisankaran
et
al
(2015)
find that a five minute increase in travel time to a hospital reduces
demand between 17 and 41 percent.’
And
later:
‘
The
incentives that health care providers have to improve quality depend
upon the degree to which patients are willing to substitute
towards
higher quality facilities. Because patient distance to facility is
typically the most important variable explaining patient
choices,
re­searchers have typically examined the marginal rate of
substitution (MRS) between quality and distance (Tay, 2003;
Romley
and Goldman, 2011; Chandra
et
al
, 2016;
Gaynor
et
al
, 2016).
In general, the literature has found that patients are not willing to
travel very far to go to a higher quality hospital.
For example,
Romley and Goldman (2011) find that a baseline pneumonia patient in
the LA area would be willing to travel 2.9 miles
farther to go from a
hospital at the 25th percentile of quality to one at the 75th
percentile of quality, and Chandra
et
al
(2016)
find that the average heart attack (AMI) patient will travel 1.8
miles for a hospital with a 1 percentage point higher risk-adjusted

survival rate.  .  .’
[62]
As appears from the above working paper, merging parties in hospital
transactions often argue for a broader geographic market
by pointing
to significant patient flows to more distant hospitals. If a
regulator accepts a more broadly defined market, the merging
parties
may be able to contend that there is no significant increase in
concentration. Arguments in favour of a broader geographic
market,
based on patient flow, tend to overlook the ‘silent majority’
of patients who may not be willing to travel
further afield in
response to a SSNIP.
[63]
The
‘silent majority fallacy’ was explained in a scholarly
article which the Tribunal cited in discounting patient-flow
data,
[9]
even though the primary concern in the article is that such data
tends to overstate rather than understate the extent of geographic

markets. On the tendency of patient-flow analysis to yield overbroad
geographic markets, see
Federal
Trade Commission & another v Penn State Hershey Medical
Center
& another
838
F.3d 327
(2016) (‘
Hershey
’)
at 340 and
FTC
& another v Advocate Health Care Network & others
(US
Court of Appeals, 7
th
Circuit, No 16-2492, 2016 (‘
Advocate
Health
’)
pp 15-18. For an academic discussion of these cases, see Levine
and Hasty ‘
Analyzing
the Geographic Market in Hospital Mergers: Travel patterns take a
backseat to payer response’ Competition Policy International,

December 2016.
[64]
In
Hershey
the District Court, based on significant patient
flows into the Harrisburg area from outside, accepted the merging
parties’
broader geographic market – a market comprising
19 hospitals with drive-times of up to 65 minutes. On appeal the
Third Circuit
held that this analysis ignored the fact that 91% of
patients from inside the Harrisburg area did not travel to hospitals
outside
the Harrisburg area and had median drive-times of 15 minutes.
Similarly, in
Advocate Health
an appeal against a broader
market succeeded before the Seventh Circuit. The correct geographic
market was no larger than the so-called
North Shore Area (‘NSA’)
of Chicago. Part of the evidence in support of this conclusion was
that 73% of patients in
NSA obtained their hospital services within
that area and that 80% of those patients had drive-times of no more
than 20 minutes
and journeys of less than 15 miles (about 24 km).
[65]
If, in
the present case, there were evidence of significant patient flows
from Klerksdorp to Potchefstroom, the ‘silent majority
fallacy’
would caution against assuming that a significant number of
Klerksdorp non-travellers would start travelling to
Potchefstroom in
response to a SSNIP. As a fact, though, there are no significant
patient flows from Klerksdorp to Potchefstroom.
We do not know
precisely what percentage of patients in Klerksdorp area obtain their
hospital services outside of Klerksdorp but
we know that only a very
small number of them (by my calculation, around […]%
[10]
)
use Potchefstroom hospitals. So for the types of admissions that can
be handled in Klerksdorp and Potchefstroom hospitals (as
distinct
from highly complex work which might be performed only in the
tertiary hospitals of major metropolitan centres), one can
safely say
that around […]% of the residents of Klerksdorp use Klerksdorp
hospitals, not Potchefstroom hospitals. (Compare
this to the 91% of
the Harrisburg residents in
Hershey
who
did not travel outside the Harrisburg area and the 73% of NSA
residents in
Advocate
Health
who
did not travel outside the NSA.)
[66]
Ultimately one must take a practical and common-sense view of the
matter. It strikes me as quite unrealistic to conclude that
a modest
decline in the quality of ancillary hospital care at the hospitals of
a hypothetical monopolist in Klerksdorp, unaccompanied
by any decline
in the standard of care provided by the doctors in those hospitals,
would cause Klerksdorp residents to seek admission
to hospitals in
Potchefstroom, at considerable inconvenience and cost to themselves
and their treating doctors, or at any rate
to do so in sufficient
numbers to deter the monopolist.
[67]
The premise underlying the Tribunal’s criticism of historic
patient-flow data is that the current absence of significant
movement
between the towns might be accounted for by the fact that healthy
competition inhibits any of the hospitals in the two
towns from
significantly increasing prices or lowering quality. If a
hypothetical monopolist in one of the towns were to increase
prices
or lower quality to an extent meeting the SSNIP test, would patterns
change to an extent rendering the SSNIP unprofitable?
I have already
given reasons why I do not think this at all likely for the insured
market.
[68]
I wish only to add that the evidence did not show that there was a
close equivalence of quality at the five hospitals located
in the two
towns. The Tribunal said that although the evidence was limited, the
target hospitals seemed to be performing better
than MC Potch in
relation to patient experience, and that the merger was likely to
lead to a lowering of quality at the targets.
If that finding was
justified, one may ask why more Potchefstroom residents do not seek
admission to Klerksdorp hospitals. It is
true that they currently
have the option of MooiMed but that hospital may not have the
capacity or range of specialities to absorb
significant numbers of
dissatisfied MC Potch patients. The more probable answer, in my
opinion, is that despite small but not insignificant
variations in
standards at the hospitals in question, these variations do not cause
patients in one town to seek hospital admission
in the other town
except perhaps in very small numbers.
[69]
In the case of the uninsured market, the SSNIP test can be posed as a
price increase by the hypothetical monopolist. There
was evidence
that some uninsured patients obtain quotes from hospitals but no
evidence that uninsured patients in the one town
seek quotes from
hospitals in the other town. Although patients can to an extent
compare prices, the quoted prices are rates for
theatre and ward
time. The patient’s overall bill will be affected by
efficiencies in the management of theatre and ward
times and in the
acquisition and use of surgicals and ethicals. Whether one hospital
will in fact turn out cheaper than another
just because its quoted
tariffs are lower is something patients cannot know in advance (cf
Netcare Hospital Group (Pty) Ltd and Community Hospital Group
(Pty) Ltd
(68/LM/Aug06)
[2007] ZACT 83
para 65).
[70]
Although uninsured patients may be reasonably price-sensitive, are
they so sensitive that a modest price increase of, say,
5% in the
hospital bill will cause them to forsake the hospitals in their own
town for a hospital in the other town? From a purely
financial point
of view, the patients would have to weigh, against the increased
bill, the cost of travel for themselves and their
visitors. Then
there are the non-financial considerations – convenience, the
time which the patients and their visitors would
have to spend on the
road and the preferences of their treating doctors.
[71]
Although some uninsured patients seek quotes, the evidence did not
establish that uninsured patients are, as a class, highly

price-sensitive. The evidence did not show that most or even a
significant number of uninsured patients ask for quotes before
choosing a hospital. According to the evidence, MooiMed’s
tariffs for uninsured patients are significantly lower than MC
Potch’s. Of course, Mediclinic maintains that overall its CPE
is lower than NHN hospitals on account of superior efficiencies,
but
this would not be apparent from competing quotations. So if uninsured
patients were highly price-sensitive, one would expect
to find that
MooiMed treats a disproportionately high number of uninsured
Potchefstroom patients. If such evidence had been adduced,
it might
have shed some light on the answer to the hypothetical monopolist
test, because it would have shown that, at least within
the same
town, price matters to a significant extent. Although the data must
have existed, there was no evidence of a disproportionate
bias of
uninsured Potchefstroom patients towards MooiMed.
[72]
There was also no evidence that, among the relatively small number of
Potchefstroom patients who are admitted to the target
hospitals,
there is a significant proportion of uninsured patients attracted by
the targets’ lower tariffs. I would also
have expected
information to have been available about one-hospital towns in South
Africa which could have served as a proxy for
the hypothetical
monopolist.
[73]
MC Potch’s private tariffs are higher than those of MooiMed and
the targets by an amount which exceeds the small price
increase
postulated by the SSNIP test. If Mediclinic’s higher tariffs
have not been shown to have caused a disproportionate
flow of
uninsured Potchefstroom patients to MooiMed and the targets, it must
be doubtful whether a more modest SSNIP would have
that effect. I
have already identified the factors which would influence uninsured
patients in choosing a hospital in their home
town despite a modest
increase in price.
[74]
Mr Hendrik Steenkamp, the target hospitals’ manager, testified
that he did not regard the Potchefstroom hospitals as
competitors.
His view was that Potchefstroom had good specialists, good general
practitioners (‘GPs’) and good hospitals,
‘so we do
not interfere’. He rather introduces his network of specialists
to doctors in the rural areas to the west
of Klerksdorp.
[75]
Steenkamp also testified that specialists do not commute
significantly between hospitals in the two towns. He was not aware
of
any Klerksdorp specialists who admitted patients to Potchefstroom
hospitals, though he knew of certain Klerksdorp specialists
– a
dermatologist (Dr […]), a plastic surgeon (Dr […]) and
an oncologist (Dr […]) – who occasionally
consulted in
Potchefstroom. He refuted the assertion of Ms Susanna van Reenen (the
MooiMed hospital manager who was called by the
Commission) that a
certain Dr […] of Potchefstroom admitted patients at Wilmed.
He explained the isolated and particular
circumstances which had
caused Dr […] (a urologist) and Dr […] (an orthopaedic
surgeon) of Potchefstroom to perform
or participate in the
performance of one or two procedures in Klerksdorp.
[76]
Mr Blake van Aswegen, the MC Potch hospital manager, likewise
testified that specialists do not commute between the two towns.

Klerksdorp GPs are not part of MC Potch’s doctor referral
network. MC Potch’s referral manager does not visit the
Klerksdorp doctors; this decision was taken in 2012 because
practically it was not considered worthwhile to chase business in
Klerksdorp,
given that it had three hospitals. Potchefstroom patients
are sometimes referred to Klerksdorp specialists for neurosurgery and

oncology, those being disciplines not available in Potchefstroom. The
Klerksdorp oncologists (Dr […] and Dr […])
occasionally
consult at MC Potch on an outpatient basis (he estimated once every
three months), but MC Potch is primarily served
by a visiting
Vanderbijlpark oncologist. There are occasional ENT and urology
referrals to Klerksdorp because there is only one
Potchefstroom
specialist in each of those disciplines. Because the two
Potchefstroom gynaecologists are in high demand and have
long waiting
lists, gynaecological patients needing or wanting quicker assistance
might be referred elsewhere, including Klerksdorp,
though some of Van
Aswegen’s staff drove as far as Welkom to see a gynaecologist.
[77]
For reasons explained earlier, the fact that Potchefstroom patients
go to Klerksdorp for specialities not available in Potchefstroom
does
not show that Potchefstroom and Klerksdorp are generally in the same
local market. The same is true where demand for specialities
in
Potchefstroom exceeds supply. Since medical services are generally
not discretionary, patients have to go further afield if
they cannot
be helped locally. The more distant hospital in such a case is not a
competitive constraint on the local hospital which
ex hypothesi
is operating at full capacity and thus has no need to compete for
patients.
[78]
Steenkamp and Van Aswegan were cross-examined with reference to
corporate documents, and the Tribunal preferred to place weight
on
these documents than on patient-flow data. In Steenkamp’s case,
he was taken to a document prepared for Matlosana by […]
in
connection with the proposed disposal of its hospitals. Prospective
buyers were told that Matlosana’s ‘key markets’

included various towns in addition to Klerksdorp, one of these being
Potchefstroom. In a section dealing with competition, Anncron
and MC
Potch were identified. With reference to MC Potch, the document
stated that because Klerksdorp had more specialists than

Potchefstroom, ‘many patients travel to Klerksdorp for medical
treatment’.
[79]
To some extent, this document contains the puffery one might expect
in a sales pitch. More importantly, one cannot cherry-pick.
If one is
to attach significance to the phrase ‘key markets’, one
must then consider all the towns so described, including
Lichtenburg,
Mahikeng and Bothaville, as part of the ‘catchment area’
though these fall outside the geographic market
defined by the
Tribunal. Furthermore, it is in fact the truth that in Wilmed’s
case it attracts a significant number of patients
from Potchefstroom,
but this is because it offers specialities not available in
Potchefstroom. The Potchefstroom hospitals do not
compete for those
patients. The statement that ‘many patients’ travel to
Klerksdorp for treatment should not be understood
as conveying that
patients who could obtain the required specialist services in
Potchefstroom nevertheless choose to go to Klerksdorp.
[80]
There
was another Matlosana document, to which the Tribunal did not refer,
which is in my opinion a more accurate statement of the
position.
Matlosana commissioned a report from a consultancy firm, Fernridge,
as part of an application for more beds. Fernridge,
in its report of
April 2015, identified the targets’ catchment area as the area
from which the targets drew 85%-90% of their
patients. The catchment
area excluded Potchefstroom. Although the relatively distant
Lichtenburg was included, the report noted
that patients from that
town went to other locations as well, including Rustenburg. Regarding
the exclusion of Potchefstroom, the
report stated that Klerksdorp and
Potchefstroom were ‘large Central Place towns, each servicing
their respective markets
with multiple private hospitals’.
[11]
Although many people commuted between the towns for work purposes,
there was no need to do so for shopping or medical services,
except
for specialised treatment. In connection with the same application,
Matlosana prepared a schedule setting out the percentages
of
patient-support from towns outside the catchment area, Potchefstroom
being one such town.
[12]
[81]
In Van Aswegan’s case, he was taken to a Mediclinic motivation
document of February 2015 requesting approval for more
beds and
theatres at MC Potch. This document does not support the view that
Klerksdorp and Potchefstroom are in the same local
market. The
document understandably identifies MooiMed as MC Potch’s
biggest competitor, with the ‘primary catchment
area’
being said to include (apart from Potchefstroom) Parys, Fochville,
Carltonville, Viljoenskroon, Ventersdorp and Lichtenburg.

Significantly, Klerksdorp is not mentioned as part of MC Potch’s
catchment area. What the document says is that because of
a shortage
of beds at MC Potch, doctors practising there frequently admit their
patients to other hospitals in Potchefstroom or
refer them to
Klerksdorp ‘50 km away’. The referral of patients to
Klerksdorp is in the context of capacity constraints
in
Potchefstroom, and the author’s statement of the distance
between the two towns was evidently intended to convey that
such
referral is inconvenient and undesirable. Van Aswegan testified that
the additional beds were likely to be operational by
April 2019;
thereafter one would expect referrals to Klerksdorp to diminish.
[82]
All
the hospitals in Potchefstroom and Klerksdorp have in recent times
taken steps to increase their capacity. Prof Theron disputed
Dr
Mncube’s proposition that the hospitals were
capacity-constrained in relation to patients from the towns where
they were
located, and explained her view with reference to bed
numbers and occupancy rates.
[13]
The Tribunal did not make a finding that the hospitals in either of
the towns were capacity-constrained.
[83]
Van Aswegan was also referred to Mediclinic’s non-binding
letter of intent to acquire Matlosana. Mediclinic stated in
this
letter that Matlosana would be a ‘perfect fit’ to enhance
Mediclinic’s business and would ‘complement
our existing
network of hospitals’, as already demonstrated by the fact that
certain doctors who worked in Matlosana hospitals
also worked at
Mediclinic hospitals. Steenkamp said that he had no involvement in
the letter. His evidence, as the person with
direct knowledge of MC
Potch’s activities, was that some Klerksdorp specialists
consulted in Potchefstroom but did not admit
or perform procedures
there. The statement that the Klerksdorp hospitals would complement
Mediclinic’s existing network does
not shed light on the
geographic market; Mediclinic spoke of its network of hospitals, and
said that some doctors who worked at
Matlosana hospitals also worked
at Mediclinic hospitals (note in each case the plural ‘hospitals’).
[84]
Discovery’s
view was that, given the distance between Klerksdorp and
Potchefstroom, it did not expect that MC Potch competed
for patients
in Klerksdorp.
[14]
The
Tribunal did not mention Discovery’s opinion, but cited GEMS’
submission to the Commission and the evidence of
its chief healthcare
officer, Dr V Gqola. It is clear, however, from the statement in the
submission that GEMS viewed a distance
of nearly 50 km as
significant, but thought that in a rural setting it is not ‘untoward’
for patients to travel this
distance to access healthcare. Dr Gqola
repeated this opinion in her evidence, saying that 50 km was not an
unreasonable distance
to travel in a rural area, as distinct from an
urban area where there were more hospitals: “This is a region
[the NWP] with
very few hospitals.’
[15]
[85]
GEMS’
opinion is no doubt true in relation to patients living on farms and
in small rural towns. Many of them might have to
travel even more
than 50 km to reach their closest hospital. This does not tell one
very much about the willingness of patients
living in Klerksdorp and
Potchefstroom to travel between the two towns, bearing in mind the
presence in each of those towns of
several large hospitals. Dr Gqola
testified that only 2,3% of GEMS’ Potchefstroom admissions came
from Klerksdorp and only
3,8% of its Klerksdorp admissions came from
Potchefstroom. She had examined data relating to doctors who
practised at the Klerksdorp
hospitals and the Potchefstroom
hospitals, ‘and we didn’t see any crosslink in terms of
our claims data’.
[16]
Elsewhere she stated the truism that patients’ choice of
hospital tends to be based on their doctors.
[17]
[86]
As I understand the Commission’s economists’ reports and
evidence, they constructed the candidate market in two
stages. First,
they determined the ‘catchment areas’ of the hospitals in
the MaJB area, using the 80% threshold laid
down in the NHS
guidelines in the United Kingdom. Second, they included any hospital
which drew at least 1% of its patients from
the catchment areas of MC
Potch and the targets, provided such hospital drew patients from the
catchment areas of all three subject
hospitals.
[87]
I have not found it easy to grasp the second stage of the
Commission’s analysis. As to the first stage, even in the
United Kingdom the 80% catchment-area approach is only a rough
starting point. In a small densely populated country with a fairly

