Assessing competition in healthcare mergers September 30th 2013 Competition Law Association Dr Avantika Chowdhury, Senior Consultant

September 30th Measuring market concentration/power (I) -traditional measures to identify problem areas -fascia count in the relevant catchment -HHI: accounts for heterogeneity of providers both need a well-defined geographic boundary -Logit Competition Index (LOCI) -CC private healthcare -based on market shares in all areas/sub-markets from where a provider currently draws patients Possible options

September 30th Measuring market concentration/power (II) -1 minus weighted market share across all sub-markets -the CC used outward postal codes to define sub-markets What is LOCI? A Patients in area that attend hospital A Patients in area that attend a hospital other than hospital A AreaAll patientsAs patients Share of A in area (I) Share of As patients in area (II) (I) * (II) %30%22.5% %20%10% %30%15% %20%5% Total550250n/a100% 52% Weighted average share 52% Average share 45% Source: CC.

September 30th Measuring market concentration/power (III) -LOCI accounts for heterogeneity -focuses on 100% patients not 80% -but puts lower weight on the 20% outside catchment -accounts for constraints from outside catchments -can this be achieved by sensitivity analysis on catchments? LOCI versus fascia count A -focuses on the actual areas from where A draws its patients -similar method used in previous cases (eg, PCT- based catchments, OFT UCLH/RF) B C

September 30th Measuring market concentration/power (IV) -weighting rule exaggerates high market shares -size of area may better reflect the potential for competition -result is sensitive to boundaries of sub-markets -smaller sub-markets increase share -does LOCI really avoid defining boundaries? -how useful is the absolute threshold? -relative comparisons may be useful -data-intensive Potential drawbacks

September 30th Closeness of competition (I) -geographic proximity of parties -quality indicators and range of services (overlaps) -GP referral patterns -parties share of referrals and share of other providers inside and outside catchment -are parties the top choices for relevant GPs? What proportion of GPs are exposed to both parties, and also to other providers? What proportion of GPs suffer a significant loss of choice? (CC B/P) -however, does not capture the reason for referrals A range of measures

September 30th Closeness of competition (II) -balance between drivers of patient/GP choice is critical: location versus quality -if patients respond to quality, high shares may not imply harm -SSNIP-type survey of patients/GPs is important -direct assessment of the trade-off between quality and other factors -eg, switching following increase in wait time (CC, B/P) -other evidence: marketing to GPs/consultants, internal documents, parties incentives to compete (capacity constraints, commissioning contracts) A range of measures

September 30th Closeness of competition (III) -hospital-level analysis may over- or underestimate SLC Accounting for heterogeneity Hospital A Hospital C Hospital B 80% catchment for neurosurgery (40 miles) Average 80% catchment (20 miles) Hospital E Hospital D -parties may provide complementary specialised services -wide variation of catchments across specialties -some sub-specialty considerations in Bournemouth/Poole

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