Mergers and acquisitions: the new trend?
At a time when the future of many smaller schemes hangs in the balance, will mergers and acquisitions become a new trend in the industry?
Historically, schemes or administrators merged to increase their market share, reduce costs or expand an existing product offering. Today, additional legislative pressures and constraints are starting to play an important role in certain schemes, particularly smaller schemes, looking at mergers as a means of survival.
It is still too early, however, to define this nature of merger as a trend. The recent Council for Medical Scheme annual report announced a minimal decrease in the number of registered medical schemes from 122 in 2007 to 119 in 2008. This may, however, be the start of a trend as many smaller schemes grapple to keep their head above water amidst dwindling membership.
Membership down
Decreasing membership can be attributed to a number of different sources including the recession. Affordability is definitely a key issue, as well as the desire of members to seek additional security from better-known schemes with proven track records at a time when the future of smaller schemes may hang in the balance.
Administrators and schemes often put forward different reasons for a merger or an acquisition. However, recently a far more general rationale could be to counteract the economic meltdown, loss of membership, dwindling profits and the predicted effects of the soon to be rolled out NHI.
The NHI factor
While many industry players have expressed their concern with the proposed future path, there seems to be little doubt that South Africa is set to join a number of countries with a universal healthcare system. It is therefore in the best interests of medical schemes and administrators to strategise and find ways to work within an NHI environment in order to ensure their survival in years to come.
As early as 1999, there were widespread and contentious talks regarding some aspects of the revised Medical Schemes Act, which began paving the path towards NHI. Many schemes felt their survival was under threat with the underwriting revisions, which stated that schemes could not reject any members due to age or health status. Ten years later the majority of these schemes are still operational and have increased their risk pool to accommodate this legislation. Some smaller schemes are, however, still struggling to attract the right kind of membership to balance the contribution/ claims volume ratio.
Strategic focus
The Medical Schemes Act of 1999 was a means of preparing schemes and administrators for the future direction of healthcare in South Africa. Moving forward, smaller schemes and administrators concerned about their future in an NHI industry should revise their strategic focus to ensure their survival, diversify their business strategy to spread the risk or else look for partners that are strategically aligned to be prominent players in an NHI environment.
Particularly in times of recession and NHI looming ahead, a merger or acquisition trend may begin to emerge with other schemes with greater leveraging power in the industry. A merger is more favourable when it is a part of a focused business strategy rather than a last resort when a scheme has no way out.
