The Dutch Minister for Health, Welfare and Sports made a drastic proposal in a letter to the Dutch Lower House of 18 February 2020 regarding a tightening of current healthcare merger assessments. Briefly stated, the key elements of the proposal are the following:
- healthcare providers that demonstrably have significant market power (“SMP”) are not allowed to merge. This prohibition does not apply in the case of a successful failing firm defence or efficiency defence (which have so far rarely been honoured by ACM in mergers), and;
- healthcare providers, regardless of their size or the type of care, on which the IGJ (Health and Youth Care Inspectorate) has imposed an order are not allowed to merge. This prohibition does not apply if those healthcare providers successfully demonstrate that a merger is necessary to ward off insolvency.
The Minister’s proposal gives rise to numerous legal questions and objections of a fundamental and practical nature. The main ones are addressed in this blog. We will also explain why the proposal may be counterproductive and is harmful to the healthcare sector and the patient/client.
SMP merger ban for healthcare providers consistent with the right of freedom of enterprise?
The proposal to ban mergers between SMP healthcare providers has not appeared out of the blue. When asked, ACM presented this proposal in July 2018 already as a means of tightening healthcare merger control. It is remarkable that ACM expressly stated that ACM itself was not particularly in favour of additional regulation of healthcare mergers. “In ACM’s opinion, sufficient instruments are currently available under the Competition Act to prevent mergers that, by restricting competition, lead to lower quality or higher prices: ACM can either prohibit such mergers or demand structural changes or other remedies to solve the competition issues.”
ACM furthermore immediately noted that a further elaboration of its proposal regarding SMP healthcare providers was (and therefore still is) required. ACM rightly questioned, for instance, whether a de facto merger ban in the healthcare sector was consistent with European law. The “no, unless regime” proposed by the Minister for SMP healthcare providers constitutes a drastic restriction of the freedom of enterprise. That fundamental right is recorded in Article 16 of the EU Charter and can be restricted only if the restriction proposed is in keeping with the proportionality principle. Briefly stated, the restriction must be (i) necessary and (ii) in keeping with the public interest. ACM expressly referred to those conditions in its letter of 19 July 2018: “We emphasise that applying this measure would be a material intervention in the freedom of enterprise of healthcare providers. This measure should be applied only in exceptional cases. That must be taken into account in giving substance and shape to this measure.” In his letter to the Dutch Lower House of 18 February 2020, however, the Minister did not yet demonstrate any successful assessment in relation to European law or further elaboration of his proposal.
It remains to be seen whether the proposed prohibition of mergers between SMP healthcare providers as such is consistent with European law. The Minister appears to implicitly acknowledge this, since he has stated that the merger ban cannot apply generically (therefore to all SMP healthcare providers). He therefore wishes to limit the ban to “specific healthcare subsectors” yet to be designated. He has not identified those subsectors and his letter also has not given examples of SMP healthcare providers. Precisely in the healthcare sector, a large market share of a healthcare provider does not automatically also give rise to SMP. Indeed, the healthcare provider is often permanently faced with (countervailing) buying power of healthcare insurers or the care administration office, as a result of which the opposite applies. In every care administration office region, for instance, there is only one care administration office, with which the healthcare provider must do business. Also in healthcare purchasing under the Healthcare Insurance Act, there are healthcare insurers on the purchasing side that have very significant market shares and are therefore unavoidable partners for healthcare providers. Zilveren Kruis, for instance, has a market share of approximately 80% on the healthcare purchasing side of the market in the province of Friesland. And it must be said that ACM has been known to acknowledge the actual influence of healthcare insurers and their procurement power only after judicial assessment. Be that as it may, it is essentially uncertain also in the case of healthcare providers that appear to have SMP that SMP can actually be established according to the law. In order to de facto deprive healthcare providers of a merger option, it is of course essential that the SMP position of each of the providers is legally beyond doubt. Establishing that SMP would not only be a major undertaking but might also have the unintended adverse effect for the Minister of it thereby being irrefutably established where the power truly lies in the healthcare sector.
