Abstract
In line with global trends towards value-based strategic purchasing of healthcare services, exclusive dealing is now a common feature within the South African private healthcare industry. Exclusive dealings in healthcare markets have both pro-competitive and anti-competitive effects. Exclusive dealings allows medical schemes to control costs as contracted providers can only charge discounted pre-agreed tariffs, in exchange for exclusivity. Designated service providers are compelled by medical schemes to adhere to best international clinical practices leading to better clinical outcomes. However, exclusive dealings in healthcare markets may also lead to anti-competitive foreclosure of non-contracted providers. This study examines the pro-competitive and anti-competitive effects of exclusive dealings between medical schemes and private hospital groups in South Africa between 2017 and 2021. This is done by analysing the price differential between the discounted premiums charged by the fifteen medical schemes on the exempted restricted efficiency discount options and the full premium charged on the non-restricted benefit options. The study also analysed the demographic indicators and financial performance of the two distinct risk pools. The study provides evidence that consumers have benefited significantly from lower, discounted premiums charged on the efficiency discount options. Efficiency discount options have also consistently reported better financial results than non-network options. The study shows that the population on efficiency discount options have a lower risk profile compared to the risk pool on the non-network options. The study found that medical schemes exempted by the regulator may be using the exemption to ‘cream skim’ the young and healthy consumers who are cheaper to insure to the detriment of other medical schemes operating without the exemption. The better financial performance reported by medical schemes on the restricted network options may be attributed to the favourable risk pool on such options and not necessarily due to the efficiency factors of private hospital groups contracted by medical schemes for such benefit options.
Keywords: Exclusive dealings, efficiency discount options, designated service provider, Council for medical schemes, medical schemes, provider network agreements