Download Cooperation and Competition

Cooperation
and Competition
A Step Guide for Foundation Trusts
and NHS Trusts
LONDON MANCHESTER HARROGATE NEWCASTLE
Cooperation and Competition
A Step Guide for Foundation Trusts
and NHS Trusts
Introduction by Chris Hopson, Chief Executive
of the Foundation Trust Network
I am delighted that Hempsons has
produced an updated Co-operation
and Competition Step Guide
(previously published in 2013) to assist
Foundation Trusts and NHS Trusts in
their understanding of UK competition
law and its impact on the NHS.
The full application of competition law to
the NHS is a relatively new concept for
the majority of us who work in the NHS
and it is essential that NHS providers
understand the legislation they must
comply with in carrying out many of their
NHS activities. This Co-operation
and Competition Step Guide identifies and
explains the areas of competition law
that Hempsons believe will be most
relevant to the NHS and I commend it to
you for that reason.
Hempsons has brought its knowledge and
skill as a specialist healthcare firm, with
the advantage of competition expertise,
to the creation of this guide. This guide
aims to give the NHS bodies confidence
that they are aware of the areas of
competition law which could apply to their
current and future actions and strategies
in a way that helps ensure compliance
with competition law.
I hope you find the guide a useful map
to help steer you through the increasingly
complex thicket of competition law as it
applies to the NHS.
Chris Hopson
Chief Executive
Foundation Trust Network
Hempsons give a very personal
approach to their clients;
nothing is too much trouble.
Chambers UK 2013
Summary
Welcome
The application of competition
law to the NHS is for many a strange
and unfamiliar concept.
There is a general lack of awareness as
to what competition law entails and
what purpose it serves (particularly in the
public sector).
Competition law regimes are designed to
promote choice, quality and innovation
in the provision of goods and services and
the benefit of consumers. They deter
both anti-competitive practices amongst
providers of goods and services and
abusive behaviour from those with market
power – both of which can result in a
reduction in choice, quality and innovation.
These general principles are reflected
in the UK competition law regime and this
law applies to all entities which carry out
‘economic’ activities in the UK, including
public bodies.
There has been some debate in the
past as to whether the NHS in its various
forms performs economic activities.
‘Economic’ in this sense must not be
confused with ‘profit making’ (although
often the two go hand in hand), rather
each activity should be considered in
isolation and whether any entity (public
or private) could perform the activity and
generate income. For Foundation Trusts
( FTs ) , it is arguable that competition law
applies to almost all of their activities (and
has done for some time).
The Health and Social Care Act 2012
( HSCA ) has brought to the fore the issue
of competition law within the NHS. HSCA
grants to Monitor competition law
powers enabling it to enforce competition
law in relation to health care services in
England. HSCA also introduces a
statutory regime for the commissioning
of NHS-funded health care services,
confirms that mergers involving FTs are
reviewable by the Competition and
Markets Authority (CMA), and provides for
the creation of the Provider Licence (which
contains competition licence conditions).
To help understand the application of
competition law to their activities,
this Step Guide takes NHS Provider
Trusts through the varying ‘branches’
of competition law. It considers
overarching principles and the ways
in which they can achieve compliance.
Step One
The regulatory framework
The application of competition law
to the NHS has developed gradually
over the past decade and the
current position is both the result of
the changing nature of the NHS
(and its structure) and recent sectorspecific legislation.
The NHS has moved (and
is continuing to move) away from being a
single state-controlled entity towards
a more commercialised organisation of
many parts, albeit still funded by
state resources.
It is important to reiterate that the status
of any entity (state-owned, private,
charitable, social enterprise etc) is not
relevant as to whether competition law
applies to it or not. It is what that
organisation does and the impact of these
activities on the relevant market (or
markets) which is relevant.
There are a number of ‘branches’ of
competition law which are relevant to Trusts
(and the NHS as a whole). Some of the
branches derive from European competition
law and others from UK legislation. The
branches can be separated as follows:
•
•
•
•
•
Anti-competitive agreements and
practices (Competition Act 1998)
Abuse of a dominant position
(Competition Act 1998)
Public procurement (Public
Contracts Regulations 2006)
NHS procurement (the NHS
(Procurement, Patient Choice and
Competition) (No.2) Regulations
2013 – the ‘Section 75 Regulations’)
Merger control (Enterprise Act 2002)
The following steps in this guide will
consider each of these branches in more
detail; however it is safe to say that they
are all of potential application to a wide
range of NHS Provider Trusts’ activities.