In sum, also in the case of healthcare providers that appear to have SMP, the Minister will have to first actually establish that SMP at law before depriving them of a merger option. That is not an easy job in our healthcare system, in light of the statutory position of healthcare insurers and the care administration office. It simply cannot be denied that healthcare procurers play a leading role assigned to them by the authorities and have the procurement power to match (and are able to exercise it).
Current merger control by ACM and NZa is insufficient, according to ACM
It is remarkable that the letter to the Dutch Lower House also does not mention why the current merger control by NZa and ACM is insufficient to approve “undesirable” healthcare mergers subject to certain conditions or to prohibit them. The NZa already has the power to prohibit healthcare mergers if certain crucial healthcare might consequently be jeopardised or if a merger has not been properly prepared. The NZa is also already able to attach conditions to healthcare mergers, for instance in order to monitor the long-term and other effects of a merger. According to ACM, it is also assessing healthcare mergers more critically. ACM may furthermore attach strict conditions to healthcare mergers and may successfully prohibit them. ACM is even able to nip mergers in the bud, thereby allowing different developments; see here. Until it is substantiated why the NZa and ACM lack powers in current healthcare merger assessment, the proposal cannot be considered necessary, all the more so because ACM itself informed the Minister, when asked, that it considered its current healthcare instruments sufficient.
Merger prohibition in the case of an IGJ order is counterproductive
The Minister also wishes to prohibit healthcare mergers if a healthcare provider is the subject of an IGJ order. An exception applies if the merger is necessary to ward off insolvency. A definition of the exception has not been provided and will most definitely give rise to a great deal of discussion. The Minister is implying in his proposal that all healthcare providers on which an IGJ order has been imposed can solve their problems independently (therefore without a merger) and in a fast, effective and sustainable manner, thereby avoiding insolvency.
Healthcare providers may be faced with problems in practice due to exogenous factors over which they have no or limited control. The increasing problems of staff shortages, staffing levels and volume standards (see e.g. here and here), areas in which the population is shrinking or is likely to shrink, and the double ageing problem are a case in point. The problems are often exacerbated by government policy changes in the healthcare sector, such as those in the care for the elderly. In many cases a merger can be an effective means of achieving specific improvements at healthcare providers. According to his letter to the Lower House, the Minister does not want healthcare providers on which an IGJ order has been imposed to spend their time on mergers. That would appear to be a prudent principle but fails to acknowledge the resilience of the healthcare sector. Employees or clients of a healthcare provider who know that the healthcare provider, when a public IGJ order has been imposed on it, cannot lawfully decide on a merger or acquisition as a means of avoiding insolvency, may act accordingly (for instance by finding a new employer or healthcare provider). That might seriously exacerbate the negative circumstances that already exist at ailing healthcare providers.
A scenario is also conceivable in which a small healthcare provider is unable due to exogenous factors to permanently address an IGJ order but is also not yet facing a specific insolvency threat in the long term. If the proposed merger ban went ahead, there would therefore be a major risk of suboptimal healthcare being provided during that period. The Minister’s proposal therefore deprives the parties of the possibility of efficiently addressing the suboptimal healthcare provision in those cases by means of a merger, even if that were the only solution. We do not believe that the Minister intended this, but it would nevertheless be the outcome if his proposal were implemented. For that reason alone the proposal is therefore not in the interest of the healthcare sector and the patients/clients.
