The Competition Commission (CC) commenced with an enquiry into South Africa's private healthcare sector at the beginning of 2014, the outcome of which could have far-reaching consequences for the medical industry in South Africa. The panel appointed to consider competition in the private healthcare sector has indicated that they are interested in understanding increased consolidation in the private hospital market and the effect this may have on competitive dynamics. This article considers historical concentration trends in the private hospital market from 2000 to 2012. In addition it also deals with changes in market structure in the medical scheme and administrator markets. These trends, in addition, provide a complete picture of market structure changes and the implications for relative bargaining power of the various parties. It finds that whereas the market concentration of private hospitals has remained relatively stable since 2004, the market concentration of medical schemes and administrators has increased over this period.

The Competition Commission (CC) commenced with an enquiry into South Africa’s private healthcare sector at the beginning of 2014, the outcome of which could have far-reaching consequences for the medical industry in South Africa. The panel appointed to consider competition in the private healthcare sector has indicated that they are interested in understanding increased consolidation in the private hospital market and the effect this may have on competitive dynamics. This article considers historical concentration trends in the private hospital market from 2000 to 2012. In addition it also deals with changes in market structure in the medical scheme and administrator markets. These trends provide a complete picture of market structure changes and the implications for relative bargaining power of the various parties. It finds that whereas the market concentration of private hospitals has remained relatively stable since 2004, the market concentration of medical schemes and administrators has increased over this period.

IntroductionThis study starts by showing that medical schemes in South Africa spend the largest portion of health funds on private hospitalisation. This is in line with expectations given the specific regulatory environment and benefit design. However, expenditure on private hospital care has exhibited a steep increase over the last decade and a half. This article critically analyses the drivers of the increase in medical scheme expenditure on private hospitals.In earlier years, these expenditure increases were, without due consideration, attributed to pricing increases in hospital services. More recently, the facts have been better informed by research into detailed utilisation trends that are representative of the medical scheme population. The literature review shows that these studies found utilisation increases, rather than hospital price and/or tariff increases, to drive the largest part of the increase in expenditure above consumer price inflation (CPI).This study contributes by collecting and aggregating extensive and detailed confidential admission data from the three largest South African private hospital groups (Netcare, Mediclinic and Life Healthcare, with the data referred to as 'private hospital data') -which account for approximately 70% of the private hospital (bed) market share (Econex 2014a) -and analysing admission and expenditure trends over 2006-2014. 1 The aim is to contribute to the existing research by providing an updated analysis of private hospital utilisation 2 trends and their impact on expenditure. In order to do so, expenditure on private hospitals is firstly decomposed to account for the relevant medical scheme beneficiary growth as well as headline inflation. Having accounted for these factors, the residual increase in expenditure is the focus of this study. This is analysed alongside utilisation trends at the three private hospital groups -including admission rates and patient days; both at aggregated, and age levels. The main aim of the study is therefore to critically analyse the drivers of medical scheme expenditure on private hospitals by analysing how these expenditure increases adjust after accounting for factors that are evident in the data.1.This period is selected because of data availability.2.For the purpose of this report, utilisation is used as a collective term to describe changes in volume and case mix.Background: This study contributes to the detailed understanding of the drivers of medical scheme expenditure on private hospitals in South Africa over 2006-2014. This is important in the context of various regulatory reforms that are being considered at present. Aim:The aim is to provide an updated analysis and description of the drivers of medical scheme expenditure on private hospitals in South Africa.Setting: Private hospital market, South Africa.Methods: Data from the three largest private hospital groups -which account for approximately 70% of the South African private hospital market share -are collected, aggregated and analysed. This study uses targeted de...