1. Assessing competition in hospital mergers Alistair Lindsay 30.9.13

2. Topics The landscape Who looks at what? What does Monitor do? Features of NHS hospital mergers at OFT/CC

3. THE LANDSCAPE

4. 1.1 NHS hospital mergers OFT/CC have jurisdiction if: 2+ enterprises cease to be distinct; and either targets UK turnover >£70m; or combined share of supply 25%+ Health & Social Care Act 2012, s. 79 enterprises cease to be distinct if: (a) activities of 2+ foundation trusts cease to be distinct; or (b) activities of 1+ foundation trusts and 1+ other businesses cease to be distinct

5. 1.2 Scope of s. 79 OFT/CC consider: FT / FT merger FT / trust merger Trust acquisition of activities of FT FT / third party JV e.g. proposed UCLH/RFL/TDL pathology JV May catch: reconfigurations (see Bristol, CCP) transfers or pooling of assets, hosting, management alliances, franchising etc.

6. 1.3 Monitor advises OFT HSCA, s. 79: Monitor must advise OFT on: the effect of the matter on customer benefits for NHS patients such other matters as Monitor considers appropriate Issues: Impact on timetable? Are parties obliged to run a benefits case? Advice not binding; when would OFT depart? How does the CC assess benefits? What other matters will Monitor advise on?

7. 1.4 The literature Monitor briefing notes: Trust & FT mergers: 22/3/13 Pathology reconfigurations: 3/6/13 (Draft) merger benefits: 27/3/13 Cases: Poole/Bournemouth (OFT, CC PFs) UCLH/RF neurosurgery (OFT) SSP/22 GP practices (OFT FNTQ) ULCH/RF/TDL: pending

8. 2.1 Monitor reviews: Trust / trust mergers Advises NHS Trust Development Authority If Monitor advises TDA to prohibit, TDA may still allow transaction on public interest grounds Lots of precedents: Some involving complex behavioural remedies, e.g. Barts NB Bristol (20.9.13): a brake on reconfiguration Reason for Monitor/OFT split: no transfer of control Issues: Are there material differences of approach between OFT/CC and Monitor/TDA? Should there be?

9. 3.1 Private hospital mergers OFT / CC review E.g. General Healthcare / Covenant Healthcare HCA / London Heart Hospital Also: read across from Private Healthcare market inquiry

10. THE FEATURES

11. 4.1 Nicholson challenge £20bn savings over 2011-14 … whilst pressure to improve quality, esp. 24/7 consultant cover Providers see mergers as source of savings (single rotas etc.) But evidence on success of mergers is equivocal Carter Review (2008): pathology too fragmented

12. 4.2 Not for profit Doesnt preclude competition But affects competition: For profits focus on returns to owners and therefore aim to provide good quality goods/services FTs focus on patient care but are required to (at least) break-even

13. 4.3 Highly regulated Minimum standards (CQC etc) and incentives to raise standards (CQUIN) What role for competition? Complex but crucial issue Gvt policy of promoting choice and rewarding success (PbR, AQP) CC ascribed significant role to competition in driving patient outcomes Patients/GPs have and exercise choice Quality affects choice

14. 4.4 Product market No price to patients for NHS work, so SSNIP applied to small but significant decline in quality Demand-side: generally no scope to substitute between procedures Supply-side: clinicians generally switch between procedures within a specialism Although trend is towards sub-specialism Starting point = define by specialism Split elective / non-elective Split outpatient / inpatient Community-only services considered separately Private = separate

15. 4.5 Geographic market Catchment data as starting point 80% plus sensitivity testing Reflects preferences at current quality What would happen if quality fell by a small but significant amount? Evidence-driven: may vary by area/hospital/specialism

16. 4.6 Competitive effects Elective and maternity: Mainly competition in the market: what options does the patient have? Also potential competition & competition for market Other non-elective: Mainly competition for the market Emergency services 30% marginal tariff rate Will commissioners organise tenders and will these suppliers bid against one another? Cf. Bristol (CCP) incentive to maintain/improve quality as commissioners could change Specialised services: could be competition in the market or for the market

17. 4.7 Poole/Bournemouth: closest competitors

18. 4.8 Poole/Bournemouth: other features Existing cooperation NHS duty of integration Shared consultants But hospitals compete on other parameters e.g. cleanliness And can compete using the bought-in consultant Complementarity argument CC reviewed marketing to GPs

19. 4.9 Poole/Bournemouth:PFs 2 to 1 is a problem 20 elective inpatient 36 outpatient Maternity Private cardiology Even with strong commissioner support No concerns about: Other non-elective (unlikely to be bidding against one another) Community (largely no overlap) Other private (many rivals)

20. 4.10 How much competition do you need? What about 3 to 2? Not enough for supermarkets, LBOs etc. But does extensive regulation / residual role for competition cash out here? Small catchments mean: (often) few if any rivals in overlaps What about near rivals outside catchment? What about nearest neighbours but catchments dont overlap?

21. 4.11 Exiting firm Hospitals providing essential services will not be allowed to exit Instead, new management or, in extreme, special administrator (e.g. South London) So exiting firm very hard to show How do you deal (quickly) with takeovers of failing hospitals? Superior management as a customer benefit (cf. Northumbria, CCP)? Is a transfer by a TSA subject to merger control (cf. South London)?

22. 4.12 Benefits & remedies

23. 4.13 Patient benefits Issues: Merger specificity Likelihood Reconfiguration obligations Incentive to deliver if not profitable? Timely

24. 4.14 Remedies Monitor has accepted behavioural remedies CC in Poole remedies notice said nothing short of prohibition would be effective

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