even distribution of hospitals, this is likely to result in narrow
geographic markets. In
Ashford
the 80% catchment areas for the
three hospitals in question resulted in maximum drive-times for
patients of 15 minutes, 20 minutes
and 25 minutes respectively (see
para 5.37).
[88]
This approach, however, does not appear to me to be helpful when
determining the geographic market in rural South Africa, where

patients in small country towns may have no choice but to travel long
distances to obtain hospital services but where patients
in larger
rural centres may have several hospitals on their doorstep. The
Commission’s economists appear to have started
from the premise
that the target market should be constructed with reference to the
generalised catchment areas of MC Potch and
the targets. Furthermore,
they did not construct their catchment area for each hospital by
plotting the sources of patients in
decreasing order of magnitude
until they reached 80% and by drawing an irregular isochrone map with
reference to these localities
(contrast
Ashford
paras
5.41-5.42 and the Fernridge report previously mentioned). Instead
they assumed that the catchment area was distributed in
radiating
circles around each town, with localities in the expanding radius
being included until one reached 80% of the hospital’s

admissions. The result, as Econex correctly observed, was to include
localities which made smaller contributions to the hospital
while
excluding other localities which made larger contributions.
[89]
Most importantly, the Commission’s approach ignored the
important distinction between the hospital options open to, and
thus
the travelling behaviour of, rural patients on the one hand and the
residents of Klerksdorp and Potchefstroom on the other.
On the
Commission’s radius approach, Klerksdorp and Potchefstroom were
inevitably each found to have a catchment area which
included the
other, because each town drew patients from further afield than 47 km
(the distance between Klerksdorp and Potchefstroom).
In relation to
Klerksdorp, this wrongly assumed that the options open to, and thus
the likely travelling behaviour of, patients
in Potchefstroom was the
same as the options open to, and thus the likely behaviour of,
patients in (say) Fochville.
[90]
The
Commission’s counsel referred to evidence from the Commission’s
economists that a hypothetical medical scheme could
not market a
health plan to employers in the MaJB area without including a
hypothetical monopolist of hospitals located in that
area. No doubt
the Commission’s answer to that question is correct but the
hypothesis shows no more than that the market
for providing hospital
services to the residents of Klerksdorp and Potchefstroom is not
wider
than the hospitals in those two towns (and that is the point which
the Commission’ economists were making in their report
[18]
).
The hypothesis does not answer the crucial question, namely whether
Klerksdorp and Potchefstroom are one or two geographic markets,

since, in the case supposed, the hypothetical monopolist is a
monopoly provider in Klerksdorp, in Potchefstroom, and thus in MaJB.
[91]
The more relevant question is whether a hypothetical medical scheme
could market a health plan to employers in Klerksdorp without

including a hypothetical monopolist of Klerksdorp hospitals. In other
words, could such a scheme successfully market its health
plan if all
it could offer prospective members were hospitals in Potchefstroom?
The answer is surely no. Asking the question I
have indicated is just
another way of saying that one must test market definition by
starting with the narrowest candidate market
and working one’s
way out, not the other way round.
[92]
Thus in
Hershey
and
Advocate Health
the appeal courts
did not ask whether a scheme which wanted to market a health plan in
the broader market proposed by the merging
parties could exclude a
hypothetical monopolist of hospitals in the broader area – the
answer was obviously no. The important
question was whether a scheme
wishing to market a health plan in the narrower area (the Harrisburg
area in
Hershey
, the NSA area in
Advocate Health
) could
exclude a hypothetical monopolist of hospitals in the narrower area.
The answer was no. The fact that so few residents within
the narrower
areas travelled to hospitals outside those areas was one of the
considerations in reaching the answer.
[93]
The Commission’s counsel submitted that medical schemes would
not have opposed the merger if they thought Klerksdorp
and
Potchefstroom were separate geographic markets. However, the medical
schemes which responded to the Commission’s request
for comment
did not uniformly oppose the merger. Discovery, Medihelp, Selfmed,
Hosmed and Bankmed said they had no concerns about
the merger. Polmed
saw pros and cons.
[94]
GEMS’ written submission recorded a concern at the increase in
Mediclinic’s national market share, adding that
its concern was
limited (though not negated) by the fact that Anncron provided strong
competition for patients in Klerksdorp. In
oral evidence, on the
other hand, GEMS’ Dr Gqola stated that an increase of 0,8% in
Mediclinic’s national market share
would not really change the
dynamics of tariff negotiations, and that although GEMS had given
factual responses to the Commission’s
questions about regional
market shares,
‘
it
doesn’t really have relevance in the GEMS sense, because when
we negotiate tariffs we negotiate on a national basis, and
in terms
of member access, the market shares won’t have an impact’.
[19]
[95]
Bonitas, Barloworld and the Old Mutual Staff Medical Aid Fund
(‘OMSMAS’) are administered by Medscheme, and their

points of concern were expressed in identical language. I shall deal
with this later in relation to the question of regional dominance.
[96]
A final observation regarding the geographic market is this. There
was no evidence to show how many Klerksdorp patients would
need to
divert to Potchefstroom to render a SSNIP of 5% unprofitable for a
hypothetical Klerksdorp monopolist.
[97]
I thus consider that the Tribunal erred in holding that the relevant
local market included both Klerksdorp and Potchefstroom.
The Tribunal
should have held that only the Klerksdorp hospitals compete for
Klerksdorp patients and only the Potchefstroom hospitals
compete for
Potchefstroom patients. A hypothetical monopolist in one of those
towns could profitably engage in a SSNIP. At any
rate, there was not
robust evidence to the contrary.
Implications
of market definition
[98]
Because Potchefstroom and Klerksdorp do not fall in the same local
market, the merger will not give rise to an SLC in relation
to the
local market within the meaning of
s 12A(1).
There are currently
three multidisciplinary hospitals in Klerksdorp, one owned by Life,
two owned by Matlosana. If the merger is
implemented, the market
structure in the Klerksdorp market will be unaffected. The two
Matlosana hospitals will simply have a different
owner. The new owner
will have no greater market power within the Klerksdorp market than
Matlosana currently has.
[99]
Accordingly, any post-merger price increases at the target hospitals
will not be a consequence of an SLC. The same is true
of the
Tribunal’s prediction that there will be a deterioration of
quality at the targets. The enquiry into local price increases
and
deterioration of quality will thus have to take place in the context
of an assessment as to whether the merger, despite not
giving rise to
an SLC in the local market, is unjustifiable ‘on substantial
public interest grounds’
(s 12A(1)(
b
)), having
regard to the factors set out in
s 12A(3).
I deal with this
later in my judgment.
Leveraging
regional dominance
[100]
The Tribunal found that the merger would give Mediclinic regional
dominance in MaJB, which Mediclinic could exploit, at a
national
level, in its negotiations with schemes. In short, so it was held,
schemes would find it difficult to exclude Mediclinic
from their DSP
networks, given the dominant position it would enjoy in Potchefstroom
and Klerksdorp. As I have already said, this
theory of harm is
applicable only to schemes’ low-cost options, comprising less
than 10% of the insured market.
[101]
To the extent that the Tribunal’s reasoning depended on its
finding that Klerksdorp and Potchefstroom are part of a
single
geographic market, it fails at the threshold. To the extent that it
is a self-standing competition concern, the evidence
in support of
this theory of harm was not compelling. Almost all schemes, including
their low-cost options, are national, even
though they may attract
more members from some areas than from others. No scheme
characterised by a regional focus on MaJB was
identified (apart
perhaps from AngloGoldAshanti). In the case of national schemes, the
NWP as a whole makes up only 3,5% of the
insured market. The largest
town in the NWP is Rustenburg. Potchefstroom and Klerksdorp
collectively are likely to account for
less than 2% of the insured
market.
[102]
For
reasons I have explained, schemes want good coverage for members.
Where possible, members should have access to a hospital within
a 50
km radius. Although Potchefstroom and Klerksdorp are just under 50 km
apart, the weight of the evidence was that it would
not be regarded
as reasonable for a scheme to have a DSP in only, say Klerksdorp, on
the basis that its members in Potchefstroom
would forfeit coverage or
have to make co-payments unless they travelled to Klerksdorp for
treatment.
[20]
I thus accept
that a scheme would usually want a DSP in each of Klerksdorp and
Potchefstroom.
[103]
However, it is not the case that a scheme wanting a network with a
DSP in each of Klerksdorp and Potchefstroom will, if the
merger is
approved, have no choice but to include Mediclinic as an anchor. In
Potchefstroom the position post-merger will be unchanged.
A scheme
could choose MooiMed in preference to MC Potch. In Klerksdorp a
scheme could include Anncron in preference to Wilmed or
Sunningdale.
Anncron is a large hospital, equivalent in size to Wilmed. To put the
matter colloquially, the merger will not cause
Mediclinic to be the
‘only show in town’.
[104]
For a scheme which would in any event have selected Life as its sole
anchor, nothing will change, since in Klerksdorp Anncron
will be the
DSP, while in Potchefstroom the scheme, as is currently the case,
will be able to select MooiMed or MC Potch as a filler.
For a scheme
which would in any event have selected Life and NHN as dual anchors,
it will continue to have Anncron as its DSP in
Klerksdorp and MooiMed
as its DSP in Potchefstroom. For a scheme which would in any event
have selected Mediclinic as an anchor,
it will now have a Mediclinic
DSP in Klerksdorp and in Potchefstroom.
[105]
There
is no hospital group (in which I include NHN) with a complete
national footprint. The merger will affect Mediclinic’s

national footprint only marginally. The fact is that Mediclinic has
no representivity in the Eastern Cape and a weak presence in
KwaZulu
Natal. Netcare has no representivity in Mpumalanga and the Northern
Cape, while Life has no facilities in Limpopo or the
Northern Cape.
In national negotiations, schemes always have to consider a second
anchor or filler hospitals in order to secure
reasonable access for
all their members. There is no group with such a wide and evenly
distributed national presence as to permit
its appointment as a sole
and exclusive DSP. (Mr Buys testified that Mediclinic and Life are
often appointed as co-anchors because
their facilities complement
each other in terms of geographic spread.
[21]
)
It is simply not plausible that, by having two additional
hospitals in a single town in a province which makes up a tiny

percentage of the insured market, Mediclinic will become a
practically compulsory inclusion in all DSP networks.
[106]
The Tribunal discerned, in negotiations which took place between
Mediclinic and Bonitas in 2012, an instance of the sort of
leverage
which regional dominance conferred. The negotiations related to
Bonitas’ low-cost option, BonCap. The evidence disclosed
the
following. Mediclinic’
s 52
hospitals in South Africa had
formally been part of the BonCap network. In 2006 Bonitas
unilaterally excised 41 of the Mediclinic
hospitals from the network,
retaining only 11 hospitals as fillers in towns where Bonitas did not
have a DSP. Since the discounts
which hospital groups give for
inclusion in a network have, as their
quid pro quo
, the
prospect of additional volumes, this action left Mediclinic
disgruntled, since the hospitals retained on the network were
in
towns in which Mediclinic in any event had the only hospitals.
Mediclinic ended up tolerating this state of affairs for six
years
because relatively few BonCap members used the 11 retained hospitals.
[107]
In 2012, however, Bonitas notified Mediclinic that it intended
implementing a new network of hospitals in 2013 and invited
a revised
proposal based on an upfront discount. Mediclinic made the granting
of a […]% discount conditional on the reinstatement
of its
hospitals (not necessarily all of them) in areas where it could
expect to gain volumes. As Mediclinic’s witness, Mr
Roland
Buys, put it, Mediclinic in 2012 was not trying to force its way onto
a network as a newcomer, it was ‘actually trying
to buy back
volume’ of which it had been unilaterally deprived.
[108]
In my view, these negotiations are unremarkable, and reflect the
stance that all hospital groups, including NHN, take in network

negotiations. Unless a hospital group has the prospect of achieving
increased volumes in towns served by two or more hospitals,
it has no
commercial incentive to grant discounts on the ordinary tariffs it
has negotiated with the scheme. The rationale of discounts
is
subverted where a scheme wants to use a group only in those towns
where the group’s hospitals are the sole hospitals,
since the
group does not need to offer discounts to attract all the patients
from that town.
[109]
These negotiations do not reflect a leveraging of regional dominance,
if by this is meant power conferred by having a majority
though not
substantially all of the hospital beds serving a particular subset of
the population. The ‘dominance’ which
Mediclinic had in
the ‘regions’ served by the 11 hospitals which Bonitas
retained on the BonCap network was dominance
in individual towns by
virtue of Mediclinic having the only hospital in each of those towns.
No broader regional dominance was
involved.
[110]
Each of the four hospital groups is likely to have some hospitals in
one-hospital towns. More importantly, though, for present
purposes is
the fact that the present merger will not result in Mediclinic owning
all the hospitals in either Klerksdorp or Potchefstroom.
So neither
Klerksdorp nor Potchefstroom will be among the towns where Mediclinic
could say to a scheme, ‘If you want my monopoly
hospitals in
towns X, Y and Z on your network at a discount, you will have to
include some of my non-monopoly hospitals where I
face competition
and where I can expect to gain volume by being appointed the DSP.’
And on the assumption that the 11 hospitals
implicated in the BonCap
negotiations remain monopoly hospitals, Mediclinic is already able to
exercise the sort of leverage which
worried the Tribunal. It was not
shown that the addition of a twelfth town to the list of monopoly
towns would increase its leverage.
[111]
Van Reenen expressed concern that, because schemes supposedly look
for hospitals which can provide a ‘one-stop shop’,
ie
hospitals covering the full range of specialities, schemes are likely
– if the merger is approved – to appoint Mediclinic
as
the DSP in Potchefstroom and Klerksdorp, thus prejudicing MooiMed and
Anncron. Life did not, in its response to the Commission’s

queries, express any such concern. Van Reenen conceded that she did
not have personal experience of scheme negotiations. Mediclinic’s

witnesses disagreed with the ‘one-stop shop’ thesis. And
since Matlosana’s hospitals and MooiMed are currently
part of
NHN, and would on Van Reenen’s version currently offer a
‘one-stop shop’, one would expect to find that
all or
almost all low-cost options have NHN as their DSP, yet this is not
the case.
[112]
It is also necessary to remind oneself that competition regulation
does not have as its object to protect individual competitors
per
se
but rather to safeguard the process of competition. It was not
shown that either MooiMed or Anncron would cease to be viable
hospitals
if they were deprived of the relatively small number of
insured patients on schemes’ low-cost options.
[113]
The
Tribunal stated that according to the written submission by Bonitas’
Dr Jenni Noble, Mediclinic wielded negotiating power
‘
inter
alia
through
its demographic exclusivity in several areas’ (Dr Noble’s
expression was ‘geographic exclusivity’
[22]
)
and that if agreement were not reached Mediclinic would ‘typically
threaten to charge members cash upfront at private rates’.
The
scheme might have to back down in the face of such demands. (As I
mentioned earlier, identical language was used in the submissions

made by Barloworld and OMSMAS, which are relatively small schemes.
Since Medscheme is the administrator of these three schemes,
it is a
fair inference that the concerns were formulated by the administrator
on behalf of the schemes.) Dr Noble did not testify
but this theme
was repeated by Bonitas’ chief operating officer, Mr Marion, in
his testimony.
[114]
Dr Noble’s statements formed part of a longer paragraph in
which she said that negotiations with Mediclinic were ‘significantly

more technical’ than with NHN. This was ‘largely because
of Mediclinic’s support structures and resources, central

availability of data and ability to create complex reimbursement
models’. Mediclinic had more data than Bonitas, ‘including

quality data at hospital level, line-item data underlying ARMs,
underlying cost information and on-the-ground operational and
management information’: ‘These all add to Mediclinic’s
negotiation power.’ Then followed the statement
that, ‘in
addition’, Mediclinic wielded its negotiation power through
geographic exclusivity in several areas. The
‘threats’
which she described were those which flowed from the totality of
Mediclinic’s ‘negotiation power’.
[115]
By contrast, said Dr Noble, NHN has historically not had similar
negotiation power, the reason being that until recently it
has ‘not
had centralised data or the ability to implement [ARMs]’. Its
ability to procure collectively also weakened
its position as a
group.
[116]
The central thrust of Dr Noble’s comparison between Mediclinic
and NHN was that Mediclinic is a more efficient and savvy
negotiator.
One can well understand that Bonitas and its administrator,
Medscheme, prefer to negotiate with groups whose technical
support
and command of data are, in the opinion of Bonitas and its
administrator, weaker than their own, but there is nothing
objectionable about a hospital group which has good support
structures and resources, centrally available data and the ability to

create complex ARMs. Ignorance is not competitively efficient.
[117]
As to the additional element of ‘geographic exclusivity in
several areas’, Mediclinic is indeed an exclusive hospital

provider in certain towns. So, too, on my understanding of the
evidence, is each of the other hospital groups, including NHN. This

is part of the negotiating dynamic between schemes and hospital
groups. But for present purposes it is sufficient to observe that
the
approval of the merger will not result in Mediclinic having
geographic exclusivity in Klerksdorp or in MaJB.
[118]
I make
one final point in relation to the identical concerns expressed by
Bonitas, Barloworld and OMSMAS. In Bonitas’ case,
the targets
were not DSPs on its low-cost options at the time it made its
submission.
[23]
It is thus
puzzling that Bonitas should have thought that the merger would have
adverse regional effects for it. The targets are
among the Klerksdorp
DSPs for the two smaller schemes but so too is Anncron. This was also
the position for Bonitas by the time
its chief operations officer, Mr
Kenneth Marion, testified in May 2018.
[24]
[119]
The
Tribunal also mentioned a submission made by FedHealth, subsequent to
the conclusion of oral evidence, in which FedHealth said
that the
remedy at that time proposed by the merging parties did not address
the issue of networks.
[25]
According to FedHealth, Mediclinic’s stance on network
discounts had historically been ‘that they will offer minimal

if any network discount for hospitals in areas where they do not
stand to gain in volumes’. FedHealth thought that in Klerksdorp

