Member Article

 [a version of this article first appeared in the May 2010 Issue of Competition Law Insight]

 A Competition Law Injection into the Health Service?

 Introduction 

The injection of competition and market-based principles into the UK's National Health Service (NHS) during recent years has, to state the obvious, been (and remains) highly controversial. This is particularly so since devolution. As highlighted by the Nuffield Trust  earlier this year, different policies have developed with Scotland and England offering perhaps the starkest contrast in terms of governmental (in Scotland's case lack of) enthusiasm for the implementation of competition based policies in the provision of public health care. In turn, the application of competition law, targeted as it is at  "undertakings" engaged in economic activities, has, particularly since the European Court's 2003 ruling in Fenin[1], been viewed by some as - at best- inappropriate to national health systems offering universal health coverage predicated on the principle of solidarity.

 However, the greater the opportunities available to private parties to interact (and compete) with NHS organisations in the provision of NHS services, the stronger the argument for the application of standard competition law principles. Recent developments in the UK demonstrate a growing scrutiny of NHS practice on the part of both public bodies (including the European Commission) and private parties premised on competition law (or analogous) grounds and growing uncertainty as to the whiteness of any carte blanche offered by Fenin.

 Fenin in the UK  

In Fenin the issue was whether the organisations managing the Spanish national health system were subject to the competition rules when acquiring medical goods and equipment. The European court(s) found that the provision of a national health system operating on the principle of solidarity (publicly funded/free provision/universal coverage) was not an economic activity. The organisations in question were not, therefore, undertakings for the purposes of competition law. It was further held that purchasing activities linked to an activity which is not of an economic nature must be classified in the same way.

 

For the UK, Fenin sat uncomfortably with a decision by the Competition Appeal Tribunal in 2000 that certain activities carried on by NHS bodies could be viewed as economic activities for the purposes of the CA98, e.g. the running of statutory residential homes and contracting out the supply of nursing and residential care to independent providers.[2] In response to Fenin the OFT issued a policy note stating that it would likely close CA98 cases where the factual matrix was the same as in Fenin and, in any event, it was unlikely, in the absence of exceptional circumstances, to take forward cases concerning public bodies which are engaged in a mixture of purchasing and direct provision of goods and services for non-economic purposes.[3]

 The problem with Fenin is that it remains uncertain whether (and to what extent) the involvement (actual or potential) of private undertakings in the provision of health services renders the activities of the state in this area susceptible to the application of competition law.[4] Based on the Advocate General's opinion there would be room to argue that such involvement could render (at least some of) the state's activities as susceptible to competition law; though ultimately the ECJ did not consider this aspect of the case when reviewing the General Court's decision. This uncertainty is recognised by health bodies and, in part, has led to the creation of a shadow competition regime bespoke to the NHS, in England at least (see below).[5] The uncertainty also permeates through to the breadth of application of the EU's state aid rules- which like the competition law provisions apply where there is aid to an "undertaking" i.e. an entity engaged in economic activities - in the health sector, particularly where viewed through the prism of the ECJ's ruling in Altmark[6]). The position under procurement law is perhaps more straightforward given, in any event, contracts for Part B services (which include health and social services) are largely excluded from the procurement regime (though remain subject to general EU principles relating to transparency, non-discrimination and equal treatment)[7]; and the applicability of other procurement principles that would exclude/limit the application of the procurement regime (such as the Teckal "in-house" exemption which is of relevance where service provision by private undertakings is not envisaged).[8]

 The Position in England

 The NHS has common core features in each of the four countries of the UK: it is largely funded through general taxation, offering universal health coverage which is free at point of delivery and is based on clinical need (not ability to pay).

 In England, legislative and policy initiatives since 1990 have sought to introduce an "internal market" under which a "purchaser/provider" split has been established between NHS organisations (strategic health authorities/primary care trusts (PCTs)/ and NHS trusts) that plan and buy healthcare and those that provide it. More recent policies have been implemented to strengthen the role of competition including the introduction of patient choice in elective care and the involvement of private sector providers, and the creation of foundation trusts that have greater freedom to raise capital and develop new services.

 The PRCC

 In 2007, the Department of Health published a set of (ten) principles and accompanying rules for cooperation and competition, which it expects commissioners and providers of NHS services to follow to ensure cooperation, while protecting competition, in NHS services (the PRCC). Revised PRCC are due to apply as of 1 October 2010.  The principles/rules are not legally binding provisions enforceable by the court, but non-compliance can result in action by the government and NHS regulatory bodies.[9]

 In particular, the PRCC includes provisions aimed at:

 (i) fair commissioning: services should be commissioned from the providers which are best placed to meet patient needs and commissioning/procurement should be transparent and non-discriminatory;

 (ii) patient choice: commissioners and providers are to foster patient choice and ensure that patients have accurate and reliable information to exercise more choice and control over their healthcare. The revised PRCC further articulate that commissioners and providers should not reach agreements which restrict commissioner or patient choice against patients' and taxpayers' interests; and

 (iii) non discrimination: providers are not to discriminate against patients and must promote equality.

 In addition, mergers and other forms of re-structuring between NHS-funded healthcare providers, as well as vertical integration, are only acceptable where, in broad terms, this is demonstrated to be in patient and taxpayers' best interests and there remains sufficient choice and competition to ensure high quality standards of care and value for money.

