Healthcare, Quality Concerns and Competition Law: A Systematic Approach 9781509943340, 9781509943371, 9781509943364

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HEALTHCARE, QUALITY CONCERNS AND COMPETITION LAW Market driven healthcare is massively divisive. Opponents argue that a competition approach to medical treatment negatively impacts on quality and access, while advocates point to increased efficiencies. This book casts a critical eye over both positions to show that the concerns over quality are in fact real. Taking a two-part approach, it unveils the fault lines along which the pursuit of competition in healthcare and the pursuit of quality would in certain cases clash. It then shows how competition authorities can only effectively assess competition concerns in healthcare when they ask the fundamental question of how the concept of healthcare quality should be defined and factored into their decisions. Drawing on UK, US and EU examples, it explores antitrust and merger cases in hospital, medical and health insurance markets to give an accurate depiction of the reality and challenges of regulating competition in healthcare provision.

Hart Studies in Law and Health Series Editors Tamara Hervey, City Law School, City University of London Thérèse Murphy, Queen’s University, Belfast Hart Studies in Law and Health aims to publish the best existing and ­upcoming voices in scholarship on law and health. Viewing law as a broad church, the series welcomes a range of methodologies from the doctrinal to the critical and including regulation and governance, and law and ethics approaches. Titles in this series The Interplay of Global Standards and EU Pharmaceutical Regulation: The International Council for Harmonisation Sabrina Roettger-Wirtz Compulsory Mental Health Interventions and the CRPD: Minding Equality Anna Nilsson

Healthcare, Quality Concerns and Competition Law A Systematic Approach

Theodosia Stavroulaki

HART PUBLISHING Bloomsbury Publishing Plc Kemp House, Chawley Park, Cumnor Hill, Oxford, OX2 9PH, UK 1385 Broadway, New York, NY 10018, USA 29 Earlsfort Terrace, Dublin 2, Ireland HART PUBLISHING, the Hart/Stag logo, BLOOMSBURY and the Diana logo are trademarks of Bloomsbury Publishing Plc First published in Great Britain 2023 Copyright © Theodosia Stavroulaki, 2023 Theodosia Stavroulaki has asserted her right under the Copyright, Designs and Patents Act 1988 to be identified as Author of this work. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval system, without prior permission in writing from the publishers. While every care has been taken to ensure the accuracy of this work, no responsibility for loss or damage occasioned to any person acting or refraining from action as a result of any statement in it can be accepted by the authors, editors or publishers. All UK Government legislation and other public sector information used in the work is Crown Copyright ©. All House of Lords and House of Commons information used in the work is Parliamentary Copyright ©. This information is reused under the terms of the Open Government Licence v3.0 (http://www.nationalarchives.gov.uk/doc/ open-government-licence/version/3) except where otherwise stated. All Eur-lex material used in the work is © European Union, http://eur-lex.europa.eu/, 1998–2023. A catalogue record for this book is available from the British Library. A catalogue record for this book is available from the Library of Congress. Library of Congress Control Number: 2022943822 ISBN: HB: 978-1-50994-334-0 ePDF: 978-1-50994-336-4 ePub: 978-1-50994-335-7 Typeset by Compuscript Ltd, Shannon To find out more about our authors and books visit www.hartpublishing.co.uk. Here you will find extracts, author information, details of forthcoming events and the option to sign up for our newsletters.

Acknowledgements

W

ork on this book would never have begun had it not been for the continuous support and intellectual inspiration of my mentor at the European University Institute (EUI), Giorgio Monti. I am also truly grateful for the support I have received throughout my academic journey from Spencer Waller, Harry First, Wendy Epstein, Joshua Sarnoff, Michal Gal, David Gilo, Daniel Sokol, Petros Mavroidis, Hans-Wolfgang Micklitz, Jennifer Rosato Perea, Andrew Gavil, Emily Cauble, Gregory Mark, Daniel Crane and Eleanor Fox. A big thank you also to my colleagues at my new academic home at Gonzaga University School of Law. I am also grateful for the emotional support of my wonderful friends around the globe, particularly Anastasia, Maia, Giorgos, Dimitris, Argyri, Ada, Maria, Martha, Kyriakos, Anny, Anna, Nikos, Stratos, Stavros P, Stavros M, Konstantina, Elias, Eirini, Apostolos, Kalliopi, Virginia, Filippo, Giorgos T, Minas, Ciara, Courtney and Evi. You have been my anchor when I needed it and I will never forget this. I would also like to thank the Greek Scholarships Foundation, IKY, for giving me the wonderful opportunity to undertake my research on healthcare antitrust in one of the best research institutions in Europe, the EUI. A big thank you also to the Fulbright Commission, DePaul College of Law, NYU School of Law, Michigan University School of Law, Tel Aviv University, the EUI, Turin University, Collegio Carlo Alberto for generously funding my research over the past few years. I am also grateful for the support I received from my terrific research assistants at DePaul College of Law, Joseph Olen and Tiffany Cole. My thanks also goes to the Antitrust Section of the American Bar Association, for funding my three-month stay in Washington DC in 2015 and for giving me the privilege of meeting in the US prominent scholars that had always been an immense source of inspiration for my research. Saying that my research would have been less rich if I had not gained the insight of Tim Greaney, Douglas Ross, Jonathan Baker, Einer Elhauge, Dione Lomax, Joseph Miller, Robert Leibenluft, Steven Salop and Andrew Gavil, is an understatement. This book would also have not been realised without the valuable support of my family. I take this opportunity to express my gratitude to my parents, Theodora and Minas, my grandparents, my brother Konstantinos and my sister Maria. This book is dedicated to you, my beloved grandmother Theodosia, because you valued education more than anything and my nephew Alexandros, my little sunshine and the kindest soul I know.

vi

Preface I.  WHAT IS THIS BOOK ABOUT?

H

ealthcare markets are forming around the globe. Indeed, following the US example, some European countries, such as the UK and the Netherlands, have started adopting the choice and competition model for healthcare delivery. This choice and competition model is mainly based on the quasi-market system1 where patients can exercise choice and the money follows the patients.2 This model creates incentives for patients, physicians as well as health insurers to choose providers on the basis of quality information that is publicly available.3 The choice and competition model is one of the four core models for providing public services. The other available models are models that: (a) rely on trust, when professionals and others who are involved in public service delivery are simply trusted to provide high-quality services, with no government intervention; (b) use command and control or else hierarchy, where either the state or a state agency is involved in the provision of public services through managerial hierarchy in which senior officers monitor their subordinates with regards to public service delivery; and (c) rely upon voice, where users wish to receive a high quality service, by sharing their views with providers.4 What are the main facets of the choice and competition model? Generally, competition in the public service is the presence of several providers, each of which has strong incentives to attract users of a service offer in the market.5 This is to be contrasted with a monopoly service, where a service is provided by a sole supplier.6 Especially with regards to health services, competition can take two main forms: Competition in the market, which is the most commonly recognised form of competition, with numerous providers making alternatives

1 Quasi markets are markets where the provision of a service is undertaken by competitive providers as in pure markets, but where the purchasers of the service are financed from resources provided by the state instead of from their own private resources, G Le Grand, ‘Quasi-Market versus State Provision of Public Services: Some Ethical Considerations’ (2011) 3 (2) Public Reason 80–89. 2 S Nuti, F Vola, A Bonini and M Vainieri, ‘Making Governance Work in the Health Care Sector: Evidence from a “Natural Experiment” in Italy’ (2016) 11 Health Economics, Policy and Law 18. 3 Ibid. 4 G Le Grand, The Other Invisible hand, Delivering Public Services through Choice and Competition (Princeton University Press, 2007) 14. 5 Ibid 41. 6 Ibid.

viii  Preface available to those who decide what to consume7 and competition for the market where several providers compete in order to attain the right to provide a good or service.8 Importantly, while the notions of choice and competition are highly related, they are not identical. This is because in some cases patients may be given the right to choose even when healthcare providers do not necessarily compete to attract users. Providers, for example, ‘can be heterogeneous at the eyes of patients by some exogenous characteristic, such as geographic location and choice of patients be exerted over that’.9 This, however, is usually not the case. Choice is combined with competition.10 Why do health systems in Europe move towards market-driven healthcare delivery? EU health systems strive to meet various goals, among which the following are deemed to be essential: (a) equitable access to good care; (b) costeffectiveness in service organisation and delivery; and (c) accountability and transparency.11 These systems, however, also share common concerns, notably increasing costs that are due mainly to three factors: rising life spans, increasing expectations and technological developments.12 Undoubtedly, while these factors significantly contribute to the quality of life of EU citizens and lead to health improvements, they also constrain national health budgets. In light of this, some countries in Europe have started to introduce the choice and competition model in healthcare to cut the cost of healthcare delivery.13 Competition is also seen as a solution to problems that government-run and regulated health systems failed to address.14 In the Netherlands, for example, health reforms were designed to counter widespread public dissatisfaction with lengthening waiting lists.15 The same can also be said for the UK.16 Seeing competition as a solution to improve healthcare performance also reflects Julian Le Grand’s views that the choice and competition model for healthcare delivery can significantly improve the efficiency, quality and responsiveness of a health system.17 If the money follows the choice, the argument goes, providers will be strongly incentivised to improve the quality and responsiveness of their services as well as the efficiency with which they are delivered.18 7 European Commission, Expert Panel on Effective Ways on Investing in Health (EXPH), ‘Competition Among Health Care Providers, Investigating Policy Options in the European Union’ 31. The EXPH adopted this opinion at the 10th plenary meeting of 7 May 2015 after public consultation. 8 Ibid, 26. 9 Ibid, 24. 10 Ibid. 11 European Commission (n 7) 14–15. 12 W Sauter, ‘The Impact of EU Competition Law on National Healthcare Systems’ (2013) 38(4) European Law Review 457, 458. 13 Ibid. 14 European Commission (n 7) 15. 15 W Sauter, ‘The Role of Competition Rules in the Context of Healthcare Reform in the Netherlands’ TILEC Discussion Paper No 2010-004, 4. 16 C Propper, S Burgess and D Gossage, ‘Competition and Quality: Evidence from the NHS Internal Market 1991- 9’ (2008) 118(525) The Economic Journal 138, 139. 17 Le Grand (n 4) 98. 18 Ibid.

Preface  ix Le Grand points out that equity will be also promoted, because under this model the less well-off will also be entitled to choose. Nonetheless, for the choice and competition model to deliver its promised gifts, Le Grand claims some certain conditions must be met. To Le Grand, these are: (a)  there have to be several providers of healthcare services in the market so that consumers can exercise choice; (b) it must be easy for new providers to enter the market and correspondingly for failing providers to exit the market; and (c) healthcare providers should be subject to competition law so that they are prevented from engaging in anticompetitive conduct.19 In other words, for the choice and competition model to improve the responsiveness, efficiency and quality of care, the competition must be real. The role of competition in healthcare has sparked heated debate. Critiques of the choice and competition model in healthcare point to ‘the lack of genuine competition in the real world’, the challenge of providing trustworthy information to patients to help them choose providers20 and the fact that patients do not necessarily have the ability and the knowledge to make good, rational choices that will improve their welfare. Critiques also warn that the risk of cream-­skimming is a serious one and that introducing the choice and competition model as a means to improve efficiency may inevitably harm equity. In brief, the argument goes, the introduction of the choice and competition model for delivering public services may undermine a health system’s quality, defined from a health policy perspective as a multidimensional concept encompassing, among others, the notions of safety, access, equity, continuity and effectiveness. In contributing to this heated, albeit unsettled debate, this book demonstrates that Le Grand’s conditions reflect the idiosyncratic features of healthcare markets only partially and that the risk that the introduction of the choice and competition model in healthcare may harm essential facets of healthcare quality is not a fictional one. To be clear, the primary goal of this book is not to take the stance that competition in healthcare provision is good, bad or ugly. This book’s focus is narrower. Taking as a starting point that as health systems in Europe move towards market driven healthcare delivery, the application of competition law in these systems will increase, the goal of this book is: (a) to identify some of the competition problems that may be raised in light of the reality that especially in hospital and medical markets the pursuit of competition and the pursuit of essential dimensions of healthcare quality may inevitably clash; (b) to demonstrate that in addressing some of these problems, competition authorities may inevitably have to balance the goals of choice and competition against key dimensions of healthcare quality, such as safety, equity

19 Ibid. 106. 20 J Le Grand, ‘Choice and Competition in Publicly Funded Healthcare’ (2009) 4(4) Health Economics, Policy and the Law 480.

x  Preface and access; and (c) to explain how competition authorities can balance these goals against the harm caused to competition. Let me elaborate on this point. As discussed, Le Grand speaks about an easy exit when he identifies the conditions under which the choice and competition model should apply in healthcare. Nonetheless, proposing easy exit as a means to improve efficiency and quality may inevitably harm access and equity. Indeed, considering the high barriers to entry that characterise healthcare markets, this risk should not be ignored. Should competition authorities allow a hospital merger, although it may further increase market power in healthcare markets on the basis that it may ensure the financial stability of the merging parties and hence guarantee access to health services in rural and underserved areas? Second, Le Grand suggests that for the choice and competition model to bring its benefits, there must be alternative providers from which to choose.21 In other words, to Le Grand, the more the market players, the higher the quality. Nonetheless, health services researchers often tell a different story. Specifically, they say that when hospital mergers are at stake, and under certain conditions, hospital consolidation, not competition, may bring quality improvements. For example, a merger increases patient volumes for hospital providers. In light of medical research demonstrating a relationship between procedure volumes and patient volumes, the higher volumes a merger brings may in certain cases enhance the overall quality of the services provided.22 Should competition authorities clear a hospital merger even though it increases market power in the relevant market because it may contribute to safety? Moreover, GPs in the Netherlands and in the UK do not only offer their medical services but they act as gate-keepers too. When performing this role, GPs refer patients to hospitals for treatment. Because of their medical expertise, medical professionals often perceive themselves as the guardians of healthcare quality. To them, professional discretion and freedom are the necessary conditions for the protection of healthcare quality and not necessarily choice and competition. Assessing healthcare quality through this lens, they often feel that they are entitled to intervene in the healthcare markets they operate in order to correct the market failures pervading them and ensure quality. They may, for instance, agree to boycott specific providers that do not meet their standards of healthcare quality. Should competition authorities be allowed to balance restrictions of choice and competition against the goal of quality? Competition authorities around the globe would fail to thoroughly examine these questions if they had not previously explored how they should define and assess quality of care. In light of this, the book also poses a core, albeit underexplored question: how and to what extent can the application of competition law in healthcare take into account the notion of healthcare quality? 21 Ibid, 485. 22 K Madison, ‘Hospital Mergers in an Era of Quality Improvement’ (2007) 7 Houston Journal of Health Law & Policy 265, 276.

Preface  xi II.  THE HYPOTHESIS AND METHODOLOGY

By analysing some seminal antitrust cases in the healthcare sector, this book shows that the question of how to define and assess healthcare quality in the context of a competition analysis is not an easy one to address. To be clear, the goal of promoting quality plays a central role in competition analysis. Indicatively, the Commission’s Guidelines regarding Horizontal Cooperation Agreements emphasise that for an agreement to have restrictive effects on competition within the meaning of Article 101(1) it must have, or be likely to have, an appreciable adverse impact on at least one of the parameters of competition on the market, such as price, output, product quality, product variety or innovation.23 Although quality is not specifically defined in the Commission’s Guidelines and Notices, it is a concept that highly relates to the notions of innovation, choice and product entry.24 Seeing quality as a notion that closely relates to choice and innovation is in line with the central mantra of competition policy that competitive market forces, besides lowering prices, can increase efficiency, product quality and promote consumer’s welfare.25 The book’ s hypothesis is that if competition authorities defined and perceived quality in the healthcare sector as choice, competition and innovation they may fail to consider the notion of healthcare quality as a whole. More specifically, if competition authorities adopt this approach, which the book calls ‘the market approach’, they may fail to integrate into their analysis the insight of medicine and health services research on how healthcare quality is defined and achieved. Additionally, a competition analysis that assesses healthcare quality strictly as choice, competition and innovation may not fully reflect the economic characteristics of healthcare markets and may disregard the insights of behavioural economics research pointing out that in healthcare markets consumers do not necessarily have the ability to construct choices that further improve their welfare. More importantly, if competition authorities adopt this market approach, they may apply competition law in healthcare in a way that disregards the main objectives of their health systems. In testing this hypothesis, the book uses as a case study the US antitrust approach in healthcare. I chose this case study not only because in the US healthcare provision is mainly based on the market rationale. I also chose it because: (a) the healthcare market in the US is subject to competition legislation that is applicable across all sectors of the 23 Communication from the Commission, Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to Horizontal Co-operation Agreements (Text with EEA relevance) [2011] OJ C11/01, para 3 (emphasis added). 24 Organisation for Economic Cooperation and Development (OECD), Policy Roundtables, ‘The Role and the Measurement of Quality in Competition Analysis’. DAF/COMP(2013)17, Note by the European Union, para 17. 25 A Ezrachi and ME Stucke, ‘The Curious Case of Competition and Quality’ (2015) 3 Journal of Antitrust Enforcement 227.

xii  Preface economy and healthcare is covered by the Federal Trade Commission (FTC), the general competition authority, and the Department of Justice; and (b) the US antitrust law remains faithful to the belief that more competition will generally ensure quality and social objectives such as the notion of equity or access should not enter the antitrust agenda. In seeking alternative solutions, the book identifies and examines two additional approaches under which healthcare quality concerns may be integrated into a competition analysis. Competition authorities in Europe, for example, may choose to widen the notion of consumer welfare in healthcare by integrating into their definition the views of medical professionals and health policy and health service researchers on how health improvements are achieved. In other words, in line with the health policy perspective, they might define quality in healthcare as a multidimensional concept consisting of the goals of efficiency, equity, acceptability, access, safety and effectiveness. This, the book names, the Holistic Approach. In examining this approach, I chose as a case study the application of competition law in EU health systems. This case study was chosen because European health systems animated by the belief that entities such as health derive equity significance from their ability to enable people to flourish, they are dedicated to protecting equity and access to health services. Therefore, European competition authorities may be tempted to integrate the notions of equity and access into their competition analysis. In attempting to strike the appropriate balance between the goals of competition and the protection of healthcare quality, competition authorities may also choose to cooperate with health authorities when they assess the impact of a transaction, for example a merger or an agreement on healthcare quality. Since following the introduction of the Health and Social Care Act of 2012 (HSCA 2012), a similar model was adopted in England when NHS hospital mergers were at stake, the book examines this approach by focusing on the application of competition law in the English health system.26 By comparing these alternative approaches, this book shines a light on the advantages and weaknesses of each approach. To reach this goal, the book examines Article 101 of the Treaty on the Functioning of the European Union (TFEU) (or in the US context, section 1 of the Sherman Act) and merger cases in medical and hospital markets mainly in the US and in England. This book focuses mainly on horizontal restraint cases in these markets considering the rich body of case law in these markets, especially in the US. In delving into the book’s core questions, testing the hypothesis and identifying the approaches under which competition authorities around the globe may integrate healthcare quality concerns into their analysis, I did more than employ just a doctrinal analysis. I also conducted empirical research in the US. In 2015, after receiving an award from the Antitrust Section of the American Bar Association, I had the opportunity to spend three months in the US and conduct 26 A similar model has been adopted in the Netherlands. For the purposes of the book the Dutch model will not be thoroughly analysed as a separate case study due to language restrictions.

Preface  xiii interviews with officials from the FTC and numerous scholars and experts in the area of healthcare antitrust. This three-month interaction with the US antitrust community allowed me to better understand how healthcare markets work and what their limits are. It also allowed me to identify the challenges antitrust enforcers face in applying competition law in healthcare with a view to protecting healthcare quality. Undoubtedly, the practical insight I gained though this experience enriched and expanded the findings of this book significantly. III.  CONTRIBUTION TO THE FIELD

This book builds its arguments inspired by three fields: health policy and economics, moral philosophy and competition law. As noted, this book addresses the question of how healthcare quality can be taken into account in the context of a competition law analysis. Undoubtedly, exploring this question requires an adequate understanding of the healthcare quality notion. For this reason, the book departs from the seminal work of Avedis Donabedian, physician and founder of the study of quality in healthcare and medical outcomes research. Donabedian saw healthcare quality as a multidimensional concept whose main facets are, among others, effectiveness, efficiency, acceptability and equity. In exploring how the choice and competition model in healthcare works while examining the increasing adoption of this model at EU level, this work particularly focuses on Julian Le Grand’s research. Le Grand has extensively studied the main merits of the choice and competition model in healthcare and its ability to bring quality improvements in healthcare services. As noted, this book does not simply identify the general merits or weaknesses of the choice and competition model in healthcare. This book also explores and illustrates the core competition problems that may emerge because of potential conflicts between the pursuit of choice and competition in healthcare and the main dimensions of healthcare quality or the core objectives of health systems. To this end, this book engages with the health economics literature, demonstrating that given the market imperfections pervading healthcare markets, the belief that markets in healthcare always and necessarily improve healthcare quality should not be unquestioned. Inspired also by the voices of Debra Satz, Michael Sandel and Elizabeth Anderson, this book indicates that healthcare markets may also harm the moral values that apply in medicine and may undermine the notion of trust in the doctor-patient relationship, an essential determinant in health outcomes. The book also tests Le Grand’s narrative that introducing choice and competition in healthcare will lead to quality improvements by bringing to the fore the insight of behavioural economics research, indicating that especially in healthcare consumers face difficulties in choosing healthcare providers or medical treatment and as a result increased choice and competition in healthcare does not necessarily lead to improved health outcomes.

xiv  Preface The core question of this book, whether and to what extent competition law can take into account healthcare quality considerations, albeit important, both from a competition law and health policy perspective, has not been addressed in Europe. Indeed, the relevant literature in Europe has primarily focused on the question of whether and, if so, how competition law applies in European health systems. Julia Lear, Elias Mossialos and Beatrix Karl, for instance, by thoroughly examining some EU antitrust cases in the healthcare sector, identify the conditions under which healthcare providers are subject to the application of competition law. They show that competition law will increasingly apply in healthcare and emphasise that the services of general economic interest exception (Art 106.2 TFEU) will not always provide a safe haven allowing Member States to restrain competition when regulating health services.27 Tamara Hervey’s book (European Union Health Law (Cambridge University Press, 2015)) also focuses on the application of competition law in European health systems (chapters 9–11). Her innovative book explores whether the application of competition law in healthcare may harm the ethos of EU health systems and the special values they pursue, such as equality of access and solidarity. By examining several competition law cases in hospital, health insurance and pharmaceutical markets, Hervey’s book puts forward the claim that the application of competition law in EU health systems may not necessarily harm their special values and objectives. Leigh Hancher and Wolf Sauter have also thoroughly examined the impact of EU competition and internal market law on health systems in Europe. By examining several EU antitrust and state aid cases in the healthcare and pharmaceutical sectors, their book (EU Competition and Internal Market Law in the Healthcare Sector (Oxford University Press, 2012)) provides a comprehensive review of the development of competition law in various health systems in Europe. Mary Guy’s book (Competition Policy in Healthcare: Frontiers in Insurance-Based and Taxation– Funded Systems’ (Intersentia, 2019)) also offers a comparative approach to competition policy in healthcare. Her book focuses on the competition reforms in the Dutch and English health systems and the sector specific competition law regime that applies in these systems especially when hospital mergers are at stake. By examining the development of competition policy in these systems, the book concludes that competition in healthcare should be further tempered by national and EU commitments to solidarity. Okeoghene Odudu has also examined the application of competition law in the English health system. His work is mainly focused on the question of whether NHS hospitals should be considered undertakings. Concluding that medical service providers will rarely fall outside the scope of the concept of an

27 J Lear, E Mossialos and B Karl, ‘EU Competition Law and Health Policy’ in E Mossialos, G Permanand, R Baeten and T Hervey (eds), Health Systems Governance in Europe: The Role of European Union Law and Policy (Cambridge University Press, 2010).

Preface  xv undertaking, Odudu argues that attention should now turn to the development and articulation of the procedural rules and remedies suitable for the sector.28 Sauter has also extensively examined the development of competition law and policy in the Dutch healthcare sector.29 His research has mainly explored the role of competition rules in the context of healthcare reform in the Netherlands, the institutional setting and the relationship between general competition rules and sector specific regulation. Johan Van de Gronden and Sauter have also examined whether and under what conditions healthcare providers are considered undertakings.30 The authors have raised the concern that in the healthcare sector, where the pursuit of social objectives is at stake, the antitrust enforcers that apply competition law in this sector may inevitably have to balance these objectives against the goal of competition. Nonetheless, neither do they specify these objectives, nor do they examine how these objectives should be taken into consideration under EU competition law. Sauter and Marcel Canoy have also examined and assessed several hospital merger cases in the Netherlands.31 In their work, they analyse cases in the Netherlands where the Dutch competition authority faced the question of whether it should accept a proposed merger on the basis that it would guarantee quality. Their analysis, however, does not examine how healthcare quality should be defined and considered by competition authorities when conflicts between the goals of competition and the objective of healthcare quality come to the fore.32 Undoubtedly, the literature in the US in the relevant field is richer.33 This literature mainly examines how healthcare quality concerns have been raised in the context of some US antitrust cases and how and to what extent the FTC and the US Courts have taken these concerns into account. Nonetheless, this literature has not shined a light on the issue of whether defining quality strictly as choice, competition and innovation may not be in line with the economic characteristics of healthcare markets and the policy goals health systems generally pursue. 28 O Odudu, ‘Are State Owned Healthcare Providers Undertakings Subject to Competition Law?’ (2011) 32 European Competition law Review 231. 29 W Sauter, ‘The role of competition rules in the context of health reforms in the Netherlands’, (2010) TILEC Discussion Paper, 1; W Sauter, ‘Experiences from the Netherlands; The application of competition rules in healthcare’ in M Krajewski, J Willem Gronden, E M Szyszczak, U Bøegh Henriksen (eds.) Healthcare and EU Law, 337. 30 J Van de Gronden and W Sauter, ‘Taking the Temperature: EU Competition Law and Health Care’ (2010) 38(3) Legal Issues of Economic Integration’ 213–41. 31 M Canoy and W Sauter, ‘Hospital Mergers and the Public Interest: Recent Developments in the Netherlands’ TILEC Discussion Paper No 2009-035, 1–10. 32 Ibid, 7–8. 33 See, eg, P J Hammer and W M Sage, ‘Antitrust, Health Care Quality, and the Courts’ (2002) 102 Columbia Law Review 545; T Greaney, ‘Quality of Care and Market Failure: Defenses in Antitrust Healthcare Litigation’ (2000) 21 Connecticut Law Review 605; T Kauper, ‘The Role of Quality of Health Care Considerations in Antitrust Analysis’ (1988) 51 Contemporary Problems 273; PJ Hammer, ‘Antitrust beyond Competition: Market Failures, Total Welfare, and the Challenge of Intramarket Second-Best Tradeoffs’ (2000) 98 Michigan Law Review 849; D Hyman, ‘Five Reasons Why Health Care Quality Research Hasn’t Affected Competition Law and Policy’ (2004) 4 International Journal of Health Care Finance and Economics 159.

xvi  Preface Given the limited attention that has been devoted by literature to the notion of healthcare quality and the question of how this goal can be integrated into a competition analysis, this book aims to fill an important gap in the existing literature. Nonetheless, it should be noted that the novelty of this book does not only rest on the questions it raises but also on the way it examines them. Indeed, this book is premised on the idea that antitrust enforcers may not protect healthcare quality as a whole if they do not transform the way in which they assess and evaluate quality in the healthcare sector. Hence, it integrates into its analysis the perspectives and voices of antitrust enforcers, medical professionals and health policy makers on how healthcare quality should be protected and improved. In other words, examining the notion of healthcare quality from a multidisciplinary perspective, this book joins the dots between medicine, health policy and antitrust. The question of whether and how healthcare quality considerations should be considered in antitrust analysis could not be more topical. Currently, we live in a world hit by a global pandemic. One of the lessons this global pandemic has taught us is that when health systems are challenged, and providers struggle to meet the population’s health needs, competition authorities, regulators and policy makers are more willing to accept the notion that collaboration – not necessarily competition – will ensure quality and innovation. Indeed, during times of crisis, competition authorities may feel increasing pressure to accept a hospital merger that may further increase market power in the hospital sector so that hospitals’ financial stability is ensured. They may also be more willing to accept a hospital merger on the basis that it will allow the entities to employ the most reputable respiratory specialists and, therefore, combine their forces against the Covid-19 threat. Considering how politically sensitive the healthcare sector is, this scenario is real. However, competition authorities may be unable to strike the balance between the pursuit of quality and the pursuit of competition if they lack the necessary framework to do so. Because this book delves into the potential ways in which competition authorities can strike this balance, this book is also a valuable tool for antitrust enforcers around the globe that hope to apply competition law in healthcare in a way that does not disregard citizens’ right to health and the population’s health needs. IV.  THE STRUCTURE OF THE BOOK

This book is organised as follows: Chapter one provides a thorough analysis of the most influential definitions of healthcare quality. It examines how healthcare quality is measured and assessed. This chapter underlines that the choice of the main dimensions of healthcare quality is critical as this choice would inevitably influence the main policies regulators and health policy makers would implement and adopt. Additionally, it raises the claim that healthcare quality can be pursued only to the extent that all key players in a health system commit to the wider quality objectives the health system pursues as a whole. This is because although all

Preface  xvii participants in a health system pursue quality at different levels and through different perspectives, their responsibilities in ensuring quality are correlated. Chapter two critically examines the main narrative of some health economists and health policy makers that the choice and competition model for providing healthcare will necessarily improve healthcare quality. This chapter demonstrates that under this model, specific aspects of healthcare quality, such as equity and continuity, may in fact be harmed. Importantly, this chapter also identifies some competition problems that might be raised in light of the reality that in medical and hospital markets the goal of competition, and the pursuit of healthcare quality may inevitably clash. In accommodating these conflicts this chapter identifies three main policy options under which competition authorities can take into account healthcare quality: (a) the Market Approach under which healthcare quality is defined as choice, innovation and competition; (b) the Holistic Approach under which healthcare quality is considered a multidimensional concept consisting of multiple health policy objectives; and (c) the Regulatory Approach under which competition authorities cooperate with health authorities when they assess the impact of a specific transaction on healthcare quality. Chapters three and four test this book’s main hypothesis. Chapter three does this by examining some US antitrust cases that involve breaches of antitrust law by medical associations. It also identifies how the FTC and the US courts conceive healthcare quality and how they respond to medical professionals’ claims that their anticompetitive behaviour is necessary for the pursuit of quality. This chapter shows that in assessing these claims, the antitrust enforcers remain faithful to the narrative that healthcare quality is ensured only to the extent that choice and competition are ensured. This chapter points to the merits and weaknesses of this narrow approach and proposes that only if the US antitrust enforcers applied a less formalistic approach and extended the notion of quality in healthcare, they could protect this goal as a whole. Chapter four, by analysing the applicable framework for hospital mergers in the US and by examining the main US hospital merger cases where quality claims were addressed and examined, asks: How do the US antitrust enforcers and the courts perceive quality of care? What are the quality dimensions they actually value? It highlights that the FTC and the US courts, by focusing on the price concerns of hospital mergers and by retelling the story that vigorous competition will necessarily ensure healthcare quality, risk disregarding the perspective of healthcare quality research, indicating that in healthcare under special conditions, consolidation, coordination and integration may lead to quality improvements and not necessarily rigorous competition among providers. Most importantly, they might ban mergers that may in fact contribute to the US health policy objectives of more integrated and coordinated care. Chapter five raises the crucial question of whether competition authorities in Europe should extend the notion of consumer welfare when they apply competition law in healthcare in order to protect the notion of healthcare quality as a whole and ensure that their competition analysis is in line with the policy

xviii  Preface objectives their health systems continuously strive to attain. It also examines how and under what techniques competition authorities may extend the notion of consumer welfare in healthcare so that they can balance potential conflicts between the goal of competition and the non-economic facets of healthcare quality. It concludes that under the more economic approach of the European Commission as well as the more pluralistic approach of European courts, this mission is possible. Chapter six analyses a different approach under which competition authorities in Europe may attempt to balance conflicts between the goal of competition and essential facets of healthcare quality. Under this approach, which the book calls the Regulatory Approach, competition authorities are responsible for the protection of competition in healthcare, while health authorities are responsible for advising competition authorities on issues relating to the protection of healthcare quality and the policy objectives their systems pursue. This policy option was adopted in England under the HSCA 2012. As the HSCA 2012 provided, mergers involving one or more NHS hospitals were subject to the Enterprise Act 2002 (Article 79) and were reviewed by the Competition and Markets Authority (CMA) with NHS Improvement (Monitor), the former health services regulator in England, taking an advisory role in relation to the benefits of the merger for patients.34 This chapter asks: Did the cooperation of these authorities ensure that healthcare quality in the merger assessment of NHS hospitals was actually taken into account as a whole? And, if yes, how? This chapter argues that the CMA took into account in its assessment the objective of continuous access to NHS services without either widening the notion of consumer welfare or explicitly stating that a competition law framework aiming to ensure quality should not disregard the wider objectives of the sector to which it applies. This chapter shows that the CMA considered non-competition concerns in its merger assessment mainly by integrating in its analysis the views of various authorities that their primary objective is not to ensure competition but to ensure the continuity of NHS services. Although the current regime was recently abolished, as chapters two and six will explain, identifying the pros and cons of this policy option is extremely beneficial both for regulators and policy makers that may want to adopt a similar approach to integrating healthcare quality concerns into their competition regimes. The final part of this book concludes by evaluating the main merits and weaknesses of the US Market Approach, and both the Holistic and the Regulatory approaches. It also explains why and how these models may be valuable for competition authorities around the globe applying competition law in the age of big data revolution in healthcare. 34 M Sanderson, P Allen and D Osipovic, ‘The Regulation of Competition in the National Health Service (NHS): What Difference Has the Health and Social Care Act 2012 Made?’ (2017) 12 Health Economics, Policy and Law 1, 7. This scheme was abolished following the Health and Care Act of 2022.

