The OFT’s role in NHS mergers

1. The OFT’s role in NHS mergers CLA, 30 September 2013 Nelson Jung, Director of Mergers 1

2. Content OFT role in NHS mergers a. Role of competition in healthcare b. OFT jurisdiction c. Recent cases OFT process: how does healthcare differ? OFT assessment a. SLC test b. Counterfactual c. Setting the framework d. Closeness of competition e. Relevant customer benefits Looking ahead 2

3. Role of competition in healthcare Quality/patient care at the heart of the competitive assessment Link between competition and quality Research, e.g. Propper/Gaynor Progressive introduction of choice and competition in the NHS Gradual introduction of patient choice Foundation trusts: greater degree of operational autonomy; ability to retain surpluses and borrow to invest in new/improved services Competition and regulation are complementary Research has shown a number of healthcare mergers did not achieve the expected benefits 3

4. OFT jurisdiction Merger provisions of Enterprise Act 2002 (EA02) apply to all sectors, no exemptions Section 79 of the Health and Social Care Act 2012 (HSCA 2012) confirmed that EA02 applies to mergers between NHS Foundation Trusts (FTs) and NHS FTs and other 'enterprises' OFT view: the same principles apply to mergers between NHS FTs and NHS Trusts Conclusion: OFT may review FT to FT and FT to NHS Trust transactions 4

5. Recent cases Two main cases: Bournemouth/Poole – OFT reference; CC provisional findings (final report expected by 21 October) UCLH/RF neurosurgery – clearance More guidance to be published when a few more decisions have been taken 5

6. Process 6

7. Process: additional considerations in healthcare cases Monitor role – important to consider RCBs early and engage with Monitor: Any submissions on RCBs need to be made up front Open to parties not to put forward any such arguments but need to determine this in pre-notification Any other procedural implications, e.g. fast track? 7

8. OFT assessment 8

9. The SLC test in NHS mergers • The OFT considers the impact of the merger on the: • Quality of services; • Prices (tender competition); • Investment and innovation; • Access to services and choice; • Efficiency. ‘the OFT may consider whether the merger is likely to lead to a reduction in the merged organisation’s incentives to maintain access, and maintain and improve the quality and/or efficiency of their clinical services for patients’ 9

10. Counterfactual SLC generally considered by reference to (pre-merger) prevailing conditions of competition But counterfactual may be different: most common is exiting firm scenario. OFT assesses whether: whether the firm would have exited (through failure or otherwise); and, if so whether there would have been an alternative purchaser for the firm or its assets to the acquirer under consideration; and what would have happened to the sales of the firm in the event of its exit. How does this apply to the healthcare sector? Can exit be ‘inevitable’ in TSA failure regime cases? 10

11. The OFT’s assessment: setting out the framework • Important pieces of evidence in market definition are: • GP referral patterns and catchment areas (for example, 80% of patients are drawn from within x minutes travel time) • Third party views (for example, commissioners or other providers in the area) • Internal documents • But market definition isn’t the end point as constraints from outside the market also assessed • No pre-determined level of expected competition 11

12. The OFT’s assessment: closeness of competition between the parties • The OFT considers the following: • are the parties important alternatives for patients/commissioners? • who else is competing with the parties? • Assessed in the round • Evidence the OFT may look at includes: • Geographic proximity • Characteristics of the merging parties and the area • GP referrals and tender history, • GP/patient surveys, • relevant third party views (for example, commissioners, local health boards, patient groups...), • parties’ internal documents 12

13. Exceptions to duty to refer: RCBs RCBs must be sufficient to outweigh SLC and any adverse effects from SLC resulting from merger as a whole RCBs are higher quality, greater choice, greater innovation accruing to customers (patients and commissioners) Parties must have incentive to pass RCBs on to customers RCBs must be substantiated Monitor provides advice to the OFT (section 79 HSCA 2012) OFT takes Monitor’s advice into account The OFT and Monitor have published guidance in this area and previous cases, these contain useful tips for preparing such cases. A Memorandum of Understanding between the OFT and Monitor will also be published in the next few weeks 13 13

14. Looking ahead 14

15. What does the future look like? Many more service level reconfigurations (such as pathology) Mergers of trust facing special administration or in financial and/or clinical difficulty NHS trusts struggling to achieve FT status CMA: expectation that the assessment will be similar to current OFT/CC assessment but statutory timeframes apply across the board Further guidance to be issued Even closer cooperation with Monitor 15 15