The evolving world of medical schemes administrators
The private healthcare sector is evolving rapidly in the face of continued regulatory intervention. Both medical schemes and medical schemes administration businesses are realising they have to maintain a certain critical mass to survive in an extremely cost competitive industry. In recent years the number of open medical schemes in the country has dropped from 47 to 42 with two of these schemes filing for provisional liquidation this year.
The inevitable result is that smaller open medical schemes and administrators will move to consolidate their businesses through mergers and acquisitions. The weekend press carries a number of articles on possible consolidation in the industry going forward. And much of this talk centres on the medical schemes administration businesses. Financial service giant Liberty has just announced its entrance into the medical schemes administration business. Although it will start operating with the business of its medical aid scheme, Liberty Health Medical Scheme (Libmed) it is apparently keen to swallow up the business of Medscheme too. And Medscheme is in turn talking to Old Mutual Health Group.
The medical business is a numbers game
According to Liz Still’s comprehensive guide to the South African healthcare environment (Health Care in South Africa 2008) there were 24 fully accredited medical aid administrators registered with the Council for Medical Schemes (CMS) at the end of 2007. And the landscape in the administration industry is similar to that in the medical schemes environment where the top few players account for the most members. Estimates are that 80% of all medical aid members are administered by just six operations: Discovery Health, Medscheme, Sovereign Health, Metropolitan Health Group and Old Mutual Health Group.
Discovery Health dominates the open medical scheme sector because it acts as administrator for the Discovery Health Medical Scheme which topped two million beneficiaries during the course of 2007. Metropolitan Health Group is the giant in the restricted space through its administration activities for the Government Employee Medical Scheme (GEMS). We guess Liberty will emerge as a relative ‘new kid on the block’ when it enters with it’s approximately 100 000 Libmed beneficiaries. All indications are that Libmed has concluded talks with another open medical scheme that would effectively double its size… And if that proves true Liberty will be well on its way to achieve the critical mass required for success in this competitive market segment.
A quick word on costs
There’s been plenty of debate around the soaring costs borne by medical aids schemes of late. The Department of Health and CMS have been particularly vocal about the escalating costs of patient care at the country’s private hospitals. In previous years government has intervened in the pharmaceutical industry in an attempt to bring prices down. And it’s only a matter of time before this price intervention strategy is rolled out to private hospitals too. But the regulators may have missed a trick.
Right now the only area of healthcare that is attracting new entrants is that of administration. With private hospitals putting expansion plans on hold (and some analysts jokingly suggesting that Medi-Clinic and Netcare would return better value to their shareholders if they converted their wards into hotel suites) Liberty has identified that medical schemes administration remains a lucrative business opportunity.
If Liberty sees opportunity in an area where the CMS has already capped expenditure we can only draw one conclusion. The 10% cap on administrative expenditure proposed by the CMS for private medical schemes is simply too high.
Editor’s thoughts:Liberty’s decisions to enter the medical schemes administration business confirms that the financial service giant believes there is money to be made from medical aid administration. And the key to making this money is to ensure you administer enough lives. Do you think the current consolidation in the medical schemes administration business is a good thing? Add your comment below, or send an email to [email protected]
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