Out-Law News 3 min. read

Regulator's analysis of hospitals merger highlights challenges in health sector restructuring, says expert

Concerns expressed by the Competition Commission (CC) about a proposed merger of two hospital Foundation Trusts in England highlight some of the difficulties of implementing restructuring in the sector, an expert has said.

The CC has been assessing the proposed merger of The Royal Bournemouth and Christchurch Hospitals NHS Foundation Trust and Poole Hospital NHS Foundation Trust. The regulator expressed a number of concerns about the plans and has provisionally concluded that the merger would substantially lessen competition in relation to the provision of a number of specialties. It has suggested that the only way those concerns can be remedied is by banning the merger.

"While the CC's findings are still only provisional, the approach of the CC serves as a clear reminder that merger control laws can have real bite in the sector and that there will be close scrutiny of transactions that could dampen the competitive incentives that Government policy and regulatory measures have been designed to encourage," competition law specialist Jenny Block of Pinsent Masons, the law firm behind Out-Law.com, said.

"Some aspects of the analysis sit uneasily in the context of a broader climate where there is general consensus that reconfiguration of healthcare provision is vital to secure the future of the NHS, and where all market participants face difficult strategic decisions in managing the inherent tensions between the various policy goals," Barry Francis, health sector law expert at Pinsent Masons, added.

In outlining its provisional assessment of the plans, the CC said that it had concerns that a merger could reduce patient choice in a number of "overlapping" services currently provided at both hospitals. It also came to the provisional view that Poole Hospital would not exit the market if the merger did not take place.

The regulator also revealed fears that the merger could result in both Foundation Trusts losing "an important incentive to maintain or improve quality in order to attract patients", although it said it was likely there would not be an adverse impact on competition in the supply of "non-elective services, community services or in any future tenders by commissioners".

While the CC has suggested that banning the merger may be the only effective remedy, it has indicated that it is willing to listen to any other suggested remedies to its concerns. It is also seeking further evidence on the merger-specific benefits that are expected to arise to test whether an outright ban would be proportionate.

"The [CC's Inquiry] Group invites views on prohibition of the proposed merger transaction as an appropriate remedy for the expected SLC (substantial lessening of competition) in this case," the CC said in its notice of possible remedies. (4-page / 57KB PDF) "The Group is not, at this stage, outlining other remedies for discussion as there appear to be significant issues of effectiveness affecting other possible remedy options. Neither the parties nor third parties have at this stage made us aware of any other remedies that might be effective."

"The Group will, however, consider any alternative remedies to prohibition – structural or behavioural (for example, a partial prohibition) – that the main parties or other persons would like to propose which they consider would be effective in addressing the SLC and adverse effects that the Group has provisionally identified," it added.

In a statement, Roger Witcomb, chairman of the CC, added: "It is now up to the trusts to provide evidence that the loss of choice for patients and the resulting loss of incentives to maintain or improve quality will be outweighed by benefits from the merger. We will evaluate all the evidence carefully and we will look to preserve any benefits in choosing a remedy. In order to take benefits into account, we will have to be convinced that such benefits are unlikely to be achieved without the trusts merging and may be expected to accrue within a reasonable period."

The proposed merger of the Bournemouth and Poole hospitals was referred to the CC for scrutiny by the Office of Fair Trading in January. The CC had to extend the deadline to resolve the case after delays in supplying it with information. The regulator has called for submissions to be made about its provisional findings no later than 1 August. Its final report on the case is due on 26 August.

"The report sets out the CC's provisional views on market definition by specialty and geography as well as its approach to the role of competition in the healthcare sector, and how this is likely to develop, and the key factors relevant to a merger assessment," Block said. "There is now a clearer indication as to how organisations contemplating mergers and other structural reorganisations should prepare the ground and develop their arguments."

The Health and Social Care Act was introduced last year as a means of promoting competition within the NHS in England and improving patient choices over services. Both the competition authorities (OFT/CC) and the health sector regulator, Monitor, have a role in the scrutiny of mergers involving Foundation Trusts under the terms of the Act, with Monitor providing advice to the competition authorities on relevant customer benefits in particular.

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