Mediclinic would not stand to gain much in additional volumes, ‘as
the only other close competitor in the area is [Anncron]
and, to a
minimal extent, [MooiMed]’.
[120]
What FedHealth seems to have been saying is that the owner of the
target hospitals in Klerksdorp could not expect to gain
volume from
Anncron if it were appointed the DSP in Klerksdorp. This assertion
was not canvassed in evidence and I find nothing
in the record to
suggest that it is correct. Furthermore, if FedHealth’s
statement were true, it would apply as much to the
current owner of
the targets as it would to Mediclinic. If Mediclinic’s
negotiating tactics differ from NHN’s, this
has nothing to do
with the effect of the merger on the state of competition in
Klerksdorp.
[121]
In the light of Dr Noble’s comparison between the negotiating
capacities of Mediclinic and NHN, one must perhaps bear
in mind, when
assessing the submissions made by schemes to the Commission, the
possibility that some of them (or their administrators)
might believe
that it would be in their best interests for the targets to remain in
the hands of a less savvy negotiator. If Mediclinic
negotiated in the
manner suggested by Dr Noble and Mr Marion, and if this were unusual,
one might have expected schemes such as
Discovery, Medihelp, Polmed,
Selfmed and Hosmed to have expressed similar concerns, but they did
not.
[122]
The Tribunal relied on the statements I have discussed above (from Ms
van Reenen, Dr Noble, Mr Marion and FedHealth) without
explaining the
mechanism by which the concerns expressed by these parties would come
to pass, having regard to the uncontentious
facts of the case (eg
that schemes and hospital groups negotiate nationally; that no group
has a complete national footprint; that
in small towns it is not
unusual for there to be only one hospital; that Klerksdorp and
Potchefstroom collectively are only a tiny
fraction of hospital
groups’ business; and that if the merger is allowed Mediclinic
will not be the only hospital in either
Klerksdorp or Potchefstroom).
The
ipse dixit
of a witness such as Ms van Reenen – that
it would be difficult, post-merger, for a scheme to exclude the
Mediclinic hospitals
in Klerksdorp and Potchefstroom – has no
weight if the witness does not explain (and have the knowledge and
experience to
explain) why this should be so.
[123]
The Tribunal thus erred in finding that the merger would confer
regional dominance on Mediclinic and that this would give
rise to an
SLC in negotiations between hospital groups and schemes for the
construction of DSP networks.
Price
effects and the public interest
[124]
It is not in dispute that, if the merger is allowed, Mediclinic will
(subject to any condition requiring it to do otherwise)
immediately
implement its tariffs at the target hospitals. In the case of
schemes, this means the tariffs Mediclinic has already
negotiated
with the schemes, including discounted tariffs for low-cost options
where Mediclinic is a DSP. In the case of uninsured
patients, this
means Mediclinic’s private tariffs.
[125]
The fact that the tariffs will immediately increase is not a
consequence of an enhancement in Mediclinic’s market power.

Mediclinic’s negotiated scheme tariffs and its private tariffs
apply uniformly to all its hospitals in South Africa. Mediclinic
will
have no greater pricing power in Klerksdorp than Matlosana and NHN
currently have. The tariffs which Mediclinic will implement
are
tariffs which have already been negotiated or set for uninsured
patients and are thus set at levels uninfluenced by the merger.
In
post-merger scheme negotiations, Mediclinic’s marginal increase
in national market share will not give it greater pricing
power.
[126]
Similarly, uninsured tariffs are set by Mediclinic nationally.
Although the extent of discounts is probably affected by local

competition, my view of the geographic market means that Mediclinic
will have no greater pricing power post-merger than Matlosana

currently has. The discounts which Matlosana currently offers, and
those which Mediclinic post-merger will offer, would have regard

almost exclusively to Anncron’s competitive position in
Klerksdorp.
[127]
The
Tribunal said that one of the Commission’s theories of harm was
that Mediclinic’s increased market power in MaJB
would lead to
an increase in prices,
[26]
and
the Tribunal discussed price effects, including the actuarial
evidence, in the context of this theory of harm,
[27]
touching only very briefly on the same subject in the context of
public interest.
[28]
If the
Tribunal was of the view that price increases would be the result of
increased market power or an SLC, it plainly erred.
However, the
Tribunal’s assessment of the evidence remains relevant to the
correct enquiry, namely whether there are price
effects justifying
prohibition of the merger as a matter of public interest.
[128]
The fact that price effects must, in the present case, be assessed in
the context of public interest rather than SLC has an
important
effect on the evidence dealing with the relative efficiency of the
targets and Mediclinic. Where it is shown that a merger
is likely to
substantially prevent or lessen competition in a relevant market, it
is for the merging parties to establish that
the merger is likely to
result in technological, efficiency or other pro-competitive games
which will be greater than, and will
offset, the effects of any
prevention or lessening of competition
(s 12A(1)(
a
)(i)).
Because no SLC has been shown in the present case, the merging
parties do not attract this onus. In the context of public
interest,
we are trying to ascertain what prices are likely to prevail at the
targets if the merger is allowed, and whether (assuming
such prices
to be higher than they would otherwise have been) this is a
sufficient basis to prohibit the merger on public interest
grounds.
The efficiencies which were the subject of factual and actuarial
evidence are simply part of this predictive exercise.
[129]
We were not addressed on questions of onus and sufficiency of proof
in relation to the prohibition of a merger on public interest

grounds. It seems to me that in absence of evidence that a particular
harm, which is substantial, may eventuate if the merger is
approved,
the prohibition of the merger cannot be ‘justified’
within the meaning of
s 12A(1).
I leave open the question
whether this requires the likelihood of harm to be established on a
balance of probability or whether
it suffices that the danger of such
harm is reasonably possible.
The
insured market
[130]
If average CPE at the targets goes up post-merger because of
Mediclinic’s higher tariffs, the harmful effects, in the
case
of the insured market, will take the form of higher claims from
scheme members using the targets. Members (the patients) will
only be
prejudiced if premiums increase because of higher claims. Since the
Klerksdorp patients who use the target hospitals are
likely to
represent a very small percentage of a scheme’s national
population, and since scheme premiums are set nationally,
it is
doubtful whether a modest CPE increase at the targets (say by 5%)
will ever translate into increased premiums. It is also
improbable
that the slight increase in cost for the schemes will have any
material effect on their competitiveness.
[131]
One must also bear in mind that, in the case of schemes, the cost of
claims is affected by the presence and extent of ARMs.
Schemes only
negotiate ARMs where they think these will be more beneficial to them
than FFS claims. Because ARMs transfer a measure
of risk to the
hospital, a hospital owner with multiple hospitals is more likely to
accept an ARM than a firm which has only one
or two hospitals, since
it has more facilities over which to spread the risk. To a large
group, the fact that some of the procedures
covered by the ARM turn
out to be substantially more expensive than the norm is unlikely to
matter if it does a large number of
procedures costing less than the
norm. For an owner like Matlosana, by contrast, a few costly
procedures could materially affect
the profitability of the ARM.
[132]
Furthermore, the negotiating and establishing of ARMs is not
straightforward. In her report, the merging parties’ economist,

Dr Nicola Theron, said:
‘
For all ARMs,
providers [hospitals] and funders [schemes] require a large amount of
detailed, accurate data on utilisation and cost
to implement. ARMs
are administratively and operationally complex; adequate systems must
be in place to achieve the efficiencies
offered by such payment
arrangements. In addition, for providers to establish ARMs without
exposing themselves excessively to payment
risk, providers must be
able to spread risk across an adequate number of facilities.’
[133]
This view was confirmed by Mr Marion, Bonitas’ chief operations
officer, who was called as a factual witness by the
Commission. He
said that Bonitas had no ARMs with the target hospitals although a
few were planned for April 2018. It was ‘early
days”, he
said, to determine whether ARMs could be rolled out more extensively
with NHN hospitals in the future. NHN had
acknowledged that there
were shortcomings in its management of data. He preferred not to
comment on how this might pan out in the
future. In regard to
Mediclinic, Bonitas had extensive ARMs prior to 2015 but reduced
these because it found that many of them
were proving more expensive
than FFS claims.
[134]
If the merger is approved, the targets will be absorbed into the ARMs
which Mediclinic has negotiated with various schemes,
including
Discovery. Mediclinic’s superior capacity to offer ARMs could
well offset any modest national increase in FFS claims
brought about
by the implementation of its higher tariffs.
[135]
Discovery
reported that slightly more than […]% of the total revenue it
paid to Mediclinic was by way of ARMs whereas the
figure for NHN
hospitals was only […]%. According to Mr Buys, […]% of
Mediclinic’s admissions took place under
ARMs, and this
accounted for […]% of total hospital revenue. Discovery, South
Africa’s largest medical scheme, told
the Commission that ARMs
are one of the key mechanisms for managing utilisation of hospital
services. A key driver of health care
inflation has been increased
utilisation. Given that Mediclinic was ‘far more collaborative’
than NHN in ARMs and volume-based
discounting, Discovery expected the
merger to be to the scheme’s advantage.
[29]
Discovery later said that it was ‘less worried’ about NHN
hospitals joining Mediclinic ‘since members will end
up paying
less.  .  . Hospitals will be more efficient and can
get better services.’
[30]
Uninsured
patients
[136]
The position is different for uninsured patients. Although their
number in Klerksdorp is likely to be small, perhaps only
[…]
admissions per year, they can be viewed as a vulnerable class.
Medical care is not a discretionary item. Health care
is a
fundamental right guaranteed by s 27(1) of the Constitution. Among
the
Competition Act’s
purposes, as listed in
s 2
, are to
provide consumers with competitive prices and product choices, and to
advance the social welfare of South Africans. In
the preamble one
reads that the Act was passed
inter alia
to ‘provide for
markets in which consumers have access to, and can freely select, the
quality and variety of goods and services
they desire’.
[137]
Although private patients will be able, in most specialities, to turn
to Anncron if they find Mediclinic’s prices at
the targets
unacceptable, their choice might effectively be inhibited by price
increases at the targets. Furthermore, if Mediclinic’s
prices
for uninsured patients rise, Anncron will have less incentive to
grant discounts. Overall, prices for uninsured patients
in Klerksdorp
might thus go up.
[138]
Section 12A(1)
permits the Tribunal to prohibit a merger, even if it
will not cause an SLC, where the merger ‘cannot be justified on
substantial
public interest grounds’. In determining whether a
merger can or cannot be justified on substantial public interest
grounds,
the Tribunal must assess the factors listed in
s 12A(3).
For present purposes, only
s 12(3)(
a
) is germane, namely
the effect the merger will have on ‘a particular industrial
sector or region’.
[139]
The appellants’ counsel argued that
s 12(3)(
a
)
required the Tribunal ‘to consider the effect of the merger
upon
a
sector
or
region
as self-standing
phenomena, rather than the effect upon competitors or consumers
in
a particular sector or region’ (emphasis in the heads of
argument). I reject that submission. The public interest is concerned

with people, not abstractions. Klerksdorp is a region. If prices for
uninsured patients increase at two or perhaps all three of
the town’s
multidisciplinary hospitals because of the merger, that is an effect
which the merger will have on Klerksdorp.
[140]
If, in the case of insured patients, the merger eventually gave rise
to an increase in premiums, this too would be an effect
of the merger
upon a region. The appellants’ counsel submitted that a premium
increase would be national, not local, and
that this would thus not
be an adverse effect of the merger on a ‘region’. Again I
find this argument too narrow. First,
it is not necessary that the
harm engaging the public interest be purely regional. It suffices
that the harm flows from an effect
which the merger will have on a
region. Second, and even if the first point were incorrect, South
Africa as a whole qualifies as
a region. It would be odd indeed if
the Tribunal had the power to prohibit a merger causing harm in a
part of South Africa but
lacked such a power where the merger will
cause harm in the whole of South Africa.
[141]
It is thus necessary to analyse whether the Tribunal was right to
find that the merger will cause hospital prices at the target

hospitals to be higher under Mediclinic control then they would be
under their current control. It is necessary to bear in mind,
in this
regard, that the Tribunal only made this finding in respect of the
two-year grace period from 1 November 2018 to 31 October
2020. Once
the likely price effects of the merger have been ascertained, it will
be necessary to consider whether any likely price
increase, enduring
for a period of two years, is sufficient to constitute a
‘substantial’ public interest grounds justifying

prohibition of the merger.
The
non-actuarial evidence
[142]
The appellants case in the Tribunal was that although Mediclinic’s
tariffs were higher than the targets’, Mediclinic
would be more
efficient than Matlosana in the management of ward and theatre time,
in the procurement and use of surgicals, and
in the use of ethicals.
The net effect of the superior efficiencies, so the appellants
contended, was that, despite the tariff
increases, the targets’
post-merger CPE would be less, not more, than it currently is. The
evidence in support of this case
comprised testimony from factual
witnesses about Mediclinic’s countrywide systems for achieving
efficiencies, and actuarial
evidence which sought to quantify the
likely effects of the tariff increase and efficiencies.
[143]
Mediclinic has developed sophisticated tools for collecting and
analysing hospital data and for reporting results to its hospital

managers. The data is highly granular, and enables a hospital manager
to see each item of cost associated with the performance
of any given
procedure by any given specialist and to compare this with the costs
associated with the performance of the same procedure
by other
specialists in the same discipline at Mediclinic hospitals around the
country. Insofar as ethicals and surgicals are concerned,
Mediclinic
carefully ranks them so as to promote the use of equally efficacious
cheaper alternatives.
[144]
The culture within the Mediclinic group is that hospital managers
constantly engage with specialists in order to influence
their
choices in favour of efficacious cheaper alternatives. Where the
hospital costs associated with the particular specialist
are
materially out of kilter, the detailed benchmarking data enables the
hospital manager to intervene. Mediclinic has found that
in general
specialists do not like to be more expensive than their peers and
will modify their conduct if shown hard data to this
effect.
[145]
In regard to procurement (applicable to surgicals only, given that
SEP applies to ethicals), Mediclinic’s scale allows
it to
achieve better prices from suppliers than smaller hospital owners.
Until the procurement exemption came into force, NHN hospitals
could
not procure collectively and thus could not achieve this procurement
efficiency. Even with the coming into effect of the
exemption, one
would not expect NHN hospitals to achieve the same procurement
benefits. Although NHN will be entitled to bargain
centrally in the
procurement of surgicals, the choice of surgicals remains that of the
individual hospitals. Because Mediclinic’
s 50
hospitals are
under single control, and because Mediclinic’s systems are
designed to identify the most efficient surgical
products (ie
balancing efficacy with cost), it is likely to purchase a smaller
range of items in larger volumes. NHN hospitals,
being individually
owned, are likely to be fragmented in their choice of products, so
that one will have a larger range of items
in smaller volumes.
[146]
Mediclinic’s procurement advantage is not confined to its size.
It also benefits from an international presence, with
interests in
operations in Switzerland and Dubai. Buys testified that Mediclinic’s
insights into international pricing has
significantly enhanced its
negotiating power.
[147]
The Tribunal found that NHN supplied data to individual hospitals
which, with sufficient diligence and effort by hospital
managers,
could be used to achieve similar results to that which Mediclinic
claimed. The evidence as a whole leaves me with quite
the opposite
impression. The NHN data is simply not sufficiently granular to be
deployed as Mediclinic does. Steenkamp said that
he once tried to
encourage a physician at one of his hospitals to use more generics
but the specialist ‘wiped the floor with
me by saying that he
knows what’s best for the patient’. Steenkamp did not
have detailed data to persuade the physician
otherwise.
[148]
Although Steenkamp’s general philosophy has been to refrain
from interfering in specialists’ protocols, in one
case he was
forced to do so when […] implemented a global fee for
anthroplasty (hip and knee replacements). Each hospital
had to
determine how to apportion the globular fee between itself and the
specialists involved. This required Steenkamp to obtain
the costs his
hospital was incurring for such operations. He collected and analysed
six months’ data and discovered that
one of the four surgeons
was generating hospital costs considerably higher than the other
three and that this related to one specific
item the surgeon was
using. This exercise, which involved three managers, took several
weeks. This was the only occasion on which
he was able to engage with
a specialist about inefficiency.
[149]
Although the anthroplasty exercise did not engage the managers full
time, it is clear that the exercise was laborious because
granular
data was not readily available. It would be a hugely time-consuming
business if a similar exercise were to be done on
an ongoing basis
for each of the hundreds of procedures which a multidisciplinary
hospital regularly performs.
[150]
Mediclinic has been able to develop its tools in this field because
it is cost-effective for a large group to do so. The efficiency