Competition law is an additional layer
of regulation for the NHS. In particular,
Trusts will need to consider the
application of the various branches
to their commercial strategy including
collaboration with each other (or
other providers of NHS-funded
healthcare) and with commissioners;
to any planned (re)configuration
of clinical services; to their duties of
consultation; and to their
tendering practices.
Step Two
The Regulators – who they are and what they do
Competition law in the UK is enforced
by a number of regulatory bodies.
For the purposes of the NHS, these
authorities’ are Monitor (the sector
regulator) and the Competitions and
Markets Authority (CMA), the national
competition authority.
The CMA is a combination of the Office
of Fair Trading and the Competition
Commission which were abolished in
April 2014.
Monitor
Monitor’s role is now that of the sector
regulator for health care services
in England. Its function is to tackle and
prevent anti-competitive behaviour
in the provision of health care services,
which is against the interests of patients.
To do that, it has been granted concurrent
investigatory and enforcement powers with
the CMA which deal with anti-competitive
agreements, abuse of dominance and
market investigations. Alone, Monitor is
also responsible for investigation and
enforcement under the s.75 Regulations
on commissioner procurement and for
the enforcement of the conditions in the
new Provider Licence.
Monitor also has an advisory function
towards the NHS Trust Development
Authority (NHS TDA) and the CMA
regarding mergers involving Trusts and
FTs respectively.
The CMA
The CMA is responsible for the promotion
of competition and the investigation of
anti-competitive practices. Whilst the CMA
is entitled to investigate all such practices
in the UK, there are strong indications
that it will defer to Monitor where cases
relate to the provision of NHS-funded
health care services in England.
The CMA conducts merger
investigations under the Enterprise Act
2002, which include mergers involving
FTs. It also conducts market
investigations and regulatory appeals
(including licence condition appeals).
Step Three
Anti-competitive agreements and practices
Anti-competitive agreements are
prohibited under Chapter I of
the Competition Act 1998, which is
based on European competition law.
It prohibits anti-competitive
agreements, decisions or concerted
practices by undertakings or associations
of undertakings. It is probably most
straightforward to think of undertakings
as ‘anyone carrying out an economic
activity which could be performed by a
competitor, regardless of their legal status’.
Anti-competitive agreements are
those which ‘may affect trade in the
UK’ and either aim to or do prevent,
restrict or distort competition within
the UK. Examples of anti-competitive
agreements are those which:
•
•
•
•
•
fix purchase or selling prices;
limit or control markets or
technical development;
share markets amongst
suppliers/providers;
rig bids/tenders; or
impose supplementary obligations
on the other party to a contract
which have no connection with the
subject of the contract.
Agreements can, in some circumstances,
benefit from exemptions to the application
of the Chapter I prohibition. For example,
where an agreement improves technical
progress and allows consumers (such as
users of health care services) a fair
share of the benefits.
Breaches of the Chapter I prohibition
can result in the forced termination
of agreements, financial penalties,
director disqualification and
criminal liability.
The nature of the NHS is such that close
contact and cooperation between
providers (and with other bodies such as
commissioners and GPs) are very
common. Trusts must take particular care
to ensure that any agreements with
‘competitors’ (for that is often what they
are) are founded on the desire to improve
patient care and outcomes. It is important
that this desire can be demonstrated
objectively and that there is an evidential
basis for improved care and outcomes.
Essentially, Trusts need to protect
themselves against any suggestion
that they acting anti-competitively
and consider that competition-based
complaints are unlikely to come from
patients, but from other NHS service
providers who feel aggrieved
or disadvantaged.
Step Four
Abuse of dominance
Abuse of a dominant position is
prohibited under Chapter II of
the Competition Act 1998, which, like
the prohibition on anti-competitive
agreements, is based on European
competition law.
It prohibits conduct which amounts to
an abuse of a dominant position in a
market by one or more undertakings
where it ‘may affect trade in the UK’.
Examples of abusive conduct are:
•
•
•
•
imposing unfair purchase or
selling prices;
limiting or controlling markets or
technical development to the
prejudice of consumers (users of
health care services);
imposing terms or conditions of
business which discriminate between
customers, placing at least one party
at a competitive disadvantage; or
imposing supplementary obligations
on the other party to a contract
which have no connection with the
subject of the contract.
