Competition authorities beware of price regulation

Speaking at the Hospital Association of South Africa (HASA) conference in Cape Town earlier this week, Norton said in relation to the proposed Competition Commission market enquiry into the private healthcare sector, that there were concerns about suggestions that the competition authorities could be involved in regulating prices.

Contradiction

"It seems a contradiction in terms that the competition authority which has a mandate of pursuing free and fair competition in markets with one set of tools, would simultaneously intervene in markets through price setting, possibly towards uncompetitive outcomes on the other," said Norton.

The Commission has indicated that the proposed inquiry will seek to identify the factors driving increases in private healthcare expenditure as well as other market dynamics at play. It is also likely to make recommendations on measures to be taken, including appropriate policy and regulatory mechanisms that would support government's goal of achieving accessible, affordable, innovative and quality private healthcare.

Minister of Economic Development, Ebrahim Patel told Parliament earlier this year that "the inquiry will use new powers under section 6 of the Competition Amendment Act and will examine pricing, costs and the state of competition in the sector."

HASA CEO, Dr Dumisani Bomela said: "The hearings should clarify technical details and misunderstandings around the costs of utilisation of hospitals and medical inflation. Another myth we hope the inquiry will help dispel is that the local hospital market is uncompetitive, and therefore the cause of some of the perceived problems that our country's healthcare sector faces."

Norton said the inquiry will also be likely to make recommendations on whether price-setting mechanisms are acceptable within the current regulatory environment.

Authorities not to be price regulators

But he said the Competition Tribunal has previously indicated that the competition authorities are not, and should not, be used as price regulators.

He noted that in previous cases, the Competition Appeal Court has held that the powers and duties of the competition authorities, and their limitations, are contained in the Competition Act.

"This means that the competition authorities are not called upon to set a price for a good or service, but merely to determine whether a specific price is abusive," said Norton. "There is no suggestion in the Act that the competition authorities should be involved in the regulation or setting of prices."

He added that Competition Commission officials acknowledged that in order to preserve the integrity and creditability of institutions such as the Competition Commission there was a need for some distance between the state and its institutions.

Norton pointed out the complexity in introducing price regulation in the spheres of private hospitals and specialists.

Integrating new products, services

In addition, medical inventions result in new products and services that would need to be integrated in a way that does not distort incentives to invest in new medical treatments.

He pointed to preliminary findings of the UK Competition Commission market inquiry which declined to recommend price control in the healthcare sector.

Norton told delegates that the market inquiry into SA private hospitals should be conducted on an independent and impartial basis and the Inquiry Panel assisted by the Commission would need to evaluate all evidence in a considered and thorough manner.

"The experience of the panel members and their understanding of the healthcare industry is vital to a rigorous analysis of relevant issues," he added. "Competition regulators should be wary of becoming embroiled in price regulation given the unintended consequences which could flow as a result, such as deterring new investment in the sector. If they get it wrong, it could be catastrophic for the industry."