The Competition Tribunal has finally given private hospital group Netcare the green light to acquire the Akeso psychiatric clinic chain, but has attached strict conditions that include guarantees that it will not immediately hike prices and will dispose of two of its hospitals.

The development is significant because it offers consumers some protection from tariff hikes, which have typically occurred when large hospital groups acquire smaller ones, said Alex van den Heever, chair of social security systems administration and management studies at the University of the Witwatersrand.

Small hospital groups usually have lower prices than the large JSE-listed hospital groups, but they typically do not merge with each other, he said. The three JSE-listed large hospital groups are Netcare, Mediclinic International and Life Healthcare.

“Akeso has an outstanding reputation, a well-respected and experienced management team and an excellent patient-centred clinical programme. We therefore believe that the acquisition of Akeso provides a strong platform from which to expand our mental health services in South Africa,” Netcare CEO Richard Friedland said on Monday.

Netcare announced in November 2016 that it had agreed to buy Akeso for R1.3bn, subject to regulatory approval, as it sought to capitalise on growing demand for mental healthcare services. Akeso has 12 psychiatric facilities.

However, the proposed transaction ran into trouble with the Competition Commission, which initially recommended the merger be prohibited on the grounds that it would substantially lessen competition and reduce patient choice. It said the deal would result in significant combined market share for the provision of mental healthcare services in Gauteng, and the merged entity would be likely to exercise market power.

In response to questions raised by the tribunal, Netcare and Akeso last week negotiated further conditions to the merger, which the Competition Commission accepted would adequately tackle the concerns it had raised. The commission thus reversed its recommendation from prohibition to approval, subject to several conditions. These include Netcare agreeing to maintain the base tariff agreed to by Akeso and various medical schemes, and sticking with Akeso’s tariff classifications for existing treatment modalities. Netcare also agreed to honour Akeso’s alternative reimbursement contracts with medical schemes and agreed that post-transaction tariff increases for fee-for-service reimbursement at Akeso will be tied to the tariff increase Netcare negotiates with medical schemes for its acute hospitals.

Netcare will also have to dispose of Rand Hospital and Bell Street Hospital, which have psychiatric beds, to a purchaser that can prove to the Competition Commission it has the means to develop them as active competitors to Netcare.

The commission has also prohibited a merger between Netcare and the multidisciplinary Lakeview Hospital. It said the deal would reduce competition in the Benoni area and lead to higher hospital prices for medical scheme patients who use the facility. The tribunal is due to hear the matter on April 3.