Has OFT got it right on NHS trust mergers?

In an attempt to provide greater clarity over its role and brief in future NHS mergers, the Office of Fair Trading published some frequently asked questions and guidance in March. While the principle of making such insight available must be welcomed, there are concerns over the OFT’s assertion that NHS trusts may be considered enterprises for the purposes of UK merger review.

The OFT’s view

The OFT’s position is that it “will review mergers between NHS foundation trusts; between NHS foundation trusts and NHS trusts and between NHS foundation trusts or NHS trusts and other enterprises”. However, its view is that mergers involving only NHS trusts would not result in a merger reviewable under the Enterprise Act 2002 as NHS trusts will remain under the common control of the secretary of state for health. 

‘It is not for the OFT to assert that it has jurisdiction, where parliament specifically has omitted to provide such powers’

The OFT argues that NHS trusts are ‘enterprises’ as “while NHS services are ‘free for the patient at the point of delivery’, the primary care trusts (and/or commissioning organisations) procure and pay a consideration for the provision of such services”.

As section 23 of the act makes clear, a relevant merger situation arises when two or more enterprises have ceased to be distinct enterprises. Section 129 defines enterprise as the activities, or part of the activities, of a business. “Business” includes “a professional practice and includes any other undertaking which is carried on for gain or reward or which is an undertaking in the course of which goods or services are provided otherwise than free of charge”.

Analysis of the OFT’s arguments for asserting jurisdiction

The OFT’s argument that services provided by the NHS to patients for no payment actually are provided “otherwise than free of charge” because a commissioner pays “a consideration for the provision of such services” attempts to rewrite the Enterprise Act in terms it did not use.

Section 129 easily could have defined “business” by reference to whether services are provided “otherwise than for consideration”, if that is what was intended. However, Parliament has adopted different language, “otherwise than free of charge”, and it has to be presumed that this has been done deliberately.

‘It is difficult to see why the OFT needs to be involved when parliament has declined to give it a role’

No organisation can provide services free of charge on a sustainable basis, without a source of finance. To portray that source of finance as consideration for the provision of the service negates the ordinary and natural meaning of the words used in section 129.

There is no reason not to give the words “other than free of charge” their ordinary and natural meaning. It is a matter of fact that NHS trust services are provided free of charge to patients. By suggesting otherwise, the OFT is adopting an interpretation that is clearly open to challenge.

The office notes that the Health Act 2012 clarified its role in examining mergers involving NHS foundation trusts. Section 79 is the relevant section. But if the OFT’s argument was a winning one, section 79 would have been unnecessary. The inclusion of section 79 confirms the lack of clarity in the UK mergers regime in relation to NHS bodies, such as trusts and foundation trusts. Parliament resolved there was lack of clarity only in relation to NHS foundation trusts. 

The treatment of NHS trusts may be a lacuna, but it is for parliament to address it in legislation. It is not for the OFT to assert that it has jurisdiction, where parliament specifically has omitted to provide such powers.

Analysis of the OFT’s argument for denying itself jurisdiction

The OFT’s paper denies it a role in mergers between NHS trusts on the basis that NHS trusts are at all times under the common control of the health secretary. This is a good argument. Jurisdiction could also have been denied under section 26 of the Enterprise Act on the basis of common ownership. However, NHS foundation trusts also appear to be under both the ownership and control of the secretary of state. 

‘The OFT’s interpretation of its potential involvement in healthcare consolidation may lead to a legal challenge in the future’

The secretary of state’s “ownership” of NHS foundation trusts is a consequence of the fact that their public dividend capital, if repaid, is paid to the secretary of state. They have “control” over NHS trusts and NHS foundation trusts as “a person… able… to materially influence the policy of a body corporate”.

Such a person may be treated as having control for the purposes of the mergers regime. Influence over policy is exercised through both the NHS mandate and the NHS constitution, which, if they are effective, must be regarded as material.

The argument deployed by the OFT to conclude says it has no role in mergers between NHS trusts, therefore denies it the role that it asserts in mergers between NHS trusts and NHS foundation trusts.

Why does the OFT’s argument matter?

While it may seem laudable for the OFT to try to provide the clarity, there are inherent dangers. Future rationalisation among NHS trusts, as a result of financial failures, is possible. Mergers between trusts and foundation trusts, and between NHS trusts and commercial providers, may be the eventual outcome.

In the interests of patients, such issues should be dealt with quickly. The government will have extensive control over these transactions through its control over NHS trusts, financially and via the NHS Trust Development Authority. It is difficult to see why the OFT needs to be involved when parliament has declined to give it a role. 

It also is likely to be unhelpful for a department, whose powers are so open to challenge, to try to involve itself. A potential rescue of an NHS trust through a merger with a commercial provider very possibly might not proceed, because of concern over the legitimacy of OFT involvement and remedies. This could be against the interests of patients, who would want to see the position of a failing hospital addressed quickly and decisively.

The OFT’s interpretation of its potential involvement in healthcare consolidation may lead to a legal challenge at some point in the future. With the current merger regime failing to address important questions around mergers involving NHS bodies, it would be preferable for the OFT to stand back until parliament has addressed this issue.

William Sprigge is a consultant in the EU, competition and regulatory practice at Maclay, Murray and Spens LLP, william.sprigge@mms.co.uk