UK OFT Investigation into Health Markets

Transcription

1 MARCH 23, 2011 EU LIFE SCIENCES UPDATE UK OFT Investigation into Health Markets Executive Summary On 10 March 2011, the Office of Fair Trading (OFT) formally launched a market study into private healthcare. The market study will cover: 1) competition in private healthcare i.e. how private healthcare providers compete on price and quality of treatment (including NHS private patient units). 2) market concentration (the reduction in the number of private hospitals over the past 10 years and whether local, regional or other geographic issues are important). 3) structural and non-structural barriers to entry (whether relationships between private medical insurers and GPs restrict new entry into the market). 4) the role of consultants and constraints on consumer choice. Private Medical Insurance The investigation will consider the role of private medical insurance in the context of the provision of private healthcare. The OFT has also decided to exclude consideration of private medical insurance contracts (point of sale issues) from the market study and the market study will not focus on private medical insurance as a separate market in its own right at this stage. The OFT aims to complete the market study by the end of The extent to which this will be impacted by, or will impact on, the government s current proposals for reform of the NHS is unclear but we are monitoring developments. Sidley Austin LLP has established insurance, life sciences and regulatory and anti-trust practices worldwide. We are closely monitoring developments in the UK. Please contact Nigel Montgomery, Tim Cowen and David Went for more information. Sidley Austin LLP, Woolgate Exchange, 25 Basinghall Street, London, EC2V 5HA. Tel: This Sidley update has been prepared by Sidley Austin LLP for informational purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. Readers should not act upon this without seeking advice from professional advisers. Attorney Advertising - For purposes of compliance with New York State Bar rules, our headquarters are Sidley Austin LLP, 787 Seventh Avenue, New York, NY 10019, and One South Dearborn, Chicago, IL 60603, Prior results do not guarantee a similar outcome.

2 Page 2 UK OFT Investigation into Health Markets Background to OFT Investigation OFT consultations - December 2010 On 14 December 2010, the UK OFT announced that it was looking for input before launching a market study. The following concerns were identified: 1) There has been consolidation amongst private hospital providers and a move by private medical insurers away from vertical integration towards a reliance on network agreements with private healthcare providers. 2) The NHS has also started to use private healthcare services. Scope of the OFT study The market study announced on 10 March 2011 will examine whether the market for the provision of private healthcare (PH) treatment and services in the UK is working well for consumers and, if not, whether there is potential for improving how it functions. It will focus on the provision of the most commonly sought acute medical treatments (as opposed to long-term treatments) provided in PH facilities to privately funded patients, and the actions of the professionals who provide these services. The OFT has confirmed that the market study will have the following scope: Nature of competition in the provision of private healthcare. The inclusion or exclusion of the NHS and the scope of the study has been a matter of considerable debate. The OFT s formal launch has confirmed that the focus of the market study will be on the provision of privately funded PH. This includes the provision of PH by public providers (through NHS hospital Private Patient Units (PPUs)) as well as private providers. The OFT will consider the extent to which PPUs can be considered to form part of the PH market. It will take into account the implications of the fact that the NHS is the second largest procurer of services from PH providers and that it may become a more significant provider of PH services under proposed legislative changes. However, the NHS's role as a procurer of PH is not directly within the scope of the market study. This looks like a complicated compromise over who is doing what between the Department of Health, Monitor (the key regulator of the NHS, and which will continue as such under the government s proposals to reform the NHS) and the OFT. There is also overlap between the EU and UK competition rules as both apply to the health service. This may mean that the final decision maker may be the European Commission or even the courts. This possibility is not covered by the OFT market study but will be material to any firm considering this matter. The OFT also notes that any findings and recommendations that it makes are likely to be focused on the privately funded section of the market, although any such findings could potentially be relevant to, and impact on, the publicly funded sector. Issues 1. Cross-subsidy Concerns have been raised that PPUs are anti-competitively benefitting from NHS facilities and services (access to state funded pensions, tax exemptions, no regulatory fees and access to NHS facilities) and that the NHS is crosssubsidising PPUs. 2. Restrictions on consultants The OFT will also consider allegations that the NHS Trusts may be imposing restrictions on NHS consultants requiring them to limit their private practice to a PPU.

