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Category Healthcare
SUB CATEGORIES General  |  HIV |  Medical Schemes | 

Should medical schemes combine strengths?

10 March 2010 Topmed

We’ve all heard the old saying that size matters, and this is certainly true in the medical aid industry as it prepares for the South Africa’s new look health system.

“There are about 119 medical schemes in South Africa, most catering for fewer than 6000 families” comments Deacon. Deacon predicts that this unsustainable proliferation of medical schemes has reached its peak and expects that the number will drop to about 50 in the near future, stabilising at about 20 major players in the next decade.

“It is all about sustainability and growth,” he says. “As a scheme grows it is able to practice more sound ways of doing business, which in turn lead to further stability and further growth.”

One of Topmed’s major objectives is to enhance its service to its members through a strategic growth plan, and appropriate mergers and acquisitions form part of that strategy.

For Deacon, the most important factor is to ensure that mergers and acquisitions do not happen at all costs. The risk profile and the age profile of the merging schemes must be taken into account, and the end result must be that the reserves are enhanced, maintained or grown as a result. “Planning a merger or acquisition is a lot like finding a life partner,” Deacon explains. “The first step is to devise a clear strategy that outlines what you are looking for. Step two is when you locate a potential partner and spend time getting to know their strengths and weaknesses. We are open to the idea of mergers but our first priority is to our existing members: will this planned union benefit them?

“The next phase is the negotiation, when you work out exactly what each partner is bringing to the table. It is at this stage that it quickly becomes clear if one partner is weaker than the other and if both parties have the same goals and aspirations.

“Next comes the integration, the time when assets are combined and a new entity is formed. And finally, just like in any marriage, there is the post deal evaluation.

“Once the honeymoon is over, we can really evaluate if anything needs to change,” Deacon says. “Again, it is all about the member: has this deal enabled us to improve our service, are we offering more options and benefits to our clients? If not, we have to readjust.”

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