Discovery's profits point to 'competitive advantage', not market failure - CEO

Discovery Health's profitability is a result of its competitive advantage, not a market advantage, says its CEO, Jonathan Broomberg.

The company has issued a statement on the Health Market Inquiry's findings, which were released on Thursday after four years.

The inquiry began in 2014 as a result of increasing prices in the private healthcare sector. According to its report, features of the sector are anti-competitive and highly concentrated.

The report found that of 22 open medical schemes, around 70% of the market was held by just two schemes. Discovery Health held about 55% of beneficiaries, it said.

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Broomberg, however, has defended DH's growth and profitability. "Our growth has been totally organic," he said in the statement.

"It is critical to note that DH’s profitability is not due to DH charging higher fees to its medical scheme clients than its competitors do, but rather due to a number of business factors, including continuous innovation and greater operational efficiency driven by management excellence, and by large investments in advanced systems and customer service technologies."

Discovery also worked hard to ensure transparency on fees charged to clients, as well as profits earned, Broomberg said.

Market failure

The commission stated that under "normal competitive conditions", DH’s profitability would attract new competitors.

"On the contrary, we see DH growing and becoming more successful over time. This is an indication of market failure and there are no signals that the market will self-correct," the report read.

"We acknowledge that much of DH’s success is partly due to a highly competent management team, but we do not think this alone explains the significant gap in profitability when compared to its direct competitors.

“Higher than necessary service fees given economies of scale, a 'locked-in' DHMS (Discovery Health Medical Scheme) that does not source services from any other industry stakeholder, risk selection and broker management contribute to its profitability," the report read.

Overall, Broomberg had welcomed the findings of the Health Market Inquiry, as it would strengthen the private healthcare system, the statement said. DH intends to provide a comprehensive response to the provisional findings before the deadline on September 7, 2018.