In May the Commerce Commission (Commission) published its 2013-2016 Statement of Intent. The document provides detail as to how the Commission intends to achieve its statutory goals over the coming three years. The health sector is singled out for special mention in the competition law area. The Commission says it will be focusing efforts on improving compliance with the Commerce Act 1986 in the health sector because:

"[T]he health sector is shifting to more integrated models of care, with greater collaboration between different health professional groups. This can bring with it risks under the Commerce Act" (p14).

The Commission has been concerned about the lack of knowledge of competition laws in the health sector for sometime. Its 2012-2015 Statement of Intent also made mention of this. To address this apparent issue, in late 2012 the Commission launched an initiative, referred to as the "health advocacy project", to lift understanding in the sector.

Health advocacy project

The first part of the health advocacy project saw the Commission undertake surveys with various health professional groups to assess knowledge of competition laws. That research was done in late 2012/ early 2013. The results of the surveys showed that while the majority of respondents were aware of the Commission's role, and the laws that it enforces, few were confident about how competition laws applied to them. The research showed that health professionals found it hard to identify possible price fixing arrangements.

The results are now informing further work being done by the Commission. The Commission is conducting an education programme and developing health sector specific fact sheets (or guidance notes) focusing on the obligations of health professionals and their associations in the competition law area. The fact sheets will likely include guidance on setting fees safely, preparing rosters and the role of professional associations. The Commission has invited interested parties to raise with it any questions they think should be addressed in the guidance notes.

For any lawyers advising in the health sector the results of the surveys and the Commission's ongoing focus should prompt a cautious approach to any potential competition law concerns. Additional Commission guidance usually carries with it additional Commission scrutiny of activities covered by the guidance. When they are published the Commission's guidance notes should therefore become essential reading for advisors and health professionals and any other educative opportunities offered by the Commission to the sector should be taken up.

Existing guidance

In the meantime, and pending the release of the Commission's current work, there is a great deal of existing commentary available to inform parties about how the Commission views competition in the health sector, the positions of the various participants, and the markets in which they operate. Some of this can be obtained from a review of Court decisions involving the health sector, e.g. the ophthalmology case of 2004 and the Court's penalty decision relating to anticompetitive conduct in the community pathology testing market in 2010.

Another key source of insight into the Commission's thinking can be gleaned from its merger clearance decisions.

In the last 18 months, the Commission has received only 14 applications for clearance under its voluntary pre-merger clearance regime. Of these, three have involved the health sector. This fact itself may be illustrative of trends in the health sector as the industry consolidates.

  • Laboratory testing: in March 2012, Southern Community Laboratories applied for clearance to acquire Medlab South from Sonic. The Commission granted clearance.
  • Radiology services: in November 2012 Hamilton Radiology, Midland MRI, and Medimaging applied for clearance to form a joint venture. The Commission declined clearance.
  • Kidney disease products and procedures: in March 2013 Baxter International applied for clearance to acquire Gambro AB. The Commission's decision on this application is pending.

Perhaps unsurprisingly the Commission's merger decisions demonstrate that it tends to take a narrow view of markets in the health sector. For example, in its decision on Hamilton Radiology, the Commission considered the relevant markets could be narrowed by reference to:

  • the product: the Commission separated out 'low-tech' radiology services from 'high-tech' (encompassing MRI scans) radiology services;
  • the customer: the Commission considered privately/non-DHB-funded services were in a separate market from those funded by the DHB; and
  • the geography: the Commission considered the Hamilton (and Waikato) region was separate from Auckland. The Commission specifically rejected the applicant's submissions that the ability of individuals to travel outside of the Waikato region for MRI scans would constrain a Waikato based provider.

Of further interest in the Southern Community Laboratories decision is the Commission's confirmation of its view that the relevant markets for pathology testing are tender markets. In that case, the relevant competition assessment involved consideration of what the competitive situation would be when requests for proposals to provide hospital and community pathology testing were issued by the various South Island DHBs in the years ahead and, in particular, whether the proposed acquisition would substantially lessen competition in those tenders.

Tendering for the provision of single provider contracts for a fixed term is a common model adopted in the health sector. Any arrangements that may affect the expected level of competition in future tender rounds will be closely analysed by the Commission even if there are no immediate market effects.

The Commission's merger decisions also provide guidance on the Commission's likely views of whether the purchasers of health services can exert countervailing power. Many health markets are characterised by the main purchasers of the relevant services being the DHBs, ACC, or large private insurers rather than private patients.

As to the DHBs, in the Southern Community Laboratories decision the Commission notes that most DHBs have moved to bulk-funding models for pathology services (away from a fee for service arrangements) and that the DHBs can and do combine to coordinate the purchasing of services. These factors provide the DHBs with options for exerting power over providers.

In the Hamilton Radiology decision, the Commission acknowledged the ACC would be able to substantially influence the price that the proposed joint venture could have charged for MRI procedures because the ACC set prices for MRI services nationally on a 'take-it-or-leave-it' basis. That is, the ACC had a high degree of countervailing power. However, the Commission did not accept that any of the health insurance companies that also purchased MRI services would be able to exert substantial influence on the prices that could be charged by the proposed joint venture firm.

Conclusion

Understanding the relevant market, and the players in it, is a key foundation for any competition law assessment. Existing Commission merger decisions provide useful guidance on those issues in the health sector. These decisions, along with the further material the Commission has indicated it will soon publish, should assist the sector in improving its understanding of, and compliance with, competition laws.

First published in NZ Lawyer, 28 June 2013.