gains, when multiplied across its 50 facilities, repay the expense
involved in developing and maintaining the data systems. Steenkamp

testified that it was not commercially viable for Matlosana, with its
two multidisciplinary hospitals, to develop and maintain
comparable
systems.
[151]
Particularly when considering the public interest, the relevant
question is not whether theoretically the targets could drill
down to
obtain and analyse data which in Mediclinic’s case is available
at the press of a button. The question is whether
practically it is
at all likely to happen. The answer is that Matlosana does not regard
it as commercially feasible to expend resources
in doing so. This
assessment was not shown to be wrong or unreasonable and is in any
event a commercial judgement to be made by
the owner of the business.
There is no reason to believe that, absent the merger, utilisation
efficiencies of the kind which Mediclinic’s
systems encourage
will be achieved at the targets.
The
Tribunal’s approach
[152]
Because the Tribunal rejected all the actuarial evidence, and because
the Tribunal was unpersuaded that Mediclinic would in
fact achieve
efficiencies in the management of theatre and ward time and in the
use of ethicals and surgicals, the only efficiency
which it granted
Mediclinic was in the procurement of surgicals. Because the Tribunal
assumed no change in the choice of surgicals,
it had regard solely to
the lower prices which Mediclinic could, by virtue of its scale,
achieve for the same surgicals as the
targets historically purchased.
[153]
On this basis, Mediclinic’s acquisition costs for the same
surgicals resulted in a saving of […]% on the surgicals

component of the targets’ CPE. Because surgicals constituted
[…]% of the targets’ CPE, the overall effect of
this
saving on CPE was […]. Conversely, the tariff component of the
targets’ CPE would rise by […]%. Since
the tariff
component constituted 68,2% of the targets’ CPE, the overall
effect of this increase on CPE was […].
[154]
This exercise, which was referred to in argument as a pure price
comparison or a price-only difference, indicated that Mediclinic’s

superior procurement efficiency would cause a decrease in the
targets’ CPE of […]%. This, however, did not take into

account the procurement efficiencies which the targets could expect
to achieve as from November 2018 through the NHN procurement

exemption. The Tribunal found that NHN, being roughly equal in size
to Mediclinic, would likely achieve the same procurement efficiencies

as Mediclinic, so that at least for the two-year grace period the
targets, like Mediclinic, would be able to reduce overall CPE
by
[…]%. Overall, therefore, at least during the grace period the
targets’ CPE would be […]% higher under Mediclinic’s

ownership than under Matlosana’s.
[155]
Even disregarding utilisation efficiencies, this exercise in my view
takes an unrealistic view of the procurement efficiencies
which the
targets are likely to achieve as members of NHN. First, there is the
fact that central procurement by NHN will still
be procurement of a
fragmented basket of products associated with the 62
individually-owned hospitals making up the NHN group.
Second, the
Tribunal’s assumption leaves out of account the benefits
associated with Mediclinic’s international presence
and
knowledge. And third, it does not seem plausible that NHN could
achieve maximum scale efficiencies without a lead time of some

months. NHN has not hitherto done procurement. There was no evidence
as to how it would go about it. NHN would presumably need
to hire a
procurement team which would then have to get to grips with the range
of products to be ordered, start establishing relationships
with
suppliers and gain experience.
[156]
The more likely scenario, therefore, is that NHN-affiliated hospitals
would take some time, perhaps up to a year, to reach
achieve the full
benefits of the procurement exemption  and that once attained
these would be more modest than Mediclinic’s.
Since the
Tribunal felt unable to predict whether Matlosana would become
compliant within the two-year grace period, one may legitimately
ask
whether a net price increase at the targets of, say, 3% for one year
only, would be a sufficient basis to prohibit the merger
on public
interest grounds.
[157]
Furthermore, an assessment of the public interest should take into
account what may happen after the two-year grace period
expires. As
matters currently stand, Matlosana will cease to benefit from the
procurement exemption in November 2020. Thereafter,
and in the long
term, pricing will (ignoring efficiencies) be marginally more
expensive if the merger were prohibited (by around
[…]%). Only
if Matlosana becomes compliant will there be an ongoing beneficial
effect from the procurement exemption, though
such benefit would then
be reasonably substantial (3% or more).
[158]
Since Matlosana does not qualify as a ‘small business’ as
defined in the
Competition Act read
with the
National Small Business
Act 102 of 1996
, it could only become compliant if control were sold
to historically disadvantaged persons (‘HDPs’). Of the
parties
which submitted non-binding indicative offers for Matlosana’s
shares, the vendors pursued discussions with three, one of which,

[…], qualified as HDP-owned. Its indicative offer was the
lowest of the three. One cannot discount the possibility that,
if the
present merger were prohibited, control of Matlosana would pass into
HDP ownership, but one would expect the vendors to
sell to the
highest bidder or to retain their shares if they were dissatisfied
with the highest price. The latter is a distinct
possibility, given
that Mediclinic’s offer was substantially higher than the
offers of the other two bidders who were invited
to submit letters of
intent.
Quantification
of efficiencies
[159]
All of this disregards the efficiencies which Mediclinic alleges it
could achieve. I have already explained why, contrary
to the
Tribunal’s assessment, one would expect Mediclinic’s
superior tools for collating, analysing and deploying data
to achieve
utilisation efficiencies. Even if the targets coincidently happened
to be as efficient as a reasonable selection of
Mediclinic comparator
hospitals, Mediclinic’s superior data systems could be expected
to further enhance the targets’
efficiency.
[160]
In my opinion the actuarial evidence pointed firmly to a conclusion
that the targets are not as efficient as comparable Mediclinic

hospitals. The Tribunal erred in discounting the actuarial evidence.
While it is plainly impossible to predict with precision the
effect
which Mediclinic’s efficiency initiatives will have on the
targets, the actuarial evidence provided rough guidance
as to the
likely parameters of such effect.
[161]
There is a point that needs to be emphasised at the outset of the
discussion about the actuarial evidence. The inclusion or
exclusion
of day cases in the definition of the product market is potentially
relevant to the question whether the merger would
likely give rise to
an SLC. Based on my view of the geographic market, I have concluded
that there will be no likely SLC. What
I am addressing now is whether
the merger will give rise to price increases at the targets and
whether this is a substantial public
interest ground for prohibiting
the merger. In this exercise, there is no reason to exclude day cases
(howsoever defined) from
the analysis; public interest is as
concerned with the costs borne by day-case patients as by multi-day
patients.
[162]
Actuarial evidence was presented by Mr Barry Childs of Insight
Actuaries & Consultants (‘IAC’) and by Mr Zaid
Saeed
of Alexander Forbes (‘AF’). While both witnesses were
duly qualified to provide expert assistance to the Tribunal,
it is
not unfair to observe that Childs’ experience in general, and
in the healthcare sector in particular, was significantly
more
extensive than Saeed’s. He obtained his honours degree in 1998
and became a Fellow of the Institute of Actuaries in
2004. He has a
post-graduate diploma in Health Economics. His work experience over
the period 1998 to August 2014, when he joined
IAC as joint CEO,
included employment with Medical Rescue International, NBC Employee
Benefits, Liberty Healthcare, Discovery Health
and Lighthouse
Actuarial Consulting. He chairs the healthcare committee of the
Actuarial Society and is a member of its NHI subcommittee.
IAC has
among its current and recent clients many medical schemes,
administrators and other entities involved in health care, including

Discovery Health, GEMS, Selfmed, Medshield, Medscheme, Sanlam
Healthcare Management and the CMS. IAC consults to all four major

hospital groups, including NHN. Saeed by contrast obtained his degree
in 2012 and is currently a student member of the Actuarial
Society.
His employment at AF Health began in August 2013.
[163]
Quite what effect the implementation of Mediclinic’s systems
will have on the target hospitals’ efficiencies cannot
be
predicted with certainty. The best method of quantifying the
differences was thought to be a comparison between existing
Mediclinic
hospitals and the targets, but there was a dispute as to
what Mediclinic hospitals should be included in the comparison.
[164]
Childs selected a group of Mediclinic hospitals which he regarded as
providing a dataset that was both representative and
statistically
reliable. A single-hospital comparison would not be statistically
reliable because of idiosyncrasies. His criteria
for selection were
that the Mediclinic comparators should be (a) inland hospitals
(inland regions differ from coastal regions
in their disease profile
and co-morbidities); (b) located in a radius of 35 km – 250 km
from Johannesburg and Pretoria (large
urban centres are characterised
by a higher density of specialists performing more complicated cases
and trying experimental techniques).
Seven Mediclinic hospitals met
these criteria, one of which (naturally) was MC Potch. Childs then
examined whether these seven
hospitals were comparable to the targets
in terms of the proportions of their admissions in the main
specialities and found that
they were.
[165]
In a
note of 25 September 2018
[31]
Childs mentioned a further, though fortuitous, advantage of his
seven-hospital methodology. It turns out that MC Potch did not
have
billings during the relevant period for some of the procedures
performed at the target hospitals. A comparison with MC Potch
alone
thus required that these procedure codes at the targets to be
excluded from the analysis. With Childs’ methodology,
there was
a comparison which embraced all the targets’ procedure codes.
[166]
Childs testified that Mediclinic played no part in the selection of
the hospitals. It was not put to Childs that he chose
selection
criteria with a view to confining his basket to Mediclinic’s
more efficient hospitals. It was also not put to him
that his
selection criteria were inappropriate.
[167]
Saeed said that he was ‘comfortable with the wider hospital
selection from a statistical credibility point of view’,
but
observed that two of the seven Mediclinic hospitals were smaller, and
that if one excluded those two hospitals from the Mediclinic
data,
and the Sunningdale hospital (which is also small) from the targets’
data, the results shifted ‘quite noticeably’.
Childs’
response was that although IAC had not set out to select big or small
hospitals, he had been quite pleased to find
that his objective
criteria resulted in the inclusion of two smaller Mediclinic
hospitals, since one of the two target hospitals
was also small. The
actuaries calculated an average CPE for the two target hospitals
collectively. On this basis, it does not strike
me as unacceptable
that Childs’ basket of seven hospitals should have included two
smaller ones. One is concerned with the
overall impact of the merger
on hospital prices in Klerksdorp.
[168]
In consultation with the Commission, AF in its second report focused
on a comparison between the targets and MC Potch. Saeed
testified
that, in the context of merger assessment, the comparator hospitals
should be close competitors of the targets. The Commission
in
defining the geographic market had identified MC Potch as the only
Mediclinic hospital that was a close competitor of the targets.
MC
Potch was also likely to represent a similar patient demographic.
[169]
Quite
apart from the lack of statistical reliability in a one-hospital
comparison, there are two reasons why Saeed’s approach
is not
compelling. First, I have found that MC Potch is not in the same
geographic market as the targets, which undermines Saeed’s

primary basis for focusing on that hospital. Second, I do not
understand why the likelihood of Mediclinic’s initiatives
resulting in efficiency improvements at the targets should be thought
to depend solely on the success Mediclinic has had with those

initiatives in its Potchefstroom hospital. If initiatives yield
better results at some hospitals than at others, this is more likely

to be a result of the management of the individual hospitals and the
willingness of particular specialists to modify their treatment

patterns. I think Prof Theron was right when she said that the
dispute between the actuaries about the comparator hospitals did
not
‘speak to the competition economics of the market’, and
was a separate exercise of selecting comparable hospitals.
[32]
[170]
I thus consider that the single-hospital comparison is unhelpful and
that the seven-hospital comparison can provide useful
guidance on
likely pricing effects. In my opinion, Childs’ results should
have been taken into account, bearing in mind that
any attempt at
precision would have been spurious.
[171]
Childs’ initial analysis was done for the 2015 calendar year,
later extended to include 2014 and 2016. Childs explained
that, in
order to compare like with like, one had to make case-mix adjustments
to datasets of the target hospitals and the seven
Mediclinic
hospitals. IAC’s large quantity of data enabled it to generate
case-mix indices (‘CMIs’) for the three
components of CPE
– tariff, surgicals and ethicals. Every admission at the
targets and the seven Mediclinic hospitals was
allocated to a
so-called DRG category, ie categories determined by IAC’s
Diagnosis-Related Grouper (‘DRG’). DRG
allocation is
based on clinical codes, age and gender. In the present case, around
1450 DRG categories were involved. The CMI ranks
the relative cost of
each DRG category in relation to a value of one. These cost
relationships were calculated from a broader set
of data than the
nine hospitals involved in the Mediclinic/Matlosana CPE comparison in
order to ensure stability.
[172]
It was also necessary to exclude outliers from the datasets which
might distort the results, an adjustment referred to as
‘trimming’.
Childs did so using the interquartile method, which removed about 5%
of admissions by volume. This trimming
method was applied separately
to each of the DRG categories. Apart from trimming, Childs excluded
neonatal, transplant and critical-care
(eg long-term ventilation)
admissions due to their cost volatility and low volumes. Childs
excluded outpatient cases from his data,
but included all genuine
inpatient admissions, whether or not they were classified by
Mediclinic as day cases.
[173]
This,
broadly speaking, was the exercise Childs did in his first
report.
[33]
The conclusion was
that Mediclinic CPE was […]% higher in regard to tariff items,
[…]% lower in respect of surgicals
and […]% lower in
respect of ethicals. Bearing in mind the relative weighting of these
three components of CPE ([…]),
overall Mediclinic CPE was […]%
lower than the targets.
[174]
Although not explicitly stated in the first IAC report, my
understanding from subsequent reports is that cases charged in
terms
of ARMs were excluded from the analysis. This was certainly AF’s
approach from the beginning, and the final sets of
results from both
actuaries were explicitly presented on this basis. Since the
actuarial analyses were based on comparisons of
cost per line items,
and since ARMs are characterised by an absence of detailed line
items, they could not have featured in the
exercise.
[175]
In a
second report
[34]
Childs
analysed detailed line-item data for those surgicals and ethicals,
the use of which was common to the targets on the one
hand and the
Mediclinic hospitals on the other, to arrive at pure comparisons and
case-mix adjusted comparisons. The results were
broadly in line with,
and thus validated, the results for ethicals and surgicals generated
by the methodology used in the first
report. The second report
reflected that, for surgicals, Mediclinic was […]% cheaper
than the targets, of which […]%
was attributable to lower
prices per unit and […]% to lower volumes used. For ethicals,
Mediclinic was […]% cheaper,
of which […]% was
attributable to lower prices per unit (given SEP, this would mean
cheaper generics as against more expensive
patent drugs) and […]%
to lower volumes used.
[176]
The
next report was AF’s first report
[35]
.
This report reviewed the seven-hospital methodology. AF attempted to
replicate IAC’s results, and also performed an independent
set
of calculations, using a different set of CMIs, trimming methods and
case selection. AF agreed that case mix and trimming adjustments
were
appropriate, but there were differences as to precisely how this
should be done.
[177]
While AF agreed with the need to include Mediclinic day cases which
were genuine inpatient events, they excluded those which
(so they
believed) involved no ward or theatre time. This largely neutralised
the superior efficiencies in ward time reflected
in IAC’s
results, although AF confirmed that Mediclinic remained more
efficient in theatre time.
[178]
AF was able to replicate IAC’s trimming method and was
satisfied that IAC’s trimming results were reasonable.
AF
explained an alternative trimming method, adopting AF’s
benchmarks for low-cost (R1000) and high-cost (R100 000)

admissions. Some of the high-cost cases which IAC excluded from the
outset (eg transplants) were, in AF’s methodology, excluded
as
part of the trimming adjustment.
[179]
Replicating IAC’s methodology as best it could, AF calculated
that the seven Mediclinic hospitals’ average CPE
was […]%
lower than the targets. With AF’s alternative trimming
methodology, the difference reduced to […]%.
With AF’s
trimming methodology and its alternative CMIs, the difference dropped
to […]%. With a further adjustment
for differences in cases
included and excluded (particularly the exclusion of the cases
supposedly involving no theatre and ward
time), the Mediclinic
hospitals’ CPE emerged as […]% higher. In other words,
only if all of AF’s alternative
methods were accepted was the
Mediclinic CPE higher than the targets’ CPE.
[180]
IAC’s
third report
[36]
contained
minor corrections for errors brought to light by AF’s first
report. This did not change IAC’s actual results
and
conclusions. Childs later explained in oral evidence that IAC had
incorrectly populated a field which had resulted in certain
day cases
supposedly having involved no time in the ward or theatre. This was
not in fact the case, and once the field was correctly
populated the
overall results remained the same. I understand Saeed to have
acknowledged this in his oral evidence, but from his
perspective it
became irrelevant in view of the approach taken by AF in its second
report, which was to exclude all day cases.
[181]
Before
IAC delivered its substantive response to AF’s first report, AF
delivered a second report
[37]
in which it extended its analysis to cover the period 2013-2016 and
applied its own methodology rather than peer-reviewing the
IAC
methodology. Although AF’s methodology was in the main
unchanged, its second report purported to exclude day cases on
the
basis that the Commission’s economists contended that day cases
did not form part of the product market. In the event,
and because
only those cases coded by Mediclinic under the 23-hour rule were
clearly identifiable as day cases, only they were
excluded. Cases
billed by Mediclinic and the targets in terms of their respective
same-date tariffs were not excluded.
[38]
The 23-hour rule cases were excluded from the Mediclinic data
although they were genuine hospital admissions. And although AF still

