First published in NZ Lawyer, 28 June 2013.
In May the Commerce Commission (Commission) published its
2013-2016 Statement of Intent. The document provides detail as to how the
Commission intends to achieve its statutory goals over the coming three years.
The health sector is singled out for special mention in the competition law
area. The Commission says it will be focusing efforts on improving compliance
with the Commerce Act 1986 in the health sector because:
"[T]he health sector is shifting to more integrated models of care, with
greater collaboration between different health professional groups. This can
bring with it risks under the Commerce Act" (p14).
The Commission has been concerned about the lack of knowledge of competition
laws in the health sector for sometime. Its 2012-2015 Statement of Intent also
made mention of this. To address this apparent issue, in late 2012 the
Commission launched an initiative, referred to as the "health advocacy project",
to lift understanding in the sector.
Health advocacy project
The first part of the health advocacy project saw the Commission undertake
surveys with various health professional groups to assess knowledge of
competition laws. That research was done in late 2012/ early 2013. The results
of the surveys showed that while the majority of respondents were aware of the
Commission's role, and the laws that it enforces, few were confident about how
competition laws applied to them. The research showed that health professionals
found it hard to identify possible price fixing arrangements.
The results are now informing further work being done by the Commission. The
Commission is conducting an education programme and developing health sector
specific fact sheets (or guidance notes) focusing on the obligations of health
professionals and their associations in the competition law area. The fact
sheets will likely include guidance on setting fees safely, preparing rosters
and the role of professional associations. The Commission has invited interested
parties to raise with it any questions they think should be addressed in the
For any lawyers advising in the health sector the results of the surveys and
the Commission's ongoing focus should prompt a cautious approach to any
potential competition law concerns. Additional Commission guidance usually
carries with it additional Commission scrutiny of activities covered by the
guidance. When they are published the Commission's guidance notes should
therefore become essential reading for advisors and health professionals and any
other educative opportunities offered by the Commission to the sector should be
In the meantime, and pending the release of the Commission's current work,
there is a great deal of existing commentary available to inform parties about
how the Commission views competition in the health sector, the positions of the
various participants, and the markets in which they operate. Some of this can be
obtained from a review of Court decisions involving the health sector, e.g. the
ophthalmology case of 2004 and the Court's penalty decision relating to
anticompetitive conduct in the community pathology testing market in 2010.
Another key source of insight into the Commission's thinking can be gleaned
from its merger clearance decisions.
In the last 18 months, the Commission has received only 14 applications for
clearance under its voluntary pre-merger clearance regime. Of these, three have
involved the health sector. This fact itself may be illustrative of trends in
the health sector as the industry consolidates.
Laboratory testing: in March 2012, Southern Community Laboratories applied
for clearance to acquire Medlab South from Sonic. The Commission granted
Radiology services: in November 2012 Hamilton Radiology, Midland MRI, and
Medimaging applied for clearance to form a joint venture. The Commission
Kidney disease products and procedures: in March 2013 Baxter International
applied for clearance to acquire Gambro AB. The Commission's decision on this
application is pending.
Perhaps unsurprisingly the Commission's merger decisions demonstrate that it
tends to take a narrow view of markets in the health sector. For example, in its
decision on Hamilton Radiology, the Commission considered the relevant
markets could be narrowed by reference to:
the product: the Commission separated out 'low-tech' radiology services from
'high-tech' (encompassing MRI scans) radiology services;
the customer: the Commission considered privately/non-DHB-funded services
were in a separate market from those funded by the DHB; and
the geography: the Commission considered the Hamilton (and Waikato) region
was separate from Auckland. The Commission specifically rejected the applicant's
submissions that the ability of individuals to travel outside of the Waikato
region for MRI scans would constrain a Waikato based provider.
Of further interest in the Southern Community Laboratories decision
is the Commission's confirmation of its view that the relevant markets for
pathology testing are tender markets. In that case, the relevant competition
assessment involved consideration of what the competitive situation would be
when requests for proposals to provide hospital and community pathology testing
were issued by the various South Island DHBs in the years ahead and, in
particular, whether the proposed acquisition would substantially lessen
competition in those tenders.
Tendering for the provision of single provider contracts for a fixed term is
a common model adopted in the health sector. Any arrangements that may affect
the expected level of competition in future tender rounds will be closely
analysed by the Commission even if there are no immediate market effects.
The Commission's merger decisions also provide guidance on the Commission's
likely views of whether the purchasers of health services can exert
countervailing power. Many health markets are characterised by the main
purchasers of the relevant services being the DHBs, ACC, or large private
insurers rather than private patients.
As to the DHBs, in the Southern Community Laboratories decision the
Commission notes that most DHBs have moved to bulk-funding models for pathology
services (away from a fee for service arrangements) and that the DHBs can and do
combine to coordinate the purchasing of services. These factors provide the DHBs
with options for exerting power over providers.
In the Hamilton Radiology decision, the Commission acknowledged the
ACC would be able to substantially influence the price that the proposed joint
venture could have charged for MRI procedures because the ACC set prices for MRI
services nationally on a 'take-it-or-leave-it' basis. That is, the ACC had a
high degree of countervailing power. However, the Commission did not accept that
any of the health insurance companies that also purchased MRI services would be
able to exert substantial influence on the prices that could be charged by the
proposed joint venture firm.
Understanding the relevant market, and the players in it, is a key foundation
for any competition law assessment. Existing Commission merger decisions provide
useful guidance on those issues in the health sector. These decisions, along
with the further material the Commission has indicated it will soon publish,
should assist the sector in improving its understanding of, and compliance with,
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.