Threat of prohibitions may have a boomerang effect
The Minister’s proposal may be counterproductive also in another respect. Since the Minister is threating to prohibit certain healthcare mergers, healthcare providers are likely to sit up and take notice. They may be more likely to opt for a merger while they still can. That applies all the more to healthcare providers that are already aware that they will have to merge in the (near) future, for instance to deal with urgent healthcare problems. That makes sense, because healthcare providers, when deprived of an opportunity (either temporarily or definitively), will want (or even be forced) to err on the safe side. If his proposal leads to a flood of healthcare mergers, the Minister will achieve the exact opposite of what he seems intent on achieving. We note that even the threat of prohibiting healthcare mergers might have that effect. There are numerous cases in which the fear of a possible prohibition alone has led to measures being taken, particularly when people are concerned about their fundamental rights being restricted.
ACM is keen on referring to foreign examples of the negative impact of healthcare mergers. ACM based the restriction of the cooperation among Santeon hospitals in the field of breast cancer care on a study of healthcare mergers in the USA (see here and here). Be that as it may, if ACM were to take a closer look at the USA, it would see also there the possible effects of the threat of restricting “fundamental rights”. The possible restriction of the right to carry firearms under President Obama apparently led to an exponential increase in firearm sales in the USA. We obviously do not wish to advise ACM and the Ministry of Health, Welfare and Sport to continue to compare the Dutch healthcare sector with that in the USA (or to have healthcare directors arm themselves against ill-conceived government measures). If ACM believes it can draw lessons from the healthcare sector in the USA regarding the Dutch healthcare sector when assessing healthcare alliances and mergers in the Netherlands, then this is the time for ACM to draw the Minister’s attention to the US example referred to above of the counterproductive effects of threatening the restriction of a “fundamental right”. In sum, a merger prohibition (or even the threat of such a prohibition) may unintentionally have the opposite effect and may backfire on the Minister and ACM. In our opinion the proposals in the letter to the Lower House should be carefully considered and substantiated before they are implemented; not only because they restrict the freedom of enterprise for healthcare providers, but also because of the adverse effects they may have.
Timeframe of the proposal and concurrence with the legislative proposal on the Repositioning of NZa’s Regulatory Tasks
The Minister’s proposal runs parallel to the legislative proposal on the Repositioning of NZa’s Regulatory Tasks. The aim of that legislative proposal is (i) to transfer part of the NZa’s regulatory tasks to the Ministry of Health, Welfare and Sport, and (ii) to transfer merger control from the NZa to ACM. The Minister intends to use a legal basis in that legislative proposal to tighten healthcare merger control in accordance with his proposal by imposing the prohibitions addressed in this blog. The Minister is therefore dependent in that regard on an expeditious debate of the legislative proposal by the Lower House and the Upper House. The legislative proposal was submitted to the Lower House quite some time ago already, where specific parts of the proposal are currently being debated (not necessarily related to the transfer of the merger control tasks from the NZa to ACM). Those debates are of a fairly fundamental nature and will not be easily settled. We therefore consider it highly unlikely that the Upper House will adopt the current legislative proposal on the Repositioning of NZa’s Regulatory Tasks before the summer of 2020.
Until the legislative proposal is enacted, the Minister cannot implement his proposal to implement a partial healthcare merger prohibition. Fortunately, there is therefore ample time to consider his proposal. At the same time, the withdrawal of his proposal is an urgent matter. As stated above, the greater the threat of prohibition, the more likely it is that a healthcare director will be induced to accelerate his plans. It is not helpful in this regard that ACM is meanwhile restricting the legitimate cooperation among healthcare providers that are not or barely in competition with each other, without there being any hard evidence of negative effects of that cooperation (see our earlier blog on this subject). Be that as it may, we believe that it is sometimes advisable to bide one’s time in healthcare merger control. It is in no event prudent from either a legal or a social perspective to opt for a “prevention is better than cure” approach in healthcare supervision. If healthcare mergers and the cooperation among healthcare providers (that are not in competition with each other) is preventively controlled by the Minister or ACM for no valid reason or in an unfounded manner, that is harmful not only for the healthcare sector (and investments in that sector), but also for the patients and for the accessibility and quality of the care provided. In other words: look before you leap!