3 Page 3 3. Market structure The OFT will consider the level of market concentration at national, regional and local levels, and the impact it has on the extent of competition in the market. 4. Barriers to entry The OFT will consider whether there are structural barriers to entering or expanding in the PH market which could deter potential market entrants, or hamper the ability of recent entrants, or smaller providers to compete effectively in the market, to the detriment of consumers. It has been reported that some respondents to the prior consultation raised concerns that: there may be higher structural barriers in certain geographic areas; the costs of inspection and regulation are higher in the PH market than for NHS hospitals and that the regulatory regime may create barriers to entry; and the fact that PH providers provide non-standardised or dissimilar information compared to NHS hospitals makes regulatory comparisons difficult and leads to higher regulatory costs for private PH providers. 5. Networks of agreement The OFT confirms that it will look at whether network agreements between certain PH providers and providers of private medical insurance (PMI) make entry and expansion difficult for other PH providers. The market study will, in particular, focus on the relationships between PH providers, consultants, GPs and PMI providers in general and consider the impact these may have on the PH market. 6. Role of consultants generally The OFT will consider whether actions of PH providers and/or PMI providers act as constraints on the freedom of consultants to practice to the detriment of consumers. The OFT confirms that the study will cover the role of consultants more generally, including their role in determining how patients are treated, where they are treated and by whom. In response to comments received, the OFT will also examine what incentives the "clinician-led" partnership model creates for consultants. 7. Consumer choice The OFT confirms that it will look at the factors and incentives in the PH market that influence how consumers make decisions about their choice of consultant and/or PH provider. In particular, it will examine how and when patients are provided with choices and the role of GPs, consultants and PMI providers in advising patients of their choices. In addition, in response to comments, the OFT now intends also to examine: how price and quality of PH providers feature in the decision-making processes across the patient journey (who makes these decisions and on what basis, and the incentives of GPs and consultants to identify the lowest cost and highest quality options); obstacles to publishing cost and quality information; how the provision of cost and quality information to GPs and patients compares to what is provided by PH providers to the NHS; and the extent of patient clarity about consultant charges (in particular where the costs of a consultant will exceed the patient's insurance cover). 8. Out of scope The OFT has decided that the market study will not cover the following: Point of sale issues. The OFT initially proposed that it would consider certain issues at the point of sale of PMI (terms and conditions in PMI policies and certain issues of PMI cover that make switching difficult). However, in order to ensure that it can deliver a suitably targeted market study in a timely manner, the OFT has decided not to

4 Page 4 include point of sale issues. It will focus on the "point of referral" of a patient by a GP or patient for treatment. Insofar as the OFT comes across concerns about the point of sale of insurance it will refer these to the Financial Services Authority. The PMI market. PMI is a critical input into PH. Therefore, as relevant, the relationship between PMI providers and PH providers is within the scope of the market study. A number of respondents asked the OFT to extend the market study to consider the PMI market. The OFT has decided not to focus directly on PMI as a separate, stand alone market, or to examine its competitiveness. In order to ensure that its market study is targeted and can be completed in a timely manner (focusing on the provision of PH services and treatments), the OFT has decided not to include the following within the market study: o data or information relating to market entry or expansion in the provision of PMI; o an assessment of whether the PMI market is competitive; o innovation and diversity of PMI products; and o how consumers select PMI products. The OFT states that it will be contacting specific bodies directly for information in the next few weeks. Interested parties can also make submissions directly to the OFT. The OFT intends to complete the first phase of the project (gathering and assessing evidence) in early summer. It expects to publish an update statement in late summer and to complete the market study by the end of 2011.

5 Page 5 Background: NHS Reform March 2011 Frequently Asked Questions/Points of Interest 1. What relevance will the OFT study have to the government proposals to reform the NHS (NHS Reforms), or vice-versa? The OFT study is primarily motivated by concerns that consolidation within the private healthcare sector may have restricted choice and quality for patients. As part of the study, the OFT is intending to look into both the private and public health markets. The government, on the other hand, has announced plans to radically overhaul the NHS. One of the major objectives of the NHS Reforms is to consolidate the public health market by, for example, removing health authorities and the primary care trusts that were responsible for the budget and replacing them with an independent board and consortia of GPs working as private commercial enterprises. Given that the OFT will examine issues in relation to consolidation and concentration within the health market and the public health market itself, the government could run the risk of introducing reforms that are potentially contrary to the OFT's conclusions. 2. Will the application of competition law become more prevalent under the NHS Reforms, whereas previously it had little scope to apply to the NHS, a body that was essentially carrying out a public function? The government s proposals appear to be intended to increase efficiency in the provision of services in the NHS. The NHS reforms will place greater decision making authority in the hands of GPs who will make buying decisions. UK and EU competition law applies to undertakings. An undertaking is any entity that is engaged in an economic activity and this generally covers activities of corporate bodies and commercial enterprises. Bodies providing public services are excluded. There is an unclear boundary between those bodies which will be regarded as undertakings and those that are bodies providing public services. In the course of parliamentary debates, the government has helpfully provided some clarity on which bodies will be seen as undertakings. Simon Burns MP has said, as NHS providers develop and begin to compete actively with other NHS providers and with private and voluntary providers, UK and EU competition laws will increasingly become applicable... Organisations fulfilling a purely social function are not-for-profit and are not considered to fall within the definition of undertakings, so they are not subject to EU competition rules. Markets have been developing only in certain limited sectors over the past decade, as, for example, in elective care. However, in a future where the majority of providers are likely to be classed as undertakings for the purposes of EU competition law, that law and the protections it offers against anti-competitive behaviour will apply. (Simon Burns, House of Commons, 16/03/2011). 3. The significance of...a majority of providers are likely to be classified as undertakings.. The significance of the NHS Reforms are that they seek to open up the public health market, which is currently the responsibility of the NHS, to private healthcare firms and GPs established as corporate bodies. What was therefore previously entrusted to the NHS under its public function umbrella, and thus immune from competition law, is now being liberalised and competition law will increasingly apply. In particular, this means: i. agreements between undertakings at the same level of trade, such as consortia agreements between GPs, or agreements among hospitals to fix the prices of procedures, will be illegal and unenforceable unless efficiency benefits can be demonstrated and evidenced; ii. iii. iv. agreements between undertakings, GPs and hospitals etc to restrict the prices at different levels, such as, terms or provision of healthcare will be illegal and unenforceable unless efficiency benefits can be demonstrated and evidenced; restrictive agreements between private medical insurers and GPs that restrict entry to the market will be illegal and unenforceable unless efficiency benefits can be demonstrated and evidenced; and complex agreements, such as joint ventures and collaboration agreements between different parties will also be illegal and unenforceable unless efficiency benefits can be demonstrated and evidenced.