showed results for IAC’s basket of seven Mediclinic hospitals,
the emphasis shifted to a comparison between the targets and
MC Potch
– a change explained by AF as having occurred ‘in
consultation with’ the Commission.
[182]
IAC’s
substantive response to AF’s first and second reports was
contained in its fourth report.
[39]
In regard to AF’s first report, IAC pointed out that AF had
incorrectly removed the admissions which were the subject of
the
minor corrections made in IAC’s third report. Those admission
should not, said IAC, have been removed, since the initial
mistake
had been a labelling error rather than an inclusion error. The
reversal of this incorrect exclusion by AF negated AF’s
final
scenario (scenario six), under which Mediclinic became […]%
more expensive than the targets rather than between […]%
and
[…]% cheaper. (As Childs later said in oral evidence,
‘scenario six shouldn’t exist’.)
[183]
IAC criticised the one-hospital comparison because small datasets are
accompanied by high volatility. This weakness in a one-hospital

comparison was acknowledged by Saeed in oral evidence.
[184]
In
regard to AF’s second report, IAC questioned the removal of day
cases, and pointed out the significant impact it had on
the results.
In oral evidence, Childs explained that AF had removed all cases
which Mediclinic’s data labelled as day cases.
This was in his
view incorrect, because day-patients (as distinct from outpatients)
are simply a subset of inpatients. He testified
that IAC routinely
did this kind of analysis for medical schemes and had never been
asked to separate out day cases:
[40]
‘
When medical
schemes look at this kind of data, they look at acute hospitals
overall in their experience... [T]hey don’t see
them as
separate. [W[hen they look at acute hospitals, they see day patients
and overnight patients the same. We’ve never
been asked to do
an analysis that wholly or partially carves out day cases from a cost
per admission adjusted efficiency analysis.’
[185]
Childs also pointed out in his oral evidence that AF had
removed day cases in an inconsistent fashion, since a significant

number of admissions were excluded from Mediclinic’s data in
circumstances where similar admissions at the targets were not

excluded. If day cases were to be removed, this had to be done on a
consistent basis for both datasets.
[186]
The removal of Mediclinic’s deeply discounted 23-hour-rule
cases biased the results against Mediclinic. Childs regarded
AF’
exclusion of Mediclinic’s day cases as quantitatively the most
significant difference between IAC’s and AF’s
analyses.
Unsurprisingly, Saeed acknowledged that it would be a point of
concern if the differing coding practices of Mediclinic
and the
targets resulted in inconsistent exclusions and inclusions.
[187]
As I
explained earlier, for purposes of the public interest analysis there
is no reason to remove day cases (ie cases where patients
are
admitted to hospital and incur ward and theatre time, but whose stay
lasts less than a set period, whether it be a same-date
rule or a
rule set with reference to 24 hours, 23 hours or 12 hours). (Indeed,
outpatient prices might also have been relevant
to the public
interest analysis, but no evidence in that respect was presented by
either side.) In oral evidence, Saeed seemingly
shared Childs’
view as to how medical schemes see matters and explicitly explained
the exclusion of day cases with reference
to a competitive
assessment:
[41]
‘
I think I
concur with [Childs] on that point, in that over the course of a
standard actuarial analysis for, let’s say one
of our medical
schemes, we would group day cases with hospital costs, because that’s
where those admissions are serviced.
But I think it’s important
just to consider the context in which the analysis is being performed
now, ... which is considering
the competitive impact of the services
that are included in the analysis.’
[188]
In
AF’s first report they had not disagreed with IAC’s
inclusion of day cases constituting genuine inpatient events;
their
only disagreement had been in respect of those cases which seemingly
involved no theatre or ward time. From the limited cross-examination

allowed, it appears that AF’s change of stance in their second
report was solely on account of the Commission’s view
regarding
the definition of the product market for purposes of the competitive
assessment.
[42]
Dr Mncube
confirmed that this was the Commission’s economists’
instruction to AF.
[43]
[189]
During
the ‘hot tub’ evidence of the actuaries, in which the
economists were granted an opportunity to ask questions,
the
Commission’s lead economist asked Childs whether he would
accept that the inclusion or exclusion of day cases in a competition

setting was an argument for the economists rather than the actuaries.
Childs acknowledged that actuaries are not experts in the
intricacies
of competition economics:
[44]
‘
However, what
I would like to bring to bear into the discussion is extensive
consulting to the purchasers of these services at acute
hospitals and
what I can tell you [is] that in those cases – and presumably
these purchasers of these kinds of services consider
.  .
. the competitive nature of the services that they are buying –,
they don’t separate out day cases
from acute hospitals.  .  .
From a competition point of view, if that is the basis for the
argument, then I
would defer to the economists. On determining
whether or not the hospitals are comparatively efficient or not I
would express my
view that they should be included.’
In
the context of pricing effects as a public policy consideration,
Childs’ concluding sentence is plainly right.
[190]
IAC squarely took issue with AF’s alternative trimming
methodology. If AF’s static-trim method were used, the
floor
and ceiling values should at least be adjusted for inflation. There
was, however, a more important objection of principle.
A static-trim
method is typically used when one wants to remove distortions in
hospital data unadjusted for case-mix. Since DRGs
and CMIs already
quantify differences between typically expensive and typically
inexpensive admissions, a more robust trimming
method was possible:
‘By determining trim points for each DRG, anomalous admissions
in each category are removed, rather
than removing large claims
en
masse
.’ In short, too much information was unnecessarily
discarded in AF’s trimming methodology.
[191]
In the limited time allowed to counsel to lead and cross-examine the
actuaries, the merging parties’ counsel invited
Childs briefly
to explain his preference for IAC’s trimming method, which he
did. The Commission’s counsel did not
devote any
cross-examination to this issue, and Saeed was not led on it. In my
opinion, IAC’s reports on this aspect, amplified
by the oral
evidence, make out a cogent case for using the more nuanced IAC
trimming method than the blunter AF method.
[192]
IAC also questioned AF’s alternative CMIs. AF derived its
weighting ratios from the data of the nine hospitals directly

involved in the comparisons. As IAC explained in its first report,
IAC had access to a larger universe of data to establish these

weightings. (In oral evidence, Childs referred to IAC’s data as
covering about 4,5 million medical scheme admissions.) IAC
recognised
that AF might be hampered by not having access to such data, but was
concerned that the limited data used by AF was
too small to derive
stable case weights.
[193]
The comparative merits of the CMIs were not debated at any length in
the oral evidence. In principle, it seems to me that
the cost
relationships between various procedures are likely to be more
reliable when derived from a larger data universe than
a smaller one.
For purposes of calculating a CMI, there is no merit in focusing only
on the nine hospitals whose costs were under
consideration in the
present case. The relative complexities of medical procedures, as
reflected in relative cost, is likely to
be a national phenomenon.
[194]
The upshot was that IAC, in its fourth report, saw no reason to
depart from the conclusions expressed in its earlier reports.
[195]
I have touched on relevant aspects of the actuaries’ oral
evidence. They were subsequently asked to submit supplementary

reports to deal with various day-case scenarios and to set out the
results for the calendar years 2014, 2015 and 2016. This resulted
in
AF’s third report and IAC’s fifth and sixth reports. In
their final report, IAC conveniently set out the results
presented by
IAC and AF on the various scenarios, using their respective
methodologies.
[196]
Childs and Saeed’s calculations yielded the following results.
Although calculations for other day-case variants were
done, I only
reproduce those relating to day cases defined as admissions under 24
hours. A minus percentage in the following table
indicates that the
Mediclinic hospital(s) are cheaper:
[All
figures have been omitted from the table because of confidentiality
claims]]
IAC % difference
AF % difference
Comparison
2014
2015
2016
Avg
2014
2015
2016
Avg
All day cases
included
MC7 ⁓ Targets
MC7 ⁓ Wilmed
MC7 ⁓ Sunningdale
MC Potch ⁓ Targets
MC Potch ⁓ Wilmed
Day cases (≤ 24 hrs)
excluded
MC7 ⁓ Targets
MC7 ⁓ Wilmed
MC7 ⁓ Sunningdale
MC Potch ⁓ Targets
MC Potch v Wilmed
[197]
In the s
even-hospital comparison, IAC
and AF both found that Mediclinic was cheaper than the targets
collectively in each of the preceding
three years, whether day cases
were included or excluded – by averages ranging from […]%
to […]%. Based on
the exclusion of day cases, defined as
admissions for 24 hours or less, the average difference is […]%
(AF) or […]%
(IAC).
[198]
There were three other scenarios for the day-case exclusion:
admissions under 12 hours; admissions under 23 hours; and the

exclusion of admissions based on each hospital’s definition of
day cases. All these scenarios showed that the seven Mediclinic

hospitals were cheaper than the targets, the most modest difference
being based on the exclusion of admissions under 23 hours,
where the
average difference was […]% (AF) or […]% (IAC).
[199]
The
calculations reflect that the seven Mediclinic hospitals were on
average significantly cheaper than Wilmed but more expensive
than
Sunningdale. Since larger hospitals tend to have higher CPEs than
smaller ones, this is unsurprising. The two smaller hospitals
in
IAC’s basket of seven were probably as or more efficient than
Sunningdale. Discovery’s CPE analysis
[45]
was that Sunningdale was less efficient than Mediclinic hospitals of
comparable size while Wilmed’s efficiency was more or
less the
same as Mediclinic hospitals of comparable size (Discovery did not
undertake the further refining criteria used by IAC).
The comparison
between the seven Mediclinic hospitals and the targets collectively
is the most important one.
[200]
I have, for the sake of completeness, included the comparisons
between MC Potch and the targets collectively and between MC
Potch
and Wilmed (the latter two hospitals being of roughly equivalent
size). With the inclusion of day cases, Wilmed is marginally
more
efficient than MC Potch. With the exclusion of day cases (defined as
24 hours or less), MC Potch is significantly more efficient,
the
difference being […]% (AF) or […]% (IAC).
[201]
I have explained my reasons for preferring IAC’s methodology to
AF’s and why day cases should be included. I am
surprised that,
when day cases under 24 hours are excluded, the percentage by which
Mediclinic is more efficient goes up rather
than down, since I would
have expected Mediclinic’s discounted tariff under the 23-hour
rule to have resulted in Mediclinic
being at its most efficient when
all admissions, including this class of day case, were counted.
Subsequent to the hearing of the
appeal, the appellants’
counsel were asked to deal with this apparent anomaly in a written
note. Since the Commission was
not amenable to the appellants’
counsel including any material in the written note which could not be
derived from the record,
counsel’s somewhat cryptic note has
not clarified the matter.
[202]
Be that as it may, based on the seven-hospital comparator, the
inclusion of all day cases and IAC’s methodology, one
may
reasonably expect that the net effect of the merger and the
implementation of Mediclinic’s efficiency initiatives will
be
that, despite the implementation of Mediclinic’s higher
tariffs, CPE at the targets will fall by about […]%.
Conclusions
[203]
Since the factual evidence about Mediclinic’s efficiency
initiatives was compelling, there is no reason to be sceptical
about
the figures reflected in the above table. Of course, these figures do
not take account of the beneficial effect for the targets
of the
procurement exemption. On the most meaningful of the actuarial
comparisons, IAC calculated Mediclinic to be cheaper by […]%.

The Tribunal found Mediclinic to be more efficient than the targets
in procurement by an amount which would reduce the targets’
CPE
by […]%. On IAC’s primary scenario (including all day
cases), CPE at the targets under Mediclinic control would
thus only
rise by […]% if one assumes that without the merger the
targets could achieve procurement efficiencies for two
years of […]%.
(On the day-case exclusion, which was the approach taken by the
Tribunal and the Commission, the targets
would be cheaper under
Mediclinic control even if one assumes that the targets could achieve
procurement efficiencies of […]%.)
[204]
On AF’s calculations of the primary scenario (including all day
cases), the beneficial effect for the targets of the
procurement
efficiency would have to exceed […]% before one could find
that the merger will increase the targets’
CPE during the grace
period. It is doubtful that the procurement would yield an efficiency
of […]%. If it did, it would
only be for a portion of the
grace period. So on AF’s calculations there is a possibility,
though not a very large one, that
for part of the grace period the
targets’ CPE under Mediclinic control will be higher than under
Matlosana’s control
by an amount not exceeding […]%.
[205]
I do not lose sight of the fact that, just as it might take some time
for NHN to attain its maximum procurement benefit from
the
procurement exemption, so not all of Mediclinic’s efficiencies
could be achieved immediately. The greater part of its
efficiencies
in relation to surgicals is a procurement efficiency rather than a
utilisation efficiency. The procurement efficiency
will be achieved
immediately because Mediclinic’s procurement systems are mature
and in place. There will be a lag in achieving
utilisation
efficiencies on tariff items, surgicals and ethicals, since this
requires the collation and analysis of data and engagement
with
specialists. Dr Smuts said that it took about three months for any
initiative to yield positive results. It could be significantly

longer.
[206]
The beneficial effects for schemes of ARMs are not accounted for in
the above quantification. Since schemes have negotiated
ARMs more
extensively with Mediclinic than with NHN, the post-merger
implementation of these ARMs at the targets could be expected
to have
some further beneficial, though unquantified, effect on the cost of
scheme claims
[207]
In my opinion, the Tribunal erred in finding that there were
substantial public interest grounds for prohibiting the merger
on the
strength of price effects.
Public
interest and quality of care
[208]
As
with price effects, the Tribunal discussed the possibility of a
post-merger deterioration of quality at the targets as something

which would supposedly be brought about by a decrease in
competition.
[46]
The evidence
the Tribunal discussed, however, did not suggest that the supposed
deterioration in quality would be the result of
an SLC. Rather, the
debate was whether, as matters currently stood, the targets or
Mediclinic was doing better in the sphere of
quality care, the
assumption being that if Mediclinic was doing worse than the targets,
this poorer quality of care would automatically
(like the tariffs) be
imposed on the targets. Once again, this is not a matter of possible
harm flowing from an SLC. Such relevance
as it has arises in the
public interest assessment.
[209]
As the Tribunal observed, there was limited evidence on the
differences between the quality of service at MC Potch and the

targets. All the same, the Tribunal thought that the targets were
performing better than Mediclinic.
[210]
The
evidence was indeed meagre. There is currently no agreed way of
measuring quality of care or patient experience. Furthermore,
the
Tribunal’s focus on MC Potch was misconceived. At a national
level, Mediclinic has ‘comprehensive and globally
benchmarked
systems’.
[47]
It is
these systems that will be implemented at the targets. If it be so
that management at MC Potch has fallen below the mark,
that tells one
nothing about what will happen at the targets, since MC Potch
management will have nothing to do with the management
of the
targets. Indeed, no change of personnel is envisaged, and Mr
Steenkamp will remain as the hospital manager. There is thus
no
reason to think that standards will decline. If they are already
good, Mediclinic’s sophisticated systems can only help
them to
get better.
[211]
In the context of the hypothetical monopolist test, I observed that
it was unrealistic to suppose a decline of standards affecting
only
overnight care, something which had to be postulated in view of the
exclusion of day cases from the product market. Quality
of care, I
would expect, typifies a hospital as a whole. The Tribunal did not
find that there would be any lessening of competition
in relation to
day cases. The risk of losing patients to Anncron and day hospitals
would, I think, be sufficient to prevent an
otherwise ‘dominant’
Klerksdorp hospital owner from allowing standards to drop at the
target hospitals.
[212]
At any rate, the evidence fell far short of showing a material
decline of standards as a reasonable possibility. The prohibition
of
the merger in the public interest was not justified on this ground.
Conditions
[213]
Since the Tribunal’s factual findings on SLC and public
interest cannot be sustained, we are at large to consider whether

approval of the merger should be conditional or unconditional.
Because I find no SLC, the question is whether the possibility of
a
slightly increased CPE at the targets during the grace period calls
for a condition.
[214]
In respect of insured patients, the appellants proposed the so-called
Mediclinic-minus remedy – a 3% discount against
Mediclinic’s
scheme tariffs, with a five-year duration. In argument the
appellants’ counsel said that the merging parties
had not been,
and were not now, wedded to the discount percentage or the duration
proposed – a different percentage and/or
period could be
inserted in accordance with the Tribunal’s (and now this
court’s) findings.
[215]
Since the tariff component is about […]% of CPE, a 3% discount
off Mediclinic’s tariffs would reduce overall
CPE by […]%.
Based on AF’s calculations of the seven-hospital comparison,
Mediclinic will achieve efficiencies at
the targets of around […]%.
If the procurement exemption were to result in the targets achieving
procurement efficiencies
of […]%, they could notionally be
[…]% cheaper if the merger were prohibited. The suggested
discount of 3% will largely
neutralise this possibility. Since I
think it unlikely that the targets will in fact achieve procurement
efficiencies of […]%,
and since I consider IAC’s
calculation of the likely efficiency gains to be more cogent than
AF’s, the condition is
likely to result in CPE at the targets
being lower than it would be without it.
[216]
As to the duration of the condition, the grace period expires at the
end of October 2020. The appellants proposed the condition
at a time
when the grace period had just started to run. If we impose a longer
duration than the remaining extent of the grace
period, we would be
making an allowance – admittedly of limited duration –
for the possibility that the targets might,
but for the merger, have
become HDP-compliant. Since I do not think that this is very likely,
and since they are unlikely to achieve
procurement efficiencies of
the same magnitude as Mediclinic, a five-year duration is likely to
ensure that, for slightly more
than four years following the expiry
of the grace period, the targets will be materially cheaper as a
result of the merger than
if it had been prohibited, and that once
the condition lapses the targets will still be cheaper though not to
the same extent.
[217]
The remedy which the appellants proposed for uninsured patients was
that, for five years from the implementation of the merger,

