Due to the lowered turnover thresholds set in the Decree on the temporary widening of the scope of the control of concentrations between companies that provide healthcare (“Besluit tijdelijke verruiming toepassingsbereik concentratietoezicht op ondernemingen die zorg verlenen”) (the “Decree”), many mergers or acquisitions in the Dutch healthcare sector have to be notified with the Authority for Consumers & Markets (“ACM”). The Decree applies up to the end of 2017. The online consultation on the intention to extend the Decree from 1 January 2018 for another five years started recently. Hereafter, we will propose a number of specific amendments to the Decree. These amendments envisage a regime of merger control for the Dutch healthcare sector that does not sideline ACM, but rather having it to assess solely those concentrations that are relevant from a competition law perspective. For both ACM and the undertakings concerned this would reduce the administrative burden that is inherent to the current merger control regime for the healthcare sector in the Netherlands
Current thresholds for ACM assessment of mergers in the healthcare sector
In 2007, the turnover thresholds for merger control in the Dutch healthcare sector were lowered because of concerns that ACM’s predecessor, the Netherlands Competition Authority (“NMa”), was unable to effectively assess certain mergers, acquisitions or joint ventures in the Dutch healthcare sector. In the absence of any assessment by the NMa, mergers, acquisitions or joint ventures involving healthcare providers that did not exceed the ordinary turnover thresholds mentioned in the Dutch Competition Act (Mededingingswet, “Mw”), would be able to restrict competition without restraint. This fear still exists, which explains the intention to extend the Decree by five years on 1 January 2018. If the lowered thresholds are extended as now proposed, the following turnover thresholds will apply in the Dutch healthcare sector until at least 2023. A merger in the Dutch healthcare sector within the meaning of the Dutch Competition Act must be notified with ACM if, in the preceding calendar year, (i) the combined aggregate turnover of the undertakings concerned is EUR 55 million or more, (ii) at least two of the undertakings concerned have each generated turnover of EUR 10 million or more in the Netherlands, and (iii) at least two of the undertakings concerned have generated turnover of EUR 5.5 million or more with the provision of healthcare in the Netherlands. Although this does not cover all healthcare services it does include any care that is provided on the basis of the Health Insurance Act (Zorgverzekeringswet), the Long-Term Care Act (Wet langdurige zorg) and certain care provided under the Social Support Act (Wet maatschappelijke ondersteuning).
Double assessment and filing fee
Every year, ACM receives many merger filings for transactions that do not involve parties with any significant overlapping activities or that will lead to high combined market shares of the undertakings concerned. In these cases ACM simply issues a so called short-form decision. In 2016, short-form decisions accounted for over 90 percent of ACM’s decisions in the first phase. In practice, short-form decisions (click here for an example) do not provide any added value in terms of guidance, as short-form decisions lack details regarding a substantial assessment of the transactions. However, short-form decisions do entail an administrative burden for all the parties concerned. Firstly, both the undertakings concerned and ACM are required to devote time and resources to the notification process. This generally adds to the time and resources that undertakings already need to spend on the healthcare-specific merger assessment (zorgspecifieke fusietoets) of the Dutch Healthcare Authority (Nederlandse Zorgautoriteit, “NZa”). Secondly, ACM also for a short-form decision charges the notifying parties a filing fee of EUR 17,450.
Opt for a voluntary regime
A more proportionate approach to ACM´s merger control in the healthcare sector is possible. One example would be to introduce a regime giving the notifying parties the option to notify when certain turnover thresholds are reached (a “voluntary notification regime”). In the United Kingdom such a regime has been applicable for years, and there is even a discussion to increase the relevant turnover thresholds. In the United Kingdom it appears that a voluntary notification regime does not result in a failure to notify mergers in the healthcare sector that could significantly restrict competition (e.g. a merger between hospitals in the same city). It is important to note, moreover, that the UK Competition and Markets Authority (“CMA”) can flex its muscles if it the CMA is not notified of a transaction that meets the turnover thresholds and leads to a significant lessening of competition. In that case the CMA is able to act for instance using “hold-separate” measures that prevent the integration (or further integration) of merging undertakings or force the undertakings concerned to sell parts of their merged businesses. The knowledge that the CMA has these powers and the fact that mergers between competitors draw the attention of customers and competitors guarantees effective merger supervision in the United Kingdom. According to the CMA refraining from voluntarily notifying mergers that meet the thresholds and that would significantly restrict competition carries risks. The fact that, for instance, the hospital mergers in Manchester (2017) and Surrey (2015) were voluntarily notified to the CMA demonstrates that a voluntary notification regime also works in the healthcare sector. We believe that a voluntary notification regime for the healthcare sector would also be effective in the Netherlands. We come to this conclusion not only because ACM has issued decisions on mergers in many segments of the Dutch healthcare sector and thus created sufficient precedents over the last ten or more years (see here). Should there still be any doubt as to whether ACM were to approve a particular transaction in the Dutch healthcare sector despite this abundant number of precedents, the parties involved could easily arrange a pre-notification meeting with ACM. Taking into account a voluntary notification regime, such a meeting could provide clarity on whether the merger in question would indeed qualify as a merger that ACM would want