Contents Acknowledgements����������������������������������������������������������������������������������������v Preface���������������������������������������������������������������������������������������������������������vii 1. Setting the Scene: What is Healthcare Quality?�����������������������������������������1 I. How is Healthcare Quality Defined?�����������������������������������������������2 II. Deconstructing the Notion: What are the Main Dimensions of Healthcare Quality?��������������������������������������������������������������������4 III. Choosing the Core Dimensions of Healthcare Quality: Why is it Essential?�����������������������������������������������������������������������10 IV. Levels of Analysis in the Concept of Quality���������������������������������16 V. How is Healthcare Quality Measured?������������������������������������������18 VI. Structure, Process and Outcome: When to Use What?��������������������19 VII. Summing Up���������������������������������������������������������������������������������22 2. Introducing Competition in Healthcare: What are the Risks to Healthcare Quality?���������������������������������������������������������������������������24 I. Towards the Marketisation of EU Health Systems: What is the Rationale Behind this Trend?��������������������������������������26 II. Is the Market for Healthcare Special?��������������������������������������������28 III. Applying Competition Law with a View to Protecting Healthcare Quality: What are the Challenges?�������������������������������46 IV. Summing Up���������������������������������������������������������������������������������57 3. The Market Approach: Part I�����������������������������������������������������������������59 I. Professionalism versus Antitrust: What is the Debate About?���������62 II. Do the US Antitrust Enforcers and the Courts Take into Account Healthcare Quality?�����������������������������������������64 III. Do the US Antitrust Enforcers and the Courts Balance Conflicts Between Different Quality Perspectives?��������������������������86 IV. Summing Up���������������������������������������������������������������������������������97 4. The Market Approach: Part II����������������������������������������������������������������98 I. How are Hospitals Paid? A Historical Perspective������������������������ 101 II. Hospital Merger Analysis: A Short Journey to the Applicable Competition Framework������������������������������������������������������������� 105 III. Quality in the US Hospital Merger Analysis�������������������������������� 110

xx  Contents IV. Incorporating Healthcare Quality Claims into a Merger Analysis: A Mission Impossible?�������������������������������������������������� 130 V. Summing Up������������������������������������������������������������������������������� 136 5. The Holistic Approach������������������������������������������������������������������������ 137 I. Health Systems in Europe: What are their Common Values and Objectives?����������������������������������������������������������������� 139 II. Conflicts between the Goals of Competition and the Multiple Facets of Healthcare Quality: Reflections on the English Health System����������������������������������������������������������������������������� 146 III. Protecting Healthcare Quality under EU Competition Law����������� 158 IV. How can Healthcare Quality be Evaluated as a Whole?���������������� 174 V. Summing Up������������������������������������������������������������������������������� 185 6. The Regulatory Approach������������������������������������������������������������������� 187 I. An Introduction to the Main Facets of the HSCA 2012: How Does this Framework Force Hospitals to Merge?������������������ 189 II. How and to What Extent Does the CMA Integrate Quality Concerns in the Context of NHS Mergers?���������������������������������� 201 III. Evaluating the CMA’s Approach as a Whole: What are the Aspects of Quality the CMA Considers in its Merger Assessment?��������������������������������������������������������������������������������� 226 IV. Summing Up������������������������������������������������������������������������������� 232 7. Reflections������������������������������������������������������������������������������������������� 233 I. The Book’s Core Findings������������������������������������������������������������ 233 II. Integrating Healthcare Quality as a Whole: Mission Impossible?��������������������������������������������������������������������� 242 III. Looking Towards the Future: Antitrust in the Era of Data Driven Mergers in the Healthcare Field���������������������������������������� 245 Index��������������������������������������������������������������������������������������������������������� 255

1 Setting the Scene: What is Healthcare Quality?

H

ealthcare quality, a major concern of physicians and their patients, has also become a key priority for health regulators, policy m ­ akers1 2 and health systems during the last decades. This acute interest in healthcare quality has emerged in response to major transformations of health systems, accompanied by new organisational structures and reimbursement strategies that have a significant impact on quality.3 It is also the result of increasing public and political dissatisfaction with healthcare services at a global level.4 Despite the growing importance of healthcare quality concerns, only recently has systematic evidence about healthcare quality begun to be collected and analysed in most health systems.5 The key concerns regarding the quality of care relate primarily to access and continuity of care, consumer responsiveness, public accountability, value for money, patient safety and effectiveness of care.6 At the EU level, improving quality of care has also become top priority. EU Member States are increasingly implementing strategies to improve healthcare quality in view of: (a) unsafe health systems; (b) unacceptable levels of variations in performance and health outcomes; (c) ineffective healthcare technologies; (d)  patients’ dissatisfaction; (e) unequal access to care; (f)increasing waiting lists; (g) rising healthcare costs; and (h) waste from poor quality.7 In the US, the issue of measuring and evaluating healthcare quality has also caught the attention of policy makers. For example, the Patient Protection and Affordable Care Act (ACA) illustrates the growing importance of quality

1 K Madison, ‘Legal and Policy Issues in Measuring and Improving Quality’ in IG Cohen, A  Hoffman and W M Sage (eds), The Oxford Handbook of US Health Law (Oxford University Press, 2017) 680. 2 J Mainz, ‘Defining and Classifying Clinical Indicators for Quality Improvement’ (2003) 15(6) International Journal for Quality in Health Care 523. 3 Ibid. 4 C Shaw and I Kalo, ‘A Background for National Quality Policies in Health Systems’, Policy Document No EUR/02/5037153 (Copenhagen, WHO Regional Office for Europe, 2002) Part 1, 1–2. 5 Mainz (n 2) 523. 6 Shaw and Kalo (n 4) 523. 7 Ibid.

2  Setting the Scene: What is Healthcare Quality? measurement in the evolving US health system.8 Specifically, the ACA’s third section entitled ‘Improving the Quality and Efficiency of Health Care’ emphasises that the development of a national quality improvement strategy lies at the heart of the ACA.9 Within this strategy, healthcare quality improvements are pursued through quality reporting, better coordination of care, chronic disease management and patient-centred education.10 They are further pursued through the increasing dissemination of health information, the effective use of clinical guidelines and evidence-based medicine.11 Improving healthcare performance, however, requires that health policy makers are able to evaluate the extent to which health systems contribute to better care, identify the factors that influence health outcomes and adopt policies that can actually lead to quality improvements.12 Developing such policies demands that health regulators know how to assess and measure quality of care. Indeed, any initiative for healthcare quality improvements would fail if health regulators were unable to define, evaluate and measure quality. For this reason, this section explores how the notion of healthcare quality has developed so far. It examines how healthcare quality is defined, measured and assessed by key players in the healthcare industry, such as the Organization for Economic and Cooperation and Development (OECD) and the World Health Organization (WHO). By delving into the main facets of this notion, this section argues that the meaning attached to healthcare quality should reflect the main health policy objectives a state has chosen to pursue in all different levels of its health system. I.  HOW IS HEALTHCARE QUALITY DEFINED?

The main literature on the quality and performance of health systems is rich but, at the same time, difficult to systematise.13 Quality of care can be defined and assessed in various ways, depending on the disciplinary paradigm.14 Arguably, the definitions put forward by the seminal work of Avedis Donabedian, physician and founder of the study of healthcare quality and the Institute of

8 Patient Protection and Affordable Care Act (ACA), Pub. L. No. 111-148, 124 Stat. 119 (2010), as amended by Health Care and Education Reconciliation Act of 2010, Pub. L. No. 11-152, 124 Stat. 1029 (2010), para 3011. 9 Agency for Healthcare Research and Quality, ‘About the National Quality Strategy’ (last updated March 2017), available at www.ahrq.gov/workingforquality/about/index.html. 10 ACA (n 8) 124 Stat. 135, EC. 2717, ‘Ensuring the Quality of Care’. 11 Ibid. 12 D Evans, DB Evans, T Tan-Torres Edejer, J Lauer, J Frenk and J Christopher, L Murray, ‘Measuring Quality: From the System to the Provider (2001) 13(6) International Journal for Quality Health Care 439. 13 H Quigley, M McKee, E Nolte and I Glinos, ‘Assuring the Quality of Healthcare in the European Union, A Case for Action’ (European Observatories on Health Systems and Policies, 2008) Chapter 1, 1. 14 Ibid.

How is Healthcare Quality Defined?  3 Medicine (IOM), have been the most influential.15 Interestingly, these definitions unveil the different perspectives between medical professionals and health services researchers on what quality of care is and how it should be attained and improved. In 1980 Avedis Donabedian, whose influential research on healthcare quality remains prominent for health services research, defined quality of care as ‘the kind of care which is expected to maximize an inclusive measure of patient welfare, after one has taken account of the balance of expected gains and losses that attend the process of care in all its parts’.16 Donabedian insisted that before defining quality of care, it is necessary to determine whether the monetary cost should become part of the definition. Thus, Donabedian differentiated between a ‘maximalist specification: and an “optimalist specification” of quality’.17 Under the ‘maximalist specification’ monetary costs should not enter the definition of quality, and the highest quality is the level of care that can lead to the greatest health improvements.18 In contrast, under the ‘optimalist specification’ of quality, costly interventions that do not substantially improve health outcomes should be avoided.19 Initially, Donabedian’s definition of quality was influenced by the maximalist perspective. Later though, Donabedian integrated the concept of value into his definition of quality.20 Thus, he defined quality as the maximum that can be attained given the available inputs.21 Some years later, the IOM defined quality of care as ‘the degree to which health services for individuals and populations increase the likelihood of desired health outcomes and are consistent with current professional knowledge’.22 IOM’s definition of quality has been extremely influential. In fact, it has been adopted by prominent institutions in the US, such as the US Department of Health and Human Services and the National Committee for Quality Assurance.23 This definition: (a) includes a measure of scale; (b) identifies both patients and populations as targets for quality improvements; (c) is goal-oriented, making a distinction within healthcare goals depending on whether they emanate from government, physicians, administrators or other key players in the healthcare sector; (d) acknowledges the importance of health outcomes; (e) implies that patients have been considered in the healthcare decision- making process; and (f) emphasises that the state of clinical and scientific knowledge may impose constraints on professional performance.24



15 Ibid. 16 Ibid, 17 Ibid, 18 Ibid.

2. 3.

19 Ibid.

20 Ibid. 21 Ibid. 22 Ibid.

23 Ibid. 24 Ibid,

3–4.

4  Setting the Scene: What is Healthcare Quality? Obviously, Donabedian’s and IOM’s definitions of healthcare quality are not identical. Compared to the definition introduced by Donabedian, IOM’s definition ‘narrows the goal from improving total patient welfare to improving health outcomes’.25 IOM’s term also ‘shifts the focus from patients to individuals and populations’, hence allowing healthcare quality to consider ‘health promotion and disease prevention and not just cure and rehabilitation’.26 It also integrates the term ‘desired outcomes’ into the definition to underline the need to consider patients’ views on the quality of care they receive.27 IOM’s definition differs from Donabedian’s in one more essential aspect: the treatment of resource constraints.28 As noted, Donabedian’s initial definition of quality reflected the maximalist perspective.29 Nonetheless, widening his approach at a later stage, he integrated the concept of value into his definition so that quality was the maximum possible given the available inputs.30 Diverting from Donabedian’s latter definition, the IOM rejected the inclusion of resource constraints when defining quality on the basis that quality should not deteriorate just because resources are constrained.31 The evaluation of healthcare quality was initially within the purview of medical professionals and public health scholars.32 Nonetheless, research on the main attributes of healthcare quality is now undertaken by a wider range of institutions, such as the WHO and the Council of Europe. The latter, for example, has defined healthcare quality as ‘the degree to which treatment dispensed increases the patient’s chances of achieving the desired results and diminishes the chances of undesirable results, having regard to the current state of knowledge’.33 In the same line, WHO has defined quality as ‘the level of attainment of health systems intrinsic goals for health improvement and responsiveness to legitimate expectations of the population’.34 II.  DECONSTRUCTING THE NOTION: WHAT ARE THE MAIN DIMENSIONS OF HEALTHCARE QUALITY?

Health services researchers, medical associations and international organisations have extensively attempted to translate the most influential definitions into measurable indicators. This task is essential. Translating broader quality definitions into specific indicators equips health policy makers with the necessary

25 Evans 26 Ibid. 27 Ibid.

et al (n 12) 442.

28 Ibid,

443.

30 Ibid,

3.

29 Ibid. 31 Ibid.

32 Quigley 33 Ibid. 34 Ibid.

et al (n 13) 2.

The Main Dimensions of Healthcare Quality  5 tools to assess the performance of their health system in all different levels at which it operates. Donabedian, for example, conceives quality as a multidimensional notion whose main components are effectiveness, efficacy, efficiency, acceptability, optimality, equity and legitimacy.35 To Donabedian, these dimensions reflect healthcare quality’s magnitude when measured.36 The Council of Europe has also distinguished the term’s essential facets, namely, effectiveness, efficiency, access, safety, appropriateness, acceptability, satisfaction and efficacy.37 In its Health Care Quality Indicator (‘HCQI’) Project,38 the OECD also identified the notion’s essential dimensions. These are: effectiveness, safety, responsiveness, accessibility, equity and efficiency.39 WHO has also indicated that a health system pursuing quality improvements should continuously aim to be effective, efficient, equitable, accessible, safe and acceptable.40 The UK Department of Health, in its 1997 report entitled ‘A First Class Service: Quality in the New NHS’,41 has also acknowledged the concept’s multidimensional nature. In identifying the key aspects of quality, it concluded that this notion consists of the following elements: effectiveness, efficiency, timelessness, access, health improvement and equity.42 Lastly, the IOM has also recognised that quality is a multidimensional concept embodying the notions of effectiveness, safety, equity, efficiency and timelessness.43 The above analysis reveals that the most frequently used dimensions of healthcare quality are effectiveness, efficiency, access, timelessness, acceptability, safety, equity, appropriateness, patient responsiveness, health improvement, satisfaction and continuity.44 This analysis also helps us observe two important things. First, that the IOM does not consider access an essential part of the healthcare quality definition and second, that the Council of Europe has excluded the notion of equity from the definition of healthcare quality. Understanding why the choice of the healthcare quality definition is essential from a health

35 A Donabedian, An Introduction to Quality Assurance in Health Care (Oxford, Oxford University Press, 2003) 4. T Stavroulaki, ‘Mind The Gap: Antitrust, Health Disparities and Telemedicine’ (2019) 45 The American Journal of Law and Medicine 171, 186. 36 Donabedian, Ibid. 37 Quigley, et al (n 13) 5. 38 The main goal of the ‘OECD Health Care Quality Indicators Project’ was to measure and compare the quality of health service provision in various countries. See www.oecd.org/health/ health-care-quality-outcomes-indicators.htm. 39 E Kelley and J Hurst, ‘Health Care Quality Indicators Project Conceptual Framework Paper’ (2006) (3) OECD Policy Report DELSA/HEA/WD/HWP, 12–13. 40 WHO, ‘Quality of Care, A Process for Making Strategic Choices in Health Systems’ (Geneva, WHO, 2006) 9–10. 41 UK Department of Health, ‘A First Class Service: Quality in the New NHS’, available at: www. dh.gov.uk/en/Publicationsandstatistics/Publications/PublicationsPolicyAndGuid ance/DH_4006902. 42 Quigley et al (n 13) 5. 43 Ibid. 44 Ibid, 4.

6  Setting the Scene: What is Healthcare Quality? policy perceptive requires a better understanding of its core dimensions. For this reason, the remaining section is devoted to this task. To begin with, the notion of effectiveness is defined as ‘the degree to which improvements in health now attainable are, in fact, attained’.45 Evaluating effectiveness, therefore, requires a comparison between actual performance and the performance that the science and technology of healthcare can ideally achieve.46 In assessing the notion of effectiveness, the following questions become relevant: Is the treatment offered the most appropriate in a technical sense, according to those best positioned to judge?47 What is the outcome of the treatment?48 Is there evidence that patients’ health condition was improved following treatment? The goal of safety is associated with risk reduction. This notion assesses the extent to which ‘healthcare processes prevent and ameliorate adverse outcomes or injuries that stem from the processes of healthcare itself’.49 The notion of safety closely relates to effectiveness, although distinct from it in its focus on the prevention of adverse effects.50 The term efficiency refers to ‘the system’s optimal use of available resources to yield maximum benefits or results’.51 This dimension is essential not only because it is incorporated in all definitions proposed by key players in healthcare, but also because it correlates with one of the main challenges health policy makers face: reconciling increasing demand for health services with the available funds.52 The efficiency concept is a broad one. In fact, it consists of three narrower dimensions: technical, productive and allocative efficiency. Specifically, technical efficiency refers to ‘the physical relation between resources (capital and labor) and health outcomes’.53 A technically efficient position is attained when ‘the maximum possible improvement in outcome is obtained from a set of resource inputs’.54 Technical efficiency ‘does not directly compare alternative interventions, where one intervention produces the same (or better) health outcome with less (or more) of one resource and more of another’.55 This comparison is linked with productive efficiency which refers to ‘the maximization of health outcome for a given cost, or the minimization of cost for a given outcome’.56 45 Donabedian (n 35) 5; Stavroulaki (n 35). 46 Ibid, 5–6. 47 R Maxwell, ‘Dimensions of Quality Revisited: From Thought to Action’ (1992) (1) Quality in Health Care 171. 48 Ibid. 49 Kelley and Hurst (n 39) 13. 50 Ibid. 51 Ibid. 52 S Palmer and D Torgerson, ‘Definitions of Efficiency’ (1999) 318 (7191) British Medical Journal 1136. 53 Ibid. 54 Ibid. 55 Ibid. 56 Ibid. Palmer and Torgerson provide the following example: ‘Consider, for example, a policy of changing from maternal age screening to biochemical screening for Down’s syndrome.

The Main Dimensions of Healthcare Quality  7 To inform resource allocation decisions in healthcare, a global measure of efficiency is deemed necessary.57 This measure is the allocative efficiency concept which takes into consideration the productive efficiency with which ‘healthcare resources are used to produce health outcomes but also the efficiency with which these outcomes are distributed among the community’.58 Thus, allocative efficiency is attained when the available resources are allocated so as to ‘maximize the welfare of the community’.59 Avedis Donabedian has also analysed and examined the narrower dimensions of the efficiency objective. In general, Donabedian sees efficiency as the ability to reduce costs without sacrificing attainable health improvements.60 Thus to Donabedian, the mere reduction in healthcare costs does not enhance efficiency unless health benefits are either unaffected or further improved.61 Essentially, Donabedian foresees three ways of attaining efficiency in healthcare. One way is for healthcare providers to prescribe care that ‘does not include harmful, useless or less effective remedies or methods’.62 Donabedian calls this clinical efficiency because it primarily depends on skills and clinical knowledge.63 Efficiency can also be improved if the goods or services that are used in the provision of care are more efficiently produced.64 For example, when hospitals operate at a higher occupational rate, costs are reduced. Donabedian names this productive efficiency.65 Efficiency can also be improved when healthcare resources are distributed among different patient groups (characterised by age, sex, socioeconomic status, place of residence) in a way proportionate to expected health improvements.66 In other words, resources are directed to the patient groups who are sicker or more likely to benefit from treatment.67 By doing so, a system strives to attain distributional efficiency, an aspect of quality that Donabedian conceives at a societal level.68 Health policy makers aiming to improve efficiency in resource allocation apply various economic evaluations.69 The three most essential are: (a) costbenefit analysis, which involves ‘placing monetary values on all the possible costs and benefits of an intervention and the total costs are then compared with the Biochemical screening uses fewer amniocenteses but it requires the use of another resource biochemical testing. Since different combinations of inputs are being used, the choice between interventions is based on the relative costs of these different inputs’. 57 Ibid. 58 Ibid. 59 Ibid. 60 Donabedian (n 35) 6. 61 Ibid. 9–10. 62 Ibid, 10. 63 Ibid. 64 Ibid. 65 Ibid. 66 Ibid. 67 Ibid. 68 Ibid. 69 TY Lai and GM Leung, ‘Equity and Efficiency in Healthcare: Are they Mutually Exclusive?’ (2010) 16(1) HKJOphthalmol 2.

8  Setting the Scene: What is Healthcare Quality? total benefits after discounting’; (b) cost-effectiveness analysis, which involves ‘assessing the costs and cost-savings in terms of a predefined unit of health outcome’; and (c) cost-utility analysis which is a ‘form of cost-effectiveness analysis in which the outcome is expressed in terms of utility or quality’.70 The unit value may be ‘quality-adjusted life year (QALY)71 or disability-adjusted life year (DALY)’.72 The notion of accessibility or access evaluates how easily health services can be reached.73 Access can be either physical or financial and necessitates that health services ‘are a priori available’.74 When the access of a health system is assessed, the following questions become relevant: Are people able to get treatment when they actually need it?75 Are there any significant barriers to service, such as distance, inability to pay – or analogous breakdowns in supply?76 The concept of acceptability assesses the degree to which care meets the needs, wants and expectations of patients.77 Donabedian argues that the notion of acceptability consists of the following narrower dimensions: (a) accessibility or access which evaluates the ease with which people receive care;78 (b) the doctor-patient relationship, the main attributes of which are empathy, respect, willingness to take time, good manners and truthfulness;79 (c) the amenities of care or, in other words, the desirable aspects of the setting in which healthcare takes place. These, among others, include privacy, comfort and cleanliness;80 (d) patients’ preferences concerning the risks, impact and cost of treatment;81 (e) what patients consider as fair and equitable.82 The goal of equity closely relates to access, although it serves as a measure to evaluate health-system financing and outcomes.83 The notion of equity assesses the degree to which a health system deals fairly with patients and populations.84 It therefore relates to the distribution of healthcare resources and their expected benefits among citizens and populations.’85 Equity in healthcare aims to address health inequalities. Importantly, economic research in health inequalities warns that we should be less tolerant

70 Ibid. 71 F Sassi, ‘Calculating QALYs; Comparing QALY and DALY calculation’ (2006) 21(5) Health Policy and Planning 402–408. 72 Lai and Leung (n 69) 2. 73 Kelley and Hurst (n 39) 13. 74 Ibid. 75 Maxwell (n 47) 171. 76 Ibid. 77 Donabedian (n 35) 18. 78 Ibid. 79 Ibid, 19. 80 Ibid. 81 Ibid, 21. 82 Ibid, 22. 83 Kelley and Hurst (n 39) 13. 84 Ibid. 85 Ibid.

The Main Dimensions of Healthcare Quality  9 of health inequalities than inequalities in other dimensions, such as income.86 For instance, income incentives are needed to stimulate effort, skills and investments.87 Thus, differences in economic rewards have the potential to increase the size of total income from which at least, in theory, all groups of society can benefit, mainly through taxation.88 While this argument applies in income, it surely does not apply in health. Health inequalities hurt all parts of society. Indeed, the social costs of health disparities are high: They include excessive healthcare expenditures, loss of labour productivity and premature deaths.89 Health is also a special good90 as it directly influences people’s well-being. Health enables human beings to function as agents: to attain the goals and projects in life that they actually value.91 Therefore, entities such as health ‘derive equity significance from their ability to enable people to flourish’.92 In other words, inequality in health equals inequality in opportunity. For this reason, Amartya Sen contends that ‘any conception of social justice that accepts the need for a fair distribution as well as efficient formation of human capabilities cannot underestimate the role of health in human life’.93 Nonetheless, if it is agreed that all members of society should have equal opportunities to pursue their life goals, then it can be argued that healthcare is one of the goods whose equitable distribution should be ensured.94 Striving for health equity also becomes important considering what the main determinants of population health are. Essentially, these are genetics and physical and social environment such as working conditions, pollution, cultural norms, position in social hierarchy and people’s behaviour regarding diet, physical exercise or substance use.95 Genetic endowments are health preconditions reflecting a ‘biological lottery’ over which people have no control. The environment in which people happen to live also represents their opportunities. Children’s environment especially reflects a social lottery over which children have no control. Health related lifestyle is the determinant over which people have most discretion, but precisely 86 See, eg, S Anand, ‘The Concern of Equity in Health’ in S Anand, F Peter and A Sen (eds), Public Health Ethics and Equity (Oxford, Oxford University Press, 2004) 16. 87 Ibid. 88 Ibid, 17. 89 John Z Ayanian, ‘The Costs of Racial Disparities in Health Care’ (Harvard Business Review, 1 October, 2015), available at http://hbr.org/2015/10/the-costs-of-racial-disparities-in-health-care; T Stavroulaki, ‘Mind the Gap: Antitrust, Health Disparities and Telemedicine’ (2019) 45 The American Journal of Law and Medicine 171, 186. 90 That health is a special good has been recognised through the ages. Democritus in his book On Diet states: ‘without health nothing is of any use, not money nor anything else’. 91 Ibid, 18. 92 A J Culyer, ‘Equity – Some Theory and its Policy Implications’ (2001) (27) Journal of Medical Ethics 275, 276. 93 A Sen ‘Why Health Equity?’ in Anand, Peter, and Sen (n 86) 23. 94 Culyer (n 92) 276. 95 J Olsen, ‘Concepts of Equity and Fairness in Health and Health Care’ in S Glied and PC Smith (eds), The Oxford Handbook of Health Economics (Oxford, Oxford University Press, 2011) 816.

10  Setting the Scene: What is Healthcare Quality? how much of that reflects people’s choices and how much reflects people’s position within the social hierarchy is also a thorny issue.96 Indeed, people may choose a less nutritious diet just because they cannot afford healthier meals.97 Less physical activity may also be the result of income constraints. Promotion of health-damaging products is often targeted at certain consumer groups, such as young poor men.98 These consumer groups, therefore, may feel greater pressure to consume these products.99 Thus, equity in health has an instrumental value since it aims to compensate specific groups of society for the disadvantages and the suffering they incur for reasons beyond their control. But let us return to the definition of healthcare quality and discuss the three last dimensions of the concept: Appropriateness, Continuity, Timeliness. The term appropriateness refers to the ‘degree to which provided healthcare is relevant to the clinical needs given the current best evidence’.100 Continuity refers to ‘the extent to which healthcare for specified users over time is coordinated across providers and institutions’.101 Timeliness refers to the ‘degree to which patients can receive care promptly’.102 Therefore, timelessness is closely related to timely access to care and coordination of care.103 This notion includes some clinical aspects, such as ‘the length of time from admission of heart attack to the administration of thrombolytic therapy’ and some patient centredness elements, such as patients’ perceptions of their ability to receive urgent care when they actually need it.104 III.  CHOOSING THE CORE DIMENSIONS OF HEALTHCARE QUALITY: WHY IS IT ESSENTIAL?

The choice of the main dimensions that shape the notion of healthcare quality is critical as it will influence the main healthcare policies adopted and implemented.105 In fact, it will influence how the health system will be designed, how resources will be allocated and how interventions will be prioritised. This implies that health policy makers should be accurate in how they define quality and how they translate each specific facet of this term into specific goals and interventions. In light of this concern, this section further explores two essential dimensions of healthcare quality: efficiency and equity. Elaborating on these 96 Ibid. 97 M Whitehead, ‘The Concepts and Principles of Equity and Health’ (2000) WHO Policy Report EUR/ICP/RPD 4147734r, 6. 98 Ibid. 99 Ibid. 100 Kelley and Hurst (n 39) 14. 101 Ibid. 102 Ibid. 103 Ibid. 104 Ibid. 105 Quigley, et al (n 13) 6.

Choosing the Dimensions of Healthcare Quality  11 specific notions seems essential for an additional reason: health policy makers and regulators106 that include both objectives in their definition of quality may in certain cases have to perform the difficult task of accommodating potential conflicts between equity and efficiency. To begin, equity implies equality. It assesses the extent to which health systems deal fairly with all parts of society. Surely, this broad definition allows us to acquire a preliminary understanding of what equity actually means. It does not, however, allow us to shape a concrete idea as to the specific policy goals a health system pursuing equity should strive to attain. More importantly, it does not help us answer the crucial question: equality of what? For this reason, the health economics literature has analysed and proposed a number of narrower definitions of equity.107 The most frequently discussed are: (a) equality of expenditure per capita; (b) equality of input (resources) per capita; (c) equality of input for equal need; (d) equality of (opportunity of) access for equal need; (e) equal utilisation for equal need; (f) equality of health;108 (g) equity as choice.109 Defining equity as equality of expenditure per capita suggests that if the resources available for healthcare are allocated to different regions, say ‘pro rata with the size of the regional population’, then this would lead to an equitable allocation.110 Defining equity as equality of input or resources per capita requires a different allocation of resources. It actually requires that if the prices of different resources, such as land, vary across different regions then those regions with higher than average prices should not be penalised as would be the case under the first definition.111 Therefore, under this definition, high-priced regions would receive more resources.112 Defining equity as equal treatment for equal need necessitates that those in equal need of treatment receive the same type of care, regardless of individual characteristics that do not directly relate to need. These may include area of residence, gender or ability to pay.113 Under this definition of equity, the greater the morbidity in a population the greater the resources it should receive. Thus, if it could be proved that a specific population is in ten per cent greater need than another of equal size, then under this definition, ceteris paribus, that population should receive ten per cent more resources than the other.114 Under the definition ‘equal access to available care for equal need’ equity means equal access to the available services for all parts of the population and 106 Competition authorities can also be included, as I will demonstrate in the following chapter. 107 A Wagstaff, ‘QALYS and the Equity-Efficiency Trade-Off’ (1991) (10) Health Economics 21, 29. 108 GH Mooney, ‘Equity in Health Care: Confronting the Confusion’ (1983) 1(4) Effective Health Care 179, 180–81. 109 Wagstaff (n 107) 30. 110 Mooney (n 108) 180. 111 Ibid. 112 Ibid. 113 Wagstaff (n 107) 30. 114 Mooney (n 108) 180.

12  Setting the Scene: What is Healthcare Quality? a fair distribution of healthcare resources throughout the country on the basis of need.115 Providing the same level of care can be more expensive in rural areas than in urban ones. Hospitals providing their healthcare services in rural areas also incur higher costs (eg maternity cases from rural areas are admitted well before the due date). Patients in isolated areas also bear higher costs either because they travel long distances to receive care or because they often receive lower quality care by local providers.116 Consequently, defining equity in this way would require health policy makers to take due account of these barriers and implement policies that would ameliorate them. It would also require that resources and facilities are not unfairly distributed around the country, clustered in urban and prosperous locations and scarce in the less advantaged remote ones.117 Defining equity as equal utilisation rates for equal need would require additional policy interventions. This is because individuals do differ with respect to tastes and preferences for health and healthcare. People, for instance, experience different thresholds of pain. Moreover, some are more informed about health and healthcare issues. Additionally, some patients are more willing to sit in GPs’ surgeries than others or to travel long distances to receive care.118 This means that equality of access and equality of utilisation do not necessarily converge. Access is ‘a function of supply’.119 Utilisation is ‘a function of both supply and demand’.120 If the supply side or, in other words, access has been organised in such a way that there is equality of access for equal need but not equality of utilisation for equal need, this may imply that the only remaining factor causing the inequity is demand. To address this inequity, policy makers may choose to discriminate positively in favour of patient groups who are less willing to utilise healthcare.121 Adopting a definition of equity that amounts to equality of health would also demand different type of interventions. In fact, it would require health policy makers to see equity as a multidimensional notion. It would also require health policy makers to focus not only on how fairly healthcare resources are distributed, but also on how fairly the social determinants of health are distributed among different social groups. What sort of policies should health policy makers promote if they defined equity as equality of health? Certainly, the menu of options would include equalising access to care. However, it would also include a wider range of policies aimed at equalising the main determinants of population health, such as health-related lifestyle and physical environment.



