Are patients receiving the best care in hospitals? The German competition authority – Bundeskartellamt – has now decided to apply a health check to the German hospitals market.

On May 31, 2016, the German competition authority announced that it was launching a so-called “sector inquiry” into the hospital services market to examine the degree of competition in that sector of the economy.

A sector inquiry is still a relatively new instrument in the toolboxes of European competition authorities. The law allows the Bundeskartellamt to investigate a specific sector of the economy – even if there is no evidence of anticompetitive behavior. The Bundeskartellamt may then request documents, ask for information, search the premises of companies, and invite comments from third parties. At the end of the investigation, a report on the results is published. Although such a report does not contain any binding instructions or guidelines, it often has a significant impact on how the authority later enforces the law. For example, following a 2012 inquiry into the production facilities for road asphalt, the Bundeskartellamt forced the breakup of some 80 joint ventures and more than 70 cooperation agreements between market participants. And when the authority found in 2014 in its study of the German food retailing market that the four largest supermarket groups had significant buying power vis-à-vis manufacturers, it blocked a merger in this sector the very next year.

The Bundeskartellamt’s new sector inquiry is apparently triggered by the ongoing consolidation process among hospital operators. In the past, hospitals in Germany were largely run by municipalities or not-for-profit organizations. This has significantly changed over the last twenty years. Several privately run hospital groups have emerged, some of which have grown considerably by mergers and the acquisition of privatized operators.

To the extent that transactions in the hospital market have been subject to merger control, the Bundeskartellamt has followed them with a critical eye. From the perspective of the authority, such transactions frequently give rise to competition concerns, chiefly for two reasons: First, the authority defines the relevant geographic market narrowly according to the core catchment area of the hospitals concerned. Where the catchment areas of the merging parties overlap, this approach often results in very large market shares. Secondly, German hospitals are heavily regulated. Among others, construction planning laws make it difficult to open a new hospital, and growth is mostly achieved by acquisitions. Against this background, it is no surprise that in the last five years alone, the Bundeskartellamt intervened in nine transactions (of which three were prohibited, two were withdrawn by the parties, and one transaction was cleared only after the parties made concessions to overcome the authority’s concerns).

As hospitals in Germany cannot compete on prices – for most patients, prices are fixed centrally – the focus of the sector inquiry will be limited to quality of care. According to the Bundeskartellamt, it aims to obtain information about the current market situation and intensity of competition in acute inpatient hospital treatment. The authority wants to understand what factors influence patients in their choice of hospital and how hospitals try to set themselves apart from competitors. Moreover, the inquiry will look into the role of various stakeholders such as medical staff, referring physicians or emergency services, and it will also examine remuneration structures and the financial situation of hospital operators.

The Bundeskartellamt has announced that it will question around 500 hospitals across the country, to be selected in terms of location, size and type of operator to give a representative picture of the hospital landscape in Germany. Based on past experience, the investigation can be expected to last some two to three years.