Mediclinic would continue to apply the target hospitals’ base
tariff for uninsured patients, escalating annually by no more
than
CPI, and would continue for the same period to apply the target
hospitals’ discount policy. The proposed condition requires
the
target hospitals to furnish the base tariff and discount policy
within five days of approval of the merger.
[218]
For reasons which will be apparent, this condition is, on the most
plausible scenarios, likely to result in the target hospitals
being
materially cheaper for five years following the implementation of the
merger than they would have been had the merger been
prohibited. At
any rate, they could not be worse off.
Order
[219]
The following order is made:
(a) The Tribunal’s
decision of 30 January 2019, prohibiting the merger between the
appellants, and the certificate of prohibition
issued pursuant
thereto, are set aside.
(b) The merger is
approved subject to the conditions contained in annexure ‘X’
to this judgment, save that
(i) the ‘Approval
Date’ for purposes of annexure ‘X’ shall be the
date of this judgment, ie 6 February 2020;
(ii) the initiatives
contemplated in clause 3.3.1 of annexure ‘X’ shall
include, but not necessarily be limited to,
those specified in
annexure ‘Y’ hereto.
(c) The respondent
shall pay the appellants’ costs of appeal, including the costs
attendant on the employment of two counsel.
Vally JA
(dissenting)
Introduction
[220]
I have had the privilege of reading the judgment of my brother Rogers
JA, which my sister Victor JA concurs with. It is with
regret that I
record my disagreement with its conclusions and with the order
proposed. I would dismiss the appeal with costs. My
approach and my
reasoning are elucidated here.
[221]
The first appellant, Mediclinic (Mediclinic) and the second
appellant, Matlosana Medical Health Services (MMHS), are in the

business of providing private medical care in South Africa.
Mediclinic, however, is a significant player in that area of
business,
whereas MMHS is not. Mediclinic owns and manages 48
multi-disciplinary private hospitals around the country, whereas MMHS
owns
and manages only two such hospitals: Wilmed Park Private
Hospital (Wilmed) and Sunningdale Hospital (Sunningdale). Both Wilmed
and Sunningdale are located in Klerksdorp. Some 50 kms away lies
Potchefstroom. There Mediclinic owns and operates one hospital:

Mediclinic Potchefstroom (MC Potch). The travelling time between
Potchefstroom and Klerksdorp is approximately 40 minutes. The
two
appellants (the merging parties) seek to merge their respective
businesses. The practical effect of merger would be that Wilmed
and
Sunningdale (the target hospitals) would become part of Mediclinic
and therefore sister hospitals to MC Potch. Mediclinic would

effectively own and manage all three hospitals.
[222]
In
terms of the Competition Act 89 of 1998 (the Act) this merger would
constitute ‘
a
large merger
’
which required the merging parties to notify the respondent, the
Competition Commission (the Commission) of their intention
to do so.
The Commission decided not to support the proposed merger. Relying,
amongst others, on the provisions of s 12A of the
Act
[48]
,
it submitted to the Competition Tribunal (the Tribunal) that the
proposed merger be prohibited. After a lengthy hearing the Tribunal,

on 29 January 2019, granted an order prohibiting the proposed merger.
It handed down its reasons for the order on 22 March 2019.
Its
conclusion reads:
‘…
we
conclude that the proposed transaction is likely to substantially
prevent or lessen competition in the relevant market. Since
no
appropriate remedies were tendered that would effectively address the
competition concerns, we prohibit the proposed transaction.’
[49]
[223]
It is this conclusion that is under attack in this appeal.
[224]
Given its sheer size, Mediclinic is capable of negotiating
substantial discounts from all its suppliers, and theoretically
is
able to negotiate (or offer) tariffs and other benefits to medical
schemes and to uninsured patients that MMHS cannot on its
own match.
This advantage, again theoretically, would automatically accrue to MC
Potch and would redound to the disadvantage of
Wilmed and Sunningdale
(assuming for the moment that they are in direct competition with
each other).  However, over the years
both Wilmed and
Sunningdale have managed to hold their own in competing with MC
Potch. The main reason for MMHS being able to match
Mediclinic lies
in the fact that it is a member of a non-profit company, the National
Health Network (NHN). The NHN is a conglomeration
of separate,
disparate, independent private hospitals (unlike Mediclinic which is
a conglomerate in its own right) which negotiates
tariffs and
benefits with medical schemes on behalf of all its members. While the
matter was before the Tribunal, the NHN had managed
to secure a
conditional exemption to procure goods on behalf of all its members.
This effectively means that the members of NHN
would in the near
future be acting collectively (through the NHN) to procure goods,
such as surgicals and ethicals, from their
respective suppliers. The
purpose of securing the exemption is to acquire the benefit of size
in the market place that the individual
members of the NHN lack.
Prior to the exemption each member of the NHN such as MMHS was
required to procure these goods on its
own. As mentioned above, given
its puny size in comparison to Mediclinic, MMHS would not be able to
match the discounts Mediclinic
would have secured. By the time the
exemption was secured the actuaries employed by Mediclinic, as well
as the Commission, had
already completed their analyses of the
respective efficiencies of MC Potch and Wilmed and Sunningdale. They
had, understandably,
not taken note of the new situation.
[225]
At the inception of the Tribunal hearing the merging parties proposed
a remedy to deal with the objections of the Commission
to the merger.
This remedy was withdrawn after some witnesses highlighted certain
deficiencies therein. After the lengthy process
of receiving evidence
was complete, and on the eve of the day for which argument was set,
the merging parties proposed a new set
of remedies. This was done
without any prior notice to the Commission or the Tribunal. It
necessitated a postponement of the hearing.
[226]
The Tribunal, rightly in my view, expressed its strong disapproval of
the manner in which the merging parties conducted themselves.
The
merging parties provided an inadequate explanation as to why they
only brought the proposal at such a late stage in the hearing,

especially after the witnesses had already testified. The consequence
was that the proposal could not be put to the various witnesses
for
their comment. The Tribunal believed, again correctly, that this made
it very difficult for it to assess the utility or value
of the
proposal.  Nevertheless, the merging parties were allowed to
table a final proposal just before the hearing concluded.
They tabled
two alternative sets of proposals. The Tribunal refers to them as the
‘
Mediclinic minus remedy
’ and the ‘
MMHS
plus remedy
’.
The
product market
[227]
To assess the potential impact of the proposed merger it is of course
necessary to scrutinise the relevant product and geographic
markets
within which the merging parties operate.
[228]
The parties had agreed that the product market was the provision of
services by private, multi-disciplinary, acute, inpatient
hospital
services. Outpatient or day-care services were not regarded as part
of the relevant market. There was a controversy about
this exclusion.
The merging parties wanted the services to be included. However, the
evidence presented by each party’s economist
was harmonious on
the issue – that it should be excluded. I do not believe that
much should be made of the controversy. The
Tribunal explored the
evidence, engaged with the submissions of the merging parties and
correctly concluded that on the evidence
the exclusion of the
day-care services from the product market was appropriate.
There was no misdirection on its part. Moreover,
the Tribunal pointed
out that even if the day-cases were included its conclusion regarding
the effect of the proposed transaction
would not change. Here too, I
can find no misdirection on its part.
The
geographic market
[229]
We know that Wilmed and Sunningdale are located in Klerksdorp which
is 50kms away from MC Potch. There are two more multi-disciplinary

private hospitals in the vicinity: Mooimed in Potchefstroom and Life
Anncron in Klerksdorp. To assist the Tribunal to decide what
the
relevant geographic market is the Commission offered a view that
focussed on municipal demarcations. In this regard it invited
the
Tribunal to hold that the said market consists of three local
municipalities, namely the city of Matlosana and JB Marks local

municipalities (conveniently referred to as the MaJB area). The said
area covers both Potchefstroom and Klerksdorp. The choice
of the MaJB
area was motivated by three factors: (i) it should cover only
multi-disciplinary private hospitals; (ii) it should
cover all such
hospitals that enjoy at least one percent of the total number of
patients in the area where the three hospitals
– Wilmed,
Sunningdale and MC Potch – operate; and (iii) it should cover
the area where any other multi-disciplinary
private hospital operates
which also competes with all three of these hospitals.
[230]
The merging parties on the other hand offered a view that at one
level is very broad and at another very narrow. The broad
view is
that hospitals compete at a national level when it comes to
determining the tariffs that should be charged, especially
to medical
schemes, and therefore the geographic market is national. While at
the narrow level their perspective was that Potchefstroom
and
Klerksdorp were separate geographic markets as the patients they seek
to attract tend not to (for convenience reasons) travel
outside of
their respective localities. Since Potchefstroom and Klerksdorp each
constitute a separate locality the hospitals located
in one do not
compete with hospitals located in the other. The non-price
competition factors are, therefore, localised. They added
that as
medical schemes are required to provide their members with reasonable
access to a Designated Service Provider (DSP) these
schemes are less
likely to require their members to travel from Potchefstroom to
Klerksdorp (and vice versa) to obtain their required
services from a
DSP. Hence, Potchefstroom and Klerksdorp constituted separate
geographic markets. They nevertheless conceded that
medical schemes
regarded a reasonable distance of travel to a DSP as being 50km,
which is the distance between Potchefstroom and
Klerksdorp. They
contended further that if the Tribunal was minded to adopt the
perspective of the Commission and extend the area
(to the MaJB area)
then it would be more appropriate to widen the area to include
localities east of Klerksdorp and west of Potchefstroom
as patients
are drawn from these areas. The MaJB area includes only urban
localities. The expanded area would include rural localities.
[231]
The
Tribunal took special note of certain documentary evidence received
from the merging parties, namely their strategic documents.
It held
that these were the best guide in establishing what the relevant
geographic market was. The Tribunal thoughtfully scrutinised
these
documents. The one document prepared revealed that MC Potch had
understood and regarded the hospitals in Klerksdorp as its

competitors. Another document specifically identified Wilmed and
Sunningdale as competitors to MC Potch. Hence, the merging parties’

own documents contradicted their proposal that the geographic market
be viewed narrowly by treating Potchefstroom and Klerksdorp
as
separate and distinct markets. Why they would say one thing to each
other internally and another to the Tribunal was never explained.

There was though an averment by one of the merging parties’
witnesses to the effect that MC Potch management did not perceive

Wilmed and Sunningdale as its competitors because of their
geographical distance. The averment was essentially discredited
during
cross-examination. In the face of all this evidence the
Tribunal took the view that the most reliable source of what the
merging
parties regarded as the relevant geographic market was their
own strategic documents ‘
since
they were prepared based on the commercial realities at the time and
not for purposes of the merger proceedings’.
[50]
[232]
It is not uncommon for a competition regulatory body to determine the
issue of the appropriate geographic market for merger
cases by having
regard to the SSNIP (small but significant and non-transitory
increase in price) test. The test focusses on a hypothetical

monopolist that is able to increase its price without undermining or
threatening its profits. In the present case it is aimed at

establishing the distance customers (patients in this case) are
willing to travel to off-set the increase in price or deterioration

in non-price factors such as drop in quality of service. When
questioned by a member of the Tribunal as to whether it would be

reasonable for patients to travel from Klerksdorp to Potchefstroom
(and
vice versa
) to access a hospital there should the
hospital in Klerksdorp (or in Potchefstroom) raise its prices, one of
the merging parties’
witnesses conceded that it was reasonable
for the patient to bear the inconvenience of the travel in order to
overcome the burden
of the increased price.
[233]
The Tribunal, however, did not leave the matter there. It looked at
the evidence presented to it by some of the medical schemes
about the
geography and demography of Potchefstroom and Klerksdorp. This
evidence demonstrated that it was reasonable to expect
patients to
travel a distance of 50 kms in the event of a SSNIP – in other
words should a hypothetical monopolist in Potchefstroom
increase its
price or should it allow the quality of its service to deteriorate,
the patient is likely to travel to Klerksdorp
for the service in
order to mitigate the effect of a price increase or deterioration in
service.
[234]
On the basis of the results of the SSNIP test, the contents of the
strategic documents of the merging parties and the evidence
of some
of the medical schemes, the Tribunal came to the conclusion that the
relevant geographic market was the MaJB area.
[235]
I simply cannot see where it went wrong in this regard.
Tariffs
charged by Mediclinic and MMHS
[236]
The next issue considered by the Tribunal was the impact of the
proposed transaction on the tariffs charged to the insured
and
uninsured patients. Insured patients pay whatever tariffs their
respective medical schemes have secured through negotiation
with MMHS
and Mediclinic. The tariffs in themselves are not reflective of the
true cost of the services provided by the three hospitals.
The best
measure of true cost is referred to as a cost per event (CPE). It
consists of the cost of theatre time, accommodation,
ethical and
surgical consumables. This will be dealt with later.
[237]
It was not disputed that Mediclinic’s tariffs applicable to
medical schemes were higher than those of the NHN (which
is applied
by Wilmed and Sunningdale) and in some cases Mediclinic’s
tariffs were significantly higher. However, taking note
of the
proportion of tariffs on overall costs, it was found that the overall
charge by Mediclinic is approximately […]%
higher than NHN. As
for the uninsured patients, MMHS grants larger discounts to these
patients than Mediclinic. The merging parties’
internal
documents confirmed this. In fact, MMHS’s tariffs for uninsured
patients are […]% - […]% lower than
that of Mediclinic.
The merging parties proposed that it be made a condition of the
approval that the MMHS tariffs be retained
at Wilmed and Sunningdale
for a period of 5 years post the merger. The Tribunal was not
persuaded that holding on to the prices
of MMHS for 5 years would be
sufficient to mitigate the very real increase in tariffs that would
eventuate once the merger is approved.
It came to the conclusion that
the proposed merger would result in a price increase for insured
(especially those on low cost suites)
as well as uninsured patients,
but that it would have a particularly weighty adverse effect on the
uninsured patients. Of importance
for purposes of this appeal though
is that the evidence supporting this conclusion was indisputable.
[238]
The Tribunal is invested with inquisitorial powers when examining the
potential effects of a merger. It exercised these powers
to great
effect in this matter. It ordered the Commission to undertake a
market investigation on the behavioural remedies proposed
by the
merging parties to establish the concerns and views of customers. The
Commission was only able to assess the views of some
of the medical
schemes. It was not able to assist with regard to views of uninsured
patients. This is understandable. The task
of establishing the views
of uninsured patients would be a near impossible (if not altogether
impossible) one. Uninsured patients
are disparate and not informed
enough to hold a view on the issue. They do not have anyone speaking
on their behalf. They do not
know the intricate details of the
private medical care market. Medical schemes on the other hand are
the exact opposite. They are
well-informed, have extensive experience
in the field of private medical care and speak for the large numbers
of patients who are
fortunate enough to access private medical care
as they are the members of these schemes. The medical schemes that
were willing
to assist the Commission in this regard were Bonitas,
Barloworld Medical Scheme, Old Mutual Staff Medical Aid Fund (Old
Mutual),
Fedhealth, AngloGold Ashanti Health (Pty) Ltd (AngloGold),
Government Employees Medical Scheme (GEMS), Bankmed, Discovery, The
South African Police Medical Aid (Polmed), Hosmed Medical Scheme
(Hosmed), Selfmed Medical Scheme (Selfmed) and Medihelp. The evidence

received from them was not controversial. It revealed the following:
a. Bonitas raised
concerns about the impending tariff increase and the growth of
concentration in the hospital sector.
b. Barloworld
reiterated what was stated by Bonitas but was a bit more explicit
about its fear that Mediclinic would in time abuse
its increased
market power. It articulated its concern in the following terms:
‘
In
the event that a negotiation agreement [with regard to future
tariffs] is not reached, Mediclinic will typically threaten to
charge
members upfront at private rates. In an effort to minimise any access
or financial impact on its members Barloworld may
have to back down
to Mediclinic [sic] demands in these circumstances.’
[51]
Barloworld was also
more explicit in expressing its strong reservations about the highly
concentrated nature of the private hospital
market in South Africa
and the obvious impact of increasing the concentration the proposed
merger would have on this already unsatisfactory
situation. It was
not only concerned about the increase in the bargaining position of
Mediclinic but was equally anxious about
Mediclinic imposing its
tariffs on all future patients of Wilmed and Sunningdale.
c. Old Mutual made
the same point as Bonitas and Barloworld.
d. AngloGold is
particularly important in the scheme of things. It owns and operates
mines in the Klerksdorp and Potchefstroom areas.
It employs more than
10 000 employees (the majority of whom are mineworkers) many of whom
belong to its medical scheme. The scheme
is open to category 4 to 8
employees. It revealed that Mediclinic was unwilling to give the same
discount that MMHS grants to it.
Mediclinic’s tariff is […]%
higher than the discounted tariff it had secured with NHN. Hence,
should it lose the benefits
of the tariffs that are applicable at
Wilmed and Sunningdale the cost of medical care for its employees
will increase with a concomitant
detrimental effect on their
healthcare. It suggested that should the merger be approved it be on
the basis that the tariffs set
at Wilmed and Sunningdale continue
permanently with the necessary annual adjustments for inflation.
e. GEMS, too,
indicated that it was concerned about the higher tariffs that would
result should the merger be approved. It was equally
concerned about
the reduction of competition in the Klerksdorp and Potchefstroom
areas. On the issue of the remedies proposed by
the merging parties
it stated that:
‘
There
is no clear remedy to the reduction in competition in the Klerksdorp
and Potchefstroom region. Nor is there a clear remedy
to the increase
in Mediclinic market power.’
[52]
The point being that
the remedies proposed will not address what would be a fundamental
long-term problem, which has associated
problems of price increase
and quality decrease in the long term.
f. Discovery, the
biggest private medical scheme in the country, was somewhat ambiguous
in its response. In 2016 its Principal Officer
indicated that it had
no concerns about this specific proposed merger, but warned about the
creeping mergers in the hospital sector
generally. In 2018 on the
other hand its new Principal Officer indicated that it was concerned
about the adverse effects especially
on the price of medical care,
which it said was not adequately addressed by the proposed remedies
of the merging parties.
g. Polmed made its
submissions through a teleconference. Its response was ambiguous as
well as strange. It expressed a concern about
the high level of
concentration in the private hospital market while at the same time
said that the proposed merger would increase
competition.
h. Hosmed, Medihelp
and Selfmed stated that they had no concerns about the proposed
merger. Hosmed recorded that the impact of the
merger on its members
would be small since only a small number of its members utilise the
hospitals in the areas - MC Potch, Wilmed
and Sunningdale.
[239]
This evidence reveals that the major medical schemes and the ones
most affected by the proposed merger were anxious about
its
detrimental effect on the cost of healthcare for their members. The
smaller ones, whose members were not as significantly affected,

