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[2015] ZACT 147
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Metropolitan Health Corporate (Pty) Ltd v CareCross Health (Pty) Ltd (019240) [2015] ZACT 147 (2 February 2015)
COMPETITION TRIBUNAL
OF SOUTH AFRICA
Case
No:
019240
In the matter between:
Metropolitan
Health Corporate (Pty) Ltd
Primary Acquiring Firm
And
CareCross
Health (Pty) Ltd
Primary Target Firm
Panel:
Mondo Mazwai (Presiding Member),
Fiona
Tregenna (Tribunal Member)
Medi
Mokuena (Tribunal Member)
Heard
on:
19 November 2014
Order issued
on:
19 November 2014
Reasons issued on:
05 February 2015
Reasons
for Decision
Approval
[1]
On 19 November 2014 the Competition
Tribunal ('Tribunal") unconditionally approved a large merger
between Metropolitan Health
Corporate (Pty) Ltd ("MH") and
CareCross Health (Pty) Ltd ("CareCross"). The reasons for
approving the proposed
transaction follow.
Parties to transaction
[2]
The primary acquiring firm is MH, a company
incorporated in accordance with the laws of South Africa. MH is owned
by MMI Holdings
Limited ("MMI"), which is a South African
based financial services
group
listed
on
the
South
African
Stock
Exchange,
the
[3]
JSE. MH, itself or through its
subsidiaries, provides a suite of services including medical scheme
administration, managed healthcare
and healthcare-related IT
services.
[4] The primary
target firm is CareCross, a company incorporated pursuant to the laws
of the Republic of South Africa. CareCross,
through its various
subsidiaries provides managed healthcare services to medical schemes
and occupational health and wellness services
to large employers. The
subsidiaries that are being acquired by MH are the following:
4.1
Occupational Care South Africa Proprietary
Limited ("OCSA")
4.2
Workerscare
Proprietary
Limited
("Workerscare"),
Onecare Health Proprietary Limited
("Onecare")
4.3
Nucare (Pty) Ltd ("Nucare").
Proposed transaction and
rationale
[5]
The
proposed transaction involves the sale of the issued share capital in
CareCross by the existing CareCross shareholders to MH.
MH is not
acquiring firms in which CareCross only has a minority shareholding
or which are dormant and is also not acquiring the
pharmaceuticals
business of CareCross. Following the transaction, the parties
anticipate that the CareCross Group will continue
to be run
autonomously from MH.
[1]
[6]
According to MH, it anticipates value from
the proposed transaction as MH will have access to capitation
capabilities through the
capitation risk model employed by CareCross.
MH sees
this
model
as
a
means
of
offering
affordable
access
to quality
healthcare,
allowing it to reduce healthcare costs
without compromising the quality of care.
Competition assessment
[7]
The proposed transaction results in both
horizontal and vertical overlaps.
[8]
As
mentioned above, MH and CareCross are both involved in providing
managed health care services
[2]
to medical schemes. They both also provide occupational health and
wellness
services.
Both parties provide these services nationally.
[9]
The
Commission identified the national broad market for the provision of
managed care services (this comprises primary, specialist
and
tertiary managed care services)
[3]
;
the
national narrow market for the provision of primary managed care
services (being the segment of the market in
which
CareCross predominantly operates); and the national broad market for
the provision of occupational health and wellness services
as the
relevant product markets for its analysis of the proposed
transaction.
[4]
It is worthy to
note that the Commission also considered the possibility of narrower
markets, by virtue of assessing the substitutability
of the
capitation payment model versus the conventional fee-for-services
payment model. Based on
the
submissions
from
market
participants,
the
Commission
decided not to delineate the product market according to payment
methods.
[5]
The broad market for
the provision of managed care services
[10] Parties contacted by
the Commission during its investigation had differing views on
whether the type of managed care services
provided (primary,
specialist and tertiary) each constituted a separate market or
whether each forms part of the broad market for
managed care
services.
[11]
Given the differing views, the Commission
did not conclusively determine the relevant market, but assessed the
competition effects
of the proposed merger on the broad market, as
well as the narrow market.
[12]
Regarding
the broad market, the Commission sought to estimate market shares
based on the number of members of medical schemes managed
by each
Managed Care Operator ("MC0")
[6]
.
According to the Commission, the merged entity will have market
shares of less than 18%
[7]
.
[13]
The Commission concluded that the merged
entity was unlikely to exercise
market
power
post-merger
as
it
will
continue
to
face
competition from other market players, such as Discovery Health,
Prime Cure, Medscheme and V-Med amongst others.
The narrow market for
the provision of primary managed care services
[14]
According to the Commission, the merged
entity will have a market share of less than 26%, post-merger with an
accretion of less
than 18%. In this narrow market, there are only
five Managed Care Organisations ("MCOs") accredited to
provide primary
managed care services. The Commission however was
satisfied that the other three MCOs (namely Discovery Health, Prime
Cure and
Universal Health) would continue to constrain the merged
entity post-merger.
The broad market for
the provIsIon of occupational health and wellness services
[15]
According to the parties, occupational
health comprises a variety of services in the workplace ranging from
medical care and screening
of employees to detect and monitor disease
and
illness.
Wellness services entail the promotion of health awareness, training
and education in the workplace. Parties contacted
by the Commission
differed on whether occupational health constitutes a distinct and
separate market from wellness services or
whether the two form part
of one market.
[16]
For purposes of its analysis, the
Commission assessed the broad market for occupational health and
wellness services. In this market
the Commission's analysis revealed
that the merged
entity
will have a post-merger market share of less than 7%. According to
the Commission, the merged entity will continue to face
fierce
competition
from
other
competitors
such
as
EOH,
Proactive
Health
Solutions,
Universal
Health,
Care
Ways
and many others.