115 Whitehead

(n 97) 9. (n 108) 180. 117 Whitehead (n 97) 9. 118 Mooney (n 108) 181. 119 Ibid. 120 Ibid. 121 Ibid. 116 Mooney

Choosing the Dimensions of Healthcare Quality  13 Investment in basic education and employment and other antipoverty policies would also occupy the health agenda.122 Viewing equity as a choice may imply a different arrangement in how a health system is designed or financed. Linking equity with choice reflects Le Grand’s conception of equity. Le Grand insists that ‘inequality is not necessarily inequitable’.123 He alleges that inequalities are inequitable only to the extent ‘they reflect inequalities in the constraints people face’.124 He, therefore, asserts that inequalities are not inequitable if they simply reflect differences in preferences and tastes.125 Elaborating on his line of thinking, Le Grand provides an example of two people who face similar constraints but have different preferences.126 In this example, the health condition of these two people is different just because the one is a smoker and the other is not.127 Le Grand takes the view that this is not inequitable on the basis that both were fully informed of the risks involved and ‘both were unconstrained in their choice by other factors’.128 To Le Grand, the difference in their health states is the outcome of their own preferences and choices.129 Le Grand does not suggest that people’s preferences should affect the actual allocation of treatment.130 Specifically, he takes the view that although smokers should be charged an annual premium to cover the expected costs of care, they should be entitled to receive the same treatment. Accepting Le Grand’s definition of equity would have some broader policy implications: it would imply that it might well be equitable for a person’s non-health characteristics and choices to affect his rights vis-à-vis the healthcare sector.131 Any discrimination, though, should be confined to the finance of healthcare. The above analysis reveals that different definitions of equity may require different health policy interventions. Equality of access, for instance, does not ensure equality of treatment amongst those in equal need.132 More importantly, it does not ensure equal utilisation. Equality of access is closely linked with equality of opportunity: the question of whether this opportunity is actually exercised is not relevant to equity defined in terms of access.133 It is, however, relevant if equity is defined in terms of utilisation.134 In the latter case health 122 N Daniels, B Kennedy and I Kawachi, ‘Why Justice is Good for our Health’ in R Bayer, LO  Gostin and B Jennings (eds), Public Health Ethics, Theory and Practice (Oxford, Oxford University Press, 2007) 221. 123 Wagstaff (n 107) 33. 124 Ibid. 125 Ibid. 126 Ibid, 34. 127 Ibid. 128 Ibid. 129 Ibid. 130 Ibid. 131 Ibid. 132 Ibid, 32. 133 Mooney (n 108) 183. 134 Ibid.

14  Setting the Scene: What is Healthcare Quality? policy makers may be required to adopt and implement policies that influence not only supply but also demand in healthcare.135 For example, if in antenatal care policy makers aimed to achieve equal visiting at outpatient clinics for those at equal risk, regardless of social status, then if lower socioeconomic status patients were lower utilisers, policy makers may choose to promote health education programmes that would make low utilisers more aware of the risks of pregnancy or the value of antenatal care.136 Similar issues and concerns arise if we further analyse the various definitions aiming to describe the efficiency concept. One way to define efficiency is to say that efficiency is the sum of narrower efficiency concepts such as technical, productive and allocative efficiency. Another way is by adopting Donabedian’s paradigm and see efficiency as a broader concept consisting of clinical, productive and distributional efficiency. Do these definitions fully converge? Considering that distributive and allocative efficiency do not necessarily converge, the answer is not necessarily. Indeed, as discussed, while distributive efficiency refers to the distribution of care between different classes of patients, allocative efficiency refers to the maximisation of the welfare of the community as a whole. But, as noted, choosing how to define quality is also critical from an additional perspective: because defining quality as a multidimensional concept inevitably requires healthcare policy makers to make a trade-off between dimensions of quality that under certain conditions can be mutually exclusive, such as equity and efficiency. This can be especially the case when resource allocation is at issue and health policy makers face the challenge of striking the appropriate balance between the pursuit of these goals. Let me shine a light on this issue. Allocation decisions regarding the prioritisation of healthcare resources across different interventions involve assessing the impact on both costs and health outcomes.137 Public health studies use various measures of health improvements to evaluate the impact of a specific type of care.138 For instance, one study may estimate survival rates while another may focus on pain-free days.139 When faced with various outcome measures emerging from different interventions, it is not always easy to decide how healthcare resources should be allocated so that efficiency is maximised.140 For instance, if the survival rate alone is used to differentiate between various interventions, any improvement on the quality of life associated with a specific intervention is simply disregarded.141 To allow comparisons across different areas of healthcare, an alternative measure seems necessary. One that can assess the impact of 135 Ibid. 136 Ibid. 137 S Whitehead and S Ali, ‘Health Outcomes in Economic Evaluation: The QALY and Utilities’ (2010) 96 British Medical Bulletin 5. 138 Ibid. 139 Ibid. 140 Ibid. 141 Ibid.

Choosing the Dimensions of Healthcare Quality  15 a specific type of care on patients’ life expectancy and health-related quality of life.142 This is quality-adjusted life year or QALY. The conventional approach to economic analysis assesses healthcare interventions with the goal to maximise the efficiency of the health system in achieving the greatest number of QALYs given the available inputs.143 The implicit assumption underlying this means of measuring health outcomes is that all QALYs ‘are of equal social value, regardless of who accrues them’.144 A QALY gained and lost is blind to health conditions, severity of disease, level of deprivation, people’s position within the social hierarchy or other personal characteristics such as area of residence, age or sex.145 Under this method of measuring health outcomes, what actually counts is ‘the sum total of the population health’ and not the distribution of healthcare among different patient groups.146 The health maximisation decision rule has been severely criticised on grounds of fairness in healthcare decision-making.147 This is because the application of the principle of health maximisation may favour the social groups with longer life-expectancy or those that can benefit more from medical treatment, such as young people and women.148 However, to the extent that economic analysis in healthcare may favour those that are more likely to benefit from care, it may discriminate against individuals that suffer from more severe illnesses, such as the disabled, who, all things being equal, are less able to benefit from treatment. It may also disadvantage the poorest groups of society. Consider, for instance, the case of two individuals, Antony and Brenda. While Antony is relatively wealthy, well-educated and well-nourished, Brenda is poorer, and therefore cannot always afford a nutritious diet or a healthy lifestyle.149 Both suffer from the same disease, and both receive the same type of care. Yet, because of Antony’s personal characteristics and health-related lifestyle, Antony would be better able to respond to treatment and, consequently, would gain a greater number of QALYs. Therefore, rationing in favour of those most able to benefit from treatment may adversely affect the less privileged patient groups.150 This actually implies that in cases where equity and efficiency conflict, in health systems pursuing both objectives, policy makers would have to seriously

142 Ibid, 6. 143 Ibid, 14. 144 Ibid. 145 Ibid, 14. 146 Ibid, 15. 147 F Sassi, L Archard and J Le Grand, ‘Equity and the Economic Evaluation of Healthcare’ (2001) 5(3) Health Technology Assessment 14. 148 Ibid, 14. 149 This example is provided by J Pereira, ‘What Does Equity in Health Mean?’ Discussion Paper (York, Centre for Health Economics, 1989) 36. 150 Ibid.

16  Setting the Scene: What is Healthcare Quality? consider how to address equity-efficiency trade-offs.151 Consider the following example: health policy makers often argue that it may be easier to save more lives in total with a given smoking cessation budget by focusing on ‘easy-to-reach’ affluent smokers rather than ‘hard-to-reach’ less privileged ones.152 Nonetheless, a decision maker striving to promote equity might have to trade-off equity versus efficiency which may result in the sacrifice of health gains.153 Research studies demonstrate that balancing these two objectives in the resource allocation process, albeit a difficult exercise, is definitely possible. Equity weighting, for instance, can allow a more equitable distribution of healthcare resources among different patient groups.154 These weightings can allow health gains to be adjusted in accordance with the socioeconomic characteristics of the recipients of care including their health condition, age, sex and social status. Resource allocation decisions can then be made with the goal of ‘maximizing the equity-weighted sum of health gains’.155 The above analysis should not lead to the conclusion that efficiency and equity always and necessarily clash. Indeed, targeting healthcare to less advantaged social groups may sometimes increase efficiency on the basis that morbidity correlates with poverty and therefore a greater number of QALYs may be achieved if healthcare resources were allocated in favour of the less privileged social groups.156 The above analysis, however, aims to show that the question of how to define quality is a normative one. Indeed, this question cannot be adequately addressed if a previous one has not been explored by regulators and health policy makers first: what is the meaning we, as a society, wish to attach to healthcare? Do we believe that health has an intrinsic value? Do we aim to promote access to healthcare as a means of reducing health inequalities? And, if yes, what are the policies we as a society commit to implement and support to attain this goal? IV.  LEVELS OF ANALYSIS IN THE CONCEPT OF QUALITY

The previous section analysed and explored the main notions that shape the healthcare quality concept. Quality improvements, however, cannot be achieved unless all functions of a health system commit to the quality goals that the system pursues as a whole. As Donabedian insists, the commitment to quality should pervade the institution at all its levels and in all its main aspects.157 151 R Cookson, M Drummond and H Weatherly, ‘Explicit Incorporation of Equity Considerations into Economic Evaluation of Public Health Interventions’ (2009) 4(2) Health Economics, Policy and Law 231, 234. 152 Whitehead and Ali (n 137) 15–16. 153 Ibid, 15. 154 Lai and Leung (n 69) 4. 155 Ibid. 156 Whitehead and Ali (n 137) 16. 157 Donabedian (n 35) xxx.

Levels of Analysis in the Concept of Quality  17 This,  Donabedian maintains, would amount to a fundamental change in the ethos of the institution as it would lead to a tradition or culture where the pursuit of quality becomes key priority.158 Surely, the core responsibilities of health policy makers and healthcare providers for quality improvements are different. Indeed, health policy makers’ main responsibility is to implement strategies for improving quality outcomes that apply across the system as a whole.159 On the other hand, healthcare providers’ main responsibility is to ensure that the services they offer meet the highest possible standards of care and satisfy the needs of patients and their families.160 Nonetheless, the fact that their responsibilities in improving quality are different does not imply that they should not both be committed to the broader quality goals that the system as a whole pursues.161 While it is important to acknowledge the differences in their main goals and responsibilities, it is also important to recognise the links between them. Decision makers, for example, cannot develop new strategies for improving health outcomes without adequately engaging healthcare providers, communities and patients.162 Conversely, healthcare providers cannot only rely on their own skills and qualifications to improve the quality of the services they offer as the level of care they offer also depends on the health system’s resources and available inputs, such as facilities, drugs and medical equipment. In line with this analysis, Donabedian proposes that the notion of healthcare quality should be assessed within four different levels. In fact, his analysis takes into consideration the key actors involved in the process of care, notably providers, patients and communities as well as the setting in which healthcare is provided.163 This classification not only differentiates between various levels of quality but also identifies the core elements that shape this notion at each level.164 Donabedian places the type of care provided by physicians and other healthcare providers at the core level (individual level).165 The second level (unit level) focuses on the amenities of care and the desirable aspects of the setting in which healthcare takes place.166 The third level (local level) refers to the ‘actual implementation of care, responsibility for which is shared between the provider and the patient’.167 The final level (central level) refers to ‘the care received by the community as a whole and considers issues of social distribution of levels of quality’.168

158 Ibid,

xxxi. 2006(n 40) 10.

159 WHO, 160 Ibid. 161 Ibid. 162 Ibid.

163 Quigley 164 Ibid. 165 Ibid. 166 Ibid. 167 Ibid. 168 Ibid.

et al (n 13) 7.

18  Setting the Scene: What is Healthcare Quality? Donabedian’s analysis as to the different levels of quality assessment is not the only one. Saturno and other public health scholars have also identified the different levels of quality that relate to the delivery of care.169 The first one refers to the wider concept of quality that is applicable to any product, service or organisation in the health system.170 The second one applies to an identified group of services. The third one refers to a specific service or product that is provided in health organisations.171 The Council of Europe has also proposed a similar analysis. In fact, its approach takes due account of the multiple administrative and organisational tiers of a health system, illustrating the need to promote quality at all different levels of healthcare delivery.172 These are macro/central (eg country); local (eg hospital or local provider for home care); unit (hospital unit or a team of healthcare practitioners); and individual level (eg individual physician).173 V.  HOW IS HEALTHCARE QUALITY MEASURED?

Providers seeking to deliver high-quality care must understand the relationship between their actions and their patient’s health condition. When providers do not know what high-quality care is, they cannot deliver it.174 Therefore, healthcare measurement can facilitate providers’ efforts to improve the quality of care. Regulators and patients must also be able to measure and assess the quality of care that a particular provider has offered in the past or is likely to offer in the future.175 Hence, healthcare measurement is also an essential tool for regulators, patients, private or public payers aiming to assess providers’ performance. Therefore, narrower approaches and measures for evaluating healthcare quality is deemed necessary. Donabedian called these structure, process and outcome.176 By structure Donabedian refers to ‘the relatively stable characteristics’ of healthcare providers, the tools and resources they have available and the ‘physical and organizational settings in which they offer care’.177 Essentially, the evaluation of structure is a judgement on whether care is being delivered ‘under conditions that are either conducive or inimical to the provision of good care’.178 Structure refers to the health system’s facets that influence its ability 169 Ibid. 170 Ibid. 171 Ibid. 172 Ibid. 173 Ibid. 174 Madison (n 1) 680. 175 Ibid. 176 R H Brook., ‘Measuring Quality of Care’ (1996) 335 The New England Journal of Medicine 966. 177 A Donabedian, Volume 1: The Definition of Quality and Approaches to Its Assessment (Ann Arbor, MI: Health Administration Press, 1980) 81. 178 Mainz (n 2) 525.

Structure, Process and Outcome  19 to meet the healthcare needs of the recipients of care or the community as a whole.179 The notion of structure refers to the human, physical and financial resources that are necessary for the provision of care.180 It also refers to the number, size and the geographical disposition of hospitals.181 When the assessment of structure is at stake, multiple different factors are considered, such as the proportion of specialists to other physicians and the availability of healthcare technologies.182 Process refers to ‘what is actually done in giving and receiving care’.183 Essentially, it refers to the physicians’ activities in making a diagnosis or treatment.184 Process is assessed by indicators showing what the provider actually did for improving the health state of the patient and how well it was done.185 For instance, the percentage of patients examined by a doctor within 24 hours of referral or the percentage of patients treated in accordance with clinical guidelines are considered process indicators.186 Outcome refers to the patients’ subsequent health status.187 Outcome reflects changes in a patient’s current and future health that are associated with antecedent treatment.188 Therefore, outcome indicators measure the impact of care processes on the health state and well-being of patients and populations.189 Outcome indicators can be mortality rates and patients’ quality of life and satisfaction.190 VI.  STRUCTURE, PROCESS AND OUTCOME: WHEN TO USE WHAT?

Of the structural measures, indicators that predict variations in processes or outcomes usually focus on hospital or provider characteristics, and can be very useful tools for quality improvements.191 For instance, regarding paediatric quality of care, empirical evidence indicates that hospitals treating higher volumes of patients with similar health conditions have better adjusted mortality rates.192 This also applies for surgical procedures.193 This indicates that structural and outcome measures are highly associated.

179 Ibid. 180 Ibid.

181 Donabedian 182 Ibid, 183 Ibid. 184 Ibid.

526.

185 Mainz

(n 177) 81.

(n 2) 525. 526. 187 Brook (n 176) 967. 188 Donabedian (n 177) 83. 189 Mainz (n 2) 526. 190 Ibid. 191 Ibid. 192 Ibid. 193 Ibid. 186 Ibid,

20  Setting the Scene: What is Healthcare Quality? Outcome and process measures are also interrelated. In fact, specific characteristics of process signify quality because they contribute to health improvements.194 Conversely, some characteristics of process signify poor quality because they are known to result in adverse outcomes. Once it has been proved that certain procedures used in specific situations highly correlate with better outcomes, the presence or absence of these procedures in such situations is accepted as evidence of high or poor quality.195 The main merits and shortcomings of process versus outcome measures have also been examined.196 First, process data are ‘contemporaneous’;197 they are taking place in the now. Therefore, they have the potential to offer immediate indications of quality.198 Additionally, process data can easily be obtained by the medical record, by questioning the recipients of care or by direct observation if medical treatment is supervised.199 Comparisons of process data are also easier to interpret and much more sensitive to differences in quality than comparisons of outcome data.200 For example, while a process indicator can measure whether or not a stroke patient receives the appropriate type of care, 30-day mortality rates from stroke patients are much more difficult to evaluate.201 Outcome measures can also offer a valuable insight into the level of quality of the services provided. Indeed, an outcome measure is a measure of something ‘that is important in its own right’.202 For instance, it may always be useful to know that mortality rates from myocardial infraction vary from hospital to hospital, even if the reasons for such differences have nothing to do with the quality of the services delivered.203 Additionally, outcome measures grasp all aspects of the processes of care and not only those that are measured.204 Considering the main pros and cons of each measure, a crucial question emerges that requires further consideration: when should each measure be used? As noted, the relationship between process and outcome is probabilistic. That means that in any given case, it is not always easy to conclude that a specific set of processes lead to a specific outcome.205 Indeed, a patient admitted to a hospital with a heart attack may receive low quality care, yet despite this, may survive.206 Therefore, process measures can be useful measures of quality only

194 Ibid, 527. 195 Ibid. 196 Ibid. 197 Ibid. 198 Ibid. 199 Ibid. 200 J Mant, ‘Process Versus Outcome Indicators in the Assessment of Quality of Care’ (2001) 13(6) International Journal of Quality in Healthcare 479. 201 Mainz (n 2) 527. 202 Ibid. 203 Ibid. 204 Ibid. 205 Donabedian (n 177). 206 Mant (n 200) 475.

Structure, Process and Outcome  21 in cases where a specific link has been established between a specific process and an outcome.207 The use of process measures also allows comparisons between groups of providers or individual providers in cases where each group or provider contributed only partially to the care received by the patient. In such cases, if we only relied on outcome measures, we would not be able to identify the providers that contributed to the desired outcome.208 The outcome of care depends on several factors that mainly relate to the patient, the sickness and the healthcare services provided.209 Differences in outcomes may be due to case mix and other confounding factors.210 Therefore, standardised data collection and risk adjustment are necessary for evaluating outcome data.211 Outcome indicators are very useful tools for assessing quality, when healthcare services have a significant impact on outcomes.212 In contrast, when factors such as lifestyle and socioeconomic conditions, rather than healthcare, influence health outcomes, it would be misleading to rely on outcome measures to assess performance.213 Outcome measures, though, are extremely useful for ‘tracking care given by high volume providers over long periods of time’, and for identifying ‘problems in implementation of processes of care’.214 As the perspective narrows to hospitals or physicians, outcome measures become less useful, although still essential tools for evaluating quality.215 In brief, the broader the perspective needed, the higher the value of outcome indicators.216 Nonetheless, it should be noted that the use of outcome measures, such as mortality rates, can be particularly problematic when healthcare providers compete to attract patients.217 For example, providers with high mortality rates may lose patients. To reduce this risk and improve their performance, providers may attempt to manipulate the system. Hospitals, for instance, may avoid attracting high-risk patients by limiting their contracts with high-quality surgeons specialised in complex high-risk surgeries. They may also attempt to improve their performance by withholding risky procedures from sicker patients. Manipulating the system with a view to achieving ‘better-looking health outcomes data’ may, however, create serious equity and access concerns especially if such practices affect the most vulnerable among us.218

207 Ibid. 208 Ibid. 209 Mainz (n 2) 527. 210 Ibid. 211 Ibid. 212 Mant (n 200) 475. 213 Ibid. 214 Mainz (n 2) 527. 215 Mant (n 200) 476. 216 Ibid. 217 RH Palmer, ‘Using Health Outcomes Data to Compare Plans, Networks and Providers’ (1998) 10(6) International Journal for Quality in Healthcare 477, 482. 218 Ibid.

22  Setting the Scene: What is Healthcare Quality? In light of the above, it is often suggested that regulators and policy makers should use the measures that meet the needs of each specific condition or treatment; sometimes they will be structure, sometimes they may be outcome measures.219 Very often, it will be a combination of the two.220 VII.  SUMMING UP

The main goal of this chapter was to provide an accurate and, at the same time, accessible analysis on the most influential definitions of healthcare quality. It also aimed to explain why the choice of the appropriate definition of healthcare quality is essential from a health policy perspective. It underlined that the choice of the main dimensions of healthcare quality is critical as this choice would inevitably influence the main policies regulators and health policy makers would implement and adopt. In delving into these issues, this chapter highlighted that the notion of healthcare quality is a multidimensional one consisting of these main dimensions: effectiveness, safety, efficiency, acceptability, equity, appropriateness, continuity and timeliness. It also explained that because healthcare quality is a multidimensional concept, especially when resource allocation is at issue, health policy makers and regulators may have to strike the appropriate balance between potentially conflicting dimensions of healthcare quality, such as equity and efficiency. More specifically, it claimed that a decision maker aiming to achieve health equity might have to trade-off equity versus efficiency which may result in the sacrifice of health gains. Additionally, it emphasised that healthcare quality can be pursued only to the extent that all key players in a health system commit to the wider quality goals that the system pursues as a whole. This is because although all participants in a health system pursue quality at different levels and through different perspectives, their responsibilities in ensuring quality are in fact correlated. This chapter also analysed how healthcare quality is measured. It explained that quality is assessed under structure, outcome and process measures. It also stressed that quality measuring is an essential tool for regulators, patients, private or public players to assess providers’ performance. At the same time, it is also a tool that facilitates providers’ efforts to evaluate and improve their performance. It highlighted, however, that when providers operate in a competitive environment, the use of outcome measures may be problematic on the basis that it may encourage providers to manipulate the system. Providers, for instance, may attempt to avoid sicker patients in order to improve their performance on mortality rates. Ultimately, such practices may harm equity and access to healthcare especially for the most vulnerable populations.

219 Mainz 220 Ibid.

(n 2) 527.

Summing Up  23 The chapter that follows addresses another core question: How may the introduction of competition forces in healthcare affect the essential dimensions of healthcare quality and the performance of a health system? Given that some countries in Europe have already introduced competition in their healthcare sectors as a means to improve their efficiency and quality, this question could not be more topical.

2 Introducing Competition in Healthcare: What are the Risks to Healthcare Quality?

H

ealthcare markets are increasingly emerging in Europe. Following the US example, some European countries, such as the UK and the Netherlands, have already adopted the choice and competition model for the provision of healthcare services. As the previous chapter explained, these countries see competition as an instrument that will strongly incentivise healthcare providers to improve the efficiency and quality of their services.1 Competition among healthcare providers takes place at multiple levels. Also, healthcare providers compete on several dimensions, including price and quality.2 Additionally, competition takes place both in the market and for the market. Specifically, (a) Competition in the market, which is the most common form of competition in the healthcare sector, involves several providers that make alternatives available to those who choose what they want and need to consume.3 In the case of healthcare markets, the decision maker is usually either the patient or a healthcare professional – probably a physician that makes decisions on behalf of the patient;4 (b) Competition for the market essentially means that several healthcare providers compete for the right to offer a specific good or service.5 Competition among healthcare providers and patient choice are not identical concepts.6 The notion of choice has gained increased importance in some EU health systems. These systems see choice as the necessary instrument that will ensure that healthcare resources are allocated in a way that is responsive to consumers’ preferences, wants and needs.7 Patient choice ‘may be combined

1 European Commission, Expert Panel on Effective Ways on Investing in Health (EXPH), ‘Competition Among Health Care Providers, Investigating Policy Options in the European Union’. The EXPH adopted this Opinion at the 10th plenary meeting of 7 May 2015 after public ­consultation, 11. 2 Ibid, 21. 3 Ibid, 33. 4 Ibid. 5 Ibid, 26. 6 Ibid, 4. 7 Ibid, 6.

Introducing Competition in Healthcare  25 with different degrees of competition among healthcare providers; between public providers only, between public and private providers, and with different restrictions for entry to the market’.8 While patient choice can also exist absent any form of competition among healthcare providers, this is, usually, not the case.9 Indeed, reality shows that systems that rely on market forces to provide healthcare empower and motivate consumers to choose a physician or hospital.10 The extent to which European countries have implemented the choice and competition model as a means of healthcare delivery significantly varies across Europe. The Netherlands, for example, has adopted a system of ‘regulated competition and private insurance, with wide-ranging reforms implemented since the mid-2000s to reinforce the role of market mechanisms’.11 To this end, in 2006, the Health Insurance Act introduced two essential reforms: First, it made private health insurance mandatory for all citizens. Second, it intensified competition among health insurers.12 Also, to limit the risk of cream-skimming, the Health Insurance Act ensured that health insurers would not have the opportunity to deny coverage.13 Because some citizens are considered ‘high-risk’, the Health Insurance Act adopted a risk-adjustment model that ‘remunerates health insurers for inequalities in health risks in their populations’.14 The Health Insurance Act also identified the type of healthcare services that all health insurers are required to offer citizens.15 Additionally, the reform aimed to give risk-bearing health insurers the necessary incentives to act as rational purchasers of healthcare services on behalf of their customers.16 For this reason, the Health Insurance Act allows health insurers to selectively choose the healthcare providers that will provide services in their network.17 Because health insurers may not always act as the perfect agents for their principals – their customers – patients act as ‘the countervailing power’ by being given the opportunity to choose their health insurer.18 In the early 1990s, the English NHS also introduced the choice and competition model for healthcare delivery, albeit to a limited extent. Under the ‘ internal market’ model, competition was introduced among healthcare providers but not among health insurers.19 In the late 1990s, the ‘internal market’ model was

8 Ibid. 9 Ibid, 24. 10 Ibid. 11 Ibid, 54. 12 Ibid. 13 T Zuiderent-Jerak Kor Grit and T van der Grinten, ‘Markets and Public Values in Healthcare’ (Erasmus University Rotterdam, iBMG Working Paper W2010.01, 2010) 13. 14 Ibid. 15 Ibid. 16 European Commission (n 1) 54. 17 Ibid. 18 Zuiderent-Jerak Kor Grit and van der Grinten (n 13) 3. 19 European Commission (n 1) 47.

26  Introducing Competition in Healthcare abolished, and England introduced a new form of competition among healthcare providers. Under this new regime, providers competed on quality but not on price. This is because the fee healthcare providers received (the tariff) for the services they offered was set by the Department of Health.20 The gradual steps that have been adopted for the promotion of competition in the NHS are the following: (a) separating the responsibility for offering healthcare from the responsibility of purchasing it; (b) enabling the independent sector to provide some forms of NHS care; (c) introducing the Any Qualified Provider (AQP) principle, under which providers that meet certain criteria can have contracts with NHS commissioners giving them the possibility to offer NHS services; and (d) introducing Payment by Results (PbR), the payment of fixed national tariff prices for the services offered by healthcare providers.21 The delivery of healthcare through market provision was further reinforced by the Health and Social Care Act (HSCA) 2012 which further promoted the choice and competition model in the context of NHS Services.22 How may the creation of healthcare markets affect the multiple facets of healthcare quality? This question is not an easy one to address. While some scholars and policy makers consider competition in healthcare ‘an anathema’, others see it as ‘a magic bullet’.23 Shining a light on this heated debate, this chapter also asks why some European countries have chosen to move towards market-driven healthcare delivery. By drawing inspiration from the recently created healthcare markets in Europe, this chapter then explores how the introduction of market values in healthcare might particularly harm some core non-economic facets of healthcare quality, namely equity, continuity and acceptability, or else the notion of trust in the patient–doctor relationship. This chapter also predicts that as long as health systems around the globe more generally and Europe more specifically move towards market-driven healthcare delivery, the application of competition law in these systems will inevitably increase. Thus, the chapter identifies the main competition problems and the hard questions competition authorities concerned with healthcare quality should expect to examine and address. I.  TOWARDS THE MARKETISATION OF EU HEALTH SYSTEMS: WHAT IS THE RATIONALE BEHIND THIS TREND?

EU health systems differ in several aspects. However, they can be classified into two general categories: Bismarck systems that are ‘insurance-based’ and 20 Ibid. 21 For a comprehensive review of the market reforms of the healthcare system in the UK, see J  Cylus, E Richardson, L Findley, M Longley, C O’Neill and D Steel, ‘United Kingdom: Health System Review. Health Systems in Transition’, Vol 17, No 5 (European Observatory on Health Systems and Policies, 2015) 16. 22 The market reforms in England are examined in detail in chapter six. 23 European Commission (n 1) 8.

Towards the Marketisation of EU Health Systems  27 Beveridge that are ‘tax- funded’.24 EU health systems strive to attain multiple different objectives, among which the most important are: (a) equitable access to high quality care; (b) cost-effectiveness in healthcare delivery; and (c) accountability and transparency.25 EU health systems, however, share some common challenges, notably rising healthcare costs due to three main factors: increasing life expectancy and, as a result, aging populations, rising expectations and developments in innovation.26 Although these three factors have some beneficial aspects, they create strains on national budgets.27 Hence, several European countries have introduced competition into their health systems as a means of restraining the rise of increasing healthcare costs. The introduction of competition is also seen as a solution to problems that ‘government- run’ and highly regulated health systems failed to address.28 Competition as a solution to improved performance also reflects Le Grand’s observations that many countries where healthcare ‘is primarily funded by the public purse’ face serious problems with their health systems.29 ‘Public funding is often accompanied by public delivery’;30 by the hospital and other healthcare facilities that are owned and operated by the State. While occasionally these entities operate efficiently, this is not always the case.31 Because these institutions, as Le Grand observes, are directly funded from the State, ‘with budgets that are determined historically’ and ‘that may bear little relationship to their performance or activities’ they may lack the necessary incentives to allocate their resources efficiently, improve their quality, and respond to consumers’ preferences and needs.32 Additionally, Le Grand explains that healthcare providers and medical facilities owned and operated by the State are often close to monopolies ‘with patients having relatively little alternative sources of treatment’, especially if they are poor and lack the necessary financial resources to buy care from the private sector.33 In light of these concerns, opponents of public-based healthcare delivery argue that if patients were given more choice as to where they can seek treatment and receive care, and ‘if the money followed the choice’ so that healthcare providers would only receive public funding if they successfully attracted

24 W Sauter, ‘The Impact of EU Competition Law on National Healthcare Systems’ (2013) 38(4) European Law Review 457, 459. 25 European Commission (n 1) 14–15. 26 Sauter (n 24) 458. 27 Ibid. 28 European Commission (n 1) 15. In the Netherlands for example, health reforms were designed to counter widespread public dissatisfaction with lengthening waiting lists, see Sauter (n 24) 4. 29 J Le Grand, ‘Choice and Competition in Publicly Funded Healthcare’ (2009) 4(4) Health Economics, Policy and the Law, 479, 480. 30 Ibid. 31 Ibid. 32 Ibid. 33 Ibid.

28  Introducing Competition in Healthcare patients, then the resultant competition would incentivise healthcare providers to improve their quality and operate more efficiently.34 Such ‘quasi-markets’, the argument goes, ‘would also be more equitable with choices that are currently reserved only for those who can afford private care being extended to the less well off, and with the resultant rise in standards benefiting everyone’.35 Le Grand, however, emphasises that for the choice and competition model to deliver its promised gifts, specific conditions must be met. First, Le Grand argues that there have to be alternative healthcare providers from which consumers can actually choose. Second, the barriers to entry and exit from the sector must be low.36 Third, healthcare providers should be subject to competition law so that they are prevented from engaging in anti-competitive behaviour. Fourth, patients should be given the necessary information to make choices that will improve their welfare and be able to receive help when they need it to evaluate providers and make choices. Fifth, citizens should receive financial assistance with regards to transport costs. Sixth, the opportunities for ‘cream-skimming’ (the selection, by healthcare providers of less expensive and easier patients to treat) should be eliminated. To this end, healthcare providers should not be allowed to choose their customers. A risk adjusting policy might also be necessary to the extent that it would reduce providers’ incentives to ‘cherry pick’ the less risky cases.37 II.  IS THE MARKET FOR HEALTHCARE SPECIAL?

The conditions Le Grand deems essential so that competition among healthcare providers improves the performance of the health system cannot easily be met in reality. And even if they were, they might not necessarily address all the risks to healthcare quality the introduction of market forces in healthcare may create. Setting the stage, the section that follows examines the limits of healthcare markets. It asks: what are the market imperfections that pervade them? Can increased choice drive quality competition? Then, it identifies the reasons why the injection of market values in hospital and medical services may jeopardise certain facets of healthcare quality. A.  Healthcare Markets or Else a World of Market Imperfections Generally, the belief that market competition provides a preferred set of policies in healthcare is not an unquestioned one. Some health economists do insist that ‘the analogy from the commercial sector does not readily apply in healthcare,

34 Ibid,

480.