The abuse of a dominant position
does not benefit from any
exemptions and carries the risk of
civil and financial penalties,
including director disqualification.
Whether an undertaking is dominant or not
is a question of fact as to whether it can
operate without restraint on the relevant
market. This means defining the relevant
market, calculating its market share in
that market, and considering the overall
competitive structure of that market (such
as how many other competitors are there,
do they exercise a competitive constraint
on the potentially dominant undertaking or
can it act independently of them and its
customers?) The relevant market consists
of both the type of service and where it is
provided i.e. a particular geographic
area. A market share of 40% and above
usually carries a presumption
of dominance.
It is possible that the law on dominance
will not be as relevant to Trusts’ activities
as, say, the law on anti-competitive
agreements. It may however be an
important consideration when Trusts have
developed a particular clinical expertise
which distinguishes them from other
providers and has resulted in higher
patient volumes.
Step Five
The Provider Licence
Monitor’s main tool for regulating
providers of NHS services is the
Provider Licence.
HSCA requires all NHS providers to
have a licence to provide NHS services
(the “Provider Licence”). As part of Monitor’s
role as sector regulator, it is responsible
for issuing the Provider Licence and for
enforcing the various obligations
(“Conditions”) on NHS service providers
to provide effective, efficient and economic
health care services and to maintain or
improve quality. There are also additional
specific obligations on Foundation
Trusts. Monitor began to license FTs in
April 2013 and other NHS providers
from 1 April 2014.
Trusts are currently exempt from holding
a Provider Licence. The NHS TDA (as
the regulator of Trusts), requires Trusts to
comply with certain licence conditions
(specifically, the general obligations, pricing,
choice and competition and integrated
care) to ensure fairness and coherence
across the sector.
Monitor may investigate and inform
the NHS TDA of any potential breaches
by Trusts, the NHS TDA is responsible for
determining how to act in light of
Monitor’s findings.
Choice and competition conditions
There are two conditions for promoting
and protecting patient choice and for
preventing anti-competitive behaviour.
Choice and competition condition
1 – Choice: This condition aims to protect
patients’ rights to choose between
providers by obliging to make information
available and act in a fair way where
patients either have a choice of provider
under the NHS Constitution or where a
choice has been conferred locally
by commissioners.
Choice and competition condition
2 – Competition: Prohibits providers
from entering into anti-competitive
agreements or from engaging in anticompetitive practices.
Breach of these Conditions can result in
Monitor imposing on FTs undertakings
and/or financial penalties and it
can even revoke the Provider Licence.
To date, there have been no cases where
Monitor has taken enforcement action for
breach of either condition. However, it is
possible that Monitor will prefer to tackle
breaches of competition law through the
Conditions rather through its Competition
Act 1998 powers.
FTs need to be aware of the serious
consequences of breaching the Conditions
and must be prepared to demonstrate to
Monitor that they have a robust competition
compliance framework in place.
Step Six
Public provider and commissioner procurement
Recent legislative changes have
cast a spotlight on how NHS services
are commissioned.
UK: NHS Commissioner
procurement regulations
Commissioning by either CCGs or NHS
England is caught, not just by EU law,
but also by the s.75 Regulations which
require commissioners to act with a
view to:
• securing the needs of the people
who use the services
EU Public Procurement
Rules on the procurement of public
services derive from EU law. Although the
Public Contracts Regulations 2006
(the “2006 Regulations”) do not currently
• improving the quality of the services
require contracts for health and social
care services to be advertised, the effect • improving efficiency in the provision
of services.
of the overarching EU Treaty is that
Monitor consulted on the application and
commissioners are obliged to do so if
there is a realistic prospect of cross border interpretation of the s.75 Regulations
and published its guidance in December
interest (i.e. from elsewhere in the EU).
Such an advertised tender process must 2013. The guidance should assist with
the application of the s.75 Regulations, for
be fair and transparent and all bidders
example, whether to put contracts out
must be treated equally and these
for tender where there is more than one
obligations are enforceable under the
“capable provider”. Monitor has also
2006 Regulations.
published guidance on how it will enforce
the s.75 Regulations.
