Expert welcomes "clearer guidance" on hospital mergers from Competition Commission and Monitor

Jenny Block of Pinsent Masons, the law firm behind Out-Law.com, was commenting as the Competition Commission (CC) confirmed that it would prohibit the merger of two NHS Foundation Trusts in Dorset. According to the final report from the competition authority, which had indicated in its provisional report that the deal could be anti-competitive, the proposed merger would have a detrimental effect across a number of elective specialties, maternity services and the parties' private inpatient cardiology service.

This was the first time that the CC had examined a proposed merger between two NHS Foundation Trusts. As it published its final decision, the three regulators involved in NHS hospital mergers issued a joint statement setting out their approach to future cases (3-page / 173KB PDF). In this statement the CC, Office of Fair Trading (OFT) and NHS regulator Monitor emphasised the need for parties to provide a strong, evidence-based case for a proposed merger and to set out their post-merger plans from the perspective of patients and quality of service.

"Both the CC's findings and the joint statement emphasise that this is a highly sensitive area and a potential minefield for hospitals seeking to rationalise through merger, but still one that can be successfully navigated with the right preparation," Block said. "There will, however, continue to be close scrutiny of transactions that could dampen the competitive incentives that Government policy and regulatory measures have been designed to encourage."

"Merger benefits will in particular come under the microscope with close attention paid to the work undertaken by the parties to identify and assess the patient benefit, consider contingencies and inter-dependencies, take soundings from relevant parties and consider alternatives thoroughly. Further guidance from the authorities on how the various strands of analysis will fit together in this highly complex and changing regulatory environment will be welcome and is urgently needed," she said.

The proposed merger of the Royal Bournemouth and Christchurch Hospitals NHS Foundation Trust (Bournemouth) and Poole Hospital NHS Foundation Trust (Poole) was referred to the CC for scrutiny by the OFT in January. In its provisional report, published in July, the CC expressed a number of concerns about the proposal and indicated that the only way those concerns could be remedied appeared to be by banning the merger. However, it requested further evidence on the merger-specific benefits expected to arise if the merger went ahead.

The Foundation Trusts put forward a range of benefits they expected as a result of the merger. These included reconfiguration of A&E services and emergency surgery, construction of a new maternity hospital, the development of a new 'hub and spoke' arrangement for specialised haematology services and the provision of better consultant cover in cardiology at Poole. Each of these would require a number of steps to be completed before they could be taken forward, in some cases including public consultation.

The CC said that in order to be able to take these benefits into account when deciding whether its proposed remedy was proportionate, it had to have some degree of certainty that the benefits would be delivered within a reasonable time and were sufficient to offset the adverse impact on competition. It also took account of advice from Monitor given to the OFT and the views of local commissioners. In its final report, it concluded that none of these benefits could offset its concerns. For example, it said that there was "significant doubt" that the maternity unit would be built given the pressure on NHS finances, that haematology was not seen as a priority by the hospitals or commissioners and that it was not clear that the hospitals had to merge to bring about the proposed changes in cardiology.

"Considering almost all of the proposed benefits put forward, the CC felt that it could not assume either that the particular benefit would arise at all or that it would do so in a timely manner," competition law expert Jenny Block said. "Essentially the CC found that the parties had provided insufficient details on the scope of relevant benefits - or disbenefits - and implementation plans."

The only alternative put forward to prohibition of the merger by the parties was a suggestion that the new 'Friends and Family' test could be used to monitor quality, with an escalation process put in place if performance deteriorated. The CC said that this would not be an effective remedy given the scale of the issues identified and decided that the merger should therefore be prohibited.

"We've been acutely aware of the pressures facing NHS hospitals," said Roger Witcomb, who chaired the CC's inquiry into the proposed merger. "However, while the broad aims of the merger are desirable ones, there simply isn't enough detail in the hospitals' plans for us to conclude that any of the claimed benefits are likely to materialise."

In a joint statement, the Foundation Trusts said that they were "deeply disappointed" with the CC's decision.

"We believe merger would have been the best option to ensure we continue to provide high-quality hospital services to local people," the statement said. "We recognise that the Competition Commission has a statutory role to perform and specific criteria which it must use to assess benefits, but we believe that the outcome of the process is fundamentally wrong."

The Health and Social Care Act 2012[, which was introduced last year as a means of promoting competition within the NHS in England and improving patient choice over services,] gave the competition authorities a statutory role in the scrutiny of mergers involving Foundation Trusts. Monitor also has a role in the scrutiny of mergers under the terms of the Act, particularly in relation to providing advice on so-called "relevant customer benefits".