to assess. In addition, there is also the preceding phase: the healthcare-specific merger control regime (zorgspecifieke fusietoets) of the NZa. This assessment, for which very low thresholds apply, will remain in place even after the envisaged transfer of the healthcare-specific merger control regime (zorgspecifieke fusietoets) from the Dutch Healthcare Authority (NZa) to ACM (click here for our explanation (in Dutch) of how this can be done differently). The healthcare-specific merger control regime requires the companies concerned to inform stakeholders, such as healthcare purchasers, about their intended merger, takeover or joint venture. If the healthcare purchasers (e.g. healthcare insurance companies) or other stakeholders express any objections (solicited or not) to the intended merger, that would be a clear signal to the companies concerned. If under these circumstances the companies concerned nevertheless wish to continue with their plans, that would not be wise without voluntarily notifying ACM should they meet the relevant turnover thresholds. In a nutshell, a voluntary notification regime in the Dutch healthcare sector would be possible if ACM were able to flex its muscles like the CMA
Opt for more effective thresholds
Although the NMa/ACM regularly adopts the same approach as the OFT/CMA (such as here and here with regard to gym clubs and here and here with regard to travel prices), the Dutch Ministry of Economic Affairs has for the time being, opted not to follow the approach used in the United Kingdom. Instead ofintroducing a voluntary notification regime the Dutch Ministry of Economic Affairs proposed to extend the current lowered thresholds for five years. The Dutch Ministry of Economic Affairs says that it will examine within two years whether the lowered turnover thresholds in the healthcare sector can be enshrined permanently in the Dutch Competition Act. Even if the introduction of a voluntary notification regime is being perceived as going too far, it would still be quite easy to opt for a more effective merger control in the healthcare sector in the Netherlands. The lowered turnover thresholds for the healthcare sector could be maintained, but at the same time transactions that clearly do not restrict competition could be exempted. One conceivable possibility would be to amend the Decree in such way that the lowered turnover thresholds only apply to transactions (i) that entail overlapping activities between the companies concerned and (ii) in which the companies concerned acquire a combined share of at least 25 percent on any one market as a result of the merger. Another possibility might be to exempt from the Decree all mergers between healthcare providers that do not acquire a combined share of over 25 percent of any one market. The fact is that such mergers are not expected to significantly restrict competition either, and that ACM itself applies a combined market share of 25 percent for its assessment whether a transaction could lead to a significant lessening of competition. Until mid-2008, a 25 percent combined market share was the criterion that ACM used for issuing short-form decisions on notifications. The existing rules of ACM in this regard (ACM Uitvoeringsregel verkorte afdoening) allows ACM even more freedom to issue short-form decisions on mergers. The current generic lowered turnover thresholds for the healthcare sector is one reason why ACM issues short-form decisions on notifications. In the last ten years, there have not been cases in which ACM issued a short-form decision on a merger in the healthcare sector which later turned out to significantly restrict competition. In a nutshell, it would be possible to add a few simple provisions that exempt from the Decree mergers in the healthcare sector that foreseeably do not significantly restrict competition.
Consider the rationale for lowering the thresholds and reduce administrative burdens in the healthcare sector
Why are we proposing this? Due to the current regime, ACM has to also be notified about transactions in the healthcare sector that foreseeably do not restrict competition. Take the example of a private equity firm which acquires a stake in a maternity care provider and which already controls an addiction care provider. There is foreseeably no substantive overlap in such a transaction, let alone a competition problem. Another example is a private equity firm that already controls a maternity care provider and acquires a different maternity care provider that operates in an entirely different geographical area of the Netherlands. These two maternity care providers do not compete with each other as there is no geographical overlap between the activities concerned. Since these factors are known beforehand, such a transaction would not significantly restrict competition either. Given that the lowered turnover thresholds are generic, both transactions would readily come within the scope of the Decree and would therefore have to be notified to ACM in advance. This does not serve the aim of the lowered turnover thresholds, as the parties concerned could be confident in advance of ACM’s approval of these transactions because they would not significantly restrict competition. Even in the case of mergers that do entail a certain degree of overlap between the care providers concerned, it would be worthwhile to amend the Decree in such way that only those mergers that could significantly restrict competition are subject to notification. One way of doing this would be to include the aforementioned 25 percent combined market share in the Decree.
Despite frequent pleas from the healthcare sector to reduce administrative burdens to enable medical staff to give greater attention to patients and the sympathetic response from the Ministry of health welfare and sport two years ago, the Ministry of Economic Affairs does not seem to be receptive. The proposals set out in this blog show that ACM could easily help reduce the administrative burden in the healthcare sector without undermining the effectiveness of ACM´s merger control in the healthcare sector. These proposals would enable ACM to make maximum use of its capacity to assess healthcare mergers that might significantly restrict competition. In short, if the Ministry of Economic Affairs wants ACM to continue regulating the Dutch healthcare sector effectively with limited means, then it is high time to amend the Decree.