demonstrated a lack of interest in the proposed merger.
[240]
Noting
the evidence received from these schemes the Tribunal moved on to
focus on whether the proposed merger would, as alleged
by some of the
medical schemes, result in an increase in concentration in the
relevant market. It is common ground that MC Potch
held […]%
of the geographic market (MaJB area) while Wilmed and Sunningdale
collectively held […]% of the same market.
Combined they would
hold […]% of the market. This, the Tribunal held, would result
in ‘
significantly
[increasing]
concentration
in the relevant marker and leads to a highly concentrated relevant
market.
’
[53]
[241]
The concern for the Tribunal, borne out by the evidence before it,
was the consequences that such a large concentration of
market power
in the hands of Mediclinic would have for the users of private health
care services in the MaJB area. The prospect
of this increase was a
source of anxiety for the medical schemes that had a significant
number of members in the area. This was
based on their experience in
negotiations with Mediclinic on rates and tariffs.
a. Bonitas was
explicit in expressing its anxiety, which it said was borne out by
its experience in negotiations with Mediclinic.
It said that it
was a practice of Mediclinic to take full advantage of its market
power in a region to extract concessions
from it, or to refuse to
give it discounts in regions where its market power was not dominant.
Mediclinic would demand that Bonitas
increase the patient load at
other Mediclinic facilities, failing which it would not offer any
discounts in the area where it commands
significant market power.
Thus, assuming Bonitas was able to secure better rates at hospitals
in other areas, it would be forced
to encourage its members to
utilise Mediclinic’s services in these areas, failing which
Mediclinic would not offer any discounts
to its members in the MaJB
area. It would also threaten to demand cash upfront from the patients
in the MaJB area if its demands
were not met. And this, if
implemented, would mean that
Bonitas’s
members would be severely prejudiced as Mediclinic would, assuming
the merger was approved, command such extensive market power
in the
MaJB area. The prejudice would be real, especially since most of
Bonitas’s members would not have the funds to pay
Mediclinic in
cash and then seek reimbursement from Bonitas. Bearing in mind that
it is the healthcare of the member that is the
focus here, the extent
of the prejudice could be devastating. In short, Bonitas’s
concern was that it would be on the receiving
end of a hard bargain
driven by Mediclinic in future negotiations because of its very
strong position in the MaJB area. The consequence
is that its members
would effectively have to bear the costs of the increased price that,
in its view, would in all likelihood
eventuate.
b. Fedhealth echoed
the sentiment:
‘
The
increased level of concentration, with lessening of competition will
strengthen Mediclinic’s negotiation power’
[54]
And:
‘…
Mediclinic’s
stance on network discounts has historically been that they will
offer minimal if any network discount for hospitals
in areas where
they do not stand to gain in volumes. It is therefore anticipated
that this merger will result in Mediclinic offering
poor network
discounts, but Fedhealth would be obliged to include these hospitals
on their networks for member access, which can
impact on member
contributions.’
[55]
[242]
Further
the economist called by the Commission bore testimony to this
[56]
and one of the merging parties’ witnesses conceded it.
[57]
[243]
In
essence, the evidence unquestionably revealed that the increased
market power of Mediclinic in the MaJB area is likely to have
a
detrimental effect on (i) the choices available to patients in the
MaJB area, and (ii) on the discounts offered to medical schemes
in
areas where Mediclinic’s market power is not so substantial.
The Tribunal recognised this by concluding that the proposed
merger
would on the one hand restrict choice in the MaJB area and, on the
other hand, it ‘
may
potentially also have adverse effects on consumers outside of the
[MaJB]
market
’
[58]
In my judgment there is no quarrel with these conclusions.
[244]
The substantial growth in the market power of Mediclinic was also,
understandably, a source of anxiety for one of the competitor

hospitals in the Potchefstroom area, namely Mooimed Hospital
(Mooimed). Mooimed indicated that should the merger be approved it

(Mooimed) would find it difficult to retain its designated service
provider (DSP) status with the medical schemes:
‘
As a result
of the proposed merger it is highly unlikely that any of the
independent hospitals in the area would be considered for
DSP and PSP
[preferred service provider] arrangements in future. Currently some
independent hospitals with NHN tariffs have been
allocated DSP
contracts with many low-cost options of medical schemes and in the
event that the proposed merger takes place these
hospitals may lose
their DSP or PSP status. The DSPs or PSPs are likely to be awarded to
Mediclinic and the patients would go to
these facilities at an
increased cost relative to a similar arrangement with an NHN
hospital.’
[59]
[245]
Mooimed went further and pointed out that the increased market share
that Mediclinic would secure post the merger would result
in it
(Mooimed) being unable to attract the specialists required for it to
continue operating. It showed that Mediclinic used its
present market
power to subdue specialists into operating from its premises and on
its terms (fundamental to which is that they
must fill its beds) and
to prevent them from operating in a competitor hospital, or from
directing some of their patients to a
competitor hospital such as
Mooimed:
‘
[…]’
[60]
[246]
Mooimed
indicated that should the merger be approved, Mooimed would in all
probability close down.
[61]
This would be the result of the increased market power of Mediclinic
as Mooimed would not be able to attract the specialists necessary
to
sustain the hospital. Patients would be forced to follow the
specialists who in turn would ensure that the business was directed

to Mediclinic. This evidence was not discredited. It showed that
apart from eliminating the competition that Mediclinic currently

faces from Wilmed and Sunningdale, the proposed merger could further
eliminate the competition it faces from Mooimed. This consequence

would be particularly deleterious as we are dealing with healthcare
here.
The
CPE
[247]
Having established that the tariffs of Mediclinic are higher
(substantially, in some cases) than those of MMHS, the Tribunal

proceeded to examine what the parties maintained was a more accurate
measure of health care costs, the CPE. The CPE involves a
reasonably
simple calculation. However comparisons between CPEs at or between
various hospitals are notoriously difficult. They
can be markedly
different between hospitals belonging to the same group. The factors
that affect the CPE are: doctor behaviour,
cost of surgicals, cost of
ethicals, hospital management and even in some cases patient
responses to different therapies. No single
factor can explain the
divergences. However, it is common ground that Mediclinic enjoys a
lower cost of surgicals and ethicals
than Wilmed and Sunningdale in
its CPE. The price of ethicals are strictly regulated. Each ethical
is subject to a Single Exit
Price (SEP), ie a supplier selling to two
different purchasers has to sell it to both at the same SEP. No price
discrimination
(whether by way of cash discounts or any other form of
discounts) of any sort is tolerated.  The only way to reduce the
cost
of ethicals used in any medical procedure (‘
event
’
as captured in the CPE) is to substitute patented ethicals with
generic ones, where generics are available. Applicable legislation

encourages but does not compel generic substitution. The Tribunal
noted that the cost efficiencies that may exist by the decision
of
Mediclinic to use generics was helpful in pointing out that there was
room for cost-cutting measures to be introduced at Wilmed
and
Sunningdale, but it was not a factor that was merger-specific and
therefore was of neutral value.
[248]
The cost of surgicals according to the undisputed evidence was […]%
cheaper at Mediclinic than it was at MMHS. Should
the merger be
approved and assuming that Mediclinic transfers these lower costs to
the ultimate bill of a patient, it would translate
into a cost saving
of […]% of the overall costs of healthcare at MMHS as
surgicals contribute […]% of the said overall
costs. The
merging parties placed heavy emphasis on this potential saving, and
in particular strenuously contended that while Mediclinic’s

tariffs were higher, this saving in surgical costs would off-set the
higher tariff. The conclusion they invited the Tribunal to
draw from
this is that the merger would ultimately benefit the general public.
[249]
The lower price of surgicals at Mediclinic is a result of it
utilising its significantly larger buying power than these
independent
hospitals to its advantage. MMHS, we will recall, relies
on NHN to negotiate its tariffs with medical schemes. However, NHN
was
not able to negotiate with suppliers of surgicals for the
independent hospitals that belong to it. Thus these hospitals
suffered
the disadvantage of size
vis-a-vis
large hospital
groups such as Mediclinic. More recently, and after the potential
effect of these lower surgical costs was factored
into the analysis
of the actuary employed by the merging parties, as noted above NHN
was able to secure from the Commission an
exemption from the
prohibition, thus allowing it to now negotiate prices of surgicals on
behalf of all its members. MMHS will no
longer be negotiating with
these suppliers on its own and will defer the task to NHN, who acting
on behalf of all its members is
likely to achieve a reduction in
prices of surgicals. This was referred to as a relevant
counterfactual by some witnesses and was
treated as such by the
Tribunal.
[250]
The merging parties claimed that the exemption would not produce a
reduction in prices of surgicals paid by MMHS as the exemption

contained caveats, such as it applying to small businesses only and
to businesses that are ‘
controlled or owned by historically
disadvantaged’
persons. Neither Wilmed nor
Sunningdale meet these criteria. The Tribunal rejected both
contentions on the grounds that neither
of these criteria are
precisely set out in the exemption note nor are they immutable. More
important for the Tribunal was the fact
that Mediclinic accepted that
centralised procurement of surgicals has reaped it significant
benefits, which demonstrated that
the same benefits could be
conferred on MMHS once NHN takes advantage of the exemption it
secured from the Commission.  Whether
approached from the
perspective of inferential logic (albeit dealing with a prospective
future event) or through the lens of a
counterfactual assumption this
conclusion in my judgment is both coherent and realistic. I see no
error there.
[251]
Essentially, the Tribunal understood the total evidence on this
aspect as revealing that in the very near future the advantage

enjoyed by the larger hospital groups in securing lower prices for
surgicals would soon end. Applying this understanding the Tribunal

came to the conclusion that the lower price of surgicals at
Mediclinic would not endure for long and so its intended benefit for

Wilmed and Sunningdale post-merger cannot be accepted as a given.
[252]
In sum, the Tribunal came to the conclusion that the merging parties
overstated the post-merger potential for cost savings
in ethicals and
surgicals for Wilmed and Sunningdale. It therefore did not accept
that the CPEs of these two hospitals would likely
decrease because of
the merger. But it did not leave the issue there. It considered the
actuarial evidence placed before it by
the parties.
The
evidence of the actuaries on the CPEs
[253]
Turning its attention to the evidence of the actuaries employed by
both sides regarding their respective calculations of the
divergent
CPEs at Wilmed and Sunningdale on the one hand, and some of the
Mediclinic hospitals on the other hand, the Tribunal
critically
examined the different methodologies and comparisons made by these
actuaries. Noting the importance of differences in
sizes of hospitals
in the private healthcare sector, and differences in approaches of
doctors at each hospital, the Tribunal was
alert to the fact that the
conclusions drawn by the actuaries were sensitive to the choice of
hospitals used as comparators.
[254]
The actuaries appointed by the two sides were not able reach an
understanding of which particulars hospitals’ CPEs should

constitute a best fit as comparators. The actuary appointed by
Mediclinic chose the CPEs of seven Mediclinic hospitals as ideal