Vertical overlap
[17]
The vertical aspect of the transaction
emanates from the fact that CareCross provides managed care services
to less than 2% of the
total beneficiaries within the schemes
administered by MH. The Commission however came to the conclusion
that it is highly unlikely
that the merged entity will engage in any
foreclosure strategies to the detriment of MH's competitors, since
the medical scheme
clients independently elect their preferred
services provider.
Concerns from third
parties
[18]
The Commission received various concerns
from competitors of the merging parties as well as the Council for
Medical Schemes ("CMS"),
the industry regulator for medical
scheme providers. These parties were contacted by the Tribunal and
advised of the hearing date.
They advised that they had no further
submissions and would not be attending the hearing. The CMS was
present during the hearing
but indicated that it would not be making
any submissions.
[19]
The concerns raised
inter
alia
were that the proposed transaction
will result in the following:
19.1
Other administrators and MCOs will be
foreclosed access from practitioners within the CareCross network
("the foreclosure concern");
19.2
Since MH is a medical scheme administrator
(and CareCross
is
not)
there
was
concern
of
a
potential
sharing
of CareCross
medical
scheme
client's
information
with
MH
("the
sharing of information concern");
19.3
The transaction would eliminate CareCross
as an independent low cost managed care service provider
(particularly for capitated services)
("the elimination of a low
cost managed care service provider"); and
19.4
The merged entity could potentially become
dominant within the market for the provision of occupational health
and wellness services.
This is because firms that have their medical
schemes administered by MH are unlikely to use another firm to offer
occupational
health and wellness services ("the dominance in
occupational health and wellness concern").
[20]
After
having
considered
the
concerns
raised,
the
Commission
came to the following conclusions:
[8]
20.1
Regarding the foreclosure concern, the
Commission concluded that MH has no incentive to foreclose access by
other administrators
or MCOs to the CareCross network. Moreover, GPs
within CareCross are independent of CareCross as they are not
employed by CareCross,
As such, they are free to contract with other
administrators or MCOs and to belong to other networks.
20.2
Concerning the sharing of information, the
Commission found that in the industry, there are already medical
scheme administrators
that administer competing schemes (subject to
confidentiality arrangements). The merging parties advised that legal
undertakings
of confidentiality have been given to CareCross
customers.
Additionally,
according to
the
parties,
the
CareCross
business
will
continue
to
be
run
separately
and independently of MH, using a
stand-alone IT platform.
20.3
As to the elimination of CareCross as a low
cost capitated managed care service provider, the Commission
concluded that there are
other managed care service providers who
will continue to exercise a constraint on the merged entity. In any
event, according to
the Commission, CareCross's turnover generated
from capitated fees was negligible (less than 10%). As also
indicated, CareCross
will continue to render low cost managed care
services as a stand-alone and independent entity.
20.4
The Commission concluded, regarding the
alleged dominance of the merged entity in occupational health and
wellness services, that
this was not the case (the merged entity's
estimate market share post-merger is 7%). Furtherrnore, the decision
regarding which
provider to use is made independently by the medical
scheme and the employer. Apart from offering a better deal from its
competitors,
the merged entity would have no influence over the
choice of provider.
Public Interest
[21]
Both the Commission and the merging parties
submitted that the proposed transaction raises no public interest
concerns. The merging
parties confirmed that there will be no
retrenchments as a result of the merger.
CONCLUSION
[22]
We agree with the Commission that the
proposed transaction is unlikely to substantially prevent or lessen
competition in any relevant
market Furthermore, the transaction does
not raise any public interest issues.
[23]
We approve the transaction without
conditions.
Ms
Mo
do
Mazwai
05 February 2015
DATE
Prof. Fiona Tregenna and
Ms Medi Mokuena concurring.
Tribunal Researcher:
Caroline Sserufusa
For the merging parties:
Lesley Morphet of Webber Wentzel
For the Commission:
Reabetswe Molotsi
[1]
See
pages 50-51 of the merger record.
[2]
Managed
health care services refer to methods of reducing costs associated
with providing health care, while ensuring an acceptable
standard of
care. Essentially, through managed care, risk is transferred from a
medical scheme to a, managed care provider for
a fee. The managed
care provider bears the risk of providing the health care benefits
agreed with the medical scheme within the
costs agreed, without
compromising quality.
[3]
PdJnmy
managed care services refer to the management of services provided
by general practitioners ("GPs") or other
professional
service providers whom patients first engage when seeking treatment.
Specialist managed care refers to the management
of healthcare
services provided by specialists generaJly on refeITals from primary
managed care providers, such. as GPs. Tertiary
managed care services
refer to the management of services provided at the hospital or
specialist clinics level.
[4]
See
page 40 of the Commission's Report.
[5]
See
pages 30-33 of the Commission's Repmt.
[6]
The
merging parties provided estimate market shares for firms which
provide medical scheme administration services as well as
managed
care services from the CMS' Annual Report 2012/2013. The estimate
market shares are therefore not congruent with the
relevant market
as defined by the Commission. They also- do not take into account
"pure" managed care service providers
whose information is
not captured in the CMS report, as "pure'1 managed care service
providers are not required to submit
information to the CMS.
[7]
The
Connnission states that this estimate market share)ikely overstates
the post-merger market shares of the merged entity as
the market
shares were calculated on the basis of infonnation that the
Commission could obtain from contacted MCOs. There are
other MCOs
for whom the Commission does not have information. According to the
Commission and the merglllg parties, there are
40 accredited managed
care organisations registered with the CMS.
[8]
See
pages 66-67 of the Commission's Report.