COMPETITION COMMISSION LEGAL OPINION/ ADVISORY Presented by Ms Heidi Kruger

Background On 3 March 2005, BHF agreed to a consent order in an application before the CC The CC alleged that BHF was an association of firms which determines/recommends and publishes tariffs to and for its members, which recommendation has the effect of fixing a purchase price. As a result, a settlement was reached in terms of which BHF undertook to cease publishing a tariff.

Background Exemption Application in 2007 in terms of Section 10 of the Competition Act, on the basis that the economic stability of the MS industry is under threat and that an exemption would assist in attaining economic stability. Gov Gazette in Oct 2009 rejected the application for exemption on the grounds that the proposed conduct of the BHF would amount to a contravention of Sections 4(1)(b)(i) and (ii), which are essentially collusion and price-fixing. This meant that medical schemes all had to negotiate separately However, this exemption was applied for at a time when there was some kind of tariff in the market, (NHRPL), i.e. the environment was different. Result is that medical schemes under financial threat causing the smaller schemes to be vulnerable. Exacerbated by the hospital oligopoly, specialist arrangements with hospitals, shortage of specialists and PMB pay in full ruling.

Questions posed to Adv. Blou Does the Competition Act apply to BHF (members) Is there an opportunity to make application for a further exemption from the Comp Act? Could the BHF conduct collective activities without falling foul of the Comp Act or the Consent Order? Could the BHF apply for an exemption iro restricted schemes

Q1: Does the CA apply to BHF? The CA applies to all persons who conduct economic activity in SA, as per Section 3 of the Act. Correct question is rather is not whether it applies to a particular body, but whether the conduct or activity of that body falls foul of the Act. In terms of Section 3(e) one of the exceptions to the application of the act is ‘concerted conduct designed to achieve a non commercial socio-economic objective or similar purpose’. Adv. Blou said that the fact that a body does not make profit, does not mean that they do not conduct ‘economic activity’, especially given the fact that administrators, and service providers conduct business for a profit. In other words, anyone involved at some level which could affect the pricing or service aspects of the industry is involved in economic activity.

Q1: Does the CA apply to BHF? Also important not to confuse motivation i.e. to benefit the consumer, with conduct. The fact that the conduct would benefit the consumer may or may not prevent the conduct from falling foul of one of the prohibitions of the CA, but would not exempt the body committing such conduct from the confines of the Act. Therefore, Adv Blou’s opinion was that the general activity as would be conducted by BHF does not fall with the exception contained in Section 3 of the Act.

Q2: Further exemption application? Cannot review the consent order by the Competition Tribunal as too much time has elapsed. Were a further application for exemption from the Act to be made, it would have to be based on either material change in the regulatory environment or a change in the type of conduct which is sought to be exempted, or both. Adv. Blou’s opinion was (despite the fact that there was no longer a tariff) neither of these issues has arisen.

Q3: Which collective actions are permissible? Supplied a lists of activities to Adv. Blou, including: Agreement on issues relating to coding definitions, e.g. DRG schedule Developing and publishing an industry capitation rate Conducting research on the real cost of health interventions for (at least some) PMBs Designing and publishing a restricted scheme HMO model Designing collective guidelines around pre-auth. Publishing quality measurement guidelines/initiatives Drawing reports for industry on industry averages Benchmarking through profiling of providers

Q3: cont. Measurement and publishing of quality outcomes as they relate to complication rates, etc. Publishing protocols on funding of biologicals/health technology/new products entering market Publishing tariff bands (perhaps just for certain groups of schemes) Collating and publishing an industry database of clinical outcomes Developing and publishing of standardized clinical protocols, and communicating these protocols to providers. Thereby introducing competition at clinical level and determining best practice Communicate quality outcomes to members

Q3: cont. Publishing results of data modeling exercises to establish measured outcomes (quality and price) for entrenching real competition between suppliers Publication of fees charged by private hospitals Details and modus operandi of those who abuse medical scheme funds Design and determination of formularies Publishing of a tariff (restricted schemes?)

Q3: cntd. Adv Blou’s opinion was that any activity which related to pricing or costs should be avoided and that those relating to matters which do not implicate pricing, which are most of those listed, could be countenanced.

Q4: Exemption for restricted schemes? There is a strong argument for restricted schemes to be exempted as they do not compete for members and are closed as to the class of persons who qualify for membership. They should therefore be able to form an association for the general benefit of their members and to be exempted from defined agreements or practices This certainly was the view of the commissioner in 2003, when BHF requested an opinion and were advised that Section 4 of the Act (i.e. that section dealing with restrictive practices) does not apply to restricted schemes.

Q4: Exemption for restricted schemes? As a precursor to applying for an exemption, Adv. Blou, on behalf of BHF has written to the Competition Commission requesting an Advisory as to whether the Act applies to restricted schemes. Advisory is sought in terms of Section 4, which is only applicable to parties in a horizontal relationship, i.e. competitors.

Advisory Conclusion that restricted schemes are not immune from the application of Section 4 of the Act as they are in the same line of business. Any agreement between restrictive schemes pertaining to the price at which they buy or procure services would amount to price fixing. However, it is the view of our attorney that this does not mean that schemes can’t negotiate with POS as this would not be an agreement on price by schemes before negotiation.

Advisory. Opinion needs to be interrogated as it lacks a proper understanding of the background facts applicable to restrictive schemes. Only an investigation of a complaint would result in a more definitive opinion. As such, were restrictive schemes to act together to negotiate a reduction in price, only if someone were to complain to the Competition Commission would a proper analysis of facts be conducted. This could then be defended in various ways, according to Section 4.

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