High Court vindicates Southern Cross

By DANIEL RIORDAN Healthcare writer

Southern Cross Healthcare can keep to its Aetna policyholders after the High Court overturned a Commerce Commission ruling that to do so would give it market dominance, restrict consumer choice and put more pressure on premiums.

Southern Cross' biggest competitor, Tower Health, greeted the decision with incredulity, while the Commerce Commission is considering its options after the High Court ruled it had not done its work properly.

Tower managing director Jim Minto said he was astounded: "If 80 per cent [the combined market share of Southern Cross and Aetna] is not a monopoly, what is?"

Consumers would be disadvantaged by the reduction of choice.

Tower was now the number two player with 11 per cent, said Mr Minto, after paying $16 million in November for Axa Health.

Southern Cross chief executive Roger Bowie did not return calls, but he is likely to be feeling vindicated after a lengthy struggle with the consumer watchdog.

Southern Cross first applied last July to take over all of Aetna.

The commission knocked that back because of concerns about market dominance - Southern Cross already had an estimated 63 per cent of the $500 million market and Aetna an estimated 18 per cent.

Southern Cross applied a second time, saying it would divest itself of some of Aetna's 40,000 health insurance policies. That did not work either, prompting an unprecedented third application.

This time, Southern Cross, a not-for-profit organisation with 820,000 members, promised to offload all Aetna's policies, making explicit what the market had understood to be its targets all along - Aetna's more advanced computer systems and its First Health primary care network, which provides specialised administrative services for doctors.

The commission granted that application, but Southern Cross decided to appeal against the original ruling.

In the 46-page decision by Justice Hugh Williams and lay Associate Professor Ralph Lattimore, the court disagreed with the commission's finding that Southern Cross would dominate the market if it held on to Aetna's policies.

It said the commission's investigation of the available market "and the shares currently achieved or likely to be attained in the future" was "insufficiently broad or deep."

In particular, it said, the commission had ignored the state health sector's influence on the industry.

Although specific market share figures were deleted from the judgment released publicly, the court said Southern Cross' and Aetna's market share figures had fallen over the past eight or nine years.

The court disagreed with the commission's conclusion that the impact of new entrants had been insignificant. "Their competitors, nearly all of whom have entered the market in that period, have acquired that share."

It said the commission was wrong to conclude that future significant entry or expansion in the market was unlikely.

"Though competitors' market penetration since 1992 is modest in percentage terms, the business is plainly sustainable to participants," the judgment said.

All of those participants were "vigorous competitors likely to compete even more vigorously in the event Southern Cross' acquisition of Aetna proceeds and it attempts to increase premiums or reduce service."

Mr Minto said Tower remained interested in acquiring Aetna's policies, and urged the commission to look at ways it could appeal against the latest decision.

Commission spokesman Vince Cholewa said it was studying the decision and examining its options. He was unable to say what those options might be.

Southern Cross last month raised premiums by 10 to 30 per cent for 300,000 policyholders in the 46-64 age bracket.