28 Oct 2013

(by Mary Guy) On 17 October, the Competition Commission (CC) (hereafter “the Dorset FT merger”), the first to be assessed under the regime for Foundation Trusts (FTs) established by the Health and Social Care Act 2012 (HSCA 2012). This new regime sees Monitor providing advice regarding “relevant customer benefits” to the OFT, which – along with the CC – has exclusive competence to determine mergers between NHS FTs. The case suggests that a higher standard of ‘relevant customer benefits’ is applied in the context of mergers in health care.

What is interesting about the CC’s decision is how “relevant customer benefits” can be interpreted in the healthcare sector and – in response to – how Monitor’s advice has been received by the CC and, by implication, what this may tell us about the role and perception of healthcare regulators more generally. These aspects are also relevant to wider legal and economic discussions about whether and how healthcare can be treated as a special case with regard to mergers.

s.30(1)(a) Enterprise Act 2002 defines “relevant customer benefits” as lower prices, higher quality or greater choice of goods or services. This arguably proves problematic in relation to healthcare, where competition on price has been rejected in a desire to avoid a “race to the bottom” as regards quality. Furthermore, quality itself is extremely difficult to define in any meaningful and quantifiable sense in relation to healthcare. In the Dorset FTs merger case, the parties submitted a range of proposed benefits (e.g. improvements in quality and increased consultant coverage across a range of services) which were mainly rejected by Monitor. Revisions of these (including the benefits to maternity services which Monitor had approved) by the parties were ultimately rejected by the CC as insufficient to offset significant lessening of competition in no fewer than 55 areas. This suggests that a high barrier has been set for establishing benefits in healthcare mergers, consistent with the interpretation of the Explanatory Notes to the EA02, namely that “relevant customer benefits” are to be construed narrowly. Any inference that this may be relaxed in healthcare cases – e.g. by the suggestion in the Explanatory Notes to the HSCA 2012 that such benefits could be interpreted in terms of the likely costs and benefits to patients which would arise from a merger (thus reflecting the merger test terminology of Monitor’s predecessor, the NHS Competition and Cooperation Panel (NHS CCP)) – appears not to be borne out. The threshold has arguably been further heightened by the CC’s clarification of “customers” ultimately as patients, as opposed to commissioners (CCGs), or shareholders (in view of the status of FTs as public benefit corporations under s.43 NHS Act 2006).

Monitor’s advisory role has been restricted in this case to assessing “relevant customer benefits” under s.79(5)(a) HSCA 2012, as opposed to its power to comment on such other matters as it considers appropriate under s.79(5)(b) HSCA 2012. However, it appears that the CC has given considerable attention to Monitor’s advice, which is to be welcomed in terms of the legitimacy this lends to Monitor in its new role as economic regulator for healthcare. The CC’s decision also draws to a perhaps surprising extent on the experience of Monitor’s predecessor, the NHS CCP. For example, the CC considered guidance arising from the NHS CCP’s report on the operation of the “any willing provider model for the provision of routine elective care”, the NHS CCP’s approach to assessing the failure of NHS hospitals as part of their assessment of mergers and NHS CCP empirical studies. This apparent support for the approach taken by the healthcare regulator (firstly the NHS CCP and secondly Monitor) was strengthened by the CC, OFT and Monitor issuing a joint statement at the same time as the CC’s decision, emphasising the three agencies’ commitment to ensuring that patients’ interests are at the heart of assessing public hospital mergers.

The decision to block the Dorset FTs merger has – predictably – been both welcomed and criticised. Indeed, blocking this merger may appear controversial in terms of the costs and time incurred in the decision process, or based on empirical literature suggesting that healthcare mergers can be beneficial. However, there has been little to suggest that general conclusions may be drawn for future cases: rather, if anything, the CC’s decision appears to reveal a system very much in transition. On the one hand, a characteristic favouring of structural over behavioural remedies was seen in the CC’s unequivocal rejection of the merger parties’ proposal of a modified NHS friends and family test. However, on the other hand, the decision – and related publications – reveal that a clear requirement to benefit patients (as opposed to other defined groups of consumers or customers) is paramount, which arguably promotes not only the interests of a healthcare regulator, but perhaps also the wider public. While this decision is therefore to be welcomed for its narrow interpretation of “relevant customer benefits” and for the weight it accords to the regulator’s expertise, it will be interesting to see whether future healthcare merger cases confirm the CC’s approach, or apply a more flexible interpretation of “relevant customer benefits” on a case-by-case basis.

Edited by Andreas Stephan

This is an issue which has been developed further in The Netherlands, where a healthcare-specific merger test considered to strengthen the input of the healthcare regulator into the pure competition-based general merger assessment has been designed.