Background to the investigation

The Competition Commission (Commission) has published the issues statement in the proposed merger of The Royal Bournemouth and Christchurch Hospitals NHS Foundation Trust and the Poole Hospital NHS Foundation Trust. The merger had been referred to the Commission by the Office of Fair Trading (OFT) for in depth investigation on 8 January 2013. Its report is due to be completed on 24 June 2013.

The issues statement

While the OFT is yet to publish the full text of its referral decision, the issues statement identifies those areas that the Commission will be examining in its inquiry. It provides some valuable insight into the Commission's preliminary views of market definition and potential merger concerns.

Market definition

In terms of product market definition, given that a patient cannot generally substitute one medical procedure for another, the Commission has implied that supply-side substitutability will be important in this case. Healthcare markets have historically seen narrow market definitions being considered or applied (at least from a demand-side perspective) and decisional practice in related markets such as pharmaceuticals would seem to support this approach.

The Commission has mooted five key markets as a starting point for its analysis:

  • hospital based elective care (split by clinical speciality);
  • hospital based non-elective care (split by clinical speciality);
  • community services;
  • tertiary services (split by clinical speciality); and
  • the provision of services to private (fee-paying) patients.

Theories of harm

The hospitals overlap in a wide range of hospital and community-based services for patients in the area. The Commission has identified, among others, two principal theories of harm which could lead to a substantial lessening of competition as a result of the merger:

  1. unilateral effects in the provision of overlapping hospital-based elective services; and
  2. unilateral effects in the provision of hospital-based non-elective services for which the parties would be close competitors.

Unilateral effects (or non-coordinated effects) may arise in mergers between competitors where the merger will remove the rivalry between them and may allow the merged entity to exercise market power by, for example, raising prices.

A key theme of the Commission's investigation will be to consider parameters of competition centring on quality of service provision. This would need to address important matters such as coverage and service availability.

Given the regulation of prices and the prospect of limited price variation under the local modification system, price competition is severely constrained and this will affect both the Commission's assessment of markets and theories of harm.

While the Commission may revise its theories of harm; no mention is made of potential co-ordinated effects arising (i.e. where the merger enables or increases conditions in the market for firms to coordinate tacitly or otherwise). This is particularly interesting in light of the OFT's acceptance of assurances from eight hospital trusts last August concerning the exchange of confidential Private Patient Unit pricing information.

Wragge & Co LLP will be providing further analysis of this merger investigation as it progresses.

NHS context

This investigation is clearly very important to the NHS given the number of mergers currently being transacted or being contemplated as a consequence of the requirement for all Acute Trusts to be Foundation Trusts by April 2014.

In fact, a number of NHS hospitals have recently been required to provide factual information to the Commission in relation to its separate investigation into the private healthcare market. These investigations demonstrate the increasing role competition law may have in healthcare.