Is clearance for hospital mergers about to get easier?

Lengthy investigations into planned hospital mergers by the Competition and Markets Authority (CMA) is one reason why Trusts have been put off such transactions recently.

This could be about to change, however, following the CMA’s clearance of the planned merger of Ashford & St Peter’s Hospitals NHS FT and Royal Surrey County Hospital NHS FT. The CMA provisionally cleared the merger in late August, and its final decision is expected shortly.

This is the first time that an NHS merger has been cleared following an in-depth review, and marks a turning point following the prohibition of the Bournemouth/Poole merger in 2013.

Like all similar transactions, local factors were central to the CMA’s decision. But, the clearance of this merger shows that the CMA is willing to clear mergers outside dense urban areas.

For other Trusts considering mergers in the future, the really interesting element of this decision is what it means for the speed with which a clearance decision can be obtained.

Why was the Ashford/Royal Surrey merger subject to an in-depth review?

To understand why more rapid merger clearance may be possible, it is necessary to delve a little into the detail of CMA’s review of the Ashford/Royal Surrey merger.

A key component of the CMA’s approach to deciding whether hospital mergers should be cleared in the first phase of its review process (known as Phase One), has been based on a method it has developed for analysing patient referrals by GPs.

This analysis judges how strongly trusts compete with each other by looking at their share of referrals from each GP practice. Those trusts with the most referrals are considered the main competitors to each other in relation to patients at each practice. By aggregating this analysis across practices, the CMA derives a quantitative measure of the strength of competition between acute trusts.

Based on this analysis in Phase One, the CMA was concerned that the Ashford and Royal Surrey were close competitors for patients, and decided that the merger should be subject to a detailed, six month Phase Two review. This was despite the presence of nine other acute trusts within roughly a thirty-minute drive.

What challenges were identified in using a referral analysis?

Several weaknesses with this approach have been highlighted in the second phase of the CMA’s review of the Ashford/Royal Surrey merger:

1. Strong assumptions in the analysis may not be valid

The analysis employs strong assumptions about GPs’ and patients’ preferences between trusts, based on trusts’ shares of referrals at each GP practice. But, a patient survey in the Ashford/Royal Surrey case showed that many patients simply did not know which hospital they would choose if they were to switch from their current hospital. As a result, the CMA’s referral analysis may show that particular trusts, such as Ashford and Royal Surrey, are close competitors, but when patients are asked what they think the answer is much less clear cut.

2. Results will be misleading if how services are delivered is not taken into account

The referral analysis will give misleading results if it doesn’t take into account the way in which services are delivered. For example, at Phase One, the CMA had concerns about the effect of the merger on competition between the two trusts for patient referrals in anaesthetics and medical oncology. But, patients accessing services in both specialties are not able to choose between providers. That is, there is no competition for patient referrals, and so the merger could not make any difference.

3. Backward looking analysis of past patient referrals may not be a good guide to the future

Third, the analysis, by its very nature, focuses on past referrals. However, the CMA needs to be concerned about what will happen in the future. In Ashford/Royal Surrey, the CMA identified the stronger offer that the new Frimley Health and Chelsea/West Middlesex will provide for patients in the Surrey area in the coming years. As a result, it has placed less weight on the historical referral analysis.

4. Robust analysis of patient referrals requires consistent data

Finally, differences in data recording between acute trusts can have a significant impact on the results of the referral analysis. For example, the strength of the competition offered by Frimley Park to Ashford and Royal Surrey in several key specialties was underestimated in Phase One due to Frimley Park historically recording relatively little activity in specialties such as breast surgery and endocrinology, and using general categories such as general surgery and general medicine to a much greater extent. Once the CMA took this into account, its concerns about the effect of the merger in several specialties fell away.

So, why was the merger cleared?

Ultimately, the CMA cleared the merger based on three reasons:

• the number of other acute trusts nearby
• the stronger challenge emerging from Frimley Health and Chelsea/West Middlesex.
• limits to the ability and incentive for Ashford and Royal Surrey to compete with one another.

What does this mean for future mergers?

Difficulties with the referral analysis that the CMA has been relying on at Phase One that have come to light in this case mean that far less weight is likely to be placed on such a mechanistic analysis of competition between hospitals in future Phase One reviews.

This will be good news for Trusts seeking to navigate the complex path to CMA merger clearance as more emphasis is placed on the fundamentals of patient choice and trusts’ ability and incentive to compete.

Please note that the views expressed in guest blogs on the Nuffield Trust website are the authors' own.

Andrew Taylor is co-founder of Aldwych Partners and has been advising Ashford & St Peter’s Hospitals NHS FT and Royal Surrey County Hospital NHS FT on navigating their engagement with the CMA on their planned merger.