6 Page 6 4. Why would any EU rules apply to the provision of healthcare, whether public or private, which is generally operated within the UK? It is an established principle that EU competition law may apply even where anti-competitive behaviour is taking place solely within one EU country, or parts of an EU country. Where, for example, patients are being treated within the UK by the public or private healthcare providers, this will not necessarily exclude the European Commission or the European courts from having jurisdiction if the UK healthcare market raises competition concerns that may affect trade and trade flows between member states of the EU. Given the scale of trade flows affected by the NHS most of its activities are likely to be subject to EU law. 5. Application of UK competition law Even if EU law does not apply, UK law is applied on a basis which is consistent with EU law. Domestic UK competition law applies in materially the same way as EU competition law, save that certain behaviour and practices under UK competition law will not only be subject to the imposition of large fines but will also be treated as criminal offences. These practices include: price-fixing; limitation of supply or production; market-sharing; and bid-rigging. Anyone found or judged to have dishonestly carried out these practices at the same level of trade could potentially face severe consequences, such as, a maximum of 5 years imprisonment and/or an unlimited fine. For further reading please see: OFT press release 33/11 and Private healthcare - final statement of scope March 2011 (OFT1295f) If you have any questions regarding this update, please contact your regular Sidley lawyer or: Tim Cowen Nigel Montgomery David Went tcowen@sidley.com nmontgomery@sidley.com dwent@sidley.com +44 (0) (0) (0) The EU Life Sciences Practice of Sidley Austin LLP Sidley s EU Life Sciences practice assists multinational companies and trade associations with food, pharmaceutical, biotechnology, medical device, cosmetics and dietary supplement issues in the European Union and its 27 Member States. Our lawyers offer strategic advice for gaining and maintaining market access. We anticipate government actions, advise on approval and submission strategies, and interface with trade associations, consultants and governmental officials. Clients turn to our group for assistance with compliance issues relating to Good Manufacturing Practice, EU Drug Safety/Pharmacovigilance, and Quality System regulations, as well as EU competition and trade law issues. For further information on the EU Life Sciences Practice, please contact: Maurits J.F. Lugard mlugard@sidley.com To receive future copies of this and other Sidley updates via , please sign up at BEIJING BRUSSELS CHICAGO DALLAS FRANKFURT GENEVA HONG KONG LONDON LOS ANGELES NEW YORK PALO ALTO SAN FRANCISCO SHANGHAI SINGAPORE SYDNEY TOKYO WASHINGTON, D.C. Sidley Austin LLP, a Delaware limited liability partnership which operates at the firm s offices other than Chicago, London, Hong Kong, Singapore and Sydney, is affiliated with other partnerships, including Sidley Austin LLP, an Illinois limited liability partnership (Chicago); Sidley Austin LLP, a separate Delaware limited liability partnership (London); Sidley Austin LLP, a separate Delaware limited liability partnership (Singapore); Sidley Austin, a New York general partnership (Hong Kong); Sidley Austin, a Delaware general partnership of registered foreign lawyers restricted to practicing foreign law (Sydney); and Sidley Austin Nishikawa Foreign Law Joint Enterprise (Tokyo). The affiliated partnerships are referred to herein collectively as Sidley Austin, Sidley or the firm.