How to make it to merger

How does the Co-operation and Competition Panel make its decisions about hospital mergers? Little attention has been paid to this subject but for anyone involved in a potential merger it is essential knowledge.

Current framework

Last year’s National Audit Office report, Achievement of Foundation Trust Status by NHS Hospital Trusts, looked at 113 trusts aspiring to foundation status by April 2014 and found many are unsustainable in their current form. It is likely many more mergers will be tabled, but before they go ahead policy makers need to establish if merger is really appropriate.

The first step when going before the CCP is to assess the cost to patients and taxpayers, then weigh this up against any likely benefit. If cost outweighs benefit, the panel may recommend changes to ensure there is a net benefit to patients and taxpayers. Next, the panel advises the secretary of state or Monitor on whether a merger should be allowed to proceed, should proceed under certain conditions, or should be blocked.

The key stages in the CCP’s competitive assessment are:

• Step 1: Define the relevant market. This will depend on overlaps in routine elective and non-elective services, outpatient services, community services and tertiary services.
• Step 2: Determine whether an adverse effect on patients and taxpayers is probable. Do this by comparing the “counterfactual” scenario, in other words the probable outcome if there were no merger. Here, the CCP will focus on whether the merging parties compete closely - usually if they are located near to each other. It will also consider whether enough alternative providers will remain in the market, and the scope for future entry and expansion.
• Step 3: Assess the benefit to patients. This includes non-clinical benefits, such as better access, improved surroundings or better amenities, and clinical benefits, such as improvement in patient outcomes, better scope of services or greater efficiency. It also includes benefits to taxpayers, such as lower costs.
• Step 4: Accept assurances to ensure there is a net benefit.

Previous decisions

The CCP has already reviewed more than 50 mergers. The first large hospital merger considered by the panel was between Basingstoke and North Hampshire Foundation Trust, and Winchester and Eastleigh Trust. The panel identified seven other potential providers of routine elective care nearby and concluded that sufficient choice and competition would remain.

The merger of Oxford Radcliffe Hospital and Nuffield Orthopaedic Centre was the first time the CCP accepted benefits from a merger outweighed a reduction in patient choice and competition. Benefits such as improved out-of-hours care, improved medical research, private finance initiative cost savings and optimisation of estate were sufficient to secure clearance, despite the nearest acute hospitals being 30 and 40km away.

The panel came to a different conclusion on the merger of Barts and the London Trust, Whipps Cross University Hospital Trust and Newham University Hospital Trust. It concluded it was likely to harm competition in the supply of routine elective and non-elective care from Newham Hospital by reducing patients’ choice of providers. This harm would not be offset by benefits from the reconfiguration of pathology and a quicker reduction in length of stay for elderly patients. The CCP therefore consulted on a set of safeguards, ultimately accepted.

There are two interesting aspects of this case. First, the CCP looked closely at the counterfactual scenario, including alternative merger plans. Although these potentially offered a better outcome for patients, the panel concluded there would be considerable uncertainty, so they could not be treated as a realistic alternative.

Second, the decision to approve the merger, subject to behavioural safeguards, was heavily influenced by the views of commissioners. The panel was told by commissioners that the problems facing Whipps Cross and Newham could only be solved by a merger with Barts and The London Trust.

Lessons for merging parties

The Nuffield decision shows the importance of robust evidence on clinical, non-clinical and taxpayer benefits. It needs to be quantified, specific to the proposed merger, supported by research and capable of timely implementation. Early engagement with the CCP case team is also a critical factor.

Finally, commissioner support for a merger can be very influential, as the Barts case shows. Early engagement with stakeholders will not necessarily determine the outcome, but depending on the circumstances their support may be a critical success factor.

Bruce Kilpatrick is head of the competition law team at Addleshaw Goddard.