comparators to the CPEs of Wilmed and Sunningdale. The CPE of MC
Potch was one of them. The actuary appointed by the Commission
chose
to compare the CPE of MC Potch to that of Wilmed and Sunningdale. The
two actuaries also disagreed on how to factor the day-cases
into
their respective analyses. Another factor that had to be included in
the analyses was the impact of collective procurement
of surgicals in
the future by MMHS. Neither of the actuaries factored this into their
analyses.
[255]
Since both parties placed considerable emphasis on the question of
the CPEs of Wilmed and Sunningdale
vis-a-vis
the CPEs achieved
by some Mediclinic hospitals, the Tribunal examined the issue very
carefully. It took particular note of what
medical schemes’
views of CPEs were and what they regarded as appropriate comparator
hospitals when drawing conclusions on
the performance of a particular
hospital. In this regard it sought to establish from the medical
schemes how they perceived the
CPEs of Wilmed and Sunningdale
vis-a-vis
the CPE of MC Potch. The evidence it received was
that three of the medical schemes, Discovery, Bonitas and GEMS
understood the
CPEs of Wilmed and Sunningdale as being better than
that of MC Potch, while Medihelp and Polmed took the opposite view.
[256]
At the
hearing a substantial amount of intellectual energy was consumed by
parties criticising each other’s actuaries’
methodologies
and conclusions. The Tribunal scrutinised these criticisms carefully,
took particular note of the concessions made
by the actuary appointed
by Mediclinic and came to the conclusion that his analyses contained
an inherent ‘
flaw
’
in that it was based on a comparator that was not appropriate. The
flaw ruined the utility of his analyses altogether.
[62]
Similarly, with the actuary appointed by the Commission the Tribunal
found that his selection of comparator hospitals was not
appropriate.
[63]
[257]
Taking
note of the views of the medical schemes, the robust disagreement
between the respective actuaries as to the appropriate
comparators,
the virulent criticisms mounted by each side of the other’s
actuaries’ methodologies and conclusions,
and the failure of
the actuaries to take note of the conditional exemption that NHN had
secured to procure surgicals collectively,
[64]
the Tribunal came to what clearly is a very sensible conclusion, that
no weight should be attached to the actuarial calculations
of either
side.
[65]
Bearing in mind what
is required of an independent expert testifying in a quest to assist
the Tribunal in its determination of
the issues before it
[66]
,
I believe the Tribunal was correct to find that the evidence of the
two actuaries was of no value.
The
non-price effect of the proposed merger
[258]
Factual
evidence was presented by both parties concerning the non-price
effect of the proposed merger. The dispute between the parties
was on
whether the proposed merger would result in a deterioration of
factors such as clinical quality or patient experience. The
evidence
was extremely limited in scope and at times based on subjective
perceptions. However, it was common cause that Wilmed
in particular
has succeeded in earning a reputation for providing a quality of care
that is superior to that of MC Potch.
On the basis of this
evidence the Tribunal concluded that - despite the evidence being
very limited in scope as well as hinging
substantially on subjective
perceptions - both Wilmed and Sunningdale provided better quality of
care and achieved greater patient
satisfaction than MC Potch. From
this conclusion (and assuming all things remain equal
[67]
)
the Tribunal extrapolated that ‘
from
a non-price competition perspective, the proposed transaction will
likely lead to a deterioration in patient experience at
[Wilmed
and Sunningdale]
if
the merger is implemented.
’
[68]
[259]
There can be little doubt that the Tribunal’s conclusion is an
inference drawn from the very limited evidence at its
disposal. I am
not convinced that it is a correct conclusion given the meagre and
insubstantial evidence that was placed before
it. There was however
evidence, (again in the form of an inference drawn from the fact that
the proposed merger would doubtlessly
increase the market power of
Mediclinic), that apart from the possibility of increased prices for
patients, there would be a concomitant
decrease in the incentive to
improve patient experience or even the quality of the healthcare once
Mediclinic secures dominance.
This is so especially since the patient
experience and quality of care it provides has been found not to
match that of Wilmed.
It is not an illogical inference but, in my
view, not much weight should be attached to this.
Barriers
to entry
[260]
It was
generally accepted by both the merging parties and the Commission
that the barriers to entry in the private multi-disciplinary
hospital
market is very high. Not only is it extremely onerous and time
consuming to secure a licence to operate a private hospital
but it is
also very difficult for an existing private medical hospital to get a
licence to increase the number of beds it is allowed
to hold. It is
notorious that the process can take many years and even a decade
before the licence is secured.
[69]
[261]
In these circumstances it is highly unlikely that any independent,
private multi-disciplinary hospital would be entering the
MaJB market
in the near future and replace Wilmed or Sunningdale should the
merger be approved. The Tribunal was particularly sensitive
to this
fact.
The
proposed remedies
[262]
While not admitting that the proposed merger would substantially
reduce the competition for private healthcare services in
the MaJB
area, or even result in an increase in tariffs for insured and
uninsured patients, in September 2018 the merging parties
proposed a
remedy which was aimed at mitigating any of the adverse effects of a
possible lessening of competition.
[263]
The proposed remedy reads:
‘
After the
implementation of the merger and for a period of three years,
Mediclinic shall ensure that the base tariff which it applies
in
respect of services at the target hospitals for each Medical Scheme
which reimburses Mediclinic on a fee for services basis,
shall be the
base tariff which it applies in respect of those services at all
other Mediclinic hospitals for that Medical Scheme,
discounted by
[…]%.
[70]
.
[264]
The Tribunal ordered the Commission to seek out the views of medical
schemes as to the viability of the proposed remedy. Nine
medical
schemes responded, with seven indicating that they had significant
difficulty with the proposal. Most of them pointed out
the inherent
dangers of increased market power that arose from ‘
creeping
mergers
’ in the healthcare industry. This refers to where a
series of takeovers have taken place which individually raise no
anticompetitive
concerns but when taken collectively have shown to
have significant anti-competitive effects. An individual merger may
not substantially
raise the market power of the merged entity but
over time the merged entity can acquire a very significant increase
in its market
power by methodically taking over one entity at a time.
It is a conveyor belt moving towards greater market power and market
domination.
It essentially involves a gradual accumulation of market
power and has been successfully utilised by the private hospitals in
the
country since the late 1990’s. After receiving the
responses from the medical schemes the proposal was dispensed with.
It
was replaced by the merging parties on 7 January 2019 with two new
possible remedies. These have been characterised by the Tribunal
as
(i) the MMHS plus tariff remedy, and (ii) Mediclinic minus tariff
remedy.
[265]
The proposed MMHS plus remedy reads:
‘
Following the
Implementation Date, and for the remainder of that calendar year,
Mediclinic shall ensure that the tariff which it
applies in respect
of services at the Target Hospitals for each Medical Scheme (or
particular option, as the case may be) that
reimburses Mediclinic on
a fee for service basis, shall not exceed by more than 3% the tariff
which at that stage applies to those
services at the Target Hospitals
in respect of that Medical Scheme (or option, as the case may be) in
terms of NHN 57/58 Tariff
Schedule.’
[71]
[266]
The remedy depends upon Mediclinic having access to NHN confidential
tariff files which the NHN was not prepared and cannot
be forced to
release to Mediclinic. The merging parties had no answer to this. The
Tribunal found the remedy to be unviable. It
was neither practical
nor enforceable. On this basis it rejected it. I, too, would come to
the same conclusion.
[267]
In the alternative, the Mediclinic minus tariff remedy was proposed.
The relevant portion reads:
‘
3.1
Insured
Patients at [Wilmed and Sunningdale]
3.1.1
Mediclinic shall ensure that the tariff which it applies in respect
of services at the Target Hospitals for each Medical Scheme
(or
particular option, as the case may be) that reimburses Mediclinic on
a fee for service basis, shall be the tariff which it
applies in
respect of those services at all other Mediclinic hospital for that
Medical Scheme (or option, as the case may be) in
terms of the
Mediclinic’s 57/58 Tariff Schedule, discounted by 3%
…
3.1.6
[The 3% discount referred to in 3.1.1 above] shall be applicable from
the Implementation Date and for a period of (5) five
years subject to
paragraph 3.1.7 below
3.1.7
At any time during the (5) five year period indicated in paragraph
3.1.6 above, the application of the Conditions is this
paragraph 3.1
to any Medical Scheme (or option) shall be suspended, varied or
terminated by agreement between Mediclinic and the
Medical Scheme
concerned.
3.2.
Uninsured
patients of [Wilmed and Sunningdale
]
3.2.1
Within five days after the Approval Date [Wilmed and Sunningdale]
shall furnish Mediclinic with the base tariff and discount
policy
which are currently applied in respect of uninsured patients at
[Wilmed and Sunningdale]
3.2.2
Upon the Implementation Date and for a period of 5 (five) full years
thereafter, Mediclinic shall ensure that in respect of
uninsured
patients at Wilmed and Sunningdale:
3.2.2.1 The base
tariff which it applies shall be the base tariff which is currently
applied in respect of uninsured patients at
[Wilmed and Sunningdale],
escalated at the commencement of each calendar year by no more than
CPI [consumer price index]; and
3.2.2.2 Discounts on
the base tariffs referred to in paragraph 3.2.2.1 above shall be
offered in accordance with the discount policy
which is currently
applied in respect of uninsured patients at [Wilmed and
Sunningdale]’
[72]
[268]
In addition, Mediclinic will honour all alternative reimbursement
mechanism/model (ARM) and Designated Service Provider (DSP)
contracts
that the Wilmed and Sunningdale have with the medical schemes.
[269]
The
substance of the remedy for insured patients is that Mediclinic would
for a period of five years give a 3% discount on its tariffs
to any
medical scheme that reimburses it for providing services at Wilmed or
Sunningdale to that medical scheme’s members.
The medical
scheme and Mediclinic are free to negotiate an alternative system of
reimbursement within the five year period.
The reason the
discount is fixed at 3% is because Mediclinic believes that on the
analysis of its actuary the procurement savings
it has achieved over
Wilmed and Sunningdale is […]%, but given that NHN has secured
an exemption it is likely that this
procurement saving would
translate to only a 3% advantage for Mediclinic. On this
understanding it offered a 3% discount to the
medical schemes for a
period of five years. The Tribunal rejected the assumption that the
exemption would only reduce the advantage
of Mediclinic’s
procurement costs by 3%. On the available evidence it came to the
conclusion that a more realistic outcome
would be that the advantage
would disappear altogether.
[73]
Hence, the Tribunal found a discount of 3% (‘
size
of discount
’)
to be wholly inadequate.
[270]
The Tribunal had a more fundamental problem with the proposed remedy,
which is that if the merger were to be approved the
market would
fundamentally change. The change would be long-term if not permanent.
In the words of the Tribunal:
‘…
the
proposed remedy is not only inappropriate in terms of the size of the
discount off [sic] the tariff, it is also flawed in principle
because
it does not address the source of the competitive harm. It does not
take the likely post merger change in bargaining dynamics
as a result
of the proposed transaction into account and does not address the
issue of post merger regional dominance in the relevant
market. Since
the proposed behavioural remedy fails to address the source of the
competitive harm resulting from the proposed transaction,
at a
principle or absolute level, even without considering the further
elements, we find that the proposed remedy is not appropriate.’
[74]
[271]
The Tribunal found two further problems with this proposed remedy,
namely (i) the duration of five years was wholly inadequate
and, (ii)
the policing of the remedy was impractical.
[272]
On the first issue, it took note of the views of medical schemes,
some of whom (Discovery, Bankmed and Fedhealth) submitted
that the
discount should not be time-restricted at all. Others (GEMS, Bonitas
and Momentum Health) submitted that the period of
five years is
acceptable while one (Polmed) requested that it be for a period of
seven years. The Tribunal came to the conclusion
that given the
extremely high barriers to entry, no period (five or seven years)
would suffice, especially since the product in
question is the
healthcare of the populace.
[273]
There can be no doubt that the merger would fundamentally alter the
private healthcare landscape in the MaJB area for a considerable

length of time, if not permanently. All the adverse effects of this
increased market power of Mediclinic (referred to above) would
then
have to be borne by the populace that rely on the healthcare services
in that area.
[274]
The proposed remedy would at best, assuming the merging parties are
correct that its procurement advantage (which according
to it would
only be 3%) would still prevail despite the exemption secured by NHN,
result in medical scheme members retaining the
tariffs of Wilmed and
Sunningdale for a period five years post the merger. Thereafter they
would be at the mercy of Mediclinic.
[275]
On the second issue, the Commission submitted that effective
monitoring of such an order would involve the employment of
independent auditors and actuarial experts and as a result would be
impractical. The merging parties were not able to gainsay this.
[276]
The substance of the proposed remedy for uninsured patients of Wilmed
and Sunningdale is that they would be charged the same
tariff that
these two hospitals charge them now, but this rate would only prevail
for a period of five years. Moreover, it would
increase annually at a
rate no higher than the CPI. They would also receive any discounts
that Wilmed and Sunningdale offer but,
again, only for a period of
five years.
[277]
The same problems identified with the aspect of the proposed remedy
applicable to insured patients apply in this case. Hence,
it, too,
was found to be inappropriate and, in my view, rightly so.
Constitutional
importance of healthcare and the Public Interest
[278]
Finally,
of fundamental importance is the nature of the service that forms the
subject-matter of this case: healthcare. Every individual
needs
healthcare: it is basic. It is a protected right in terms of the
Constitution
of the Republic of South Africa, Act 108 of 1996
(the Constitution).  Section 27 of the Constitution provides
that ‘(e)
veryone
has a right to have access to health care services, including
reproductive health care
.’
The Tribunal was acutely aware of this and incorporated the
constitutional protection of access to healthcare services
into its
consideration. It did so as part of its focus on the public
interest.
[75]
[279]
The evidence, in my view, demonstrates that the proposed merger would
undermine rather than advance the constitutional right
of the
populace in the MaJB area to healthcare. This is because the proposed
merger would make access to healthcare in that area
more rather than
less onerous. It would therefore not be in the public interest to
approve the proposed merger.
Conclusion
[280]
In the light of s 12A of the Act two questions were posed in this
matter: on a conspectus of all the evidence is there a likelihood
of
a substantial lessening of competition should the proposed merger be
approved? If not, is there a public interest consideration
that
militates against approving the merger? Both questions were squarely
addressed by the Tribunal in the carefully considered
reasons it has
provided.
[281]
The Tribunal came to the conclusion that the proposed merger would
result in a substantial reduction in competition in the
provision of
healthcare services in the MaJB area, which (i) in all likelihood
would cause serious and possibly irreversible harm
to patients in
that area, (ii) could harm patients in other areas where Mediclinic’s
market power was not substantial. There
is coherence and consistency
in the logic of the Tribunal. But, and more importantly, its
conclusions are ensconced in the constellation
of the evidence. In my
judgment the conclusions reached are correct. I, therefore, find no
reason to disturb its order.
[282]
On the analysis above I would dismiss the appeal with costs of two
counsel.
APPEARANCES
For
Appellant
J
Butler SC and M Norton SC
Instructed
by
Cliffe
Dekker Hofmeyr Inc
11
Buitengracht Street
Cape
Town
For
Respondent
N H Maenetje
SC (with him Y Ntloko)
Instructed
by
Competition
Commission
DTI
Campus, Block C, Mulayo Building
77
Meintjies Street
Sunnyside,
Pretoria
[1]
The
Tribunal recorded (para 111 of its reasons) that the Commission
contended that the relevant geographic market was no broader
than
the ‘MaJB’ area, 'consisting of
Ditsobotla
,
City of Matlosana and JB Marks local municipalities' (my
underlining). Although this is indeed what appears in para 24 of the

Commission's economists' first report at 9/869 (where they summarise
their conclusions), it is clear from the detailed discussion
in that
report of the geographic market that the economists identified the
geographic market as no broader than the City of Matlosana
and JB
Marks local municipalities, (see paras 69 and 70 at 9/894-5), which
explains the acronym they chose. These two local municipalities
form
part of the Dr Kenneth Kaunda District Municipality. Although the
economists considered the possibility of including the
third local
municipality forming part of the Dr Kenneth Kaunda District
Municipality,
viz
the
Maquassi Hills Local Municipality, they did not consider including
the Ditsobotla Local Municipality (Lichtenburg) in the
candidate
market – Distobotla forms part of the Ngaka Modiri Molema
District Municipality. In the slides which Dr Mncube
presented as
part of his oral evidence, the MaJB area was again defined as
comprising the City of Matlosana and JB Marks local
municipalities
(see at 26/2658 and 26/2663-4). In argument, the appellants' counsel
took it for granted that this was the geographic
market defined by
the Commission. I thus take the reference to Ditsobotla to be an
oversight.
[2]
Paras 40-41 at 9/783.
[3]
The data comes from Tables 2 and 3 of Econex’s report at
12/1175 and 1177.
[4]
Para 2.3 at 12/1247.
[5]
Econex report para 89 at 12/1187; Theron 40/4104-5; Steenkamp
36/3751.
[6]
At 4/380.
[7]
Econex report para 34 at 12/1167-8.
[8]
Raval
and Rosenbaum
Why
is Distance Important for Hospital Choice? Separating Home Bias from
Transport Costs
(Working Paper, June 2018)
(http://www.devesh-raval.com/distance.pdf).
[9]
Elzinga and Swisher ‘Limits of the Elzinga-Hogarty Test in
Hospital Mergers: The
Evanston
Case’
(2011) Vol 18 No 1
International
Journal of the Economics of Business
133-146.
[10]
Econex’s tables 2 and 3 at 12/1175 and 1177 contain admission
numbers. Table 2 lists the Klerksdorp patient admissions
(I include
Orkney) over a three-year period (2015-2017) at MC Potch ([…]),
Sunningdale ([…]) and Wilmed ([…]).
In this segment of
Klerksdorp patients, only […]% travel to Potchefstroom. This
data does not take into account the Klerksdorp
patient admissions at
Anncron and MooiMed. The data in that regard in table 3 is for a
five-year period (2010-2014). This shows
[…] Klerksdorp
admissions at Anncron and […] Klerksdorp admissions at
MooiMed. On the assumption that the travel
patterns would not have
been markedly different in 2015-2017, one could take three-fifths of
the Klerksdorp admissions in table
3 (ie […] for Anncron, […]
for MooiMed) in order to add them to the Klerksdorp admissions in
table 2. This results
in total Klerksdorp patient admissions over a
three-year period of […], of which only […] ([…]%)
were admitted
to Potchefstroom hospitals.
[11]
14/1489.
[12]
15/1503.
[13]
40/4109-4110; 41/4167-4169.
[14]
6/545.
[15]
32/3361.
[16]
32/3351-2.
[17]
33/3372.
[18]
9/899.
[19]
32/3360.
[20]
Steenkamp 36/3751-2; Van Reenen 28/2921-3.
[21]
34/3547-8.
[22]
Para 2.10 at 6/600.
[23]
Para 2.8 at 6/599.
[24]
31/3222-3.
[25]
23/2404.
[26]
Para 151 at 44/4499.
[27]
Paras 161-298 at 44/4502-4535.
[28]
Paras 455-458 at 44/4574-5.
[29]
6/536.
[30]
6/542-543.
[31]
12/1282.
[32]
40/4131
[33]
I treat IAC’s report dated 21 November 2016 as its first
report, which is how IAC and AF referred to it. IAC had prepared
an
earlier but substantially similar report dated 31 August 2016.
[34]
Dated 27 April 2017.
[35]
Dated 8 June 2017.
[36]
Dated 3 October 2017.
[37]
Dated 4 April 2018.
[38]
See IAC’s presentation at 26/2728.
[39]
Dated 25 April 2018.
[40]
Transcript 38/3958, 39/3968
[41]
Transcript 39/3970
[42]
Transcript 39/4027-4031.
[43]
41/4206.
[44]
Transcript 39/4020-4021.
[45]
At 6/535-536.
[46]
Paras 299-312 at 44/4535-8: The Tribunal headed this part of its
decision, ‘Non-price competition’.
[47]
This is how the Tribunal in para 300 (44/4535) described
Mediclinic’s submission. The Tribunal did not express
disagreement
with this as a general description.
[48]
The section reads:
‘
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 set out 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
co-operatively, 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.’
[49]
The Tribunal’s Reasons at [460].
[50]
Tribunal’s Reasons, at [137].
[51]
Record, pp 612-613.
[52]
Record, at 577.
[53]
Tribunal’s Reasons, at [208].
[54]
Fedhealth’s response to the Commission on the proposed
conditions, Record, at p 2403.
[55]
Id at p 2404.
[56]
Viva
voce
evidence of Dr Liberty Mncube (Dr Mncube), Record, at p 4099.
[57]
Viva
voce
evidence of Mr Roland Theodore Buys (Mr Buys) Record, at pp 3521 –
3522.
[58]
Tribunal’s Reasons, at [342].
[59]
Witness statement of Ms Sussana Catarina van Reenen (Ms van Reenen),
Record, at 705.
[60]
Witness statement of Ms Sussana Catarina van Reenen, Record, at 709.
See also her
viva
voce
evidence, Record, at pp 3341 – 3342.
[61]
Viva
voce
evidence of Ms van Reenen, Record, at pp 3343. The Act, per s
12A(2)(h), commands that this fact be drawn into the mainstream
of
the analysis.
[62]
Tribunal’s Reasons, at [271], [275], [278], [279] and [280].
[63]
Tribunal’s Reasons at [294].
[64]
The Tribunal referred to this factor as ‘
the
relevant counterfactual
’.
According to it the actuaries had to  factor it into the
analysis as the exemption would in all probability (according
to the
common cause factual evidence received by the Tribunal) result in
MMHS matching the efficiencies enjoyed by Mediclinic
because of the
advantage it has by virtue of its size
vis-à-vis
MMHS. See Tribunal’s Reasons at [267].
[65]
Tribunal’s Reasons at [294].
[66]
See my judgment in
Twine
v Naidoo
[2018] 1 All SA 297
(GJ) at [18].
[67]
‘
ceteris
paribus
’
in the words of economists.
[68]
Tribunal’s Reasons at [312].
[69]
See
viva
voce
evidence of Ms van Reenen, Record, at 3339ff.
[70]
Record, at p 2328.
[71]
Record, at 2341.
[72]
Record, at p 2335.
[73]
Tribunal’s Reasons, at [407].
[74]
Tribunal’s Reasons, at [408].
[75]
Tribunal’s Reasons, at [441].