Competition: acute mergers, service reconfiguration & the role of the authorities’

There has been a lot of controversy about the competition regime as it applies to the NHS. The recent Competition Commission decision to block the proposed merger between Bournemouth and Poole trusts continues to reverberate around the NHS.

Acute mergers are important and will continue to occupy the competition authorities. Alongside them there is a much higher volume of changes to service provision, service transfers and reorganisation going on across the NHS. Recent decisions by the Office of Fair Trading (OFT) start to shed some light on that.

In November, the OFT released the detailed reasoning behind its decision to clear the creation of a pathology joint venture between University College London Hospitals NHS Foundation Trust (UCLH), the Royal Free and private pathology provider, The Doctors Laboratory Limited (TDL).

The OFT is clearly concerned in each case to really understand how competition works in the markets and whether it works at the level proposed by the parties

The OFT has gone to great lengths to emphasise that this decision should help other providers considering pathology reorganisations. Earlier this year, the OFT also cleared the transfer of inpatient and day case neurology services from the Royal Free to UCLH.

Together, we are starting to get a sense of the competition authorities’ view of the very important issue of service reconfiguration.

The precedents should help providers and commissioners to understand whether they need to go to the OFT in the first place. Notification is voluntary. The joint announcement by Monitor, the OFT and the Competition Commission puts in place some processes that also help in that regard.

However, where the OFT does get involved there is also an emerging set of thinking that is helpful to commissioners and providers.

The OFT is clearly concerned in each case to really understand how competition works in the markets and whether it works at the level proposed by the parties.

In its review of pathology services, the OFT carefully considered the appropriate level to analyse competition (hot tests, cold tests, categories within each of hot and cold); and similarly for neurology services.

In each of those categories the OFT was then concerned with understanding the nature of competition: choice (and by whom) in the market, or tendering and competition for the market?

Coincidentally both cases involved service change in London.

In both cases the OFT was able to conclude there were sufficient alternative, strong competitors in each of the relevant markets to avoid concerns about a substantial lessening of competition.

That does raise the question about whether that would be the case in other parts of the country. The distinction between competition in and for the market becomes particularly important in that context.

The OFT discusses the potential for new entry into the services in each case. The ability for providers outside London to demonstrate the possibility of new entry may be important if they are to follow the lead of these London precedents and get clearance for service changes.

Overall it is clear the emphasis remains on the impacts on competition.

Monitor’s preliminary advice in the neurology transfer was that it was unlikely to result in relevant customer benefits for patients. The parties to the pathology merger did not submit a benefits case to Monitor.

In both instances, the cases (in line with longstanding OFT precedent) were cleared based on analysis of competitive effects.

Recent announcements from the OFT suggests that relevant customer benefits may play a role in future decisions but it will be a nervous wait for the parties that are relying on them to get their service change approved.

Matthew Bell is Director at Frontier Economics. Please note that the views expressed in guest blogs on the Nuffield Trust website are the authors’ own.