The Health Funders Association (HFA) today confirmed that it has submitted a complaint to the Competition Commission regarding the high prices charged for COVID-19 Polymerase Chain Reaction (“PCR”) tests by the three largest private pathology laboratory groups in South Africa – namely Pathcare, Ampath and Lancet – during the COVID-19 pandemic in 2020 and 2021. In this action, the HFA is representing 35 medical schemes and an effective 5.6 million medical scheme members.
Background for the complaint
National policy consensus at the time of the COVID-19 pandemic in 2020 was that no party should profit from the pandemic and that consumers were to be protected from excessive, unfair, and unreasonable pricing of goods and services during the national state of disaster. Thus, at the start of the pandemic, there was in-principle agreement amongst relevant stakeholders that the price of COVID-19 PCR tests should be on a cost-recovery basis for the duration of the pandemic.
A price point of R850 per COVID-19 PCR test was agreed at the start of the pandemic on the premise that this price would be adjusted downward as the input costs reduced and there was greater clarity in the volume of COVID-19 testing required. Unfortunately, despite substantial reductions in input costs for COVID-19 PCR tests, the prices charged for COVID-19 PCR tests by the main private pathology groups in South Africa were not reduced.
In the interests of protecting medical scheme members from inflated costs, various medical schemes and their administrators made several attempts to negotiate lower prices for COVID-19 PCR tests with the main private pathology groups during the course of 2020 and 2021. Each of these attempts to engage amicably with the main private pathology groups through commercial discussions were unfortunately unsuccessful, with the three main private pathology groups standing together to deny any price reductions.
In October 2021, the Council for Medical Schemes lodged a complaint with the Competition Commission against the three main private pathology groups regarding COVID-19 PCR test prices. This complaint by the Council for Medical Schemes is on a similar basis to the new complaint by the HFA.
In December 2021, prior to the Competition Commission concluding its investigations, separate voluntary settlement agreements (Consent Agreements) were reached between the Competition Commission and the three main private pathology groups. In terms of the Consent Agreements, Ampath, Lancet and Pathcare all agreed to an immediate 41% reduction in the price of COVID-19 PCR tests, reducing the prices from R850 to R500 with immediate effect.
The Competition Commission’s investigation into these allegations of excessive and unjustifiable pricing by the three main private pathology groups confirmed that the input costs incurred by the said three main pathology groups for COVID-19 PCR testing had significantly reduced between March 2020 and September 2021 and that the three main private pathology groups had been earning substantial profits from COVID-19 PCR testing since March 2020. This investigation also indicated to the Competition Commission that excessive pricing on COVID-19 PCR tests may have been occurring and that, on a prima-facie basis, the three main pathology groups had contravened section 8(1)(a) of the Competition Act.
The terms of the consent agreements between the Competition Commission and Ampath, Lancet and Pathcare respectively were on a “no-admission of guilt” basis with none of the three main pathology laboratories admitting any infringement of the Competition Act nor any Consumer Protection Regulations. Notwithstanding this, the Consent Orders do not protect the three main private pathology groups against further complaints and investigations into the price of the PCR tests, or recoupment of damages if indeed the prices are found to have been excessive or agreed between them as competitors.
The HFA Action
Based on the investigations conducted by the Competition Commission in 2021, it became evident that the price of COVID-19 PCR tests was significantly higher than a cost recovery and excessive for most of 2020 and 2021. As this period coincided with the most significant waves of infection and therefore the greatest number of COVID-19 PCR testing, this resulted in substantial additional costs for medical schemes and their members – and indeed, for anyone who paid for COVID-19 PCR tests at that time during the period of the national state of disaster. The HFA’s complaint, alongside several medical schemes as co-complainants in the matter, aims to ensure that the excess costs associated with any excessive pricing of COVID-19 PCR test is refunded to medical schemes for the members’ benefit.
As medical schemes and their administrators have not been able to resolve this matter through repeated commercial engagements with the three main private pathology groups, the HFA and medical schemes have unfortunately been left with no alternative but to turn to the Competition Authorities to consider the matter. The action is in alignment with the mandate of Medical Scheme Trustees to act in the best interests of the schemes and their members to recover any unnecessary expenditure incurred by the schemes. These recoveries represent member funds and will accrue to the reserves of medical schemes. Further, the reserves have a direct bearing on the ability of schemes to pay claims, and potentially also on future contribution increases for members.
The medical scheme administrators have no financial interest in these recoveries whatsoever.
About PCR testing
The PCR test was the main mode of testing for COVID-19 infection during 2020 and 2021. Several million COVID-19 PCR tests were conducted during this period, mostly by the three main pathology groups which collectively command approximately 88% of the market for pathology testing in South Africa. A substantive portion of the cost of these millions of tests was born by medical schemes in respect of tests undergone by members of medical schemes seeking healthcare services in relation to COVID-19. Many millions of COVID-19 PCR tests were also paid directly by ordinary South Africans for travel and other purposes.
About the Health Funders Association (HFA)
Established in 2015, the Health Funders Association (HFA) is a non-profit organisation representing stakeholders involved in the funding of private healthcare in South Africa. The HFA represents some of the country’s most prominent medical schemes, representing approximately 73% of open schemes and 50% of total scheme membership.
About medical schemes
Medical schemes are not-for-profit entities, functioning under the auspices of the Medical Schemes Act, that pool funds on behalf of members and pay for healthcare services delivered to members from this pool of funds. Covid 19 PCR tests were included in the prescribed minimum benefits for medical schemes from April of 2020. The excessive costs charged to medical schemes negatively impact medical scheme reserves and future increases in medical scheme contributions that members need to pay. Further, the independent Boards of Trustees who oversee medical schemes have a fiduciary obligation to ensure appropriate utilisation of medical scheme funds.