Time up for trust mergers

The Competition Commission’s initial findings on the proposed Bournemouth and Poole merger, published last month, make uncomfortable reading for those trust chief executives planning to stave off financial disaster through mergers.

The timing appeared a little unfortunate; with the commission announcing its position while Sir David Nicholson was making the case for greater consolidation and centralisation. But has the commission really scuppered the type of reconfiguration Sir David is advocating?

The competition authorities’ role in healthcare is of course hugely controversial. However, the Competition Commission’s assessment of competition at Bournemouth and Poole is much as many expected. It concludes that the merger would reduce competition to attract patients in elective care. But it sees little risk to competition in non-elective care where other providers could bid for services if they were tendered.

This is very much in line with the Cooperation and Competition Panel’s approach when it was responsible for looking at foundation trust mergers, although it did occasionally go further and identify risks to tendering competition in non-elective services, such as in the Norfolk and Suffolk mental health merger.

The facts of the case

The commission could still allow the merger to proceed despite the restriction to competition. However, it has already provisionally ruled out one argument for doing so − that Poole is a failing hospital that would otherwise exit the market.

‘A lot will hang on the commission’s analysis of the benefits of the merger in the final stages of the process’

It agrees that Poole is likely to face financial difficulty from 2014-15 if its situation remains unchanged. But it speculates that the tariff might change, that commissioners might continue to provide subsidies or that, even if Poole eventually entered special administration, it might still stay in the market as an independent competitor.

Whatever the rights or wrongs of the Competition Commission’s analysis in this case, there may be risks in applying the competition authorities’ standard approach to failing firms to hospitals, without thinking through the characteristics of the sector. It is true that we support failing hospitals rather than allowing them to exit. It is quite another thing to suggest that retaining failing trusts as independent hospitals, typically through distortive subsidies, could really be good for competition; let alone for patients.  

This means that a lot will hang on the commission’s analysis of the benefits of the merger in the final stages of the process. At least in theory, the authorities can still clear a merger that restricts competition if it delivers countervailing benefits, such as allowing the merged organisation to invest in innovation or achieve efficiencies.

In this case, the parties have argued that the merger will allow them to improve senior cover, ensure better supervision and training, increase specialisation and make better use of fixed assets in accident and emergency, maternity, cardiology, acute surgery and haematology. 

Weighing up

How the Competition Commission assesses these benefits should be the most interesting aspect of the case. Competition authorities are highly sceptical of the claimed benefits of mergers, particularly since they so often fail to materialise. But is it appropriate to take the same approach in healthcare, given the clinical evidence in favour of scale and specialisation, and with lives at stake? And how will the commission weigh the potential benefits of the merger for non-elective care against the loss of competition in elective care?

We are talking about very different things: access to specialists in life threatening situations on the one hand, against travel times, waiting times and patient experience in elective care on the other.

‘Observers are looking for evidence that the commission can adapt its tools and approaches to the health sector when needed’

In other industries, the authority might allow the parties to merge those services with substantial synergies while divesting those where the merger would undermine competition. But in our sector, hospitals depend on their elective income to subsidise non-elective care − irrespective of the inefficiencies that may come from offering so many very different services under one roof.

In the NHS and other health systems, the type of tariff reform that would allow us to concentrate and specialise in emergency care while preserving competition in elective care seems some distance away.

Out of competition

Competition authorities are always very reluctant to diverge from established practice, not least because the precedents they set when looking at one industry may be held against them when they investigate another.

But the Competition Commission is on trial here as well as Bournemouth and Poole. Observers are looking for evidence that the commission can adapt its tools and approaches to the health sector when needed. The lobby for a change to the rules will grow if it can’t.

All of this leaves us with a nervous wait until the commission’s final report this month. If it smiles on Bournemouth and Poole, other trusts may − if they get Monitor’s support − be able to gain clearance for similar mergers at the initial Office of Fair Trading stage. If not, there may still be scope for greater concentration in some urban areas and mergers with non-contiguous providers to create chains.

But in more rural areas at least, the traditional strategy of merging with neighbours in response to financial difficulties (the culprit, it should be said, for some spectacular failures) may be firmly off the table.

Benedict Collins is an independent consultant. He has advised the Department of Health and Monitor on merger controls and other issues, blc@benedictcollins.co.uk