36 Ibid,

485. 488.

35 Ibid. 37 Ibid,

Is the Market for Healthcare Special?  29 where the introduction of economic incentives, such as competition, tends to have perverse effects’.38 Essentially, they warn that genuine competition does not exist in the real world39 and that not all patients are well equipped to make decisions that will improve their well-being. Moreover, they warn that the danger of ‘cream-skimming’40 is a real and serious one. Hence, opponents of the introduction of market values in healthcare allege that increased choice and competition in healthcare may encourage exploitation, perpetuate the inequities and fail to improve health outcomes.41 Health economist J Olsen has attempted to explain why healthcare markets work differently than others, noting that: ‘… [W]e can think of real-world markets located on a spectrum ranging from (almost) perfect to (almost) imperfect. The market for healthcare stands out as being almost completely imperfect’.42 This is because the set of assumptions, which should be met so that market forces result in socially desirable outcomes, cannot be met in healthcare.43 But, what is a market, a perfect market and an imperfect one? To begin, markets are ‘institutions in which exchanges take place between parties who voluntarily undertake them’.44 A market is ‘a meeting or gathering place of people for the purchase and sale of provisions or livestock’ and as ‘the action or business or buying and selling’.45 A perfect market, or a perfectly competitive market, is one in which there are numerous sellers and none of them are able to influence the price.46 The perfectly competitive market is a very attractive mechanism for distributing goods and services.47 Sellers produce and sell the goods and services that consumers prefer in the most cost-effective way, prices equal marginal costs, and ‘resources are allocated to their most valued ends’.48 Once all parties stop entering into transactions because they see no additional value, the market is in equilibrium.49 This outcome is desirable for several reasons. First and foremost, consumers make their own choices. Second, suppliers produce and sell

38 M Fotaki, ‘What Market Based Patient Choice Can’t Do For the NHS: The Theory and Evidence of How Choice Works in Healthcare’ (Centre for Health and the Public Interest, March 2014) 7, available at https://chpi.org.uk/papers/analyses/market-based-patient-choice-cant-nhs-theory-evidencechoice-works-health-care/. 39 Le Grand (n 29) 480. 40 Ibid. 41 Ibid. 42 J Olsen, Principles in Health Economics and Policy (Oxford University Press, 2009) 49. 43 T Rice, ‘Can Markets Give Us the Health Care System We Want?’ (1997) 22(2) Journal of Health Politics, Policy, and Law 383, 384. 44 D Satz, Why Some Things Should Not Be for Sale: The Moral Limits of Markets (Oxford University Press, 2010) 15. 45 New Shorter Oxford English Dictionary, 1699. 46 Olsen (n 42) 48. 47 Ibid. 48 WM Sage, DA Hyman and W Greenberg, ‘Why Competition Law Matters to Healthcare Quality’ (2013) 22(2) Health Affairs, 31, 32. 49 Rice (n 43) 386.

30  Introducing Competition in Healthcare the products and services that consumers truly desire without wasting financial resources. By not entering into additional transactions, ‘people reveal themselves to be as satisfied with their economic lot as far as possible, given the resources with which they began’.50 However, as Le Grand illustrates, the pure competition model can actually lead to the above desirable outcomes only to the extent specific conditions are met for an entire industry: (a) the presence of multiple providers, none of which can actually influence price; (b) low barriers to entry and exit; (c) homogenous products; (d) almost perfect information with regards to prices and quality; (e) impersonal transactions; (f) private goods; and (g) selfish motivation.51 Most real-world markets fail to satisfy the above conditions in their entirety. Healthcare markets fail to satisfy most of them. This is because of the market failures that pervade them. Absent any intervention curing them, quality-based competition may be undermined.52 For instance, various factors undermine the neoclassical assumption that buyers and sellers have the perfect information to assess the quality and costs of the products and services offered in the market.53 Having perfect information essentially means that consumers can estimate how much of a good or service they want to consume and when. It also means that consumers can evaluate the quality of a good or service either because of previous consumption or because they have access to good information about their quality, for example through product ratings.54 In contrast with this assumption, in healthcare markets, information is asymmetrically distributed among patients, providers and health insurers.55 Medical information is extremely technical. Hence, identifying and assessing the quality or cost differences between multiple health services may be a challenging task for patients and third-party payers, such as health insurers.56 Additionally, the effect of most treatments is quite random, and patients may lack the necessary knowledge to compare the available information on different treatment options.57 Moreover, patients rarely suffer from the same major disease multiple times. Hence, the possibility that they may be better equipped to assess the quality of multiple forms of care through time is extremely limited.58 Relying on the stories and experiences of other patients can be problematic too because

50 Ibid. 51 Olsen (n 42) 48. 52 TL Greaney, ‘Quality of Care and Market Failure. Defenses in Antitrust Health Care Litigation’ (1989) (21) Connecticut Law Review 605, 633. 53 Ibid, 634. 54 Olsen (n 42) 49. 55 B Furrow, T Greaney, S Johnson, T Jost and R Schwartz, Health Law (West Academic Publishing, 2014) 701–702. 56 Ibid. 57 JM Poterba, ‘Government Intervention in the Markets for Education and Health Care: How and Why?’ in VR Fuchs, Individual and Social Responsibility: Child Care, Education, Medical Care, and Long-Term Care in America (University of Chicago Press, 1996) 277, 282. 58 Ibid.

Is the Market for Healthcare Special?  31 people’s health conditions, risks and lifestyle may differ significantly. In other words, the barriers consumers face in obtaining objective measures of quality may be high.59 For example, asymmetric information emerges when an optometrist unsuccessfully performs a screening test for glaucoma.60 Given that absent other indications, ‘the patient is likely not afflicted with such a low-probability condition’, the customer may never realise that the test the health professional performed failed to meet adequate quality standards.61 Hence, informational asymmetries imply that patients rely heavily on physicians’ own morals and integrity for the quality of the services they receive.62 As a result, each patient hopes the physician to be ‘the perfect agent’, a physician who provides the patient with the combination of services that are in line with patients’ condition and needs.63 Absent any form of regulation that may cure the information asymmetries pervading healthcare markets, the quality of healthcare may actually suffer. Given, for instance, that patients may not be well equipped to identify the true quality differences between different treatment options or healthcare providers, they may end up choosing the provider that offers lower cost but also lower quality care.64 As a result, professionals who might offer higher quality healthcare services ‘may not survive the erosion of their customer base – customers who are essentially unaware that they are sacrificing quality for price’.65 As a result, in cases where curing information asymmetries may be costly or even unprofitable, healthcare providers may lack the necessary incentives to enhance their quality. The second condition, impersonal transactions, implies that consumers trust all sellers equally.66 ‘Each party to a market transaction must view one’s relation to the other as merely a means to the satisfaction of ends defined independently of the relationship and of the other party’s end’.67 In contrast with this condition, the doctor-patient relationship is rather personal. Essentially, this is because as in all continuing relationships, the notion of trust is crucial. When people feel vulnerable, they can be easily subject to exploitation. For this reason they need ‘much more secure protection than a market can afford’.68 However, people can

59 Ibid. 60 Kwoka, ‘The Federal Trade Commission and The Professions: A Quarter Century of Accomplishments and Some New Challenges’ (2005) 72(3) Antitrust Law Journal 997, 1000. 61 Ibid. 62 Ibid. 63 Olsen (n 42) 52. 64 Kwoka (n 60) 1001. 65 Ibid. 66 Olsen (n 42) 42. 67 E Anderson, ‘The Ethical Limitations of Markets’ 1990 (6) Economics and Philosophy 179, 182. 68 E Pellegrino, ‘The Commodification of Medical and Health Care: The Moral Consequences of a Paradigm Shift from a Professional to a Market Ethic’ (1999) 24 Journal of Medicine and Philosophy 243, 249, 254.

32  Introducing Competition in Healthcare build trust with whom they directly and repeatedly interact and communicate; with whom they share common values; with whom they feel free to share their own experiences and fears.69 Indeed, high quality care is the result of collaborative and continuous efforts ‘to attune professional knowledge and technologies to diseased bodies’.70 Especially when chronic diseases are involved, the continuity of care and the element of trust in the medical relationship are much more important values than mobility and choice. However, markets can negatively impact the notions of continuity and trust by promoting choice, fostering mobility and increasing the heterogeneity of trading partners.71 The third condition of private goods is also not met in healthcare markets. Private goods are goods where only the person that pays for it can enjoy the benefits from its consumption.72 On the other hand, public goods are goods and services whose consumption is not excludable.73 One example is street lights.74 Unlike private goods, in the case of public goods, people can enjoy their benefits even if they do not pay for their consumption (the so-called ‘free riders ­problem’).75 Because of free riders and because provision to many does not entail higher costs than provision to one, producers are not fully compensated for their efforts. As a result, public goods may be undersupplied.76 Somewhere in between pure private goods and pure public goods, lie goods for which more people than the one consuming it are being affected.77 When one person’s consumption of a product or service has a positive impact on others, a positive externality is created, for example the take-up of vaccines. In contrast, when one person’s consumption of a good or service has a negative impact on others, it creates a negative externality (for example smoking or communicable diseases).78 The fourth condition on which the competition model relies, selfish motivation, is also not met in healthcare markets. This condition relies heavily on the assumption that consumers purchase goods or services because they benefit from their consumption, and producers sell goods or services because they will make profits. Nevertheless, in the case of healthcare, patients and healthcare providers are also motivated by other, non-economic incentives. Patients are not indifferent as to how their health condition or choices affect others and physicians’ choice of profession is not necessarily profit-driven. And even if the maximisation of profits is what drives their decision to practise medicine, a code of professional ethics undermines their ability to exploit their patients.79

69 Ibid. 70 A

Mol, The Logic of Care, Health and the Problem of Patient choice (Routledge, 2008). (n 44) 29. 72 Ibid. 73 Greaney (n 52) 638. 74 Olsen (n 42) 49. 75 Ibid. 76 Greaney (n 52) 639. 77 Olsen (n 42) 50. 78 Ibid. 79 Ibid. 71 Satz

Is the Market for Healthcare Special?  33 Competition disciplines companies. Winning in the competition arena requires firms to offer high quality products at affordable prices.80 However, for competition to deliver its promised gifts, there must be numerous buyers and sellers in the marketplace.81 Nonetheless, in the context of healthcare services, this condition does not always hold. For instance, while in big cities, there may be several hospitals or physicians from which patients can choose, the same may not apply in rural areas. In rural areas, providers may be subject only to limited competition, and they enjoy market power. Hence, they may lack the necessary incentives to improve their performance and cut their prices. In addition, albeit to a limited extent, in the case of hospital markets, less competition and not more may lead to better outcomes. For instance, merged hospital entities have the potential of facilitating the adoption of information technologies.82 Electronic medical records and other electronic systems can also enhance performance through several mechanisms, including easier access to peoples’ medical histories, and clinical decision support systems.83 Moreover, health services studies indicate a relationship between procedure volumes and patient outcomes.84 To the extent that a hospital merger increases patient volumes for hospital providers, and higher volumes can contribute to better performance, a merged hospital entity may in certain cases result in higher quality care.85 Easy entry of healthcare providers also does not characterise healthcare markets. This is because there are specific conditions in this sector that prevent entry in the market. For instance, a considerable number of professional regulations restrict non-qualified professionals from providing healthcare services. Second, certain types of professional qualifications are required in most countries for practitioners to receive public funding.86 The heterogeneity of healthcare providers and services also contributes to the complexity of healthcare markets. As noted, for the competitive model to work, the competition model requires that buyers are not really able to differentiate between the products or services offered by multiple different sellers.87 In the healthcare context, however, the level of quality of the services offered by healthcare professionals highly correlates with the education they have received, their training and their ‘personal attributes’.88 Additionally, healthcare providers

80 Satz(n 44) 29. 81 Ibid, 30. 82 K Madison, ‘Hospital Mergers in an Era of Quality Improvement’ (2007) 7 Houston Journal of Health Law & Policy 265, 276. 83 Ibid, 276–77. 84 Ibid, 275. 85 Ibid, 276. However, research findings indicate that hospital consolidation may not necessarily improve hospitals’ performance. See for instance: ND Beaulieu, LS Dafny, BE Landon, JB Dalton, I Kuye and JM McWilliams, ‘Changes in Quality of Care after Hospital Mergers and Acquisitions’ (2020) 382 The New England Journal of Medicine 51. 86 Olsen (n 42) 51. 87 Ibid, 48. 88 Greaney (n 52) 636.

34  Introducing Competition in Healthcare that operate in the private sector often try to convince patients that the quality of the services offered by them is higher than the ones offered in the public sector ‘by wrapping their services in more attractive amenities’.89 B.  Risks to Equity Critics of healthcare markets also contend that any health system based on market healthcare delivery bears the risk of undermining health equity. Markets generally respond to consumer demand, ‘to desires backed up by money or by willingness to pay for things’.90 In fact, markets do not actually differentiate between ‘intense desires’ and ‘urgent needs’.91 Nevertheless, health systems aiming to promote health equity seek to prioritise the population’s needs and not individual desires. For this reason, they seek to distribute healthcare resources on the basis of people’s needs and not on the basis of people’s desires. Moreover, any health system based on market driven healthcare delivery carries with it the danger of cream-skimming: instead of patients choosing healthcare providers, providers choose patients on the basis of their cost.92 Popular hospitals, for example, with long waiting lists may seek to attract the patients that are less expensive to treat.93 The cream-skimming problem is also present in health insurance markets. Health insurers often try to attract the less risky consumers that do not require access to costly, continuous care and avoid the high risk and more costly ones.94 C.  The Limits of Choice: Does More Choice Mean Better Outcomes? Choice for market liberalism is crucial. Considering its strong focus on competition, individual freedom and personal autonomy, it is firmly rooted in neoclassical economics.95 The value of choice is premised on the idea that each individual is ‘an inherent utility maximizer’ and thus well equipped to make the choices that will improve her welfare. It also reflects the belief that ‘consumer sovereignty’

89 Olsen (n 42) 52. 90 Anderson (n 67) 183. 91 Ibid. 92 Le Grand (n 29) 487. 93 Ibid. 94 W Sauter, ‘The Role of Competition Rules in the Context of Healthcare Reform in the Netherlands’ TILEC Discussion Paper No 2010-004 (Tilburg Law and Economics Center, January 2010)12; T Stavroulaki, ‘Mergers that Harm Our Health’ 19 (2022) Berkeley Business Law Journal 89. 95 M Fotaki, ‘Patient Choice in Healthcare and Sweden: From Quasi Market and Back to Market? A Comparative Analysis of Failure in Unlearning’ (2007) 85(4) Public Administration 1059, 1061.

Is the Market for Healthcare Special?  35 and offering people choices will force them to reveal their preferences.96 The more the available choices, the argument goes, the better the outcomes.97 The beauty of this claim is that it offers a simple solution to many complex problems: To improve outcomes, maximise the available choices.98 This claim, however, based on the idea that human beings are doing a great job when making choices, and if not great, certainly better than anyone else would do, has proved to be flawed.99 Humans predictably make mistakes. For instance, medical research shows that people suffering from obesity are at greater risk of developing certain diseases such as heart disease and diabetes. Obesity is also linked with premature death. Nonetheless, obesity rates in the US are approximately 20 per cent and more than 60 per cent of Americans are considered either obese or overweight.100 Arguably, this example neither suggests nor indicates that humans always and necessarily fail to make good choices. On the contrary, people choose well ‘in contexts in which they have experience, good information and prompt feedback, such as when choosing ice cream flavors’.101 They do less well, though, in cases in which they lack either experience or adequate information.102 Why? People generally tend to make biased assessments of risks. They estimate frequencies or probabilities by asking how quickly examples come to their minds. Inevitably, these biased assessments of risk adversely affect people’s decision-making process and their ability to construct rational choices. As Professors Thaler and Sunstein observe, ‘easily remembered events may inflate people’s probability judgements; and if not, such events come to mind, their judgements of likelihoods might be distorted downwards’.103 Humans are also unrealistically optimistic when they exercise choice. As they often underestimate the possibility of being harmed, they may even decide not to take the necessary preventive measures.104 People also suffer from loss aversion, which is a form of cognitive nudge.105 Additionally, although people generally appreciate choice, the tendency to search long and hard significantly reduces enjoyment of the final outcome.106 96 Ibid. 97 E Peters, W Klein, A Kaufman, L Meilleur and A Dixon, ‘More is Not Always Better: Public Policy Can Lead to Unintended Consequences’ (2013) 7(1) Social Issues and Policy Review 114, 115. 98 R Thaler and C Sunstein, Nudge: Improving Decisions About Health, Wealth and Happiness (New Haven, Yale University Press, 2008) 9; T Stavroulaki, ‘Connecting the Dots: Quality, Antitrust and Medicine’ 31(2) (2019) Loyola Consumer law Review 175, 214. 99 Thaler and Sunstein, Ibid, 6. 100 Ibid, 7; Stavroulaki (n 98) 216. 101 Thaler and Sunstein (n 98); Stavroulaki (n 98) 216. 102 Thaler and Sunstein (n 98). 103 Ibid, 26. 104 Ibid, 33. 105 Ibid, 34; Stavroulaki (n 98) 217. 106 A Ezrachi and M E Stucke, ‘The Curious Case of Competition and Quality’ (2015) 3 Journal of Antitrust Enforcement 227, 247.

36  Introducing Competition in Healthcare This is because not all people have the ability to adequately assess any type of information. Some people even fail to assess fairly simple information. Others cannot even comprehend simple information.107 In one study, participants were presented with decision tasks that mainly involved locating information in tables and graphs.108 These challenges are magnified, especially when people have to predict how their choices will affect their lives.109 This is because of the ambiguity aversion people exhibit, a notion implying that people prefer to make choices in contexts where they can more easily predict the outcome rather than in contexts in which the end results are much more ambiguous.110 Thus, when humans cannot easily translate the choices they make into the experiences they may have had, they might benefit less from numerous choices or from choosing not to choose for themselves.111 In these situations, increasing the amount of information available to consumers can overwhelm cognitive abilities and inevitably lead to choices that do not serve consumers’ interests.112 Do analogous challenges affect people’s thinking when they choose healthcare providers or treatments? Considering a number of studies finding relatively little evidence of consumerism in healthcare, the answer should be positive. As one physician observer sardonically noted, ‘consumers devote more effort to select their Halloween pumpkin than they do choosing providers’.113 In fact, whilst patients appear to want information, they place the responsibility for medical decision making on the doctor.114 How can this lack of consumerism be explained in such an important aspect of people’s lives, such as health? Surely, one could argue that choosing a doctor, hospital or treatment is a complicated task since the amount of information a patient should actually evaluate in order to make the choice that best serves her interests is usually high. For example, choosing the appropriate medical treatment involves assessing the probabilities of benefit or harm from alternative forms of treatment or no treatment at all. And, as noted, experimental evidence reveals that individuals face difficulties in making good and rational decisions when they are required to weigh probabilities. Therefore, to the extent product or service characteristics increase in complexity, consumers in general (and patients in particular) may be unwilling to invest extensive time and energy into assessing all the available choices, comparing various levels of prices and quality, and choosing the product or service that better meets their needs.115



107 Peters

et al (n 97) 117. 118. 109 Thaler and Sunstein (n 98) 76. 110 Peters et al (n 97) 118. 111 Thaler and Sunstein (n 98) 76; Stavroulaki (n 98) 217. 112 Peters, et al (n 97) 117. 113 Rice(n 43) 406. 114 Ibid. 115 Ezrachi and Stucke (n 106) 247. 108 Ibid,

Is the Market for Healthcare Special?  37 Research in behavioural economics further indicates that individuals also lack the ability to make the right choices when they are particularly influenced by fears of regret from a decision.116 This is because consumers may often overestimate the probability of an adverse outcome simply because they are afraid that they might regret this decision.117 Therefore, patients that are empowered to make autonomous decisions may anticipate greater risk from treatment options compared to those whose doctors chose for them.118 Indeed, when consumers make more autonomous decisions, they tend to opt for more conservative treatment options.119 Patients’ choices regarding medical treatment may not necessarily improve their welfare for one additional reason: because they are often socially constructed.120 This means that when patients face complex health decisions, they often prefer relying on their intuition and emotions as well as trusted networks, rather than on objective, reliable information. When such biases, norms and heuristics are present, there are also two important implications for legal analysis and regulatory policy: human beings may risk making judgement errors, and their choices may not reflect the presumptions of expected utility theory.121 When patients lack the education, motivation and willingness to invest the necessary time and energy in comparing and understanding the pros and cons of multiple different options, they may risk rejecting potentially superior options and maintaining the status quo even if this may harm their welfare.122 Therefore, the introduction of patients’ choice into a health system and the resulting need to evaluate numerous complex options may itself undermine their welfare.123 D.  Market Principles and Medical Ethics: Friends or Foes? ‘Medicine is a calling, not a business’.124 Indeed, the Hippocratic Oath prohibits physicians from engaging in any act of ‘mischief or corruption’. Maimonides, for instance, admonished physicians to not allow their ‘thirst for profit’ and their craving for popularity and recognition to influence the way they practiced medicine.125 In ensuring their integrity and professional ethics, physicians have 116 TL Greaney, ‘Economic Regulation of Physicians: A Behavioral Economics Perspective’ (2008) 53 Saint Louis University Law Journal 1189, 1196. 117 Ibid. 118 Peters et al (n 97) 133. 119 Ibid. 120 Fotaki (n 38) 13. 121 Ibid. 122 Ezrachi and Stucke (n 106) 247. 123 Ibid. 124 Quote by Sir William Osler, who was a Canadian physician and one of the four founding professors of Johns Hopkins Hospital. 125 J Cohen, ‘Professionalism in Medical Education, an American Perspective: From Evidence to Accountability’ (2006) 40 Medical Education 607, 608.

38  Introducing Competition in Healthcare been historically given many privileges by broader society, including the ability to decide who can practise their profession, the freedom and power to judge how future physicians should be trained, and the power to adopt and enforce their own professional code of ethics.126 In effect, the profession pledges to society that the standards of care people receive will be competent and will not be compromised due to physicians’ self-interest. In exchange, the profession is offered ‘not only a substantial degree of autonomy over its own affairs’ but also financial security and social standing as well.127 This ‘implicit understanding’ is also known as a social contract between society and medical professionals. It is within this context that the notion of ‘professionalism’ takes its meaning. Indeed, professionalism is defined as ‘the means by which individual doctors fulfil the medical profession’s contract with society’.128 While professionalism is a broader concept, several narrower attributes animate its meaning. What are they? Dignity, altruism, excellence, integrity, dutifulness, honour and honesty.129 Opponents of the introduction of market forces in healthcare keep telling the story that the use of market mechanisms may reinforce ‘the expression of self-interest’ and undermine altruism in the profession of medicine.130 This risk is real. In fact, there is some empirical basis for the view that injecting market values in healthcare ‘does affect the balance of motivation’ and, moreover, that may risk turning the knight, a person that is altruistic or predominantly public- spirited, into a knave, a person that is predominantly motivated by selfinterest.131 How? ‘Markets leave their mark’.132 Indeed, sometimes, market values may diminish non- market values that society truly cares about.133 The rise of consumerism, for instance, can negatively impact physicians’ professional integrity and harm professional autonomy, altruism or patient centredness in medicine.134 This decrease in professionalism would ultimately harm trust, which is crucial in the practice of medicine, ‘where the stakes are as dear as life itself’.135 Certainly, patients that trust their physician are more likely to seek care when they actually need it. They are also more willing to share their experiences and personal 126 Ibid. 127 Ibid. 128 Ibid. 129 Medical Schools Objectives Project, ‘Learning Objectives for Medical Student Education: Guidelines for Medical Schools’ Report 1 (1999) Academic Medicine 74:13–8. 130 J Le Grand, Motivation, Agency, and Public Policy: Of Knights and Knaves, Pawns and Queens (Oxford University Press, 2003) 40. 131 Ibid, 43. 132 M Sandel, What Money Can’t Buy, the Moral Limits of Markets (Farrar, Straus and Giroux, 2012) 9. 133 Ibid. 134 J Dwarswaard and M Hilhorst and M Trappenburg, ‘The Doctor and the Market: About the Influence of Market Reforms on the Professional Medical Ethics of Surgeons and General Practitioners in the Netherlands’ (2011) 19(4) Health Care Analysis 388, 389. 135 M Brennan and V Monson, ‘Professionalism: Good for Patients and Health Care Organizations’ (2014) 89(5) Mayo Clinic Proceedings 644, 645.

Is the Market for Healthcare Special?  39 information and adhere to physicians’ advice to return in case they need followup care. Arguably, all these factors may significantly improve health outcomes. An empirical study in the Netherlands aiming to spark the debate on the relationship between market values and physicians’ professional integrity136 illustrates that the risk that the introduction of competitive forces in healthcare may harm a core dimension of healthcare quality, acceptability, is not fictional. Specifically, the question that this empirical study in the Netherlands delved into was whether and to what extent market reforms in medical markets may undermine physicians’ motivation to adhere to medical professional ethics in the Netherlands.137 To address this question, health policy researchers conducted a survey. In fact, they interviewed 27 surgeons and 28 GPs in 2008 and 2009.138 The researchers conducted this survey two years after the introduction of the 2006 Health Insurance Act that made private health insurance compulsory for all. To better understand the main findings of this empirical study it is important to know some facts: First, while some of the medical services in the Netherlands have fixed prices, others, such as elective surgery, are freely negotiable.139 Second, private health insurers often attempt to attract clients by offering them treatment guarantees.140 For instance, if a patient is diagnosed with breast cancer, her health insurer may guarantee that the patient will be treated within two weeks.141 Third, GPs in the Netherlands are often compensated on the basis of a fee-for service model. Hence, GPs who perform minor elective surgeries may charge patients much higher prices than they did before 2006.142 Lastly, while GPs in the Netherlands work in independent practices in the neighbourhood of their patients, surgeons work in hospitals.143 GPs refer patients to surgeons. Hence, they are the primary gate-keepers to hospital care.144 Both GPs and surgeons were asked whether they had identified any changes in the way they practiced medicine after the injection of market values into the Dutch health system.145 Not surprisingly, only a minority of respondents, one surgeon and seven GPs, took the view that they had not noticed any change in their day-to-day work.146 All other participants maintained that the market

136 Dwarswaard, Hilhorst and Trappenburg (n 134) 390. 137 Ibid. 138 Ibid, 391. 139 Ibid, 390. 140 Ibid. 141 Ibid. 142 Ibid. 143 Ibid, 191. 144 Ibid. 145 Most respondents had an understanding of what marketisation meant in the context of Dutch healthcare in general and their own work in particular, but for those respondents who asked for a clarification the survey conductors provided some examples, such as: more competition between care providers, more marketing and public relations, fear of losing customers, shifting priorities, Ibid, 391. 146 Ibid, 393.

40  Introducing Competition in Healthcare reforms had affected the way they pursued their profession.147 Eleven surgeons, for example, confessed that they increasingly felt the need to sell themselves and market their performance.148 Before the marketisation took place the medical association in the Netherlands (the KNMG) had always insisted that physicians should not try to self-promote themselves through advertisements.149 Physicians obeyed this rule. Nonetheless, the introduction of market values into the Dutch healthcare sector not only abolished the anti-advertisement rule but it also made it illegal for the medical association to uphold this ethical rule.150 Surgeons described how physicians attempted to self-promote themselves after the anti- advertisement rule became obsolete.151 Some of them organised a visiting tour among GPs in the neighbourhood. What they aimed for was to convince GPs to refer more patients to their hospital.152 One surgeon illustrated that his hospital had managed to become ‘the first google hit for certain types of operations’.153 Other promotional activities involved ‘publishing advertorials in local newspapers, distributing leaflets, inviting a pop group to sing in the hospital to generate more publicity and buying advertising space on the back of a local bus’.154 The majority of the surgeons further confessed that when the new system was adopted, they felt more motivated to pay attention ‘to minor afflictions’.155 Because ‘their hospitals had invested in clinical paths and speedy treatment for patients suffering from varicose veins and inguinal ruptures, the standardization of these simple treatments had become a number one priority’.156 Other surgeons further admitted that they had started investing more time and energy on routine, non-risky operations that were more profitable for hospitals.157 Surely, this goes to the detriment of patients in need of major, risky surgical procedures. Others condemned marketisation on the basis that it undermines the application of the primum non nocere medical principle: ‘first of all do not harm’.158 147 Ibid. 148 Ibid, 394. 149 Ibid. 150 Ibid. 151 Ibid. 152 Ibid. 153 Ibid. 154 Ibid. 155 Ibid, 395. 156 Ibid. 157 Ibid, 400. 158 This is one of the first principles of medical professional ethics, featuring prominently in the Hippocratic Oath. In Dutch GP practice the ‘do no harm’ principle used to be interpreted as follows: ‘Any medical performance by any doctor is a form of medicalization and thereby potentially harmful. If a patient can recover without therapy or medication it is far better to forego treatment. If a patient really needs medication or therapy, he should get it, but preferably as little as possible. Thus, if a patient can be treated at home by his GP this is to be preferred over hospital treatment. Hospital is a sickening environment and hospital treatment takes the patient out of his private surrounding which is unsettling and potentially unhealthy’, Ibid, 398.

Is the Market for Healthcare Special?  41 In fact, some surgeons claimed that some of their colleagues performed unnecessary operations. Some GPs also reported that some colleagues started treating conditions that did not even necessitate treatment.159 More importantly, others started performing examinations which they would have considered completely unnecessary in the past.160 E.  Reflecting on the Complexities of Healthcare Markets: Do Le Grand’s Conditions Consider All Facets of Healthcare Quality? Le Grand’s conditions reflect the above market realities only partially. To elaborate: Le Grand suggests that for healthcare markets to work optimally, competition must be real and market entry must be easy.161 Nonetheless, one would wonder how real competition between providers would be and how easy entry could be since healthcare markets are highly regulated in terms of entry. Furthermore, one would wonder how real competition could be considering that, unlike other markets in healthcare, patients are not indifferent as to who the provider of the service is. Thus, they do not easily change healthcare providers because that would harm the continuation of their treatment. The fact that patients do not easily change providers might be an additional reason why entry into healthcare markets is not easy and competition cannot be real. Le Grand does not only speak about an easy entry but also about easy exit when he identifies the conditions under which the choice and competition model should apply to healthcare.162 Indeed, barriers to exit can undermine the goal of competition. When inefficient providers do not exit the market, rivals’ incentives to compete for market share may be weaker.163 However, proposing easy exit as a means to promote efficiency and quality raises equity and access concerns. Ensuring the continuity of health services, especially in the provision of hospital services, albeit an important source of barriers to exit,164 is a necessary condition for the protection of equity and access. Therefore, whenever health systems choose to encourage competition among providers to guide allocation of resources, it is necessary to first define a way to ‘punish’ poor and inefficient providers without undermining continuity of care.165 Should states, for example, let failing hospitals exit if they operate in rural or disadvantaged areas where access to alternative providers is limited? Alternatively, should competition authorities clear a hospital merger that increases market power on 159 Ibid. 160 Ibid. 161 Le Grand (n 29) 485. 162 Ibid. 163 Office of Fair Trading (OFT) (currently CMA), Competition in Public Services (Policy Report, 23 May 2013) 9. 164 Ibid. 165 European Commission (n 1) 36.