This area is subject to change. There is
a new European directive on public
procurement which could become effective
in the UK (through UK legislation) by the
end of 2014. The treatment of health
and social care services will fall into a new
“light touch regime”. The details of this
new regime are not yet known, but it looks
likely that commissioners will need to
advertise health and social care services
where the value of the contract exceeds
EUR750,000 unless there is an exemption
e.g. only one possible provider.
The EU public procurement regime
and the s.75 Regulations are both
intended to provide a transparent and
fair procurement playing field. It is
important that Trusts are aware of the
context within which they compete
for healthcare contracts to enhance
their core business and to protect
themselves against any failure
by commissioners to adhere to the
procurement rules.
Step Seven
Mergers involving Foundation Trusts
The HSCA confirmed that the UK
merger control regime under
the Enterprise Act 2002 applies to
mergers involving FTs.
The CMA adopted the view that this
analysis extends to any merger involving
an FT, not just FT mergers. So a merger
with or acquisition of an NHS Trust could
result in the transaction being reviewed
by the CMA.
As UK merger control can include the
acquisition of part (and not just the whole)
of an enterprise, restructuring of NHSfunded services could trigger a merger
review, provided the legal tests for a
‘relevant merger situation’ are met. Joint
ventures and collaborations can also
meet the tests. These tests are based on
a change of control of an enterprise and
financial turnover or market share
thresholds. For example, the transfer or
disposal of an NHS Trust hospital alone to
a Foundation Trust could result in a merger
situation. It is therefore important to
consider whether strategies to provide
health care services in a different way
give rise to merger situations, which might
not be the best way forward.
Where the tests are met and a CMA
review is initiated, the CMA will conduct
a merger assessment and decide
whether to clear the merger (or clear it
with legally binding commitments)
or refer it for an ‘in-depth’ assessment
where there is a risk of a ‘substantial
lessening of competition’.
The review can take anywhere from around
two months to eight months depending
on whether the merger is referred for an
in-depth assessment. There is also the
need for early engagement with Monitor
before the formal review starts.
Monitor and the CMA have published
guidelines on their new regulatory
approach of NHS mergers. In particular,
Monitor has a facilitative role in providing
guidance to FTs and assisting the parties
in undertaking a self assessment during
a merger notification process.
Monitor also acts in an advisory capacity
towards the CMA on patient benefits
resulting from a merger. On the whole, the
process is intense and requires detailed
analysis of the proposed patient benefits
and how these can offset any detriments
resulting from the merger.
Full co-operation at senior management
level is essential to a successful process
and the commitment of resources
for in-depth analysis cannot
be underestimated.
Step Eight
Some overarching principles
Competition law can be very complex
and you should seek legal advice on
its application to a particular set of
facts - the devil is always in the detail.
However, there are some overarching
principles across the various branches
of competition law, which Trusts
need to bear in mind in cooperating
with the health care community at
large and going about their principal
business of providing health
care services.
Trusts should consider the following
principles (which have been adapted so
they are ‘NHS appropriate’):
•
•
•
•
•
•
The ultimate concern of competition
law as applied to the NHS is
the welfare of users of NHS services.
Competition law aims to create
an ever-improving supply of health
care services for users.
The sharing of best practice and
clinical knowledge must be for the
benefit of users.
Those who are able to provide services
should be given a fair opportunity
to do so – competition law aims to
‘level the playing field’.
Attempts to unfairly ‘fix’ the provision
of services are a cause for concern.
Attempts to exclude providers on
non-objective grounds are a cause
for concern.
•
•
•
Decision-making processes (and the
resulting decisions) should be robust,
objective and justifiable.
Covert activities are generally a cause
for concern.
Transparency and openness is always
the best policy where possible.
These principles are general in nature and
allowances must always be made
for specific circumstances. Competition
authorities always have regard to the
structure of the relevant market and the
restrictions (if any) under which entities
are operating.
There are exceptions to the full
application of the competition rules
– they can be quite complex but
they are driven by common sense and
a proportionate approach.
‘Good value for money’
and ‘approachable’,
Hempsons is a ‘leading firm
in this field’: a ‘major
player’ with ‘many years of
experience’
Legal 500 2013
Step Nine
How to achieve compliance
Understanding what competition law
comprises and what it aims to regulate
is the first step for a Trust. Going
on to achieve effective compliance is
crucial (and much more difficult). For
organisations which, in all likelihood,
have not considered competition
law in the past, a top-down drive for
education and training is essential.
