20 Feb 2013
(by ) On 11 February, Monitor (the UK’s independent regulator of NHS foundation trusts) to the Office of Fair Trading (OFT) regarding the anticipated merger of Poole Hospital NHS Foundation Trust and The Royal Bournemouth and Christchurch Hospitals NHS Foundation Trust (hereafter “the Dorset FT merger”). This is the first NHS merger to be assessed on competition grounds under the Enterprise Act 2002 (EA02) merger provisions as implemented by the Health and Social Care Act 2012 (HSCA 2012). It has been referred by the OFT to the Competition Commission (CC), which will produce its final report by June 24, 2013.
A notable departure from the two-phase assessment of mergers by the NHS Cooperation and Competition Panel (NHS CCP) is already in evidence. Monitor’s role in the new process involves advising the OFT of “relevant customer benefits” (i.e. lower prices, higher quality or greater choice of goods or services – as defined by s.30(1)(a) EA 02) and such other matters as it deems relevant to the merger. These actions amount to statutory obligations by virtue of s.79(5) HSCA 2012.
Within the wider merger assessment process, the identification of “relevant customer benefits” is significant for two reasons. Firstly, if the OFT decides that these benefits are such as to outweigh the effects of lessened competition results of the merger, this amounts to an exception to the general rule of its obligation to refer mergers to the CC (s.22(2)(b) EA02). Secondly, if the CC establishes that the merger is likely to result in a significant lessening of competition, it will consider possible remedies, taking into account any relevant customer benefits.
With regard to the current Dorset FT merger, Monitor established that it is looking for two aspects with regard to relevant customer benefits: a real improvement in quality of services to patients (or value for money) and clinical benefits (i.e. improvements in health outcomes or patient experience). Monitor found these with regard to improved quality of service accruing from the reconfiguration of maternity and cardiology services. It rejected the more economic benefits submitted by the parties, namely, delivery of financial savings through economies of scale, improved scope of services and enhanced ability to raise capital.
However, identification of these relevant customer benefits was insufficient to prevent the OFT from referring the Dorset FT merger to the CC, and it remains unknown whether or not the CC will consider these in its final assessment.
What is clear from Monitor’s advice is that it has interpreted its obligations under s.79(5) HSCA 2012 narrowly in this case – and relied on its purported lack of statutory power to defend this approach. For example, it clarifies that it did not consider alternative options to address local challenges, something which perhaps undermines the requirement that relevant customer benefits be merger-specific (i.e. unobtainable by other means). In addition, it does not consider whether hospital mergers are appropriate.
This suggests that Monitor’s advice is based on s.79(5)(a) HSCA 2012 exclusively. S.79(5)(b) HSCA 2012, with its emphasis on “such other matters as Monitor considers appropriate”, is not only potentially wide in its scope, but also arguably unclear in its purpose. It may be used in an attempt to cover what may be termed “public interests”, given the apparent inability of the EA02 to recognise the political sensitivities attached to the NHS. However, the consideration of “patient and taxpayer benefits” in NHS CCP assessments served the purpose of providing a remedy to reduced competition and choice. Under the new system, this may be achieved by considering relevant customer benefits. This is evidenced by Monitor highlighting the reduction in cardiology patient transfers as a relevant customer benefit because it amounts to associated cost savings for taxpayers and commissioners. Indeed, this is the only reference to “taxpayers” in the advice.
Alternatively, the potential breadth of s.79(5)(b) HSCA 2012 may provide scope for Monitor to develop and expand its relationship with other agencies. While its advice in the current case acknowledges consultation with members of the NHS CCP and Clinical Reference Group, there is also statutory provision available for Monitor to cooperate with the Care Quality Commission (CQC) under ss.288 and 289 HSCA 2012. Development of a healthcare regulator’s role by virtue of such relationships has already been seen in The Netherlands.
Based on the Dorset FT merger case to date, it may be concluded that Monitor’s role in the new NHS FT merger assessment is limited to consideration of relevant customer benefits, which may not play a decisive role in the CC’s final decision. However, in contrast to other sector regulators, Monitor’s position is strengthened by its mutual statutory obligations vis-à-vis the OFT. It will be interesting to see what recognition Monitor ultimately receives from the CC this summer.
Bruce Lyons was not involved in the editing of this blog post because he has acted as an adviser to Monitor in the past.