42  Introducing Competition in Healthcare the basis that it ensures merging entities’ financial stability and therefore the continuity of services? These questions, albeit crucial, are not easy to address. Nonetheless, they beg for further thinking both by competition authorities and health policy makers. Le Grand further claims that patients should be given the relevant information and be helped to make choices so that competition in healthcare markets works effectively.166 Thus, Le Grand proposes that governments should introduce tools that would help consumers evaluate and compare healthcare providers. Arguably, Le Grand notes this condition, considering that information between patients and healthcare providers is distributed asymmetrically and not all patients have the time, ability and knowledge to evaluate the quality of different healthcare providers and make choices that will improve their welfare. Can the use of choice tools fully correct this market failure and enhance quality competition among healthcare providers?167 Considering some choice tools that are used in the UK, such as the NHS choice tool168 and iWantGreatCare.org,169 the answer is not necessarily positive. The NHS choice tool is a government-provided search service aiming to disseminate information on NHS healthcare services.170 To reduce puffery, this tool sets strict limits on what can be posted. Further, it does not allow comments about any identifiable physician or nurse. The NHS choice tool provides information for more detailed comparisons of the facilities at different hospitals and 166 Le Grand (n 29) 488. 167 Government websites are also an important source of information about healthcare quality in the US. The federal Medicare website now provides aggregate ratings based on patient experiences (patients who reported that their nurses ‘always’ communicated well); care processes (heart attack patients given aspirin at discharge); and outcomes (‘death rate for heart attack patients’, ‘rate of unplanned readmission after hip/knee surgery’, ‘Central line-associated bloodstream infections’). The Patient Protection and Affordable Care Act (ACA) has also called for the development of new quality measures, established report programmes for additional types of healthcare performance and mandated the creation of a website that will report physician quality. Hospital quality information is also provided by non-governmental institutions such as the Joint Commission, which accredits hospitals as well as health plans. In many states broad coalitions of stakeholders such as hospitals, physicians and health plans have come together to jointly publish quality ratings: Madison (n 82) 683–85. In the Netherlands, the Government also has a website (www.kiesbeter.nl) to help consumers choose healthcare providers. It used to contain information to assist consumers in selecting health insurance packages, but the Government has argued there are sufficient nongovernmental websites available to fulfil this role. The site offers information on the availability of services, waiting lists and aspects of quality of services, including information collected by the Health Care Inspectorate and quality information collected through specific measurements. Since 2014, general information about public health and healthcare can be found at another website, VolksgezondheidEnZorg.info. In addition to these governmental initiatives, a variety of independent and commercial websites offer information on quality, waiting lists, prices, insurance plans and patient satisfaction, see M Kroneman, W Boerma, M van den Berg, P Groenewegen, J de Jong and Evan Ginneken, ‘The Netherlands: Health System Review. Health Systems in Transition’, Vol 19, No 2 (European Observatory on Health Systems and Policies, 2016) 46. 168 www.nhs.uk/nhs-services/hospitals/about-nhs-hospital-services/. 169 www.iwantgreatcare.org/. 170 OFT (currently CMA), Empowering Consumers of Public Services through Choice Tools’ (April 2011) OFT1321, 17.

Is the Market for Healthcare Special?  43 their performance on specific quality dimensions. Essentially these are mortality rates, or the percentage of Accident & Emergency (A&E) attendees who are transferred, admitted or discharged within four hours of arrival.171 The second tool, iWantGreatCare.org, allows patients to rate healthcare professionals on the basis of their own healthcare experiences.172 Specifically, patients rate professionals on three dimensions; listening skills, trust and whether they would recommend them to others.173 On the basis of patients’ experiences, an overall rating percentage is created.174 Patients can also rate hospitals, again, on specific dimensions. These are dignity, involvement, information, cleanliness, staff, and whether they would recommend the patient.175 Patients can search for healthcare providers by geography and specialisation to compare reviews.176 Can these choice tools truly help consumers surpass the challenges they face in choosing providers or treatments in healthcare? Can they fully safeguard that patients have easy access to truthful, important and credible information? To start with, these tools can be used only by people who are able to effectively use the internet. Some vulnerable groups in our society, though, do not even have internet access.177 In addition, tools such as iWantGreatCare.org provide information on quality in an overly simplistic way. Since patients do not necessarily have the capacity to assess complex information regarding the quality of care they actually receive, iWantGreatCare.org offers information to patients in a more accessible but less accurate way. Indeed, patients can easily evaluate hospitals’ cleanliness or staff’s listening skills. Nonetheless, when choosing a healthcare provider, other dimensions of healthcare quality, such as effectiveness and safety, may be much more crucial. However, because patients cannot easily evaluate these quality dimensions, they are not included in patients’ reviews. Moreover, choice tools may create incentives for service providers to improve their performance in the areas publicised by them.178 Crucially, this can undermine the quality of the service they actually offer. This is because measures that successfully shift providers’ attention to an area in need of improvement will have the disadvantage of shifting attention away from other areas.179 Furthermore, choice tools that provide information based on patients’ views might erode quality competition by providing false or inadequate information. Patients’ experiences are subjective. Therefore, patients may not always provide an accurate assessment of their medical treatment and healthcare experiences.

171 See, eg, www.nhs.uk/service-search/other-services/Hospital/Sheffield-Green/Results/3/0.01/ 51.004/7/18768?distance=25. 172 OFT (currently CMA) (n 170) 18. 173 Ibid. 174 Ibid. 175 See, eg, www.iwantgreatcare.org/hospitals/northgate-therapy-centre. 176 OFT (currently CMA) (n 170) 18. 177 Ibid. 178 Ibid, 24. 179 Madison (n 82) 686.

44  Introducing Competition in Healthcare The NHS choice tool offers patients more detailed information on hospitals’ performance. In fact, it offers information on health outcomes, such as readmission rates or mortality rates. Quality indicators evaluating hospitals’ performance on the basis of health outcomes may be misleading. Differences in health outcome indicators may not necessarily relate to differences in quality of care. Indeed, as the previous chapter illustrated, differences in health outcomes or mortality rates might relate to differences in the type of patients that are cared for by the different providers.180 Therefore, factors such as age, gender, co-morbidity, severity of disease and socioeconomic status should also be considered when comparisons are made on the basis of outcome measures, such as mortality rates.181 Differences in health outcomes might also relate to differences in the way data are collected.182 Only if one cannot actually explain the quality variations in terms of differences in the type of patient, in how the data were collected, or the geographic location of the healthcare provider, can differences in quality be the answer.183 This point is crucial. Measures that do not reflect the true quality of each provider due to inadequacies in underlying data or measure design can erroneously harm the reputation of providers, mislead patients and erode quality competition among providers.184 Moreover, using outcome comparisons in market-based health systems, where each provider’s ability to attract patients highly depends on its rates and reviews, can incentivise healthcare providers to game.185 For instance, the publication of mortality rankings may incentivise providers to reject high complexity, high risk patients only with a view of improving their ranking position.186 In other words, using mortality rates to correct the asymmetric distribution of information in healthcare may inevitably raise equity concerns. The NHS Choice tool provides information not only on the outcome but also on the process of care, such as waiting time. Nonetheless, the NHS experience in the 1990s reveals that publishing information on providers’ waiting times may also incentivise providers to game.187 In the 1990s the Labour Government, aiming to induce hospital performance, applied a targets error system of governance or else a star rating system. Under this regime, health authorities rated hospitals on the basis of specific dimensions, such as waiting times. Patients in

180 J Mant, ‘Process Versus Outcome Indicators in the Assessment of Quality of Care’ (2001) 13(6) International Journal of Quality in Healthcare 479. 181 Ibid. 182 Ibid. 183 Ibid, 477. 184 Madison (n 82) 686. 185 H Palmer, ‘Using Health Outcomes Data to Compare Plans, Networks and Providers’ (1998) 10(6) International Journal for Quality in Healthcare 482. 186 European Commission (n 1) 41. 187 Gaming here is defined as reactive subversion such as hitting the target and missing the point or reducing performance where targets do not apply: C Hood and G Bevan, ‘What’s Measured is What Matters: Targets and Gaming in the English Health Care System’ (2005) 84(3) Public Administration 517, 521.

Is the Market for Healthcare Special?  45 hospital A&E departments, for example, should be seen within four hours. Life threatening calls made to the ambulance services should be met within eight minutes.188 The targets and terror regime improved hospitals’ reported performance impressively.189 Nonetheless, whether reported performance accurately reflected reality has been highly questioned.190 Ambulance trusts, for example, achieved the response time target ‘by relocating depots from rural areas to urban areas’.191 For hospital A&E waiting-time targets, ‘output-distorting gaming response was also documented’.192 First, a study measuring ‘the distribution of waiting times in A&E found frequency peaked at the four-hour’.193 Studies conducted by the British Medical Association also identified two main types of gaming response: ‘the drafting in of extra staff and the cancelling of operations scheduled for the period over which performance was measured’.194 Hospitals also ‘required patients to wait in queues of ambulances outside A&E Departments until the hospital in question was confident that that patient could be seen within four hours’.195 Unfortunately, such strategies may have caused significant ‘delays in responding to seriously ill individuals when available ambulances were waiting outside A&E to offload patients’.196 This example demonstrates that, again, gaming may create serious equity concerns. Exactly because quality indicators may not fully capture all dimensions of healthcare quality, such as effectiveness, patients do rely on doctors’ experience and advice when they have to choose either the appropriate medical treatment or healthcare provider. This is the reason why both in the UK and the Netherlands GPs do not only offer their medical services as physicians, but they also act as gate-keepers. From the perspective of healthcare quality, this might be desirable. Arguably, if patients cannot accurately assess providers’ performance on the basis of the clinical aspects of quality, they might choose a provider on the basis of short waiting lists, or secondary aspects of quality such as comfort, meals, decoration. From the perspective of competition, though, this might not be desirable since the more doctors behave as their patients’ agents, the more their market power increases. In considering the conditions under which the choice and competition model in healthcare should function, Le Grand also seems to integrate some equity concerns in his proposals. In fact, Le Grand takes the view that the State should reimburse the transport costs of the less well-off patients.197 Undoubtedly, to 188 Ibid, 526–27. 189 L Stirton, ‘Back to the Future, Lessons on the Procompetitive Regulation on Health Services’ (2014) 22(2) Medical Law Review 180, 191. 190 Ibid. 191 Hood and Bevan (n 187) 530. 192 Ibid. 193 Ibid, 531. 194 Ibid. 195 Ibid. 196 Ibid. 197 Le Grand (n 29) 484.

46  Introducing Competition in Healthcare a certain extent, this intervention would widen the geographical area within which patients can choose and reach providers. Additionally, this measure would facilitate competition between healthcare providers. However, first, this measure cannot apply to patients seeking urgent care. Second, transport cost is not the only barrier less well-off patients face in terms of access to care. Potential restriction to access because of successful gaming is an additional barrier to access. Le Grand’s proposals seem to recognise this additional equity concern. Nonetheless, they do not fully address it. More specifically, Le Grand proposes that hospitals and other treatment centres should be required to accept whoever is referred to them.198 However, this proposal does not seem a comprehensive one since it underestimates that even if hospitals are required to treat all patients, they can still avoid high risk patients by, for instance, avoiding contracting with high quality surgeons specialised in complex high risk surgeries. Le Grand further proposes that hospitals should receive higher compensation for higher risk patients. However, at the same time, Le Grand admits that this proposal does not fully address potential restrictions to equity as he also underlines and admits that risk adjustment is a complex and difficult business.199 What does the above analysis aim to illustrate and reveal? In brief it aims to highlight that the objective of real competition in healthcare might not always be in line with the pursuit of core facets of healthcare quality such as safety, access, equity, effectiveness, acceptability and continuity. Indeed, because of the special features of healthcare provision, a free healthcare market without any form of regulation would harm these essential dimensions of quality. This is the reason why healthcare in Europe is regulated at a macro level via state regulation, at a ‘meso’ level by the management bodies, insurers and/or purchasers of healthcare, and at micro level by providers as such with the latter promoting patients’ interests.200 III.  APPLYING COMPETITION LAW WITH A VIEW TO PROTECTING HEALTHCARE QUALITY: WHAT ARE THE CHALLENGES?

The previous section explored what the special characteristics of healthcare markets are. It also highlighted that because of these special characteristics, absent of any form of regulation, the introduction of competition in healthcare may

198 Ibid, 487. 199 Ibid. 200 K Raptopoulou, EU Law and Healthcare Services, Normative Approaches to Healthcare Systems (Kluwer Law International, 2015) 152. In the chapters that follow some examples from the applicable regulatory framework in the UK and US that aims to protect healthcare quality in the provision of medical and hospital services will be analysed.

Applying Competition Law to Protect Healthcare  47 substantially harm specific dimensions of healthcare quality. This section aims to raise one more crucial concern: that in light of potential conflicts between the pursuit of healthcare quality and the pursuit of competition in healthcare, some competition problems may emerge that may not easily be addressed by competition authorities. For instance, because competition among providers may in certain cases harm quality, healthcare providers or medical associations may often engage in anticompetitive agreements in order to protect key facets of this notion. In the same vein, hospitals may pursue mergers that can increase market power with a view to ensuring safety, promoting equity and improving clinical outcomes for patients. Medical associations may insist that a specific decision or agreement restricting choice for patients is necessary for the protection of public safety. In light of these concerns, this section shines a light on the challenges competition authorities should expect to face in addressing these competition law concerns with a view to protecting the goal of healthcare quality. To begin, one of the most important challenges competition authorities in Europe may face when applying competition law in healthcare is how to define, assess and protect quality. In general, adopting ‘a single exhaustive definition of quality’ is not an easy task for competition authorities and the courts.201 Indeed, some scholars have eloquently explained, ‘trying to define quality is a bit like trying to nail jelly to a wall’.202 Quality is a multidimensional concept that encompasses multiple factors, such as location, safety, design and performance.203 It is also a ‘relative concept’ to the extent that the level of quality of each specific product or service is defined by reference to the quality of other products or services.204 It is also a subjective concept. This is because while some facets of healthcare quality may be valuable for a specific group of consumers, they may not be for others.205 For example, a set of pizza delivery customers may all share the view that both the speed of delivery and the variety of choices are essential facets of quality. However, some may consider that the speed of delivery or customer service are the most essential factors of quality, while others may care more about the variety of choices.206 In sum, the multifaceted and indistinct nature of quality makes the task of defining this notion a challenging one.207 How is quality defined and assessed under EU competition law? Has the Commission provided specific guidance as to how it factors quality concerns into a competition analysis? Delving into this question requires a short visit to the Commission’s guidance. 201 Organisation for Economic Co-operation and Development (OECD), Policy Roundtables, ‘The Role and the Measurement of Quality in Competition Analysis’. DAF/COMP (2013)17, 6. 202 Ibid, 12. 203 Ibid, 6. 204 Ibid. 205 Ibid. 206 Ibid, 11. 207 Ibid, 6.

48  Introducing Competition in Healthcare To start, quality becomes a factor both in antitrust and mergers analysis.208 The Commission’s guidelines regarding Horizontal Cooperation Agreements acknowledge, for example, that for an agreement to have restrictive effects on competition within the meaning of Article 101(1) TFEU it must have, or be likely to have, an appreciable adverse impact on at least one of the parameters of competition on the market, such as price, output, product quality, product variety or innovation.209

Agreements can have such anticompetitive effects when they appreciably restrict competition between the parties to the agreement or between any one of them and third parties. Research and Development (R&D) agreements for example may substantially reduce the quality or the variety of goods or services or harm innovation.210 This might be the case when the firms engaged in the development of a new product or service agree to co-operate at a stage where each of them could independently design and produce an innovative product or service.211 Production joint ventures may also diminish quality by incentivising the parties’ agreement to directly align quality.212 Standardisation agreements can also reduce quality competition ‘by setting detailed technical specifications for a product or service and therefore by impeding technical development and innovation’.213 Vertical agreements can also reduce the products’ quality, and harm innovation by weakening competition or by facilitating foreclosure and collusion at the manufacturer’s level.214 More than that, they can reduce the availability and quality of retail services and the level of innovation at the distributor’s level.215 Quality considerations are also taken into consideration in the context of an Article 101 (3) Treaty on the Functioning of the European Union (TFEU) analysis. Given that EU competition law aims to protect competition in the market so that consumer welfare is promoted and the efficient allocation of resources is ensured,216 agreements that restrict competition may at the same time also present some procompetitive benefits or else efficiencies. Efficiencies can take the form of either cost or qualitative efficiencies. While cost efficiencies can reduce the cost of producing an output, qualitative efficiencies can contribute to quality improvements or to the creation of a new product or service.217 Depending on 208 Ibid, 77. 209 Communication from the Commission, Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to Horizontal Co-operation Agreements (Text with EEA relevance) 2011/C 11/01, para 27. 210 Ibid, para 1. 211 Ibid. 212 Ibid, para 157. 213 Ibid, para 166. 214 Commission Notice, Guidelines on Vertical Restraints, Brussels, SEC (2010) 411, para 101. 215 Ibid. 216 Communication from the Commission, Guidelines on the application of Article 81(3) of the Treaty [2004] OJ C/101 (formerly Article 81 (3) TEC), para 33. 217 Ibid.

Applying Competition Law to Protect Healthcare  49 each specific case, qualitative efficiencies can be even more important than cost efficiencies.218 R&D agreements, for instance, generate substantial qualitative efficiencies.219 Joint production agreements also produce qualitative efficiencies by facilitating the production of new or innovative products or services.220 Distribution agreements can also lead to qualitative efficiencies. Specialised distributors, for instance, can provide services that better meet customers’ wants and needs or offer better delivery services throughout the distribution chain.221 Quality considerations can also be injected into the merger analysis. The Commission’s substantive test for examining the anticompetitive effects of mergers as described and reflected in the Merger Regulation ‘is based on significant impediment of effective competition (SIEC)’.222 The SIEC test takes into consideration not only price and output restrictions but also reductions in innovation, choice, and in general any harm to competition emerging from quality reductions.223 The significant role that quality can play in a merger analysis is specifically acknowledged in both the Horizontal and Non-Horizontal Merger Guidelines.224 The Horizontal Merger Guidelines225 illustrate that effective competition brings significant benefits to consumers. Within this context, the Commission’s assessment of mergers aims to prohibit any transaction that may deprive consumers of the virtues of competition, notably low prices, high quality products, wider choice and innovation.226 These are the mergers that would substantially increase merging parties’ market power or else their ability to profitably increase prices, reduce output and choice, diminish quality or innovation.227 The test also allows for the consideration of efficiencies, which may bring quality improvements. For the Commission to integrate efficiencies in its merger analysis and reach the conclusion that in light of the presented efficiencies, the merger should not be prohibited, the efficiencies have to pass on to consumers, be merger-specific and be verifiable.228 As in the case of Article 101 (3) TFEU, such efficiencies might be cost or qualitative efficiencies in the form of new or innovative products and services.229 The Non-Horizontal Merger Guidelines230 also provide a similar analytical framework for the assessment of innovation. Specifically, they clarify that 218 Ibid, para 69. 219 Ibid, para 70. 220 Ibid, para 71. 221 Ibid, para 72. 222 OECD (n 201) 82. 223 Ibid, 83. 224 Ibid. 225 Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings [2004] OJ C31/5. 226 Ibid, para 8. 227 Ibid. See also OECD (n 201) 83. 228 Ibid, paras 80–81. 229 Ibid. 230 Guidelines on the assessment of non-horizontal mergers under the Council Regulation on the control of concentrations between undertakings [2008] OJ C265/6.

50  Introducing Competition in Healthcare when the Commission examines the potential anticompetitive effects of a nonhorizontal merger, it also assesses its impact on quality.231 In these guidelines, the Commission also clarifies that its merger analysis seeks to identify not only the mergers’ anticompetitive effects but also its procompetitive benefits.232 As these guidelines say, ‘a vertical merger can align the incentives of the parties with regard to investments in new products, new production processes and in the marketing of products’.233 For instance, whereas before the merger, a downstream distributor might not be willing to invest in advertising campaigns or marketing efforts that may inform consumers about the qualities of products of the upstream entity because such investments would also increase the sales of other downstream competitors, the merged entity may reduce such incentive problems.234 This brief overview reveals that quality is not specifically defined in the Commission’s guidelines and policy documents. Under EU competition law, quality forms part of a wider category of dynamic effects on competition.235 In fact, it is considered an important aspect of competition analysis which is highly related to innovation, choice and product entry. Should competition authorities in Europe choose to define quality as choice, variety and innovation in healthcare? Defining and assessing quality as innovation and choice in the healthcare sector might be a wise policy option for various reasons. First and foremost, it would guarantee the consistent application of competition law in different sectors. Second, a notion of quality which mainly relates to choice and variety can be easily assessed by competition authorities. Therefore, the enforcement of competition law in the healthcare sector would not entail higher costs for competition authorities. This is because defining quality as choice would be in line with the central mantra of competition policy that competitive market forces, apart from lowering prices, can also promote efficiency and quality.236 Furthermore, the antitrust enforcers, when taking into consideration quality, do not specifically attempt to quantify how a challenged restraint or transaction would affect quality. Instead, they assess quality by relying on two heuristics. One heuristic is that more competition will lead to higher quality for a given price or reduce the price for a specific level of quality.237 A second heuristic is that ‘when prices and quality vary, consumers will weigh the offerings using an internal price–quality metric’.238 Price adjusts for quality, and ‘consumers rely on the heuristic you get what you pay for’.239

231 OECD

(n 201) 85. on the assessment of non-horizontal mergers (n 230) para 21. 233 Ibid, para 57. 234 Ibid. 235 OECD (n 201) 80. 236 Ezrachi and Stucke (n 106) 227. 237 Ibid, 228. 238 Ibid. 239 Ibid. 232 Guidelines

Applying Competition Law to Protect Healthcare  51 Nevertheless, if antitrust enforcers defined healthcare quality strictly as choice, innovation and variety they might fail to particularly consider health policy makers’ views on how quality in care is actually achieved. In other words, they might fail to protect the notion of healthcare quality as a whole. For instance, as noted in the previous section, when healthcare markets are at stake, the notion that more competition or choice will necessarily improve quality does not necessarily reflect market reality. Quite the opposite in some cases. Less choice might lead to quality improvements. For example, in hospital markets research in healthcare quality reveals that larger hospital entities may be more able to develop effective quality improvement mechanisms than smaller ones. Healthcare quality research has demonstrated that peer influence speeds the adoption of beneficial therapies.240 Clinical evidence has also illustrated that ‘the mortality of patients has a direct inverse relation to the number of operations carried out by surgeons’.241 Therefore, hospitals may decide to merge in order to increase the volume of their surgeries and the overall quality of their services. Hence, if antitrust authorities were unwilling to divert from their usual heuristic that more choice and competition lead to quality, they may not seriously consider the insights of health services research on how healthcare quality in hospital services is improved. Moreover, if competition authorities strictly defined quality as choice they might also fail to consider the core objectives of their health system, such as health equity. For instance, socio-economic status, whether assessed by financial status, level of education, or profession, highly correlates to poorer health outcomes.242 Poorer neighbourhoods, for example, are ‘disproportionately located near highways, industrial areas, and toxic waste sites, since land there is cheaper and resistance to polluting industries, less visible’.243 The quality of housing is also poorer for low socioeconomic status families.244 As a result, compared with affluent families, ‘both children and adults from poor families show a six-fold increase in rates of high blood lead levels while middle-income adults and children show a two-fold increase’.245 Childhood asthma incidence is also increasing in urban neighbourhoods among children that come from poor families, and the severity is greater among these children.246 Should competition authorities clear a hospital merger, although it leads to market power in the respiratory services market on the basis that it will allow the merged entity to employ the most reputable respiratory specialists? Should this merger be allowed on the basis that it will ensure merging entities’ financial stability and therefore 240 Madison (n 82) 276. 241 Ibid. 242 N E Adler and K Newman, ‘Socioeconomic Disparities in Health: Pathways and Policies’ (2002) 21(2) Health Affairs 60. 243 Ibid. 244 Ibid. 245 Ibid, 66. 246 Ibid.

52  Introducing Competition in Healthcare access to respiratory services to the most disadvantaged groups in our society? If choice and competition are the main dimensions of healthcare quality, then the answer is clearly a negative one. This is because, in this case, competition authorities may not be entitled to integrate equity concerns in their definition of healthcare quality. Additionally, if the antitrust authorities defined quality mainly as choice, their assessment might not be fully in line with the economic characteristics of the healthcare markets. Healthcare markets are pervaded by market failures. In these markets, patients face serious difficulties in choosing providers or medical treatments. Indeed, patients do not have the knowledge and capacity to judge and evaluate all aspects of healthcare quality. Surely, they are able to evaluate the quality of hospitals’ amenities. They may also judge healthcare professionals’ listening skills or commitment to their profession. They may not be able to judge, though, doctors’ professional qualifications or hospitals’ clinical effectiveness. Search engines that provide information on quality, such as iWantGreatCare.org may not correct this market failure as they either provide information on specific aspects of quality, such as waiting times and mortality rates, or they provide information on quality that cannot easily be verified since it is often based on patients’ personal experiences. To correct this asymmetry of information, driven by their motivation to protect patients’ interests and improve clinical outcomes, medical professionals may intervene in the markets they operate by imposing their own views on how healthcare quality is improved. This is because self- regulation is a key component in medicine. Indeed, many physicians during their careers are involved in setting, implementing and possibly enforcing professional standards.247 While creating or enforcing these standards, however, physicians and medical associations may engage in anticompetitive agreements with an eye to promoting healthcare quality. Some doctors, for example, question the contribution of homeopathy to health outcomes. Indicatively, in England some doctors do insist that homeopathic type of care should be excluded from the NHS.248 Indeed, Members of the British Medical Association have claimed that ‘homeopathic remedies should be relegated to shelves labelled placebos and that NHS money should not be spent on treatments that are scientifically implausible’.249 Convinced that homeopathy should not be seen as an alternative form of medical treatment, the British Medical Association may publish guidelines disincentivising doctors from cooperating with homeopathic hospitals or doctors. This decision may be considered anticompetitive on the basis of Article  101 TFEU since it

247 WW White, Professional Self-Regulation in Medicine (2014) 16(4) American Medical Association Journal of Ethics 275. 248 See S Boseley, ‘Ban Homeopathy from NHS, say Doctors’ The Guardian (29 June 2010), available at www.theguardian.com/society/2010/jun/29/ban-homeopathy-from-nhs-doctors. 249 Ibid.

Applying Competition Law to Protect Healthcare  53 restricts competition between medical professionals or between homeopathic and non-homeopathic hospitals. If competition authorities took the view that choice and competition actually increase quality in medical markets, then the medical association’s decision is clearly anticompetitive. Nevertheless, if competition authorities particularly considered that this decision may also correct the asymmetry of information in the market for healthcare services and therefore contribute to health outcomes, then they might also consider that this agreement can bring some procompetitive benefits that should be considered in the context of a competition analysis. Moreover, GPs in the Netherlands and England do not only provide medical services, but they act as gate-keepers too. Thus, they perform the important task of referring patients to hospitals for treatment. GPs may have their own views on which hospital offers good or poor-quality services. For this reason, they might agree to boycott specific hospitals that do not meet their own standards of medical treatment. They might, for instance, agree to stop referring patients to these hospitals. Again, if choice and variety were the main components of quality their agreement might be considered harmful to competition. If, however, competition authorities took the view that patients may not necessarily make the choices that will improve their welfare when choosing healthcare providers, then they might be more willing to consider that doctors act as patients’ agents, and therefore, their agreement does nothing more than correct the information asymmetries characterising healthcare markets. The analysis above clearly demonstrates that defining quality strictly as choice may yield conflicts between medical professionals, health policy researchers, and antitrust enforcers on how healthcare quality is actually achieved. In Donabedian’ s language, this conflict would undermine commitment in achieving healthcare quality, as not all functions and institutions in the health system would actually agree on the main facets of healthcare quality. What are the alternatives? And, most importantly, what are their pros and cons? To avoid conflicts between medical professionals, health policy makers, and antitrust enforcers and integrate into their assessment the multiple facets of healthcare quality, antitrust enforcers may consider widening their definition of quality in the healthcare sector. Specifically, they may choose to integrate into their definition of quality the views of medical professionals and health policy makers and researchers. In other words, they might define quality in healthcare as a multidimensional concept encompassing a wider set of objectives such as efficiency, equity, acceptability, access, safety and effectiveness. This definition would be in line with the definition that has been adopted by international organisations, Donabedian and the Institute of Medicine (IOM). Would the adoption of this wider definition of healthcare quality transform the application of competition law in healthcare? I believe that the answer should be positive. This is because if competition authorities adopted a wider definition of healthcare quality they would be able to trade between different components of quality

54  Introducing Competition in Healthcare that in certain cases may inevitably clash. They would be able, for example, to balance safety and effectiveness versus choice and competition, acceptability versus choice and competition, equity versus choice and competition. This point is crucial and therefore providing some examples is essential. The injection of market values in hospital markets can erode public trust in healthcare. The analysed empirical study in the Netherlands in fact demonstrated that, following the marketisation of the Dutch health system, doctors and hospitals felt an increasing pressure to increase GP referrals by advertising their services.250 To increase publicity some surgeons even organised visiting tours among GPs in the neighbourhood, so as to encourage these GPs to send their patients to their hospital.251 Obviously, doctors’ participation in such marketing efforts may harm public trust in medicine since patients may increasingly start believing that surgeons offer their services guided by their own self-interest and not by their commitment to promote patients’ wellbeing. Medical associations animated by their belief that the nurturance of trust in the therapeutic relationship is essential, might engage in self-regulation prohibiting medical professionals from participating in hospital marketing campaigns. Specifically, they may issue guidelines aiming to restrict doctors’ freedom to advertise themselves by promoting their qualifications or special talents. If competition authorities defined quality in care only as choice these practices would be deemed anticompetitive. Nonetheless, if antitrust enforcers saw quality as a wider notion that encompasses also the value of acceptability or else the notion of trust in the doctor-patient relationship, then they may be more willing to seriously examine medical associations’ arguments that their restrictive practices ensure public trust in medicine and therefore improve health outcomes. Undoubtedly, similar considerations emerge in the case of hospital merger cases. If antitrust enforcers integrated into their definition of healthcare quality the perspectives of health services researchers they may be more willing to at least consider the claim that a hospital merger should be accepted, although it creates market power, on the basis that it may improve clinical efficiency, safety and effectiveness. At the same time, they might be more willing to prohibit a hospital merger that may create cost efficiencies on the basis that it would lead to closure of facilities in rural and isolated areas where access to alternative healthcare providers is already limited. Additionally, adopting this alternative approach would also allow competition authorities to clear a hospital merger on the condition that the merging parties accept the commitment to serve the disadvantaged groups and underserved communities at a lower cost. In other words, adopting this alternative approach would allow competition authorities



250 Dwarswaard, 251 Ibid.

Hilhorst and Trappenburg (n 134) 394.

Applying Competition Law to Protect Healthcare  55 to apply competition law in healthcare in a way that does not disregard the core objectives of their health systems. Integrating, however, health objectives, such as health equity, into their competition analysis may not necessarily be an easy task for competition authorities. Essentially, this is because health policy goals may not always and necessarily be in line with the core goals of competition law and policy. Competition law aims to promote efficiency and consumer welfare.252 Microeconomic theory recognises three fundamental types of economic efficiency: dynamic, productive and allocative efficiency. The notion of allocative efficiency touches on issues of distribution, as it highly correlates with a core question from the economist’s point of view: For whom to produce? In most markets the distribution problem is solved by consumers’ willingness to pay. Products and services are distributed to the consumers which they are willing and able to purchase. Nonetheless, in health systems pursuing equity, healthcare is distributed quite independently of people’s willingness to pay for such services. In these systems, healthcare is mainly distributed on the basis of people’s needs. However, the pursuit of such an objective implies that an act of redistribution takes place between different social groups. This might be in contrast with one of the main goals of EU competition law, the maximisation of consumer welfare which is an efficiency objective and not a distribution one.253 Indeed, the use of a consumer welfare standard may treat the same people unequally in their roles as workers and producers but entails treating all consumers as equally deserving with respect to the activity of consumption.254 This is because competition law is primarily concerned with the overall welfare of society – it does not distinguish between different socioeconomic groups.255 Therefore, if antitrust enforcers applied a wider definition of healthcare quality by extending the concept of consumer welfare when they apply competition law in healthcare, they would have to balance conflicting components of healthcare quality, such as equity versus efficiency that the antitrust scholarship insists that they do not have the democratic legitimacy to balance. Furthermore, if competition authorities diverted from their main narrative that the consumer welfare objective is primarily an efficiency one, firms may interpret this approach as a sign that the application of competition law in the healthcare sector is either more lenient or politically driven. Therefore, the deterrence effect of competition law may be weakened. 252 P Craig and G De Burca, EU Law, Text, Cases, Material (Oxford University Press, 2011). 253 B Von Rompuy, Economic Efficiency, The Sole concern of Modern Antitrust Policy? (Kluwer Law International, 2012) 48. 254 Ibid, 48. 255 KJ Cseres, ‘The Controversies of the Consumer Welfare Standard’ (2007) 2(3) The Competition Law Review 121, 124; T Stavroulaki, ‘Equality of Opportunity and Antitrust: The Curious Case of College Rankings’ (2021) 17(4) Journal of Competition law & Economics 904; T Stavroulaki, ‘Mergers that Harm Our Health’ 19 (2022) Berkeley Business Law Journal 89, 99.