•
•
•
•
Mechanisms for securing compliance
need to be implemented with the
endorsement of its most senior employees,
usually the Board. Where properly
implemented, a compliance framework is
very helpful in establishing a ‘compliance
culture’ throughout an organisation.
It can also be viewed favourably by the
competition authorities should any
competition issues arise (although it does
not remove the ultimate responsibility of
senior management to ensure compliance).
The following mechanisms should
be considered:
•
•
•
•
A competition risk assessment of
the organisation’s activities;
A tailored competition compliance
training programme targeting
key employees;
A tailored competition compliance
(reference) manual available to all
key employees;
A member of the Board charged with
a competition compliance function;
•
•
A mechanism by which employees
can raise competition concerns
in confidence;
A mechanism whereby those
concerns are addressed quickly;
Subsequent reporting by the
(competition) compliance officer to
the Board of any continuing areas
of concern;
A robust internal (competition)
approval process for all commercial
practices, particularly where other
Trusts are involved;
Regular review and updating of the
above arrangements; and
Maintaining a formal record of the
above arrangements to show due
consideration of the issues.
This is not an exhaustive list but it does
give an indication of what the competition
authorities would expect to see where a
Trust is taking its competition compliance
obligations seriously.
A comprehensive competition
compliance programme is a major
endeavour for any organisation but
it shows commitment to understanding
the law (and the issues it seeks
to address) and to deterring anticompetitive practices.
Step Ten
Thriving in a competitive environment
Trusts must fully appreciate the
growing impact of competition
law on the provision of health care
services and ensure they are
compliant insofar as it applies to
their activities.
Competition law is complex and this
Step Guide touches briefly on each branch.
The UK competition regime is a ‘selfassessment’ regime – this means that the
competition authorities expect NHS
Provider Trusts to understand competition
law and its implications for their activities.
They also expect Trusts to seek specialist
legal advice where necessary.
The key to successful management of
these additional layers of regulation is to
understand the various relevant branches
of competition law and what they aim to
achieve. Protecting and promoting
patient interests and the improvement of
quality of health services are paramount
considerations that need to be strong
guiding principles in whatever Trusts want
to do, whether they are trying to convince
the competition authorities of the merits
of a particular strategy or working
together with other providers in response
to a tender for integrated services.
It is understandable that many within the
NHS are wary of this new environment
and fear that the competition authorities
will not take into account the special
nature of the NHS. This concern has not
been borne out in the past in other
regulated sectors subject to specific
legislation and controls. Over time, sector
regulators develop great expertise and
sensitivity in applying competition law. As
in all highly regulated sectors, Trusts need
to aim to work constructively with the
sector regulator to ensure their concerns
are heard and properly addressed.
Frequent and open dialogue with Monitor
is mutually beneficial and will help inform
and shape policy on both sides.
We hope you have found this Step
Guide useful and that it has raised your
awareness of where competition law
might be an important consideration
for your Trust. We would be happy
to advise you in further detail on any
aspect of this step guide or on
competition law more generally.
Why Choose Hempsons?
Hempsons are a leading national health and social care law firm. Our strong NHS client
base includes Foundation Trusts, NHS Trusts, commissioning bodies, the Department of
Health, regulatory organisations and other NHS healthcare organisations. We also act for
a wide range of private and third sector healthcare providers. We have over 170 lawyers
working from our offices in London, Harrogate, Manchester and Newcastle.
Competition Law
Christian Dingwall – Partner
Lindsay Draffan – Associate
Victoria Yuan – Solicitor
t: 020 7484 7525
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Constitutional, Corporate Governance and Commercial
Christian Dingwall – Partner
Janice Barber – Managing Partner
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Procurement, Contracting and Commercial
Adrian Parker – Partner
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Richard Nolan – Partner
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Workforce
For further information about how Hempsons can help you manage the impact of the
competition law rules on your organisation, please contact Christian Dingwall by email
[email protected] or phone 020 7484 7525 or you can contact another of
our expert team.
Projects
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Property
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Mental Health
For more information on competition law, please contact
Christian Dingwall by email [email protected]
or phone 020 7484 7525 and/or visit our website at
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