Johannesburg - The South African medical aid market is set for unprecedented levels of consolidation with Liberty's entry into the medical scheme administration business.
The giant financial services group comes to the market at a time it is undergoing serious reorientation, sparked mainly by the introduction of the Government Employees Medical Scheme (Gems).
Liberty has set its sights on Medscheme, the country's premier multi-medical scheme administrator, which has itself unveiled plans to merge with Old Mutual Healthcare.
To announce its entry into the market, Liberty has acquired the best scheme management technology that money can buy in the highly regarded Medware healthcare administration system from Neil Harvey & Associates, a provider of information and communication technology (ICT) solutions for the healthcare funding industry.
It has followed this by moving the administration of its own medical scheme, Liberty Health Medical Scheme (Libmed), in-house from the selfsame Medscheme, which also runs off Medware.
Merger
Libmed is on the verge of merging with at least one open scheme, which will increase the number of beneficiaries on its book to more than 200 000 and thus help Liberty Health become a significant administrator.
Libmed executive principal officer Andrew Edwards confirmed the merger talks and the severance of ties with Medscheme.
"The merger is about done, we should be able to give details soon," said Edwards.
"We are also excited about the opportunities that the strategic alignment presents, especially within a consolidating market where growth, innovation and brand will be key to future success."
He said Libmed would not renew the administration and managed care contracts it has with Medscheme, which ends at the end of the year. Medscheme and Liberty are in negotiations to terminate the contract early.
The parties said the parting of ways would be amicable even though they would be fierce competitors for business in future.
Edwards said the merger would result in the administration business of Liberty Health doubling in size. Libmed currently has 45 000 principal members and a total of 100 000 beneficiaries.
Gems effect
He would not name the scheme Libmed would be merging with, save to say it was of a similar size and also affected by Gems.
Open schemes with government employees on their books have lost members to Gems.
An industry analyst, who spoke on condition of anonymity, said it was to be expected that schemes weakened by Gems would merge with those with stronger solvencies.
"I expect more consolidation in the months ahead," he said.
He said consolidation among the open schemes was necessary to bring down costs, boost member benefits and improve efficiencies.
The number of open schemes in South Africa, already down from 47 to 42, is expected to fall even further owing to mergers and insolvencies. At least two schemes have filed for provisional liquidation.
A market observer said the schemes already in financial distress may have left it too late to benefit from mergers.
He said some of the other benefits of mergers were increased bargaining power with hospital and medical service provider networks, better access to actuarial, legal and financial expertise and more streamlined and lower costs of administration.
Some medical schemes have been found to lack human capital, with board trustees in particular falling short on their fiduciary responsibilities.
Medscheme chief executive André Meyer confirmed Liberty Medical Scheme would not be renewing its administration and managed care contracts. He said that decision was not unexpected.
"Liberty Health has re-entered the healthcare market and their appointment to manage the Liberty scheme is the logical result of that strategy," he said.
"Medscheme takes comfort from the fact that the contracts were not terminated as a result of poor service or through a breakdown in relationships.
"In fact, the opposite is true. The board has explicitly thanked Medscheme's administration team for the excellent service and stressed that the decision was made for strategic, rather than operational reasons."
Commenting on the impact on the business, Kevin Eron, managing director of Medscheme Health, said any negative effects would be offset by strong organic growth in the remaining clients and by a strong business pipeline.
"Fedhealth and Bonitas have seen strong organic growth in the corporate market and we should ourselves be in a position to announce new business soon."
Fedhealth and/or Bonitas, the remaining open schemes under Medscheme administration, are expected to also finalise a merger with one of the small market players.
Eron said it was to be expected that Liberty would be a formidable competitor given its size and financial muscle. The Liberty Group is the third largest life company in the country.
Eron stressed that staff would not be affected by the loss of the Libmed business nor did he expect to shed any more business to Liberty.
In the last few years Medscheme has diversified to become a fully-fledged financial services business offering asset management services and even life products.
"We remain the country's premier administrator, with 480 000 lives catered for by our health business. We should retain our market position given our strategy of client focus and delivering of exceptional service," he said.
- City Press