Medical scheme mergers under spotlight at BHF

Company: Board of Healthcare Funders of Southern Africa
Author: Tiana Lambert
Posted: 26 Aug 2010

It will become vital to build healthcare products based on short or long term insurance licences

Medical schemes need to change their mindset and find a way to work with each other and government, if they want to remain relevant in the proposed National Health System.

This consolidation will improve efficiencies and cost effectiveness, resulting in lower non-healthcare costs and better health risk management abilities.

Speaking at the Board of Healthcare Funders (BHF) Southern African Conference currently being held at Sun City, Len Deacon (Pictured right), BHF board member and CEO of TopMed, said that it was "impossible to say what the NHI will look like, but that when it does happen, we expect the number of medical schemes to shrink from the present 110 to as low as 35 in the next decade, as the industry moves towards large open schemes and industry schemes."

The session, Breakthrough thinking from inside the medical scheme box. Mergers and acquisitions - the forethought required for guaranteed success, chaired by Deacon, offered vital insight into the aspects that make up a successful merger or acquisition.
According to Deacon, the first step was for medical schemes to devise a clear strategy that outlines what they are looking for. 
"Step two is to locate a potential partner and spend time getting to know their strengths and weaknesses.  The next phase is the negotiation, when you work out exactly what each partner is bringing to the table.  This is followed by the integration, the time when assets are combined and a new entity formed, and the post deal evaluation," he said.

Grant Newton, CEO of Eternity Private Health Group discussed his company's recent merger with Sanlam.

"The government is going to be looking to organisations that have robust, functionally-rich systems and a deep experience of risk and clinical management," he said.

"Our merger gives us a fantastic foundation for growth and diversification. Eternity, with its innovative and very successful administration system, and Sanlam, with its rich experience in the managed care environment, are ideal partners."

Newton believes that in the future, successful medical schemes need to have access to insurance licences.

"It will become vital to build healthcare products based on short or long term insurance licences. This ability is one of the aspects that make our merger so strong," he said.

Before a merger can happen, there is a need to conduct due diligence analysis for the potential partners, and this was discussed by Bernie Clark, Head: Inland Region, Alex Forbes Health and Adrian Hulbert, Partner in QES.

"We have found that most mergers fail to meet pre-merger expectations," Hulbert said. "That is often because due diligence has not been followed properly."

Hulbert outlined the steps that should be taken, including a thorough service analysis process. This should include a close look at business processes, the services the company provides, roles and responsibilities.

"When you are acquiring a company you need to verify that they are providing the service levels they say they are," he said.
Clark agreed. "A successful merger does not often stem from finding equivalent benefit plans for members. It lies in a comprehensive examination of all aspects of the business, including historic and potentially open ended liabilities and contracts with staff and preferred and designated service providers."

Clark reminded potential partners that the Council for Medical Schemes (CMS) will keep a watchful and critical eye on any mergers or acquisitions in the industry, so trustees must be mindful of their key considerations behind the merger at all times during the process.

The final speaker in the session looked at the future of the medical industry from a different angle.

Tony Behrman is CEO of CPC Qualicare, the largest network of doctors in the Western Cape, with 520 members.

"We expect that the group practice is going to be the way to go as the government rolls out the NHI," he said. He believes it is important for doctors to put their businesses in good order so that they are prepared when they are allocated high volumes of new patients.

"The economies of scale of a system where the government determines the amount that a doctor will be paid for seeing each patient mean that small practices won't be able to cope."

"Doctors will need to pool their resources and share costs. This also means that they will be able to offer additional services such as clinics and therapy rooms to augment their income," he said.

Behrman also advised doctors to increase their skills in areas of business management, human resources and partnership relationships.