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On 2 April 2014 the Competition and Markets Authority (CMA) published the final report on findings from its predecessor, the Competition Commission's (CC) investigation of the market for private healthcare ("Investigation") ("Report").
The report has identified the following issues with the way the market has been working:
When assessing the effects of practices and commercial arrangements on competition in the market, the CMA ruled that in both consultancy and "hospital" services, the relevant 'product' markets were restricted to each individual specialty.
This means market power is far more likely and, as a result, transactions in the sector will face increased scrutiny.
This is particularly the case in relation to complex treatments, where it is much less likely that an alternative provider with the means to provide that treatment will exist within the relevant geographic area.
The study focused on inpatient care, rather than day-patient and outpatient care, and it was in inpatient care that the greatest concentration of market power was found, especially in Central London.
The CMA found that major barriers to entry into the private hospital market included:
The CMA appears to have concluded that these factors have contributed to a situation whereby 70 private hospitals outside of Central London were shown to be of concern because there are insufficient local competitive constraints on them.
Meanwhile, the Central London market was found to be highly concentrated, with HCA (Hospital Corporation of America) UK holding a market share of 45% by admissions and 55% by revenue.
Other private hospitals and NHS hospitals in Central London were found not to exert enough competitive pressure on HCA.
As a result, the CMA will require HCA to sell off either The Wellington Hospital, together with the Wellington Hospital Platinum Medical Centre, or the London Bridge Hospital and Princess Grace Hospital.
One of the intriguing aspects of the Report was the assessment of incentive schemes offered to clinicians: it was found that where clinicians, and especially consultants, are incentivised (eg by favourable offers to acquire equity in a private hospital operator's business) to use their facilities and/or refer patients to it, this could have detrimental effects on competition.
Effectively, would-be competitors would have to be able to offer a more attractive inducement to clinicians in order to gain entry into that market.
Whilst incentive schemes were ultimately not found to create an outright barrier to entry, the CMA did conclude that these types of incentive arrangements were capable of distorting the referral market to the detriment of patients, who often lack full transparency as to consultants' fees.
As a result, in addition to a series of measures which require operators and clinicians to publish up-to-date consultants fees, the CMA has recommended various prohibitions and restrictions on incentive schemes, including bans on:
These prohibitions could have far-reaching implications for the way in which private healthcare joint ventures and investment schemes involving clinician groups are structured. The impact on hospital businesses is clear, however there is the possibility that this prohibition could even extend to smaller treatment centres and clinics.
In light of the Report it will be imperative to seek advice on any proposed arrangement involving clinician groups in the private healthcare sector, to ensure no prohibited incentives are included.
Likewise, investors considering support for businesses looking to break into the private healthcare space should seek advice on how the CMA's remedies could help them enforce their rights under competition law.
This article was written by Rory Ashmore.
For more information please contact Rory on +44 (0)20 7427 1031 or firstname.lastname@example.org