56  Introducing Competition in Healthcare Widening the consumer welfare objective as a way to protect healthcare quality as a whole is not the only policy option for competition law policy makers. Member States in Europe may also choose to take into consideration the non-economic facets of healthcare quality by adopting an alternative approach: by requiring competition authorities to cooperate with health authorities when applying competition law in healthcare. This regime was adopted in England following the adoption of the HSCA 2012.256 Under this regime, NHS Improvementwas responsible for supervising healthcare providers’ financial stability and governance. The Competition and Markets Authority (CMA) was also obliged to cooperate with NHS Improvement with regard to cases involving mergers of NHS hospitals. In fact, where the CMA decided to carry out an investigation under the Enterprise Act 2002 of a matter involving an NHS hospital, it was obliged to immediately notify NHS Improvement of its intention to start an investigation. NHS Improvement was then obliged to provide the CMA with advice on the effect of the transaction on benefits in the form of those stated in the Enterprise Act 2002, relevant customer benefits.257 This Regulatory Approach, as described above, was recently abolished under the Health and Care Act 2022.258 This regulation removed the CMA’s function to examine mergers involving NHS bodies.259 While the CMA will continue to enforce competition in the private healthcare market, the NHS will be involved in the assessment of mergers between NHS bodies, to ensure that the merger assessment specifically considers patients’ interests and people’s health. This policy reform reflects the idea that collaboration rather than competition may lead to quality improvements and ensure people’s health. It also reflects the idea that the CMA is not the right body to review NHS mergers, and, hence, the NHS should be able to make decisions about NHS mergers themselves.260 In the chapters that follow, the book will critically examine the above policy options of integrating healthcare quality into a competition law framework. These policy options are: (a) the Market Approach under which competition authorities may define quality in healthcare as they also define it in other sectors, mainly as choice and innovation; (b) the Holistic Approach under which competition authorities may extend the notion of quality in healthcare so that it encompasses not only the notions of choice and innovation, but also

256 Health and Social Care Act (HSCA) available at: www.legislation.gov.uk/ukpga/2012/7/ contents/ enacted. 257 HSCA, s 79, Ch 2, Part 3. 258 See www.gov.uk/government/publications/health-and-care-bill-factsheets/health-and-care-billcompetition; see also clauses 82–85 of the Health and Care Act 2022 available at https://www.legislation.gov.uk/ukpga/2022/31/contents/enacted. 259 Ibid. 260 Ibid.

Summing Up  57 the wider objectives and values health systems, especially in Europe, pursue, such as effectiveness, access and equity; and (c) the Regulatory Approach under which competition authorities may cooperate with health authorities when they examine the impact of a specific transaction (merger or agreement) on healthcare quality so that their competition analysis does not disregard the core values of their health systems. Although, as noted, the Regulatory Approach was abolished, it is important that it is examined and evaluated as this specific policy option may be adopted in the future by regulators and policy makers. Hence, delving into its pros and cons is deemed essential. This book takes the view that while competition authorities may fail to protect the notion of healthcare quality as a whole under the Market Approach, they may definitely be able to protect this notion under the Holistic and the Regulatory approaches. Moreover, it will highlight that in protecting healthcare quality as a whole what is important is not only the approach that they will adopt, but competition authorities’ commitment to assess a competition restraint’s impact at all levels at which healthcare takes place. This means that when competition authorities perform this task, they should also consider the objectives their health system aims to attain. If they neglected these objectives not only would they run the risk of reaching decisions that may undermine these objectives, but most importantly they may risk making assessments that are not legitimate in the sense that they do not respect the special value their societies attach to health and healthcare. IV.  SUMMING UP

This chapter has critically examined the main narrative of some health economists and health policy makers, that the choice and competition model for providing healthcare can ensure healthcare quality. It has highlighted that under this model, specific aspects of healthcare quality, such as equity, continuity and acceptability may be harmed. It has also identified some competition problems that might be raised in light of the reality that in medical and hospital markets the pursuit of competition and the pursuit of specific facets of healthcare quality may inevitably clash. It has identified three different models under which competition authorities may accommodate these conflicts: (a) the Market Approach; (b) the Holistic Approach of widening the consumer welfare definition in healthcare; and (c) the Regulatory Approach under which competition authorities cooperate with health authorities when they assess a transaction’s impact on healthcare quality. The following two chapters will examine the Market Approach as it has been adopted in the US. Specifically, chapter three will identify the pros and cons of the Market Approach by focusing on some horizontal restraints in the market for medical services that grasped the attention of the US antitrust enforcers and the courts in the US. Chapter four will identify the main merits and demerits of

58  Introducing Competition in Healthcare the Market Approach by focusing on some seminal hospital merger cases where quality concerns were raised by the merging parties and were evaluated by the antitrust enforcers and the courts. It also reflects on how and why these models may be relevant for competition authorities applying competition law in the age of big data revolution in healthcare. Chapter five will examine the Holistic Approach and chapter six will assess the Regulatory Approach. Chapter seven concludes.

3 The Market Approach: Part I*

C

ourts and law makers once believed that healthcare markets should not be subject to the antitrust mandate.1 The Supreme Court applied the antitrust laws to the activities of the American Medical Association (AMA).2 However, the Court had not grasped the opportunity to clarify whether physicians’ activity constituted ‘trade’ in the parlance of the Sherman Act. Hence, the question of whether, and the extent to which, the antitrust rules fully applied to physicians’ activities remained highly underexplored.3 In general, the antitrust community remained faithful to the belief that the ‘learned professions’ were exempt from the application of the antitrust rules.4 Nonetheless, following the Supreme Court’s landmark decision in Goldfarb v Virginia State Bar,5 the notion that the ‘learned professions’ were not engaged in commercial activity and hence were not necessarily subject to Section 1 of the Sherman Act was rejected.6 Indeed, in this seminal case, the Supreme Court clarified that ‘learned professions’ are not immune from the antitrust rules. However, what the Supreme Court did not clarify was whether special treatment of the ‘learned professions’ under the antitrust laws was totally precluded. In its legendary footnote 17, the Court said: The fact that a restraint operates upon a profession, as distinguished from a business, is, of course, relevant in determining whether that particular restraint violates the Sherman Act. It would be unrealistic to view the practice of professions as interchangeable with other business activities, and automatically to apply to the professions antitrust concepts which originated in other areas. The public service aspect, and other features of the professions, may require that a particular practice which could properly be viewed as a violation of the Sherman Act in another context

* A previous version of this chapter has been published in Loyola Consumer Law Review. See T  Stavroulaki, ‘Connecting the Dots: Quality, Antitrust and Medicine’ 31(2) (2019) Loyola Consumer Law Review 175, 214. 1 DA Hyman et al, ‘Improving Health Care: A Dose of Competition’ A Report by the Federal Trade Commission and the Department of Justice 1 33 (July 2004), available at www.ftc.gov/sites/default/ files/ documents/reports/improving-health-caredose- competition-report-federal-trade-commissionand-department- justice/040723healthcarerpt.pdf. 2 Ibid. 3 Ibid, fn 161. 4 Ibid. 5 Goldfarb v Virginia State Bar, 421 U.S. 773, 793 (1975). 6 BR Furrow et al, Health Law 587, 7th edn (West Academic Publishing, 2013).

60  The Market Approach: Part I be treated differently. We intimate no view on any other situation than the one with which we are confronted today.7

Goldfarb ‘marked a crucial watershed in American health policy’.8 Before the Court ruled, two core ideas dominated healthcare markets. First, markets fail in healthcare, and therefore, market competition is either inappropriate or unattainable in this sector.9 Second, the medical profession is a self-regulating profession appropriately invested with substantial market power in the healthcare sector.10 After the Supreme Court’s ruling in Goldfarb though, medical associations were no longer free to regulate themselves in ways that contravened the Sherman Act.11 Instead, in the post-Goldfarb era, physicians were no longer allowed to establish any form of alliance or cooperation that raised antitrust concerns. In line with this new approach, one year after Goldfarb, in Arizona v Maricopa County Medical Society,12 the Supreme Court illustrated that the healthcare industry does not deserve special treatment and therefore is subject to the antitrust rules as all other industries.13 Nonetheless, the application of antitrust law upon healthcare has encountered strong resistance from medical professionals. In fact, a number of cases in the post-Goldfarb era reveal that medical professionals actively insisted on professional discretion, freedom from lay interference, self- regulating activities, and other practices that inevitably breach the antitrust principles.14 Essentially, their fear is that antitrust rules and enforcement, being tailored to apply to commodities, may disregard the special facets and characteristics of the therapeutic enterprise, mainly the healthcare quality concern and the medical profession’s self-regulatory duties.15 Antitrust scholarship provides several reasons why the application of the antitrust rules in the healthcare marketplace have not prevented medical professionals from engaging in anticompetitive behaviour. These are mainly underenforcement and lack of certainty as to the legal rules governing physicians’ alliances and collaborations.16 Delving into this puzzle again, this chapter asks: Why do physicians resist the application of antitrust into their profession? Why do antitrust enforcers insist that healthcare is not special and therefore antitrust law should apply to the healthcare industry as it applies to other 7 Goldfarb (n 5) at 788–89. 8 CC Havighurst, ‘Healthcare as a (Big) Business: The Antitrust Response’ (2001) 26 Journal of Health Politics, Policy & Law 939, 942. 9 Ibid. 10 Ibid. 11 Ibid. 12 Arizona v Maricopa County Medical Society, 457 U.S. 332, 357 (1982). 13 Hyman et al (n 1) 34. 14 See Furrow et al (n 6) 586. 15 CC Havighurst, ‘Antitrust Enforcement in the Medical Services Industry: What Does It All Mean?’ (1980) 58 Milbank Memorial Fund Quarterly 89, 92. 16 TL Greaney, ‘Thirty Years of Solitude: Antitrust Law and Physician Cartels’ (2017) 7 Houston Journal of Health Law & Policy 189,195.

The Market Approach: Part I  61 sectors? The answer is simple. Among others, both antitrust enforcers and medical professionals aim to ensure healthcare quality. Interestingly, albeit their goal is identical, their approach is different. Why? Primarily, for two reasons. First, medical professionals and antitrust enforcers do not assess and evaluate quality through the same lens. While antitrust enforcers remain faithful to the idea that quality will improve only to the extent providers vigorously compete, medical professionals seem to support the idea that the medical process and not the competitive rivalry will further enhance healthcare quality.17 From an antitrust perspective, quality is considered to be the outcome of the competitive process in which consumers enjoy choices and producers have incentives to enhance the quality of the products and services they offer in order to increase their sales, and therefore, their revenues.18 From physicians’ perspective, ‘quality is effectively binary[;]’ either high quality of care is offered to a patient or it isn’t.19 Additionally, while medical professionals consider that health outcomes are improved through the attributes of professionalism, such as altruism, respect, and the notion of trust in the doctor-patient relationship, antitrust enforcers mainly support the idea that vigorous competition and not professionalism lead to health improvements. This difference in opinion inevitably leads to disagreement on how quality of care is improved, with both antitrust authorities and physicians claiming that they are committed to protecting quality and promoting people’ welfare.20 Accommodating plausible professional concerns in a competitive market ranks among the most challenging tasks for antitrust enforcers and the courts.21 Undoubtedly, some quality claims can easily be condemned by antitrust enforcers and the courts as they amount to nothing more than naked antitrust violations. As Robert Pitofsky famously noted, quality-of-care allegations have been advanced to support, among other things, broad restraints on almost any form of price competition, policies that inhibited the development of managed care organizations, and concerted refusals to deal with providers or organizations that represented a competitive threat to physicians.22

Nonetheless, other claims are obviously more difficult to evaluate and assess. These include claims that due to the healthcare markets’ economic characteristics, consumers cannot easily assess the quality level of the healthcare services they purchase and, therefore, may be subject to exploitation by unscrupulous providers. Arguably, such quality claims may require closer scrutiny by

17 P J Hammer and WM Sage, ‘Antitrust, Healthcare Quality and the Courts’ (2002) 102 Columbia Law Review 545,556. 18 TE Kauper, ‘The Role of Quality Healthcare Consideration in Antitrust’ (1998) Law and Comtemporary Problems 273, 293. 19 Hyman et al (n 1) 11. 20 See Hammer and Sage (n 17) 557. 21 See Furrow et al (n 6) 587. 22 Hyman et al (n 1) 28.

62  The Market Approach: Part I antitrust  authorities.23 To a certain extent these claims serve a clear purpose: they prevent providers from exploiting their patients’ vulnerability, ignorance, and lack of medical expertise.24 Since opportunistic behaviour by physicians undermines patients’ trust in their physicians and creates anxieties harmful to the medical enterprise, there are good reasons to re-examine whether a principled basis in competition law for deeming such claims compatible with a competitive regime is necessary.25 Is this an easy task? This chapter shows that the answer should be a negative one. However, this is not sufficient to justify antitrust authorities’ unconditional refusal to evaluate and assess medical associations’ quality allegations. Setting the stage, the first section delves into the heart of the conflict. Specifically, it brings to the fore the main reasons why medical markets are considered special. It also explores how medical professionals assess and define quality. By analysing some important Sherman Act, Section 1 healthcare industry cases, the sections that follow identify and explore the main healthcare quality concerns medical associations and providers raise with a view to protecting healthcare quality. They also examine how antitrust enforcers respond to these claims and identify the analytical framework they apply to evaluate them. By doing so, this chapter asks: Have the US antitrust enforcers and the courts found the appropriate balance between the pursuit of competition and the multiple facets of healthcare quality? I.  PROFESSIONALISM VERSUS ANTITRUST: WHAT IS THE DEBATE ABOUT?

The healthcare policy debate is dominated by different ways of thinking about medical treatment – about different paradigms.26 Supporters of the traditional professional paradigm insist that market forces do not operate properly in healthcare, and therefore medical care should be insulated from market forces, at least in certain cases.27 Medical treatment requires technical decisions that patients are not necessarily well equipped to make.28 Medical professionals with scientific knowledge and medical expertise should be entrusted with medical care decision making because of the asymmetry of information that pervades healthcare markets – while providers can assess the quality of the services they offer, consumers cannot.29 23 See Havighurst (n 15) 946. 24 Ibid, 947. 25 Ibid. 26 JF Blumstein, ‘The Application of the Antitrust Doctrine to the Healthcare Industry: The Interweaving of Empirical and Normative Issues’ (1998) 31 Indiana Law Review 91. 27 Ibid. 28 Ibid. 29 Ibid.

Professionalism versus Antitrust  63 Providers and medical associations driven by this belief often consider themselves the guardians of healthcare quality. Inspired by their commitment to ensure professionalism, medical professionals feel entitled to regulate the healthcare markets they operate to correct the asymmetric distribution of information between patients and doctors and protect quality. These interventions usually take the form of ethical rules limiting the forms of advertising that can actually take place in a market characterised by information asymmetries,30 standards and certification arrangements, price setting for physicians’ fees and occupational licensing and other forms of self-regulation. Obviously, these practices and rules often catch the attention of antitrust law which generally relies on the presumption that consumers are better off if rigorous competition among providers is ensured. To fully understand and assess medical associations’ claims that selfregulation may in fact correct the asymmetry of information characterising healthcare markets and ensure quality, one should first consider what a free healthcare market would actually look like. Proponents of occupational licensing warn that a free market may not efficiently allocate professional services to consumers due to the extremely low quality of services provided without licensing.31 The asymmetric distribution of information between professionals and consumers as to the quality of the services they receive would inevitably cause the ‘lemons problem’:32 if consumers are not able to evaluate quality, they may choose to pay only for average quality.33 If consumers are not able to acknowledge superior quality, they may be unwilling to pay a higher price; for this reason, providers may refrain from incurring the higher costs the provision of above-average quality services may entail.34 Ultimately, the quality of professional services offered will be undermined. This would create a ‘deadweight loss’35 in the form of all market transactions that were not completed between high quality physicians and high quality demanding patients.36 Occupational licensing reduces this risk by ensuring that only qualified individuals that conform to minimum levels of quality can offer their services to consumers.37

30 P J Hammer, ‘Antitrust Beyond Competition: Market Failures, Total Welfare, and the Challenge of Intramarket Second-Best Tradeoffs’ (2000) 98 Michigan Law Review 849, 871. 31 A Edlin and R Haw, ‘Cartels By Another Name: Should Licensed Occupations Face Antitrust Scrutiny?’ (2014) 162 University of Pennsylvania Law Review 1093, 1115. 32 Ibid; see also GA Akerlof, ‘The Market for “Lemons”: Quality Uncertainty and the Market Mechanism’ (1970) 84 Quarterly Law Journal of Economics 488, 489. 33 M Lao, ‘Comment: The Rule of Reason and Horizontal Restraints Involving Professionals’ (2000) 68 Antitrust Law Journal 499, 513. 34 Ibid. 35 In general ‘Deadweight loss is the loss of consumer and producer surplus when output declines from the competitive to the monopoly level; it is the most common measure of the social cost of monopoly’. RA Posner and WM Landes, ‘Market Power in Antitrust Cases’ (1980) 94 Harvard Law Review 937, 954. 36 See Edlin and Haw (n 31) 1116. 37 Ibid.

64  The Market Approach: Part I In antitrust parlance, licensing establishes an entry barrier against low quality and unqualified practitioners. Negative externalities also pervade medical markets. A consumer may choose to buy low quality services for a low price rather than no service at all, only because she does not fully internalise the costs of low quality or unsafe services.38 Licensing or other forms of self-regulation ensure public safety by imposing minimum quality standards on providers.39 But, if the story ended here, it would be incomplete. Licensing significantly raises costs and hence leads to price increases.40 As a result, some consumers may not be able to afford professional services, namely the services that they would purchase in a world without licensing.41 Some would-be practitioners are harmed too; these are the non-qualified individuals that would be willing to compete with the qualified providers by offering cheaper services.42 In sum, on one hand, self-regulation and professional licensing limit the deadweight loss linked with the lemons problem and negative externalities. On the other hand, they result in a deadweight loss by harming competition and depriving consumers of choice.43 The remedy, though, should not be worse than the disease. Therefore, if competition authorities have to evaluate and assess whether a specific form of self-regulation or professional licensure is pro- or anticompetitive, they should be required to weigh potential quality improvements against the harm caused to competition. Do the US antitrust enforcers perform this task? And, if yes, how? By examining medical associations’ quality claims and justifications in a number of seminal healthcare antitrust cases, the following section thoroughly discusses these core questions. II.  DO THE US ANTITRUST ENFORCERS AND THE COURTS TAKE INTO ACCOUNT HEALTHCARE QUALITY?

A.  Protecting Healthcare Quality by Excluding Antitrust: Quality as Professionalism State Boards active in the field of healthcare often take the view that their anticompetitive behaviours aimed at promoting public health are immune from antitrust law on the basis of the state action doctrine. This doctrine articulates that any anticompetitive restraints imposed by the state escape antitrust scrutiny 38 Ibid. 39 Ibid. 40 Ibid (citing MM Kleiner, Licensing Occupations: Ensuring Quality or Restricting Competition (WE Upjohn Institute, 2006) 65–96. 41 See Edlin and Haw (n 31)1114–15. 42 Ibid, 1115. 43 Ibid, 1116.

How Do Enforcers Assess Healthcare Quality?  65 as they are not subject to the antitrust rules.44 The Supreme Court introduced this doctrine in Parker v Brown,45 after highlighting that ‘nothing in the language of the Sherman Act or in its history suggests that its purpose was to restrain a state or its officers or agents from activities directed by its legislature’.46 The Court acknowledged that a state cannot give immunity to those who violate the Sherman Act by authorizing them to violate it or by declaring that their action is lawful’.47 The Court identified three situations in which defendants may successfully allege that they should not be subject to antitrust rules as the state action doctrine applies.48 First, if ‘a state’s own actions “ipso facto are exempt” from the antitrust laws’.49 Second, when private entities ‘act on the basis of a clearly articulated and affirmatively expressed as state policy and their behavior is actively supervised by the state itself’.50 Third, ‘when municipalities or other sub state governmental entities act pursuant to state policy to displace competition with regulation or monopoly public service’.51 In general, US courts have taken the view that ‘given the fundamental national values of free enterprise and economic competition that are embodied in the federal antitrust laws, state action immunity is disfavored’.52 Thus, they recognise ‘state action immunity’ only in cases where it is clear that the anticompetitive action under scrutiny is undertaken on the basis of a regulatory regime that ‘is the State’s own’.53 When examining the state action doctrine in healthcare cases, the Federal Trade Commission (FTC) and the US courts do not seem to abstain from the Parker doctrine as the courts in North Carolina State Board of Dental Examiners, South Carolina State Board of Dentistry, and Teladoc cases clearly demonstrate. In the South Carolina State Board of Dentistry, the FTC examined the question of whether the State Board of Dentistry in South Carolina violated the antitrust mandate when it adopted a regulation that contravened legislation aiming to promote access to dental care for underserved children in South Carolina.54 In the early 1990s, a very small percentage of Medicaid-eligible children had access to preventive dental care.55 To address this problem, the South Carolina legislature altered the applicable legal framework so as to allow dental

44 The North Carolina State Board of Dental Examiners v FTC, 717 F.3d 359, 366 (4th Cir. 2013). 45 Parker v Brown, 317 U.S. 341 (1943). 46 North Carolina State Board of Dental Examiners (n 44) at 366. 47 Ibid. 48 Ibid. 49 Ibid. 50 Ibid, at 367. 51 Ibid. 52 Ibid. 53 Ibid. 54 South Carolina State Board of Dentistry, Docket No 9311, 1 (Federal Trade Commission, 11 September 2007)(decision and order), available at www.ftc.gov/sites/default/files/documents/ cases/2007/09/ 070911decision_0.pdf. 55 Ibid.

66  The Market Approach: Part I hygienists to provide preventive dental care to students.56 Nonetheless, according to the amended legislation, students had to be examined by a dentist before the hygienist provided them dental care. Therefore, access to preventive dental care in schools was extremely limited.57 In 2000, the state legislature again altered its legal regime to further increase access to preventive dental care in schools.58 Shortly after the state legislature adopted these amendments, the Board introduced a new regulation that reinforced the pre-examination condition.59 Consequently, the percentage of poor children in South Carolina that had access to preventive dental care significantly decreased. In 2003, the South Carolina legislature amended the legal regime again. The new regime clarified that the pre-examination condition was not applicable in cases where hygienists offered their services in public health settings.60 Following this amendment, the Board reclaimed its initial position that all students should be examined by a dentist before a hygienist offers them services.61 Not surprisingly, the FTC initiated antitrust proceedings against the Board.62 In defending the challenged legal regime, the Board alleged that given its status as a state agency, its actions are those of the state. Hence, the state action doctrine applied.63 The Board further claimed that ‘it acted pursuant to a “clearly articulated” state policy to displace competition’.64 The FTC refused to accept this antitrust defence. In justifying its decision, the FTC explained that where the actor is a political subdivision of a state or a private party ostensibly acting pursuant to state authorization, the Court has applied a more rigorous analysis to determine whether the entity is excluded from the federal antitrust laws.

In such cases, the FTC stated, the party is not ipso facto entitled to state action protection; rather, the party must demonstrate that it acted pursuant to a clearly articulated and affirmatively expressed state policy to displace competition in favor of regulation and that the state actively supervised the actions.65

Such non-governmental entities lack the political accountability to shape competition policy.66 Refusing to treat them as equivalent to the state was therefore in line with the state action doctrine test.67 The FTC further stressed that

56 Ibid. 57 Ibid. 58 Ibid. 59 Ibid, 60 Ibid.

at 2.

61 Ibid. 62 Ibid. 63 Ibid. 64 Ibid,

at 14. at 15. 66 Ibid, at 18. 67 Ibid. 65 Ibid,

How Do Enforcers Assess Healthcare Quality?  67 ‘[c]ourts have consistently declined to afford ipso facto state action status to state licensing or regulatory boards that are composed at least in part of members of the regulated industry’.68 In this light, the challenged regulation was in direct conflict with the South Carolina statute and inconsistent with the policy ideals behind the state action doctrine: that federalism permits the state as sovereign to displace the national policy of open competition with regulation, only if such anticompetitive intent is clearly shown.69

On the basis of the above analysis, the FTC concluded that the conditions of the state action test were not met.70 In North Carolina State Board of Dental Examiners, the case centred around the strategy of the Board to prevent non-dentists from providing teeth whitening services in North Carolina.71 In the early 1990s, only dentists offered teeth whitening services in North Carolina; in 2003, however, non-licensed individuals started offering teeth whitening services at spas, kiosks and retail stores.72 The non-dentists’ teeth whitening services differed from dentists’ services in certain dimensions such as the efficacy, price and the ease of use.73 On the other hand, the in-office teeth whitening services offered by qualified dentists were more effective, faster and did not require multiple sessions.74 Shortly thereafter, dentists raised the concern that the services offered by non-qualified providers were unsafe.75 The Board initiated formal proceedings, relying on North Carolina’s Dental Practice Act (the Act) to prohibit non-dentists from offering teeth whitening services. The Act stated that ‘it is unlawful for an individual to practice dentistry in North Carolina without a license from the Board’.76 Although the Board lacked the necessary power to prevent non–licensed providers from breaching the Dental Practice Act,77 they sent numerous cease-and-desist letters to non-dentists offering teeth whitening services.78 The Board also sent letters to mall operators to prohibit them from leasing kiosk spaces to non-qualified providers of teeth whitening services.79 The Board’s expelling strategy attained its goal.80 Non-licensed individuals 68 Ibid, at 18. 69 Ibid, at 27. 70 Ibid, at 2729. 71 North Carolina Board of Dental Examiners, Docket No 9343, 1 (Federal Trade Commission, 4 June 2013) (Opinion by Commissioner Rosch), available at https://www.ftc.gov/sites/default/files/ documents/cases/2011/12/111207ncdentalopinion.pdf. 72 Ibid. 73 North Carolina State Board of Dental Examiners (n 44) at 364. 74 Ibid. 75 Ibid. 76 Ibid. 77 North Carolina Board of Dental Examiners, Docket No 9343, 1, 3 (Federal Trade Commission, 7 December 2011) (Opinion by Commissioner Rosch), available at https://www.ftc.gov/sites/default/ files/documents/cases/2011/12/111207ncdentalopinion.pdf. 78 Ibid, at 1. 79 Ibid, at 5. 80 North Carolina State Board of Dental Examiners (n 44) at 365.

68  The Market Approach: Part I started abstaining from providing teeth whitening services in North Carolina, and producers of teeth whitening products used by non-qualified individuals soon exited the market in the state.81 The FTC initiated antitrust proceedings against the Board. Taking the view that the Board’s actions prevented non-dentists from offering these services in North Carolina and therefore deprived consumers of affordable teethwhitening services and choice, the FTC condemned the Board’s strategy as anticompetitive.82 In defending its strategy, the Board emphasised that its actions were covered by the state action doctrine.83 To be exempted from the antitrust rules, the Board claimed, its conduct should only meet the first condition of the state action test, ‘that the challenged restraint must be one clearly articulated and affirmatively expressed as state policy’.84 The Board also asserted that even if it was subject to the second condition of the state action doctrine, stating that its activity must be subject to active supervision by the state. North Carolina’s ‘structural legal oversight of the Board’ was sufficient to satisfy that condition.85 Because the FTC thought that the Board did not prove the active supervision requirement, it rejected the Board’s defence.86 The US antitrust enforcers highlighted that the Court always applied the antitrust rules to public-private hybrid entities, such as regulatory authorities comprising of market participants.87 The FTC alleged that if these entities were not actively supervised by the state, they may choose to serve their own self-interest rather than the governmental interests of the state.88 Requiring active supervision by the state itself in cases where the state agency may financially benefit from the anti- competitive conduct under scrutiny is in line with the main rationale behind the state action doctrine.89 The North Carolina Board was controlled by licensed dentists in North Carolina, thus market players that were elected by their colleagues.90 Consequently, the FTC alleged that the defendant’s actions should gain antitrust immunity only in case they were actively supervised by the state.91 Before the Fourth Circuit, the defendant raised the state action defence again. The Court fully agreed with the FTC’s legal analysis.92 The Supreme Court affirmed the lower’s court decision. It also identified the conditions under which 81 Ibid. 82 North Carolina Board of Dental Examiners (n 77) at 78 at 6. 83 North Carolina Board of Dental Examiners, Docket No 9343, 1, 8 (Federal Trade Commission, 8 February 2011) (Opinion by Commissioner Kovacic), available at www.ftc.gov/sites/default/files/ documents/cases/2011/02/110208commopinion.pdf. 84 Ibid. 85 Ibid. 86 Ibid, at 8–11. 87 Ibid, at 9. 88 Ibid. 89 Ibid, at 10. 90 Ibid, at 13. 91 Ibid. 92 North Carolina State Board of Dental Examiners (n 44) at 370–76.

How Do Enforcers Assess Healthcare Quality?  69 the active supervision condition is met.93 First, the Court underlined that the supervisor must review the substance of the anticompetitive decision and not only the procedure on the basis of which the decision was adopted.94 Second, the Court clarified that the supervisor must not be an active market participant.95 Since the defendant failed to show that it met both conditions, the state action doctrine could not apply.96 The state action defence was also raised by the Texas Medical Board, a state agency ‘statutorily empowered to regulate the practice of medicine in Texas’.97 This case concerned the antitrust complaint filed by Teladoc, a telemedicine company, against the Board over a rule98 that condemned ‘prescription of any dangerous drug or controlled substance without first establishing a defined physician-patient relationship’. This included a physical examination that should be performed ‘“by either face-to-face visit or in-person evaluation” elsewhere defined as requiring the provider and patient to be in the same physical location or medical site’.99 Essentially, the plaintiffs put forward the claim that the rule adopted by the Texas Medical Board restrained access to care, reduced the price competition and the overall supply of healthcare services.100 The Texas Medical Board alleged that the state action doctrine applied and therefore, its rule, should not be subject to the antitrust mandate.101 The Board said that it was actively supervised by the State as its decisions were subject to ‘judicial review by the courts of Texas and the State Office of Administrative Hearings as well as review by the Texas Legislature’.102 Highlighting, though, that the judicial review on which the Board relied was extremely limited, the Court refused to accept the view that the state action doctrine applied.103 B.  Quality as a Public Safety Claim The Supreme Court initially examined quality claims with regards to the learned professions in 1978, when the US initiated antitrust proceedings against the National Society of Professional Engineers. Specifically, the plaintiff took 93 North Carolina State Board of Dental Examiners v Federal Trade Commission, 135 S. Ct. 1101 (2015). 94 Ibid, at 1107. 95 Ibid. 96 Ibid. 97 Teladoc et al v Texas Medical Board, 112 F.Supp.3d 529, 533 (W.D.Tex. 2015) (quoting 22 Tex. Admin. Code § 161.1 (2016)). 98 22 Tex. Admin. Code § 190.8 (2019). 99 Teladoc (n 97) at 534. 100 Ibid, at 537. 101 Teladoc, Inc v Texas Medical Board, No. 1-15-CV-343 RP, 2015 U.S. Dist. LEXIS 166754, at *17 (W.D. Tex., 14 December 2015). 102 Ibid, at 21–22. 103 Ibid, at 22–23.

70  The Market Approach: Part I the view that the National Society of Professional Engineers’ Code of Ethics prevented ‘its members from submitting competitive bids for engineering services[,]’.104 Hence, Section 1 of the Sherman Act was violated.105 Relying on footnote 17 of the Goldfarb decision, the defendant said that its ethical rules aimed to reduce the risk that competition would produce lower quality engineering work.106 In other words, engineers’ rules ensured public safety. Interestingly, the District Court easily rejected this justification without even delving into the question of whether rigorous competition among professionals had threatened public safety.107 To the Court, delving into this question was simply unnecessary.108 The District Court rejected the defendant’s quality concern, taking the view that ‘the ban clearly imped[ed] the ordinary give and take of the market place and operat[ed] on its face [as] tampering with the price structure of engineering fee’.109 The Court of Appeals and the Supreme Court fully agreed with the lower court’s view.110 When assessing the defendant’s antitrust defence, the Supreme Court also examined whether and the extent to which public safety concerns can be evaluated under the rule of reason.111 The Court clarified that an antitrust legal analysis can be conducted under two complementary categories.112 The first includes agreements, that in light of their nature and necessary effects, are so obviously anticompetitive that they can be easily condemned as illegal even without a thorough examination of the legal and economic characteristics of the healthcare industry;113 these ‘are per se illegal’.114 The second category includes agreements whose effect on competition can be adequately assessed only if the facts peculiar to the business and the reasons why the challenged restraint was adopted are thoroughly examined.115 In either case, the Court held, the primary goal of the assessment is to better understand the impact of the restraint on competition and not to decide whether a policy favouring competition serves the public interest.116 The Court stated that ‘ethical norms may serve to regulate and promote competition in professional services, and thus fall within the rule of reason’.117 104 National Society of Professional Engineers v United States, 435 U.S. 679 (1978). 105 Ibid. 106 Ibid. 107 United States v National Society of Professional Engineers, 404 F. Supp. 457, 460 (D.D.C. 1975), aff ’d in part, modified in part, 555 F.2d 978 (D.C. Cir. 1977), aff ’d, 435 U.S. 679 (1978), and opinion withdrawn and superseded, No. 2412-72, 1978 WL 1395 (D.D.C. 3 August 1978). 108 Ibid. 109 Ibid. 110 National Society of Professional Engineers (n 104) at 699. 111 Ibid, 687. 112 Ibid, 692. 113 Ibid. 114 Ibid. 115 Ibid. 116 Ibid. 117 Ibid, 696.

