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

2. September 30th 2013 2 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

3. September 30th 2013 3 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? 12 34 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) 1 1007575%30%22.5% 2 1005050%20%10% 3 1507550%30%15% 4 2005025%20%5% Total550250n/a100% 52% Weighted average share 52% Average share 45% Source: CC.

4. September 30th 2013 4 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 12 34 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

5. September 30th 2013 5 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

6. September 30th 2013 6 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

7. September 30th 2013 7 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

8. September 30th 2013 8 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

9. www.oxera.com www.oxera.com Follow us on Twitter @OxeraConsulting@OxeraConsulting Contact: Dr Avantika Chowdhury +44 (0) 2077766 619 avantika.chowdhury@oxera.com Although every effort has been made to ensure the accuracy of the material and the integrity of the analysis presented herein, the Company accepts no liability for any actions taken on the basis of its contents. Oxera Consulting Ltd is not licensed in the conduct of investment business as defined in the Financial Services and Markets Act 2000. Anyone considering a specific investment should consult their own broker or other investment adviser. The Company accepts no liability for any specific investment decision, which must be at the investors own risk. © Oxera, 2013. All rights reserved. Except for the quotation of short passages for the purposes of criticism or review, no part may be used or reproduced without permission.