UPDATE 1-South Africa to investigate private health market

Tue May 7, 2013 1:09pm EDT

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(Adds share prices and reaction from Life Healthcare)

By Samantha Lee

CAPE TOWN May 7 (Reuters) - South Africa's competition authorities are to investigate the private healthcare industry, where early evidence points to high charges and market distortions, a government minister said on Tuesday.

The ruling African National Congress (ANC) is working on a $28 billion long-term nationwide health insurance plan that it hopes will give the poor greater access to quality healthcare.

But the overhaul, one of the biggest economic projects to be undertaken by the ruling party since assuming power in 1994, will not be in place until 2025 and until then the ANC wants to cut healthcare costs for millions of South Africans who cannot afford to go private.

"Various stakeholders have raised concerns about pricing, costs and the state of competition and innovation in private healthcare," Economic Development Minister Ebrahim Patel told reporters.

Shares in the major private hospital groups extended losses on news of the probe, with Life Healthcare dropping the most, trading down over 3 percent to 37.12 rand, its biggest decline in nearly five months.

Demand for private healthcare is increasing in Africa's biggest economy as the fast-growing black middle class take up medical insurance.

But about 80 percent of the population still relies on state-run hospitals which offer free services but are under-staffed, with poor resources.

Life Healthcare, along with rivals Netcare and Mediclinic International, have the lion's share of the market of about 10 million people able to afford private healthcare in a country of about 50 million.

Life Healthcare's chief executive Michael Flemming said fees levied reflected the quality of service private hospitals provided and that the industry needed to come up with a lower cost private hospital model for budget-conscious consumers.

"If the minister says 40 million people can't afford private hospitals, he's right. But 40 million people aren't driving brand new cars, eating at fancy restaurants or staying at five-star hotels," Fleming said.

Patel said the competition authorities had previously ruled that the practice of setting common tariffs for medical procedures was uncompetitive.

But preliminary evidence showed that in some cases competition was "prevented, distorted or restricted."

Mediclinic said it welcomed the investigation while Netcare said it would comment after receiving more information. Shares in Netcare closed down 1.7 percent at 20.25 rand while Mediclinic was down 0.1 percent at 65.50.

The Competition Commission, which can impose administrative fines, is expected to launch the inquiry before Sept. 2013. ($1 = 9.0222 South African rand) (Additional reporting by Tiisetso Motsoeneng; Writing by Wendell Roelf; Editing by Ed Cropley and Greg Mahlich)

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