How Do Enforcers Assess Healthcare Quality?  71 Additionally, it underlined that in this specific case, the defendant’s quality justification was ‘a far cry from such a position’.118 The Court admitted that rigorous competition may, in certain cases, incentivise providers to offer low quality or even unsafe products.119 In this light, the Court stated ‘competitive bidding for engineering projects may be inherently imprecise and incapable of taking into account all the variables that are involved in the actual performance of the project’.120 Therefore, a purchaser might conclude that his interest in quality – which may embrace the safety of the end product – outweighs the advantages of achieving cost savings by pitting one competitor against another. Or an individual vendor might independently refrain from price negotiation until he has satisfied himself that he fully understands the scope of his customers’ needs.121 The Court admitted that such decisions might be explained.122 Such justifications, though, cannot be analysed and assessed under the rule of reason.123 An alternative approach would amount ‘to nothing less than a frontal assault on the basic policy of the Sherman Act’.124 The Court highlighted that the Sherman Act primarily reflects the idea that competition will lead not only to lower prices but also to better goods and services.125 In rejecting the defendant’s defence, the Court alleged that ‘the statutory policy precludes inquiry into the question of whether competition is good or bad’.126 Therefore, any justification that supports the notion that competition is too intense cannot enter the equation.127 Adopting an alternative legal analysis, the Court said, would ultimately create the ‘sea of doubt’.128 The Supreme Court dealt with analogous quality concerns and justifications in the seminal case of FTC v Indiana Federation of Dentists.129 In this case, the Supreme Court focused on the question of whether the FTC correctly reached the conclusion that ‘a conspiracy among dentists to refuse to submit x-rays to dental insurers for use in benefits determinations’ constituted an antitrust violation.130 Since the 1970s, dental health insurers, following the demands of their policyholders, started reducing the costs of dental treatment by ‘limiting payment of benefits to the cost of the least expensive yet adequate treatment suitable to the needs of individual patients’.131 In applying such cost-containment measures, known as ‘alternative benefits’ plans, insurers evaluated the diagnosis

118 Ibid. 119 Ibid, 120 Ibid.

694.

121 Ibid. 122 Ibid. 123 Ibid. 124 Ibid, 125 Ibid.

695.

126 Ibid. 127 Ibid. 128 Ibid,

696. Trade Commission v Indiana Federation of Dentists, 476 U.S. 447 (1986). 130 Ibid, 448–49. 131 Ibid, 449. 129 Federal

72  The Market Approach: Part I and recommendation of the treating provider, either in advance or following the dental treatment.132 In conducting such evaluation, insurers often asked dentists to submit, ‘along with insurance claim forms requesting payment of benefits, any dental x-rays that had been used by the dentist in examining the patient’.133 Typically, claim forms and accompanying x-rays were reviewed by lay claims examiners who could either approve payment of claims or refer claims to dental consultants for further review.134 Following further review, dental consultants had three options: recommend that the insurer approve a claim, deny it, or pay only for a less expensive treatment.135 Dentists believed that the above thorough review of their treatment decisions threatened both their autonomy and their economic welfare.136 For this reason, the Indiana Dental Association, a professional association comprised of almost 85  per  cent of dentists in the State of Indiana, initiated an aggressive effort to prohibit insurers from implementing alternative benefit plans ‘by enlisting member dentists to pledge not to submit x-rays in conjunction with claim forms’.137 Undoubtedly, the Association’s efforts were successful; several dentists signed the pledge, and insurers operating in Indiana could not easily obtain compliance with their requests for x-rays.138 Insurers were left with two main options: either to adopt more costly methods of making alternative benefits determinations or to completely abandon such efforts.139 Not surprisingly, the FTC initiated antitrust proceedings against the Association.140 In its complaint, the FTC alleged that the Association’s strategy amounted to a conspiracy that unlawfully restrained trade on the basis of Section 1 of the Sherman Act.141 ‘Absent such a restraint[,]’, the FTC alleged, ‘competition among dentists for patients would have tended to lead dentists to compete with respect to their policies in dealing with patients’ insurers’.142 Hence, the Association’s policy had the actual effect of ‘eliminating such competition among dentists and preventing insurers from obtaining access to x-rays in the desired manner’.143 The FTC held that the above restraint was unreasonable, even though there was no proof that the Association’s policy had resulted in higher costs to the insurers and patients.144 The defendant raised a public safety defence that failed to alter the FTC’s main conclusions. Specifically, the FTC rejected the Association’s core claim

132 Ibid. 133 Ibid. 134 Ibid. 135 Ibid. 136 Ibid. 137 Ibid, 138 Ibid, 139 Ibid. 140 Ibid,

449–50. 450.

451. 451–52. 142 Ibid, 452. 143 Ibid. 144 Ibid. 141 Ibid,

How Do Enforcers Assess Healthcare Quality?  73 that its ethical policy of withholding x-rays was reasonable because the provision of x-rays might lead the insurers to make inaccurate determinations of the adequate level of care, and thus harm patients’ health.145 In other words, the FTC found no evidence that use of x-rays by health insurers undermined the quality of dental treatment.146 The Seventh Circuit did not align with the FTC’s conclusions. Accepting the defendant’s characterisation of its rule against submission of x-rays as merely an ethical and moral policy designed to protect patients’ safety, it found that the FTC’s assessment was simply incorrect.147 Assessing the Association’s policy under the rule of reason, the Court alleged that by preventing dentists from joining together to promote specific quality standards that are fully aligned with the American Dental Association’s Code of Professional Conduct and the Indiana Dental Code, the FTC, ‘with absolutely no expertise’ in the field of dentistry, ‘unwisely regulates the dental profession and all of its specialties’, and ‘to the detriment of consumers’.148 Highlighting that ‘the group of dental health care insurers should not be permitted to forsake standards of quality and proper dental care in an attempt to decrease their dental costs’, especially in this case where there was absolutely no evidence that the thorough review of dental x-rays had led to reduced healthcare costs, the Seventh Circuit decided to vacate the FTC’s ruling.149 Before the Supreme Court, the defendant once again raised the argument that its policy did nothing less than protect public safety and health.150 Adopting the FTC’s legal analysis, the Supreme Court alleged that the defendant’s argument was ‘flawed both legally and factually’.151 Citing National Society of Professional Engineers, the Court took the view that claiming that an unrestrained market in which consumers are provided with information will ultimately lead them to make dangerous choices amounts to ‘nothing less than a frontal assault on the basic policy of the Sherman Act’.152 The Court maintained that there was absolutely no reason to believe that the provision of information in the healthcare sector would harm consumers more than in any other sector of the economy.153 The Supreme Court also pointed to the fact that the health insurers that decide the level of care to pay for are not the recipients of medical services.154 The Court, however, did not further examine whether this market failure might in reality impact the quality of dental care. Supporting the view that ‘insurers are themselves in competition for the patronage of the patients’,

145 Ibid. 146 Ibid.

147 Indiana 148 Ibid, 149 Ibid.

Federation of Dentists v Federal Trade Commission 745 F.2d 1124, 1136 (7th Cir. 1984). 1144.

150 Indiana 151 Ibid. 152 Ibid, 153 Ibid. 154 Ibid.

Federation of Dentists (n 129) 462.

463.

74  The Market Approach: Part I the Court easily concluded that health insurers have the incentives to adequately protect patients’ welfare.155 Put simply, the Court based its conclusion on the view that while health insurers always behave as their patients’ perfect agents, physicians mostly behave as their patients’ imperfect ones. Analogous patient safety concerns were also raised by the Dental Board in North Carolina, where the Board alleged that its strategy against non-dentists protected patients’ welfare.156 In brief, the Board alleged that if non-dentists were allowed to offer teeth whitening services, the quality of these services may be undermined.157 The FTC easily rejected the defendant’s quality justification as non-cognizable.158 Cognizable is a justification, the FTC said, that results from measures that increase output, improve quality, or promote innovation.159 Insisting, however, that the courts have repeatedly rejected the idea that public safety considerations constitute cognizable justifications, the FTC rejected the defendant’s quality claims.160 In defending its policy, the Board also alleged that ‘a valid defense to a Sherman Act claim exists where a state agency promotes public health and enforces state’s law even if the conditions of the state action doctrine are not met’.161 Retelling the story that a public safety defence ‘is extraneous to an analysis of competitive effects’, the FTC dismissed the Board’s safety concerns.162 Before shaping its conclusion though, the FTC grasped the opportunity to examine the Board’s public safety claim in substance. To support its quality claim, the Board submitted four anecdotal reports of harm.163 The FTC held that ‘four anecdotal reports of harm over a multi-year period based on products considered safe by the FDA cannot be considered “adequate evidence of a potential health or safety risk”’.164 The FTC also emphasised that ‘although several board members had identified a number of theoretical risks from non- dentist teeth whitening, none was able to cite any clinical or empirical evidence validating any of these concerns’.165 Hence, the FTC found that the Board had failed to substantiate its claim. The Fourth Circuit fully agreed with the FTC’s legal reasoning. Interestingly, Circuit Judge Barbara Milano Keenan, who concurred in the majority’s opinion, wrote separately ‘to emphasize the narrow scope of the Appellate Court’s holding that the Board is a private actor for the purposes of the state action doctrine’.166

155 Ibid.

156 North 157 Ibid. 158 Ibid, 159 Ibid. 160 Ibid. 161 Ibid,

Carolina Board of Dental Examiners, Docket No 9343 (n 71).

24–25.

25–26. 26. 163 Ibid, 27. 164 Ibid. 165 Ibid. 166 North Carolina State Board of Dental Examiners (n 44) 376. 162 Ibid,

How Do Enforcers Assess Healthcare Quality?  75 Judge Keenan clarified that she was convinced that the Board was motivated by a desire to reduce the provision of teeth whitening services by non-dentists under unsafe conditions.167 She also emphasised that: (a) the Board was aware that ‘several consumers had suffered from adverse side effects, including bleeding or chemically burned gums’, after receiving treatment by unqualified providers;168 (b) several mall kiosks where such teeth whitening services took place lacked access to running water;169 (c) the Board had received several reports indicating that non-dentists offered teeth whitening services without meeting minimum hygiene standards.170 Hence, Judge Keenan admitted that the record reflected the Board’s core quality claim that consumers’ safety may be at risk if non-licensed dentists were allowed to provide teeth whitening services.171 She emphasised, however, that only North Carolina ‘ is entitled to make the legislative judgment’ that any benefits stemming from preventing non-dentists from performing dental services outweigh the harm caused to competition, and not a private consortium.172 The Massachusetts Board of Registration in Optometry,173 the sole licensing authority for optometrists in Massachusetts,174 was also involved in an analogous antitrust complaint. The Board enjoyed significant power because Massachusetts law authorised the Board to take action against any licensee engaged in fraud, deceit, unprofessional conduct, or misrepresentation in practice or in advertising.175 Following the antitrust investigation, the FTC concluded that the Board significantly restricted competition among optometrists in Massachusetts by collaborating with its members or others to unreasonably limit truthful advertising by optometrists.176 Among other things, the Board deterred optometrists from (a) advertising discounts from their usual prices and fees, (b) allowing optical establishments and other commercial practices to truthfully advertise the optometrists’ names or professional abilities, and (c) making use of truthful advertising that contained testimonials or that which is ‘sensational’ or ‘flamboyant’.177 Essentially, the Board deterred all the above actions irrespective of the truth or falsity of the advertisements.178 The Board also deterred retail optical stores from informing the public of their lawful affiliation with an optometrist and of the availability of the optometrist’s services.179 In challenging the Board’s policy, the FTC concluded that the alleged



167 Ibid, 168 Ibid.

377.

169 Ibid. 170 Ibid. 171 Ibid. 172 Ibid.

173 Massachusetts

Board of Registration in Optometry, 110 F.T.C. 549 (1988).

174 Ibid,

550.

176 Ibid,

551.

178 Ibid,

551–52. at 577 (citing Administrative Law Judge James P Timothy).

175 Ibid. 177 Ibid. 179 Ibid,

76  The Market Approach: Part I advertising restrictions had hurt consumers significantly. Specifically, in light of these restrictions, consumers had been deprived of the benefits of vigorous price competition among optometrists and truthful information about optometrists’ services, prices and fees.180 At trial, the Board did not offer a procompetitive justification for its restraints on discount advertising.181 Essentially, the Board tried to justify its ban on affiliation advertising by claiming that it primarily aimed ‘to reduce the risk of harm to the public from unrestrained competition in optometry’.182 Specifically, the Board claimed that affiliation might actually encourage optometrists to reduce quality of care either because ‘a lay person may interfere with the optometrists’ independent professional judgment, or because “the commercial motivation” of the optometrist may lessen professional standards’.183 In that sense, the main purpose of the advertising restriction was to prevent consumers from erroneously believing that they are getting a good offer at a large chain store, when in reality they only received a lower price for lower quality eye care.184 In evaluating these claims, the Administrative Law Judge (ALJ) referred to Dr Kwoka’s study that thoroughly examined the relationship between restraints on advertisement and quality.185 Relying on the findings of this study, the ALJ noted that restraints on advertising in the market for optometrist goods and services increase prices and cost to consumers without affecting the level of care.186 The ALJ further noted that: (a) advertising significantly reduces the cost of providing optometric products and services; (b) advertising optometrists offer lower quality eye examinations compared to the non-advertising ones; and (c) in markets where advertising is allowed, 55 per cent of the optometrists do not advertise their services and a higher percentage of all optometrists offer higher quality examinations than in markets where advertising is prohibited.187 In examining the Board’s claims under the rule of reason, the ALJ contended that there was no indication that the banned advertising had misled the public and that even if this was the case, deception cannot justify a total ban on truthful advertising.188 Consequently, the Board’s alleged pro-competitive claims were dismissed.189 On appeal, the FTC fully aligned with these observations. However, it did so after identifying the appropriate standard for assessing analogous restraints. The Commission took the view that such restraints should be evaluated under



180 Ibid, 181 Ibid, 182 Ibid. 183 Ibid. 184 Ibid, 185 Ibid, 186 Ibid. 187 Ibid, 188 Ibid, 189 Ibid.

551. 587. 548–49. 561. 561–62. 588.

How Do Enforcers Assess Healthcare Quality?  77 the ‘structured rule of reason’.190 According to this form of legal analysis, the first question to be addressed about any competitive restraint is whether it is inherently suspect.191 If not, traditional rule of reason applies,192 but if so, a second question should be further examined and addressed: is there a plausible efficiency that can justify the examined restraint? If not, the restriction can easily be considered illegal, but if a plausible efficiency justification exists, then a third inquiry deems necessary: whether the alleged justification seems valid. If the restraint is found to be valid, it will be examined under a full rule of reason antitrust analysis.193 If it is not valid, then the restraint is easily dismissed under the rule of reason.194 The purpose of this structured legal test, was to serve as the basis for the assessment of competition restrictions in an era in which the possibility of procompetitive restrictions was not totally excluded.195 Applying its proposed legal test and emphasising, once again, that the defendant’s procompetitive claims are not cognizable as they primarily rely on the belief that competition itself is not appropriate in optometry, the FTC found all the restraints adopted by the Massachusetts Board anticompetitive.196 Aiming to defend the challenged regulation against telemedicine, the Texas Medical Board, in Teladoc, also raised the claim that it served a public safety purpose. The Board alleged that its amended rules197 ensured patients’ safety and healthcare quality.198 In supporting its claim, the Board cited affidavit testimonies submitted by physicians illustrating the limitations and weaknesses of a telephone-only diagnosis.199 According to the Board, these testimonies showed that patients may be harmed to the extent they receive care without any physical examination.200 The Board also challenged Teladoc’s argument that 190 JE Kwoka, Jr, ‘The Federal Trade Commission and the Professions: A Quarter Century of Accomplishment and Some New Challenges’ (2005) 72 Antitrust Law Journal 997, 1006. 191 Massachusetts Board of Registration in Optometry (n 173) 604. 192 See Chicago Board of Trade v United States, 246 U.S. 231, 238 (1918). The rule of reason analysis legal test was introduced by the Supreme Court in the Chicago Board of Trade case where Justice Brandeis famously quoted: ‘the true test of legality is whether the restraint is such as merely regulates, and perhaps thereby promotes, competition, or whether it is such as may suppress or even destroy competition. To determine this question, the court must ordinarily consider the facts peculiar to the business, its condition before and after the restraint was imposed, the nature of the restraint, and its effect, actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, are all relevant facts, not because a good intention will save an otherwise objectionable regulation or the reverse, but because knowledge of intent may help the court to interpret facts and predict consequences’. 193 Massachusetts Board of Registration in Optometry (n 173) 604. 194 Ibid. 195 See Kwoka (n 190) 1007. 196 Massachusetts Board of Registration in Optometry (n 173) 609–10. 197 22 Tex. Admin. Code § 190.8 (2019) (‘prohibited prescription of any dangerous drug or controlled substance without first establishing a defined physician – patient relationship’.). 198 Teladoc (n 97) 534. 199 Ibid, 538. 200 Brief of American Medical Association and Texas Medical Association as Amici Curiae Supporting Defendant-Appellants at 20, Teladoc, Inc. v. Texas Med. Bd., 112 F. Supp. 3d 529 (W.D. Tex. 2015) (No. 16-50017).

78  The Market Approach: Part I telemedicine significantly increases access to care for patients who cannot easily find healthcare providers. The Board argued that the group of consumers who make use of telemedicine – ‘a more affluent and, likely, a more technologically savvy group – might have fewer access needs than people living in areas characterized by shortage of primary care or socio-economic disadvantage’.201 Hence, the Board added that ‘further research is needed to understand whether Teladoc might be improving access for patients with lower income and those in rural areas and if not, can it be positioned to do so in the future’.202 Nonetheless, the District Court was not convinced by the Board’s public safety concerns. Alleging that Teladoc submitted evidence that questioned the Board’s claim that its regulation was necessary for the protection of public safety and insisting that the Supreme Court has rejected the notion that public safety concerns can justify the adoption by a professional association of an anticompetitive strategy, the District Court dismissed the Board’s justifications.203 The Board appealed the Court’s decision to a higher court. Nonetheless, the Board dropped the appeal due to the influx of amicus curiae briefs that were filed with the Court, most of which supported Teladoc’s position. This includes a significant brief jointly submitted by the FTC and the Department of Justice (the Agencies).204 In this brief, the Agencies asked the Court to ignore the Board’s appeal of Teladoc’s case by insisting that the Court doesn’t have the authority to review the decision and the rule itself should be thrown out.205 Interestingly, in support of the Board’s appeal, the AMA and the Texas Medical Association (the Associations) jointly filed a brief.206 In this brief, they explained why public safety might be undermined if telemedicine remained unregulated. The Associations recognised that telemedicine significantly benefits patients, by increasing access to healthcare services.207 However, they also highlighted that this form of treatment is inappropriate for certain medical conditions and hence may harm patients’ health.208 To the extent physicians lack the ability to conduct in person physical examinations, they risk misdiagnosing or mistreating patients especially through over prescription of antibiotics.209 In substantiating their safety claims, the defendants relied on research demonstrating that in cases where physicians cannot examine their patients in-person, they may either adopt a more conservative approach or prescribe antibiotics in cases where the benefits antibiotics therapy may bring 201 Teladoc (n 97) 539. 202 Ibid. 203 Ibid. 204 Brief of United States of America and Federal Trade Commission as Amici Curiae Supporting Plaintiffs-Appellees, Teladoc, Inc. v Texas Med. Bd., 112 F. Supp. 3d 529 (W.D. Tex. 2015) (No. 16-50017). 205 Ibid, 35. 206 Brief of American Medical Association and Texas Medical Association (n 200). 207 Ibid, 5. 208 Ibid. 209 Ibid, 16.

How Do Enforcers Assess Healthcare Quality?  79 to patients is unclear.210 They explained that in identifying both benefits and risks, medical associations and state medical boards across the US, collaborate in order to better understand and assess the extent to which the use of telemedicine may ‘best serve patients and the public’.211 Research demonstrated that permitting the prescription of dangerous drugs without requiring physical examination by physicians may undermine quality of care. Hence, physicians alleged, some regulation that would significantly reduce the risk of low quality care, was necessary.212 Nonetheless, because the Board dropped the appeal, physicians’ arguments were not unexamined in substance. C.  Protecting Quality by Correcting the Market Imperfections Another way in which medical associations have attempted to justify antitrust violations is by supporting the claim that in light of their specialised knowledge and expertise, they best know how to serve their patients’ welfare. They have better information regarding what high-quality quality care means and how it is better achieved. For this reason, they should be entitled to correct poorly functioning markets and protect people’s health. The FTC and the US courts have thoroughly examined this quality justification in two seminal cases: Wilk v American Medical Association213 and In re California Dental Association.214 In Wilk, the core legal issue centred around chiropractors’ complaints that the AMA conspired to eliminate the chiropractic profession by consistently refusing to collaborate with chiropractors.215 Defendants attained this goal, plaintiffs explained, by relying on former Principle 3 of the AMA’s Principles of Medical Ethics, which prevented medical professionals from collaborating with ‘unscientific practitioners’.216 The plaintiffs insisted that the AMA used Principle 3 to reduce competition by excluding chiropractors from the market.217 The Court dismissed the plaintiffs’ core claims that the defendants’ policy constituted a per se violation of Section  1 of the Sherman Act, claiming that ‘a canon of medical ethics purporting, surely not frivolously, to address the importance of scientific method gives rise to questions of sufficient delicacy and novelty at least to escape per se treatment’.218 Applying a rule of reason antitrust analysis, the District Court supported the claim that the AMA by applying 210 Ibid, 22. 211 Ibid, 16–23. The American Medical Association and the Texas Medical Association claimed that several state medical boards have adopted restrictions on the ability to prescribe medications without prior physical examination by the prescribing physician or a patient site presenter. 212 Ibid, 27. 213 Wilk v American Medical Association, 895 F.2d 352 (7th Cir. 1990). 214 In re California Dental Association, 121 F.T.C. 190 (1996). 215 Wilk (n 213) 355. 216 Ibid. 217 Ibid. 218 Ibid, 359.

80  The Market Approach: Part I former Principle 3, had unreasonably restrained trade. In other words, Section 1 of the Sherman Act was violated.219 The Court concluded that the AMA’s core objective was ‘to prevent medical physicians from referring patients to chiropractors and from accepting referrals of patients from chiropractors, so as to prevent chiropractors from obtaining access to hospital diagnostic services and membership on hospital medical staffs’.220 The Court also alleged that AMA’s purpose was ‘to prevent medical physicians from teaching at chiropractic colleges or engaging in any joint research’.221 In brief, AMA’s policy aimed to ‘prevent any cooperation between the two groups in the delivery of health care services’.222 At trial, the AMA attempted to defend its strategy on the basis of the so-called ‘patient care defense’.223 This defence required the AMA to prove that: (a) it genuinely entertained a concern for what doctors perceived as scientific method in the care of each person with whom they had entered into a doctorpatient relationship; (b) this concern was objectively reasonable; (c) this concern had been the prominent motivating factor in the defendant’s promulgation of Principle 3 and in the conduct intended to implement it; and (d) this concern for scientific method in patient care could not have been adequately satisfied in a manner less restrictive of competition.224 Because the AMA failed to meet the defence’s second and fourth conditions, the district Court fully rejected this antitrust defence.225 Although the Court questioned ‘the AMA’s genuineness regarding its concern for scientific method in patient care’, it concluded that the AMA had met the first factor.226 In reaching this conclusion, the Court took into consideration that while the AMA ‘was attacking chiropractic as unscientific, it simultaneously was attacking other unscientific methods of disease treatment (e.g., the Krebiozen treatment of cancer), and the existence of medical standards or guidelines against unscientific practice was relatively common’.227 The Court, however, concluded that the AMA had not met the required burden of proof as to the second part of the antitrust defence, ‘whether its concern for scientific method in patient care was objectively reasonable’.228 In examining this question, the Court particularly considered substantial evidence indicating that chiropractors are more effective than physicians in treating specific medical issues, such as back injuries.229 The Court also underlined that the AMA’s members did not evaluate and assess pro-chiropractic

219 Ibid, 220 Ibid, 221 Ibid.

355. 356.

222 Ibid. 223 Ibid. 224 Ibid, 225 Ibid. 226 Ibid. 227 Ibid. 228 Ibid. 229 Ibid.

362.

How Do Enforcers Assess Healthcare Quality?  81 arguments  objectively.230 In light of these findings, the Court held that ‘there was no objectively reasonable concern that would support a boycott of the entire chiropractic profession’.231 The Court also underlined that the AMA had met its burden of proof in meeting the third part of the antitrust defence, ‘that its concern about scientific method was the dominant motivating factor’ in the challenged conduct.232 The Court found that the AMA had not met its burden of proving that ‘its concern for scientific method in patient care could not have been satisfied adequately in a manner less restrictive of competition’.233 Because the AMA had failed to provide evidence of other policies less restrictive to competition, such as public education, the Court concluded that the AMA did not satisfy the defence’s final element.234 The case reached the Seventh Circuit. The Court started its analysis by identifying the central question of this case. This was whether the AMA’s boycott constituted an unreasonable restraint of trade in the parlance of the Sherman Act.235 A restraint is unreasonable, the Court said, ‘if it falls within the category of restraints held to be per se unreasonable, or if it violates what is known as “the rule of reason”’.236 Recognising that ‘the Supreme Court historically has been slow to condemn rules adopted by professional associations as unreasonable per se’, the Court assessed AMA’s boycott under a rule of reason antitrust analysis.237 In brief, the AMA claimed that it should escape antitrust scrutiny under the rule of reason because Principle 3 had important procompetitive effects.238 Essentially, the AMA alleged that information asymmetries pervade healthcare markets. For this reason, patients may run the risk of being deceived by dishonest providers. To eliminate this risk, consumers may forego necessary treatment.239 In that sense, the AMA’s practice aimed to protect consumers from unsafe forms of treatment.240 The Seventh Circuit was not convinced. Expressing its belief that the AMA was not necessarily motivated by its public safety concerns, it dismissed the defendant’s quality justifications.241 Adopting the lower court’s view, the Court found AMA’s boycott anticompetitive.242



230 Ibid. 231 Ibid. 232 Ibid. 233 Ibid. 234 Ibid. 235 Ibid,

358.

237 Ibid,

359. 361.

236 Ibid. 238 Ibid, 239 Ibid. 240 Ibid. 241 Ibid. 242 Ibid,

361–64.

82  The Market Approach: Part I California Dental Association v FTC concerned an association of dentists with membership of a large percentage of all dentists in California.243 The core antitrust issue in this case concerned California Dental Association’s (CDA) Code of Ethics, including Section 10 of CDA’s professional code which banned advertising or solicitation ‘false or misleading in any material respect’.244 CDA’s Judicial Council, whose main goal was to enforce CDA’s Code, had published multiple advisory opinions and guidance that elaborated upon the scope of this standard.245 These opinions, which provoked the FTC’s proceedings, alleged that a statement or claim could be considered false or misleading where: (a) it includes a misrepresentation of fact; (b) it made only a partial disclosure of relevant facts; (c) it was likely to create false or unjustified expectations of favourable results and/or costs; (d) it related to fees for specific types of services without fully and specifically disclosing all variables; and (e) it contained other representations or implications that in reasonable probability would cause an ordinarily prudent person to be deceived.246 Concerning price advertising, CDA permitted advertising discounts only with extensive disclosures.247 CDA’s Code of Ethics and all relevant guidelines required that all price advertising be exact and that discount advertising list the regular fee for each discounted service, the percentage of the discount, the length of time that the discount will be available, verifiable fees, and the specific groups who are eligible for the discount.248

When enforcing these rules, CDA often ‘cited members for using phrases such as low, reasonable or inexpensive fees, and for failing to include the regular fees for each service covered by across-the-board senior citizen discounts, or coupon discounts for new customers’.249 Additionally, putting forward the claim that non-price claims ‘are not susceptible to measurement or verification’ and therefore ‘likely to be false or misleading’ in reality, CDA banned all quality claims.250 For example, CDA recommended ‘denial of membership to one dentist because her advertising included the phrase quality dentistry which CDA thought was not susceptible of verification’.251 Additionally, despite the fact that written rules had not been adopted, CDA did not permit ‘claims of superiority and the issuance

243 California Dental Association v Federal Trade Commission, 128 F.3d 720 (9th Cir. 1997), judgment vacated, 526 U.S.756 (1999). 244 Ibid, 722. 245 Ibid. 246 Ibid, 723. 247 In re California Dental Association (n 214) 300. 248 Ibid, 294. 249 Ibid. 250 Ibid, 230. 251 Ibid.

How Do Enforcers Assess Healthcare Quality?  83 of guarantees’.252 For instance, CDA had taken the view that an advertisement that included the phrase ‘we can provide the uncompromised standards of excellence you demand’ to be ‘an impermissible representation of superiority’.253 When assessing the anticompetitive effects of CDA’s policies and rules, the FTC refused to adopt the Massachusetts Board antitrust analysis, holding instead that the restraints on discount advertising were illegal per se.254 The FTC alleged that CDA’s restrictions on advertising ‘low’ or ‘reasonable’ fees and its extensive disclosure requirements for discount advertising, ‘effectively preclude its members from making low fee or across-the-board discount claims regardless of their truthfulness’.255 Holding that the professional nature of this restriction could not alter the analysis, as well as that in cases involving agreements not ‘premised on public service or ethical norms, the Supreme Court has repeatedly applied the per se rule’,256 the FTC underlined that an advertising ban that significantly limits price competition is illegal per se257 Applying an abbreviated analysis, the FTC found the non-price advertising restrictions also illegal. Regarding these restraints, the FTC stated, we cannot say with equal confidence that, as a facial matter, CDA’s concerns are unrelated to the public service aspect of its profession, or that the practice facially appears to be one that would always or almost always tend to restrict competition and decrease output.258

Considering, however, that CDA had not provided a ‘convincing argument, let alone evidence, that consumers of dental services had been, or were likely to be, harmed by the broad categories of advertising that it restricted’, the FTC held that the non-price restrictions were clearly anticompetitive.259 Taking into consideration that this antitrust case concerned a set of ethical rules introduced by a professional organisation that aimed to limit misleading advertising and that ‘CDA’s policies do not, on their face, ban truthful, nondeceptive ads’, the Ninth Circuit refused to apply a per se legal analysis regarding price advertising restrictions.260 The Court rejected CDA’s procompetitive justifications that its norms discouraged deceptive advertising.261 Since the record ‘provided no evidence that CDA’s policy has in fact led to increased disclosure and transparency of dental pricing[,]’ such claim, the Court explained, carried

252 Ibid, 309. 253 Ibid. 254 T J Muris, ‘Cal. Dental Ass’n v Federal Trade Comm’n: The Revenge of Footnote 17’ (2000) 8 Supreme Court Economic Review 265, 271. 255 In re California Dental Association (n 214) 300. 256 Ibid, 306. 257 Ibid, 300. 258 Ibid, 308. 259 Ibid, 319. 260 California Dental Association v Federal Trade Commission (n 243) 727. 261 Ibid, 728.

84  The Market Approach: Part I little weight.262 As to the non-price advertising restrictions, the Court easily rejected CDA’s concerns that ‘claims about quality are inherently unverifiable and therefore misleading’.263 The Court acknowledged that this danger exists. Nonetheless, it underlined that this danger cannot justify preventing all quality claims.264 In this light, the Ninth Circuit adopted the FTC’s view that the non-price advertising restrictions were nothing more than ‘a naked restraint on output’ and therefore no further examination under the rule of reason legal analysis deemed necessary.265 Surprisingly, the Supreme Court vacated and remanded the judgment to the Ninth Circuit for a fuller inquiry into whether CDA’s activities breached the antitrust mandate.266 The Court made clear that a quick look analysis should be limited only to cases where ‘an observer with even a rudimentary understanding of economics could conclude that the arrangements in question would have an anticompetitive effect on customers and markets’.267 Considering the special economic and legal features of the professional services market, the Supreme Court concluded that CDA’s policies was not one of these cases.268 To the Court, CDA’s restrictions did nothing more than eliminate false or deceptive advertising ‘in a market characterized by striking disparities between the information available to the professional and the patient’.269 Evaluating the defendant’s restraints from this angle, the Court reached the conclusion that CDA’s restraints might, instead, be procompetitive.270 Citing Akerlof’s famous work ‘The Market for “Lemons”: Quality Uncertainty and the Market Mechanism’, the Court stated that in the market for professional services, in which advertising is relatively rare and the comparability of service packages not easily established, the difficulty for customers or potential competitors to get and verify information about the price and availability of services can magnify the dangers to competition associated with misleading advertising.271

The Court recognised that ‘the quality of professional services tends to resist either calibration or monitoring by individual patients or clients’.272 This related to the specialised knowledge and expertise required to assess these services and the difficulties in determining whether ‘an outcome is attributable to the quality

262 Ibid. 263 Ibid. 264 Ibid. 265 Ibid. 266 California Dental Association v Federal Trade Commission, 526 U.S. 756 (1999), vacating 128 F.3d at 727 (9th Cir.1997). 267 Ibid, 757. 268 Ibid. 269 Ibid, 771. 270 Ibid. 271 Ibid (citing Akerlof (n 32). 272 Ibid, 722.

