Market Concentration Trends in the South African Private Health Care Sector, 2000-2012

The South African Competition Commission (SA CC) started with a market investigation into the local private health care sector at the beginning of 2014. One of the underlying themes emphasised in the background papers and Statement of Issues published by the SA CC is the increased consolidation in the private hospital market and the effect that this may have on competitive dynamics. It is therefore important to understand market concentration in the private health care sector as the market investigation continues. This paper considers historical trends in market concentration of private hospitals, insurers and administrators. One of the great contributions of this paper is the newly constructed database of private hospitals (and bed numbers) from 2000 to 2012 that is used for the relevant Herfindahl-Hirschman Index (HHI) calculations. The analysis shows that whereas the market concentration of private hospitals has remained relatively stable since 2004, the market concentration of private health insurers and administrators has increased over this period. The paper emphasises that while concentration can in­fluence market power signifi­cantly, it is not the only factor important to the annual na­tional tariff negotiation process between the insurers/ admin­istrators and private hospitals. Over the past two decades, the SA CC has approved many mergers in the private hospital sector – as such, this paper also offers evidence of the impact of competition authorities’ decisions in markets. Brief comment is further provided regarding the possible role of the market investigation in promoting competition in this sector.