Consolidation is crucial for survival

7/15/2010 1:00:02 PM

CONSOLIDATION is a core strategy for many medical schemes as they seek larger pools of members so they can drive down costs, particularly non-medical costs such as administration.

Peter Botha, CEO of Liberty Health, says Liberty is an example of this trend and its efforts have opened doors across SA’s border.

“In SA we have 300000 lives under administration and this gives us a firm base from which to expand into Africa,” Botha says.

Liberty Health provides a full spectrum of service administration and support to medical schemes across 12 African countries, with well in excess of 1-million lives under management.

“We have a substantial presence in SA and are steadily growing our footprint in Africa. This has strengthened our growth plan substantially, as Liberty Health aims to reach 17 African markets in its quest to be a leading pan-African health insurer.”

In SA over the past year Liberty has taken on the administration of Liberty Medical Scheme, Medicover and Spectramed. Botha says these are key milestones in the strategic move towards enabling scheme consolidation in order to be more competitive, cut costs, enjoy greater uniformity and efficiencies, and minimise the risk to other schemes using Liberty Health’s robust platforms.

“It is imperative to continue to build size and scale in an environment where there is an increasing push towards consolidation,” he says.

Lee-Ann du Toit, chief marketing officer at Momentum Medical Scheme Administrators, says that while a scheme does not need to be the biggest in the country to deliver value for its members, economies of scale have a significant influence on costs.

“Larger schemes tend to enjoy lower costs due to economies of scale.

“In the past we have seen smaller schemes getting into financial trouble and a number of schemes have amalgamated. Subject to member approval, Momentum Health is one example as it will be merging with Ingwe Medical Scheme.”

She says that the wave of consolidation is set to continue and many other schemes are engaged in evaluating their options, as some will not survive until the end of the year without taking corrective action.

“There will be fewer schemes in SA when the shakeout is over. It will be up to those still standing to make sure they offer a range of choices to members.

“While healthy competition must be preserved, the process of consolidation will bring benefits to the industry as the market has been somewhat overtraded in the past.

“Too many schemes have diluted the offering and often confused clients,” Du Toit says.