 The Co-operation & Competition Panel

 Established in January 2009, the CCP operates as an advisory body to government, Strategic Health Authorities and Monitor regarding the application of the PRCC.[10]  In particular, the CCP is tasked with examining alleged instances of non-compliance with the PRCC (though not on its own initiative); examining proposed mergers before they are carried out. This is by application of, in the main, a competition-based test premised on a cost/benefit analysis to determine whether the merger may give rise to an adverse effect on patients and/or taxpayers; and acting as an appeal body from local health authorities on procurement and advertising issues.

 On these, and its other areas of competence, the CCP is fundamentally an advisory body with any "remedial action" being taken by government/other bodies responsible for ensuring compliance with the PRCC.

 As at March 2010, the CCP has completed ten cases with seven more in progress. These have involved a number of mergers, most of which have involved community services providers merging with each other or with acute or mental health trusts. The key issues are the risk of local market concentration and the effect of vertical integration on patient choice. 

 

On the conduct front, the CCP has examined, for instance, hospital practice of restricting the ability of consultants (surgeons, etc) to work for competing providers of NHS-funded services. The Government accepted the CCP’s recommendation that such restrictions should be lifted on the basis they were impeding the ability of competing hospitals to provide services and as a result were having an adverse effect on patients.

 

Of particular interest when we come to look at the Scottish position below is the CCP's consideration of a complaint against NHS Great Yarmouth and Waveney's decision to restrict potential bidders to NHS organisations or NHS-led consortia for a competitive process being undertaken to divest its community services provider arm. The CCP considered it was in a position to accept the case and signalled that one of the grounds for consideration would be compliance with Principle 4 PRCC that prohibits the restriction of "choice via collusive behaviour or any other action". Ultimately, the CCP did not need to proceed with the case as the Government stepped in to require all PCTs in the East of England to cease any ongoing procurements for community services. This was due to new governmental guidance under which PCTs are, amongst other things, to consider what community services may be subject to, in crude terms, provision by  (accredited) private sector providers and obtain governmental "approval in principle" for their decisions.   

 Recent developments in Scotland

 In Scotland, the purchaser/provider split has been abolished and services are run within defined geographical areas (NHS health boards in Scotland).

 The Scottish Government's policy vision of "a mutual NHS which is publicly owned and where the providers of care have a direct involvement with and interest in patient care" can be seen at the legislative level most recently in the March enactment of the Tobacco and Primary Medical Services (Scotland) Act. Part 2 of the legislation impacts considerably on the provision of primary medical services in Scotland by limiting the range of ‘entities’ which are deemed eligible to enter into contracts with the NHS in Scotland to provide medical services. Specifically, only companies owned exclusively by individuals, including at least one medical practitioner, will be able to provide services to the health boards thus restricting the latter's ability to procure medical services from the private sector. Part 2 is not yet in force: this is dependent on an order from the Scottish Ministers.

 

 The Scottish CBI has been highly critical of the legislation arguing its effect would act to patients' detriment by closing the door on potential new sources of innovation and private sector high quality care and rendering Scotland an isolated case in the EU. A larger fly in the ointment, however, comes in the shape of the European Commission which the Scottish Government revealed in January 2010  is (further to an "anonymous complaint")  "looking into [P]art 2…in relation to its compatibility with EU procurement rules." The Scottish Government has noted its confidence that Part 2 does not infringe EU procurement rules and its intention (via the UK Government) is to respond to that effect to the Commission.

 The current status of the Commission's investigation is not known- such investigations can take a notoriously long time which evidently impacts on when Part 2 will come into force; nor are the Commission's specific concerns that may well go beyond concerns under the EU's procurement regime to deeper issues from the free movement perspective. It remains to be seen whether the Commission ultimately has the appetite to have a Member State's policy choices argued out on a legal battleground in the light of strongly held political views reflecting strongly held beliefs as to the form in which health services are to be delivered to the public.

 Sebastian McMichael is a solicitor with Shepherd and Wedderburn LLP. With thanks to Renella Reumerman of the CCP for her input.

 

 

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[1] Case T-319/99 and C-205/03, FENIN v Commission;

[2] BetterCare Group Limited v DGFT [2002] CAT 7.

[3] http://www.oft.gov.uk/shared_oft/business_leaflets/ca98_mini_guides/oft443.pdf

[4] Even if competition law is in play, other provisions of the TFEU (particularly the provisions of Article 106 relating to undertakings entrusted with the operation of services of general economic interest) could mute its application to the provision of national health services.

[5] The NHS Confederation notes that the "application of EU competition policy is a very complex area characterised by legal uncertainty".  http://www.nhsconfed.org/Publications/briefings/Pages/EU-comp-rules-for-the-NHS.aspx

[6] Case C-280/00 Altmark Trans GmbH and Regierungspräsidium Magdeburg v Nahverkehrsgesellschaft Altmark GmbH

[7] See Case C-324/98, Telaustria Verlags GmbH v Telecom Austria

[8] Case C-107/98 Teckal Srl v Comune di Viano and Azienda Gas-Acqua Consorziale (AGAC) di Reggio Emilia

[9] Such as by Monitor, which authorises and regulates NHS foundation trusts.

[10] http://www.ccpanel.org.uk/index.html. The CCP also advises on the wider development of co-operation, patient choice and competition within the NHS but, as the CCP is keen to stress, its role is not to set policy.