On 22 March 2013, the Office of Fair Trading (“OFT”) and Monitor published further details on their respective roles in the review of NHS mergers.

The OFT’s and Monitor’s guidance clarify which bodies are responsible for the review of the following types of merger, namely those between:

  • two or more NHS foundation trusts;
  • a foundation trust and one or more NHS trusts; and
  • two or more NHS trusts.

This briefing note summarises the position as it relates to each of these types of merger as stated in the OFT and Monitor guidance and asks what this means for trusts currently contemplating mergers.

Mergers between two or more foundation trusts

Section 79 of the Health and Social Care Act 2012 (“HSCA”) (which came into force on 1 July 2012), provides that the merger provisions contained in Part 3 of the Enterprise Act 2002 (“the Enterprise Act”) apply to mergers involving NHS foundation trusts.

As a result, the OFT has jurisdiction to assess the competition aspects of qualifying mergers[1] between two or more foundation trusts, as well as mergers between one or more foundation trusts and one or more other businesses.

Monitor’s role under Section 79 HSCA is to provide advice to the OFT on the benefits arsing from the merger and such other matters relating to the matter under investigation as Monitor considers appropriate. The OFT and Monitor intend shortly to publish jointly a memorandum of understanding, which will provide further information on this interaction.

To date the OFT has reviewed two mergers between foundation trusts, namely:

  • The anticipated merger of Poole NHS Foundation Trust and Royal Bournemouth and Christchurch NHS Foundation Trust, which the OFT referred to, and which is currently being reviewed by, the Competition Commission; and
  • The acquisition by University College London Hospitals NHS Foundation Trust of Royal Free London NHS Foundation Trust’s neurosurgery services, which the OFT cleared unconditionally in February this year.

Mergers between a foundation trust and an NHS trust

The HSCA clarified the role of the OFT in examining mergers between foundation trusts and “other enterprises”. The Enterprise Act applies to transactions where two or more “enterprises” cease to be distinct”, resulting in a change in control over at least one of the enterprises involved.

In this context, the term “enterprise” includes the whole or part of a business (i.e. activities “carried on for gain or reward”). The OFT’s guidance states that NHS trusts are, in its view, capable of being considered enterprises as defined,. This is because, while NHS services are free for the patient at the point of delivery, the primary care trusts (and/or commissioning organisations) procure and pay a consideration for the provision of such services.

As foundation trusts are independent of the Secretary of State, it follows that a merger between a foundation trust and NHS trust results in a change of control over the NHS trust. According to the OFT, it follows that merger between a foundation trust and NHS trust would be capable of review by the OFT under the Enterprise Act.

As with foundation trust mergers, according to OFT and Monitor’s guidance, the latter’s role in relation to a merger between a foundation trust and NHS trust will be limited to provision of advice to the OFT on the benefits arsing from the merger and such other matters as Monitor considers appropriate.

Mergers between two or more NHS trusts

The OFT’s view is that it is not capable of reviewing mergers involving NHS trusts only. This is because for the Enterprise Act to apply to a merger, two or more enterprises must “cease to be distinct” - in other words, there must be a change in control of at least one of the enterprises involved. In the case of a merger between NHS trusts, each of the trust will continue to be carried on under the control of the Secretary of State for Health. Therefore, the merger of two or more NHS trusts would not be caught by the Enterprise Act.

Therefore, Monitor will continue to review mergers between NHS trusts and will advise the NHS Trust Development Authority on the competition aspects of such arrangements (currently assessed by the Co-operation and Competition Panel (“CCP”), which will, from 1 April 2013, become part of Monitor’s Co-operation and Competition Directorate).

What are the implications for NHS mergers?

Given that only mergers between NHS foundation trust mergers were explicitly and specifically brought within the purview of the Enterprise Act by the HSCA, many in the sector will have taken the view that mergers involving NHS trusts had been excluded from the ambit that Act. The OFT’s announcement (albeit foreshadowed by earlier correspondence with HSJ) will therefore have come as a surprise to many in the sector.

As readers may be aware, mergers of this type have until now been reviewed by the CCP’s against Principle 10 of the DoH’s Principles and Rules for Co-operation and Competition, which states that “[m]ergers…between providers are permissible where there remains sufficient choice and competition or [emphasis added] where they are otherwise in patients’ and taxpayers’ interests, for example because they will deliver significant improvements in the quality of care”

The OFT applies a different test: namely whether there is a realistic prospect that the transaction in contemplation may lead to a substantial lessening of competition (“SLC”). The Competition Commission will decide, upon reference, whether on balance the transaction will or has led to an SLC.

Trusts contemplating mergers of this type, who may have previously assessed proposed mergers for compliance with Principle 10, will therefore wish to assess the risk of intervention by the OFT and Competition Commission on the basis of the SLC test.