How Do Enforcers Assess Healthcare Quality?  85 of services (like a poor job of tooth-filling) or to something else.’273 When analysing the market’s distinctive features, the Court further recognised that patients’ attachment to specific professionals, the rationality of which cannot be easily assessed, make the picture even more complex.274 The Court thoroughly assessed CDA’s price advertising restrictions. It concluded that they do not necessarily restraint price competition. On the contrary, the Court found they may even facilitate competition ‘by reducing the occurrence of unverifiable and misleading across the board discount advertising’.275 Even if across the board discount advertisements are more effective in drawing customers in the short run, the recurrence of some measure of intentional or accidental misstatement, due to the breadth of their claims, might leak out over time to make potential clients skeptical of any such across the board advertising, so undercutting the method’s effectiveness.276

The Court emphasised that across the board, discount advertisements might continue to attract business indefinitely but only because they deceive customers.277 Hence, they may undermine rather than promote competition.278 The Court stated that CDA’s policies echoed the notion ‘that any costs to competition associated with the elimination of across the board advertising will be out weighted by gains to consumer information that is exact, accurate and more easily verifiable (at least by regulators)’.279 Although this view may not necessarily be correct from an economics perspective, neither a court nor the Commission may presume it is wrong.280 As to the CDA’s non-price advertising restrictions, the Court again refused to adopt the lower court’s legal analysis. The Court held that the Ninth Circuit erroneously rejected the counterargument ‘that restricting difficult to verify claims about quality or patient comfort would have a precompetitive effect by preventing misleading or false claims that distort the market’.281 Specifically, it held that CDA’s restrictions should be evaluated from a different perspective: as nothing more than a procompetitive ban on puffery.282 Following the Supreme Court’s judgment, the FTC announced its decision not to seek further review in the Supreme Court for this case and dismissed the complaint.283 273 Ibid. 274 Ibid. 275 Ibid, 773. 276 Ibid, 774. 277 Ibid. 278 Ibid. 279 Ibid, 757. 280 Ibid. 281 Ibid, 778. 282 Ibid. 283 Press Release, ‘ FTC Dismisses Complaint Against California Dental Association’ (Federal Trade Commission, 15 February 2001), available at www.ftc.gov/news-events/news/press-releases/2001/02/ ftc-dismisses-complaint-against-california-dental-association.

86  The Market Approach: Part I III.  DO THE US ANTITRUST ENFORCERS AND THE COURTS BALANCE CONFLICTS BETWEEN DIFFERENT QUALITY PERSPECTIVES?

A.  Identifying the Core of the FTC’s and the US Courts’ Market Approach The above analysis reveals that the US courts and the FTC do assess and evaluate healthcare quality claims in the context of their competition analysis. From their perspective, quality of care matters. However, it matters to the same extent that it matters in other sectors of the economy, such as automotive or technology. Both the US courts and the FTC are straightforward with this point. With the exception of the California Dental Association case, their antitrust analysis primarily reflects the notion that healthcare is not special. I argue that there are two main implications of this approach. First, both the FTC and the US courts consistently support the view that, as in other markets, quality will improve only to the extent that rigorous competition, information and choice are ensured. Second, when the US antitrust enforcers and the courts are required to examine whether a competitive constraint and not the maximisation of the available choices may be necessary for the promotion of healthcare quality, the answer is primarily negative. Relying on the merits of the competitive model and the fruits it delivers to consumers, they seem unwilling to assess any argument that market forces may function poorly in this sector.284 Hence, when the FTC and the US courts face the difficult task of balancing conflicting views between antitrust enforcers and medical professionals on what healthcare quality is and how it is attained, their analysis reflects the notion that antitrust knows better. In Indiana Federation of Dentists, the Seventh Circuit adopted an alternative approach. Indeed, in this case the Court held that by ‘preventing dentists from joining together to promote standards of quality dental care that comport with the Indiana Dental Code, the FTC with no expertise in the field of dentistry unwisely regulated the dental profession’.285 By repeating, however, the narrative that rigorous competition among providers rather than collaboration among medical professionals enhances quality, the Supreme Court diverted from the Appellate Court’s analysis. The above analysis does not necessarily imply that the FTC and the US courts completely dismiss physicians’ quality concerns. Quite the opposite, they do analyse and assess them. However, they allow physicians’ claims to influence their analysis only to the extent they echo the notion that market imperfections pervade healthcare markets, and hence, public safety may be at risk. In other words, the US antitrust enforcers do not necessarily exclude the possibility that fixing a poorly-functioning market characterised by several market failures



284 Havighurst 285 Indiana

(n 8) 94. Federation of Dentists, 745 F.2d at 1144.

Do Enforcers Balance Conflict in Perspective?  87 might make a restriction less naked.286 This conclusion can be easily reached taking into consideration the courts’ legal analysis in the two prominent antitrust cases mentioned above: Wilk and California Dental Association. In the California Dental Association case, Judge Souter, in delivering the opinion of the Court, explained the reasons why the healthcare market’s special facets may influence antitrust enforcers’ analysis when they examine price and non-price advertising restrictions. Among other things, Judge Souter identified: (a) the challenges consumers face in assessing price information and evaluating the quality of the services they receive; (b) the information asymmetries pervading healthcare markets; and (c) the patients’ attachment to specific professionals, the rationality of which is not necessarily easy to assess.287 The above social and economic features require antitrust enforcers to assess on the basis of the rule of reason whether certain competition restraints, such as advertising restrictions, are procompetitive, rather than anticompetitive.288 The Court’s analysis in California Dental Association is illuminating. To begin, the Court’s antitrust analysis makes clear that antitrust enforcers should not necessarily dismiss physicians’ claims that healthcare markets are special. California Dental Association has also been characterised as a setback for what was considered ‘the quick look antitrust movement’.289 Indeed, the Supreme Court specifically alleged that the Court of Appeals erred when it found that the competitive restraints at stake could be condemned under a quick look analysis.290 Nonetheless, although the Court admitted that the medical markets’ special facets require a more rigorous antitrust analysis, it did not specifically address: (a) to what extent healthcare markets’ economic characteristics justify a rule of reason antitrust analysis; and (b) under what legal techniques antitrust enforcers should strike the balance between quality improvements and the harm to competition. Not delving into these issues, though, the Supreme Court inevitably opened the door to market failure defences much wider than it potentially aimed. Arguably, information asymmetry will be present – albeit to different degrees – in most cases centred around health professionals’ activities.291 However, trial courts will receive no guidance from California Dental Association as to what extent such information asymmetries may justify a rule of reason analysis or when a quick look test analysis deems necessary.292 Future litigants and courts, not knowing just how much proof a reviewing court may require to decide that

286 TL Greaney, ‘A Perfect Storm on the Sea of Doubt: Physicians, Professionalism and Antitrust’ 14 (2002) Loyola Consumer Law Review 481. 287 California Dental Association (n 266) 772–73. 288 Ibid, 757. 289 S Calkins, ‘California Dental Association: Not a Quick Look but Not the Full Monty’ (2000) 67 Antitrust Law Journal 495, 496. 290 Ibid, 532. 291 See Greaney (n 286) 487. 292 Ibid.

88  The Market Approach: Part I trade under the Sherman Act was restrained, may opt for broader, more extensive discovery and analysis than may be necessary, increasing the cost and therefore the difficulty of successfully challenging professional associations’ anticompetitive strategies.293 Arguably, this is not the only weakness in the Supreme Court’s analysis regarding the information asymmetries pervading healthcare markets. The Court’s legal analysis regarding the extent to which the advertising restraints at stake may correct this market imperfection has also attracted the attention of the antitrust scholarship. As noted, the Supreme Court contended that information asymmetries may impair the functioning of the healthcare market and, hence, some professional interventions may be necessary. But the Court did not specifically explain why and how the challenged advertising restraints may cure healthcare markets’ market imperfections. Since advertising may actually alleviate market imperfections by increasing the amount of information available to consumers, the Supreme Court’s analysis does not seem to be convincing.294 Relying also on the Akerlof’s study to support the claim that ‘dishonest dealings tend to drive honest dealings out of the market[,]’ the Court overreacted as to the extent to which lack of information in the healthcare marketplace may undermine quality.295 As economists argue, the lemons problem argument underestimates the actions governmental institutions take with a view to protecting consumers.296 Indeed, occupational licensing or government regulation that aims to reduce misleading or deceptive advertising may effectively protect consumers from unscrupulous providers’ strategies.297 While the Supreme Court in California Dental Association examined thoroughly why healthcare markets might differ from others, in Wilk, the Seventh Circuit focused more on crafting a process under the rule of reason for evaluating quality claims related to the healthcare market’s special features. Was this attempt successful? Considering that there are multiple reasons to question the wisdom of the Seventh Circuit’s ‘patient care defense[,]’ the answer should be negative.298 As explained, at issue in this case, were the AMA’s ethical rules that prevented physicians from establishing any form of cooperation with chiropractors. Such restrictions, the AMA claimed, contributed to scientific progress and protected patients’ health.299 The Seventh Circuit evaluated this argument on the basis of the patient care defence. Under this legal test, the defendant was required to prove that its policies were motivated by ‘objectively reasonable’ concern for issues related to the ‘scientific method’ underlying medical treatment. Under this

293 See

Havighurst (n 8) 950. Greaney (n 286) 488. 295 Ibid, 493. 296 See Muris (n 254) 20. 297 See Greaney (n 286) 493. 298 Ibid, 489. 299 Ibid. 294 See

Do Enforcers Balance Conflict in Perspective?  89 test, the defendant was also required to prove that the goal of protecting healthcare quality would not be attained through less restrictive means.300 This legal test, which subsequently was never applied by the FTC or the courts, proved to be challenging.301 By restructuring the rule of reason, and, by asking defendants to prove both objective and subjective elements, this test invited an open-ended inquiry into scientific concerns and beliefs that ultimately increased the level of challenge both for judges and juries.302 How could the defendants prove that the scientific concerns they raise about the chiropractic profession are based on scientific studies, given that scientists, in general, and doctors, in particular, rarely fully agree on whether a specific treatment is scientific? For instance, while some medical professionals consider homeopathy a pseudoscience – an argument that is erroneously presented as scientific – others rigorously support the claim that this alternative form of treatment significantly improves health outcomes. In addition, how can US antitrust enforcers and judges evaluate whether the defendants’ exclusionary strategy against competitors is inspired by their commitment to protect healthcare quality and not their self-interest? And if reality clearly shows that defendants’ boycotts against competitors are inspired both by their commitment to ensure minimum standards of quality and their self-interest, how should antitrust enforcers balance such conflicting goals and motives? Which incentive should weigh more in their legal analysis? Another question that begs further thinking is why the Court chose to introduce a test requiring defendants to prove a number of subjective elements, such as their core beliefs and motives. Given that in antitrust cases, market characteristics and effects, not necessarily intentions, affect the legal analysis, the Court’s approach is quite surprising. As noted in Wilk, the AMA emphasised that due to the information asymmetries burdening healthcare markets, patient’s trust in their doctors may be harmed. In light of this, its policy did nothing more than correct this market failure. The Court, by integrating subjective elements into its proposed legal test, supported the view that physicians’ intentions and motives shape the antitrust analysis303 and not market structures and effects. More importantly, while the courts seem willing to integrate healthcare quality concerns into their analysis in the context of a ‘market failure defense’, they preclude any possibility of incorporating quality concerns into their antitrust analysis in the context of a ‘public safety defense’. The FTC and the US courts continuously tell the story that the Sherman Act reflects a legislative judgment that, ultimately, competition will lead to lower prices and improved quality.304 Hence, adopting an alternative antitrust analysis, one that would welcome the



300 Ibid, 301 Ibid. 302 Ibid,

488.

489. Kauper (n 18) 323. 304 National Society of Professional Engineers (n 104) 695. 303 See

90  The Market Approach: Part I idea that in certain cases less competition may in fact promote quality, would be against the basic policy of the Sherman Act.305 The US antitrust enforcers and the courts remain faithful to this narrative even when public safety concerns are raised by medical associations highlighting that their challenged policies are in line with their ethical norms whose main purpose is to protect the public from unsafe practices. Unless their initiatives to protect quality meet the narrow conditions under which the state action doctrine applies, the courts confidently argue that their public health concerns are not inspired by their ethical commitment to protect safety but by their self- interest and mere opportunism. Consider North Carolina State Board of Dental Examiners where Judge Keenan clarified that the record supported the Board’s argument that patients’ safety may be at risk if non-licensed professionals, particularly mall kiosk employees, are permitted to perform teeth whitening services.306 In her statement, Judge Keenan expressed her view that the Board’s exclusionary strategy against non-dentists was primarily motivated by its commitment to eliminate an unsafe practice.307 This core finding, though, did not shape the Court’s analysis and conclusions. To the antitrust enforcers and the courts, ‘the statutory policy precludes inquiry into the question of whether competition is good or bad[,]’ and, hence, any assessment as to the risks to healthcare quality the available market choices in reality create is just unnecessary.308 B.  The Main Pros and Cons of the FTC’s and the US Courts’ Market Approach The above analysis illustrated that the US antitrust enforcers and the courts do take into consideration quality concerns. They do so by ensuring that choice and competition in the healthcare services market remain unrestrained. The strength of this legal approach lies in its simplicity. Indeed, it offers a simple solution to a complex problem: to ensure quality, just ensure the maximisation of the available choices. It also illustrated that while the US antitrust enforcers and the courts have not totally precluded the possibility of considering quality claims in the context of a market failure defence, they have clearly precluded the possibility of considering quality claims in the context of a public safety defence. To them, such justifications are neither plausible nor cognizable. Why do the US antitrust enforcers and the courts draw such a strict line between these two types of antitrust defences? Why do they remain faithful to the narrative that public safety claims should not enter the equation? And more importantly, would the outcome of their antitrust analysis change if they chose to expand

305 Ibid,

680. Carolina State Board of Dental Examiners (n 44) 376–77. 307 Ibid, 377. 308 National Society of Professional Engineers (n 104) 695. 306 North

Do Enforcers Balance Conflict in Perspective?  91 the range of the quality justifications they are willing to accept? The answer should be no. In Wilk, the defendants unsuccessfully attempted to put forward the claim that the market imperfections pervading healthcare markets justify their exclusionary strategy against chiropractors. In Massachusetts Board, the optometrists alleged that their anticompetitive policies were inspired by their commitment to protect consumers from lower quality eye care. In Teladoc, the Texas Medical Board maintained that the telemedicine regulation aimed to protect patients from an erroneous diagnosis and inappropriate use of antibiotics. Although the rationale behind all these justifications may seem to differ, in fact it does not. This is because in all these cases, the presented quality justifications could be structured either as public safety or market failure defences. Let us consider Wilk. In this case, the AMA could have presented the argument that chiropractors’ treatment may lead to lower quality care. In Massachusetts Board, the Board, alternatively, could have raised the concern that patients in eye care services lack the scientific knowledge and expertise to assess the quality of the services they receive, and consequently, the challenged regulation does nothing more than ensure that the market imperfections burdening the market in which the Board’s members operate are cured. Accordingly, in Teladoc, the Texas Medical Board could have argued that since a physician treating a patient on the basis of a telephone diagnosis may only be called upon to act with limited information, the quality of care may inevitably suffer. Therefore, the challenged self-regulation by correcting this market imperfection does nothing more than ensure that this risk is reduced. Importantly, the antitrust enforcers and the courts would have dismissed all the above defences irrespective of the way they were presented, either as market failure or public safety defences. This is because none of the alleged quality justifications would have convinced the US antitrust enforcers that the pursuit of healthcare quality could not have been attained through less restrictive means. Why then do the US antitrust enforcers and the courts constantly repeat the story that public safety claims should not affect their antitrust analysis? First, if they integrated public safety concerns into their analysis, this might be translated as a sign of distrust in the power of markets to always deliver their promised fruits: lower prices and enhanced quality. It may also be seen by potential cartelists as a sign that antitrust enforcement in healthcare markets is less rigorous. More importantly, it may be seen by antitrust infringers in other markets as a sign that the pursuit of quality justifies harm to competition. Therefore, one of the main goals of antitrust enforcement, namely deterrence, may be seriously undermined. Furthermore, if the pursuit of public safety and health was considered a plausible and cognizable justification, the US antitrust enforcers and the courts may be more willing to allow their political preferences and ideologies to influence their conclusions. Additionally, to the extent courts and the FTC integrated public safety claims into their analysis, one additional risk might appear: medical associations may be encouraged to raise safety

92  The Market Approach: Part I claims that predominantly conceal their self-interest. Moreover, welcoming the view that public safety claims are plausible justifications may harm price competition and increase prices for consumers. The Covid-19 pandemic illustrated that price competition in medical services is vital as only to the extent citizens can afford treatment they can be cured. If citizens cannot afford treatment especially during a pandemic, the whole society suffers because of the negative externalities that pervade healthcare markets. Indeed, to the extent less affluent citizens cannot access healthcare a pandemic cannot be combated. Given these risks and concerns, it should not be underestimated that US antitrust enforcers’ narrow market approach ensures transparency, accountability and promotes price competition. What are the main weaknesses of this approach? Maintaining that the competitive process will necessarily improve healthcare quality is not necessarily in line with market realities. Arguably, the argument that more choice necessarily improves quality sounds more like a textbook myth rather than a sound economic principle. This is because this simplistic claim primarily relies on the erroneous presumption that human beings do a wonderful job in making choices.309 Nonetheless, research in behavioural economics demonstrates that the ways human beings act are not necessarily in line with the core assumptions of rational choice theory.310 As noted in chapter two, behavioural economics researchers illustrate that humans predictably make mistakes.311 For example, although medical research identifies an association between obesity and specific chronic conditions such as diabetes, obesity rates in the US reach 20 per cent and more than 60 per cent of Americans are considered obese.312 Surely, humans do not always make poor choices. Quite the opposite, as the previous chapter showed, people make good choices in contexts in which they have experience, trustworthy information and prompt feedback, such as when choosing pizza or ice cream.313 However, again, as noted, they tend to make bad choices in cases in which they lack either experience or adequate information.314 Choosing their physician or treatment may definitely be one of these cases. Additionally, although in general humans appreciate choice, the tendency to search long and hard reduces enjoyment from the end outcome.315 This is because most people lack the ability to adequately assess all kinds of information.

309 See R H Thaler and CR Sunstein, ‘Nudge: Improving Decisions About Health Wealth and Happiness (Yale University Press, 2008) 6. 310 ME Stucke, ‘Behavioral Economists at the Gate: Antitrust in the Twenty- First Century’ (2007) 38 Loyola University Chicago Law Journal 513, 527. 311 See Thaler and Sunstein (n 309) 7. 312 Ibid. 313 Ibid, 9. 314 Ibid. 315 A Ezrachi and M Stucke, ‘The Curious Case of Competition and Quality’ (2015) 3 Journal off Antitrust Enforcement 227, 247.

Do Enforcers Balance Conflict in Perspective?  93 Some  humans even lack the ability to evaluate rather simple information.316 As noted in chapter two, in one study, participants were presented with decision tasks that mainly involved locating information in tables and graphs.317 Surprisingly, the youngest participants’ errors (those aged between 18–35) averaged eight per cent while the errors make by the oldest participants (aged between 85–94) averaged 40 per cent.318 Additionally, again, as the previous chapter noted, the notion that rigorous competition among providers will ultimately enhance quality disregards physicians’ perspective on how health outcomes are improved. From their perspective, the quality of care patients receive depends also on non- economic values such as the notions of acceptability and trust, important facets of the medical enterprise. Indeed, the notion of trust is crucial in the case of medical treatment, where the stakes are as dear as life itself.319 Patients that wholeheartedly trust their physicians are more likely to seek care when they need it, share their medical history and abide by their physicians’ recommendations.320 Arguably, all these factors, contribute to clinical outcomes. How would the US antitrust enforcers and courts respond to this line of thinking? Considering how they apply the state action doctrine, a realistic response might be that to the extent regulation exists that excludes a specific activity from the antitrust mandate, and this activity is actively supervised by the state, the appropriate balance is actually found between the goal of promoting healthcare quality and the goal of promoting competition. If such regulation exists and if the conditions of the state action doctrine apply, this answer makes sense. If, however, such regulation has not been adopted and if state boards provide good reasons why specific practices may threaten public health, this answer is simply unconvincing. Faithful to the narrative that competition will necessarily enhance quality and that public safety concerns cannot enter the equation, the US antitrust enforcers and the courts would reject such concerns even if reality showed that patients’ safety is at risk and therefore, medical professionals’ intervention seems necessary. Arguably, this approach suffers from important drawbacks. First, it disregards the fact that negative externalities characterise unregulated medical markets. In light of this, an individual might decide to receive a low quality treatment rather than no treatment at all because she does not fully internalise the cost of poor treatment. To the extent, however, not fully informed consumers receive lower quality care, the effects fall beyond those who receive care. 316 E Peters, W Klein, A Kaufman, L Meilleur and A Dixon, ‘More is Not Always Better: Public Policy Can Lead to Unintended Consequences’ (2013) 7 Social Issues and Policy Review 114,117. 317 Ibid. 318 Ibid, 117–18. 319 JJ Cohen, ‘Professionalism in Medical Education, an American Perspective: From Evidence to Accountability’ (2006) 40 Medical Education 607, 608. 320 M D Brennan and V Monson, ‘Professionalism: Good for Patients and Health Care Organizations’ (2014) 89(5) Mayo Clinic Proceedings 644, 645.

94  The Market Approach: Part I As physicians explained in Teladoc, “‘[r]epercussions of poor care are felt from emergency rooms and inner-city clinics to schools and the workplace – not to mention on government agencies that may themselves have to pay for the bad outcomes’.321 The FTC and the US courts, by concentrating their analysis on how a specific competition restraint may affect the variety of choices consumers have, forget to consider the costs to the overall society these choices may in fact create. As a result, they end up disregarding that a competition restraint may reduce rather than increase deadweight loss. More importantly, an antitrust policy that predominantly relies on the notion that more choice necessarily leads to quality improvements without examining the potential risks to healthcare quality these choices may in fact create, may ultimately contribute to the existing health disparities between the rich and the poor. Absent effective regulation ensuring healthcare quality, while the poor or the uninsured would end up purchasing the low cost, low quality or even poor services offered by non- licenced providers, the affluent would purchase the more expensive and higher quality services offered by high skilled, qualified providers. Surely, the main goal of antitrust in the healthcare sector should not be the reduction of health disparities among different socioeconomic groups. However, antitrust should also not be applied in a manner that contributes to the existing health inequities in the US. Potential risks to healthcare quality may also discourage consumers from purchasing a specific good or service. This risk is a real one, as North Carolina State Board of Dental Examiners indicates. In this case, as noted, Judge Keenan underlined in her separate statement that the Board was fully aware that several consumers had received teeth whitening services that did not even meet basic standards of hygiene. Ultimately, some consumers were hurt. Because consumers cannot easily evaluate physicians’ scientific knowledge or the level of care they receive, they may be unable to identify the reason why they incurred a specific harm. Therefore, they might choose to stop purchasing teeth whitening services both from qualified and unqualified providers. Ultimately, incompetent professionals would hurt the reputation of highly qualified professionals. This is another form of negative externality that the FTC’s and the US courts’ analysis fails to consider. Additionally, the US antitrust enforcers’ approach with regards to health quality justifications may lead to contradictions and considerable confusion considering the Supreme Court’s legal analysis in North Carolina State Board of Dental Examiners. As discussed, in this case the Board claimed that allowing non-dentists to perform teeth whitening services may reduce quality. The FTC dismissed this quality concern on the basis that such a justification is not a cognizable one, which means one that stems from measures that increase output and enhance product quality. This narrow view may lead to contradictory outcomes for the simple reason that an important aspect of a product’s or

321 Brief

of American Medical Association and Texas Medical Association (n 200).

Do Enforcers Balance Conflict in Perspective?  95 service’s quality is safety. As a result, a competitive restraint that may improve a product’s or service’s safety would also enhance its quality. However, since public safety justifications are not considered cognizable, the antitrust enforcers would simply dismiss them. Moreover, an antitrust analysis that clearly underestimates providers’ views on what healthcare quality is and how it is achieved does not take into consideration that medicine ‘is not only a business but also a calling’.322 Physicians’ commitment to enhance quality may not necessarily be inspired by their selfinterest, but also by their commitment to excellence, altruism and public service ethos. By considering, however, only economic incentives and by disregarding the benefit to the public which occurs from the promotion of scientific medicine and the protection of professionalism, the FTC and the US courts end up adopting an analysis that is one-dimensional.323 From a health policy perspective, though, improvements to healthcare quality cannot necessarily be attained if not all functions of a health system commit to the quality goals that the health system as a whole aims to achieve. As Avedis Donabedian, the father of research in healthcare quality, maintains, ‘the commitment to quality should pervade an institution at all its levels and in all its aspects’.324 Arguably, medical professionals and antitrust enforcers aim to protect healthcare quality from a different perspective. While antitrust enforcers aim to ensure quality by protecting competition, healthcare providers seek to further improve quality by ensuring that the services they provide meet the highest scientific standards of care.325 However, to their view, this goal is better achieved through professionalism rather than vigorous competition. Since, however, doctors’ commitment to ensuring quality is associated with their commitment to professionalism, a health system as well as an antitrust policy that aims to holistically protect quality should not disregard this essential facet of the notion. An antitrust policy that sees doctors mainly as knaves, ‘individuals that are predominantly motivated by self- interest[,]’ and not as knights,326 ‘professionals that are predominantly public-spirited[,]’ might harm medical professionals’ commitment to professionalism and therefore their commitment to further improve healthcare quality.

322 LH Calabrese, ‘Sir William Osler Then and Now: Thought for the Osteopathic Profession’ (2005) 105 Journal of the American Osteopathic Association 245, 248, available at https://jaoa.org/ article.aspx?articleid=2093135(quote by Sir William Osler, who is a Canadian physician and one of the four founding professors of Johns Hopkins Hospital). 323 See AR Dyer, ‘Ethics, Advertising and the Definition of a Profession’ (1978) 11 Journal of Medical Ethics 72, 73. 324 A Donabedian, ‘An Introduction to Quality Assurance’ (Oxford University Press, 2003). 325 World Health Organisation (WHO), ‘Quality of Care: A Process for Making Strategic Choices in Health Systems’ (WHO, 2006) 10, available at https://apps.who.int/iris/bitstream/handle/10665/ 43470/?sequence=1. 326 For the definition of these notions, see J Le Grand, ‘Motivation, Agency and Public Policy: Of Knights and Knives, Pawns and Queens 2’ (Oxford University Press, 2003).

96  The Market Approach: Part I What are the alternatives? The US antitrust enforcers and the courts should further expand the notion of healthcare quality when they apply antitrust law in healthcare. In fact, they should adopt a definition that fully considers the perspectives of both medicine and antitrust law; a definition that is in line with the view that the goal of healthcare quality is a multidimensional concept that encompasses the goals of acceptability, safety, effectiveness and trust in the doctor-patient relationship. This definition would also be in line with the definition that has been introduced by key players in the field of healthcare, such as the Organisation for Economic Co-operation and Development, the World Health Organisation, the Institute of Medicine and Avedis Donabedian.327 Would the adoption of this wider definition of healthcare quality transform the application of antitrust law in healthcare? The answer is a strong yes. Adopting a wider notion of healthcare quality would allow the FTC and the courts to create an analytical framework under which conflicting goals between antitrust and medicine could in fact be balanced. This is because if the US antitrust enforcers adopted a more holistic approach when they examine how a specific competition restriction may impact healthcare quality, they would be able to balance different components of quality against the harm caused to competition. They would be able, for example, to balance safety and effectiveness versus choice and competition, acceptability and trust versus choice and competition. As Professor Allensworth has observed, ‘the U.S. courts have avoided developing a framework for when competition may suppress rivalry for the sake of a more functional market’.328 Since the US antitrust enforcers and the courts have chosen to define quality as a choice, any balancing exercise between the harm caused to competition and the multiple facets of healthcare quality has become unnecessary. Widening, however, the values and the dimensions of quality that shape their legal analysis and outcomes, would incentivise the US antitrust enforcers to provide more accurate guidance on whether and how improvements to quality may surpass the harm caused to competition. Undoubtedly, if the US antitrust enforcers and the courts attempted to strike the appropriate balance between the pursuit of healthcare quality and the identified competitive restraint, the costs of antitrust enforcement may be further increased. Nonetheless, if antitrust authorities adopted this wider definition, an important goal would be achieved: they would apply an antitrust analysis that does not disregard healthcare markets’ limits, markets failures and special facets. They would also apply an antitrust analysis that particularly considers research in behavioural economics, demonstrating that sometimes humans fail to make the decisions that serve their interests. In other words, they would apply

327 See Donabedian (n 324) 4. (Donabedian, for example, conceives quality as a multidimensional concept whose main attributes are effectiveness, efficacy, efficiency, acceptability (or else the notion of trust in the doctor-patient relationship), optimality, equity, legitimacy). 328 R Haw Allensworth, ‘The Commensurability Myth in Antitrust’ (2016) 69 Vanderbilt Law Review 1,55.

Summing Up  97 an antitrust analysis that echoes more healthcare market limits and complexities and less textbook myths. They would also apply antitrust law in healthcare in a way that does not fail to consider the perspective of medicine on what healthcare quality is and how it is achieved. Indeed, adopting this holistic approach would allow different institutions pursuing different goals to respect each other’s views on how health improvements are attained. IV.  SUMMING UP

This chapter has identified how the FTC and the US courts define and assess healthcare quality and how they respond to medical associations’ claims that a certain restriction of competition is necessary for the pursuit of quality. In concluding, this chapter does not aim to claim that the US antitrust enforcers and the courts should evaluate healthcare quality defences in a less strict manner. Indeed, a less strict approach may encourage physicians and medical associations to raise quality concerns that may mask their self-interest. More importantly, it may substantially suppress price competition and prohibit patients from enjoying healthcare services that are essential for their well-being and flourishing. This chapter has argued, though, that the US antitrust enforcers and the courts should define quality in a way that reflects the notion that healthcare quality is a multidimensional concept consisting of the notions of effectiveness, safety and acceptability. Adopting this wider definition would incentivise the antitrust enforcers to create an analytical framework under which they would be able to balance the multiple components of healthcare quality against the harm caused to competition. Adopting a wider, more holistic approach to healthcare quality would also allow the US antitrust enforcers and the courts to apply an antitrust analysis that reflects healthcare markets’ limits and economic facets. Expanding their approach would also ensure that antitrust enforcers and medical associations do not constantly struggle to impose their own views on what the prevailing facets of healthcare quality should be. From Donabedian’s point of view, an alternative approach would ensure that all functions of the health system commit to the quality goals that the system as a whole pursues.

4 The Market Approach: Part II*

T

he consolidation of healthcare markets and the way it affects costs, quality and prices has been a hotly debated issue in the US healthcare sector.1 This trend can be traced back to the tumultuous period of restructuring which the US healthcare industry went through in the 1990s.2 As healthcare costs continuously increased, the need for innovative methods of providing more affordable care emerged. Included in these new methods were the full panoply of managed care organisations,3 changes in providers’ payment and the integration of healthcare delivery.4 What caused these continuous increases in healthcare spending? What initiated this rapid transformation of the US healthcare industry? During the twentieth century most patients received care by independent physicians. Pricing was mainly fee for service (FFS).5 This form of payment coincided with public sentiment that more care amounts to higher quality care and the physician is the best positioned to identify and recommend the most appropriate form of treatment.6 Health insurers did not significantly restrain consumers’ choice of providers and imposed limited oversight of the treatment offered by providers.7 * A previous version of this chapter has been published in World Competition Law & Economics Review. See T Stavroulaki, ‘Integrating Healthcare Quality Concerns into the US Hospital Merger Cases, A Mission Impossible?’ 39(4) (2016) World Competition Law & Economics Review 593. 1 D Lomax and H Kim, ‘The Evolution of Efficiencies and Treatment of Quality of Care Defenses in Light of Changing Health Care Industry Dynamics’ (2014) (4) 5 Competition Policy International 2. 2 American Bar Association (ABA), Section of Antitrust Law, Healthcare Mergers and Acquisitions Handbook, 93 (ABA Book Publishing, 2003) 1. 3 Managed care encompasses a wide array of institutional arrangements for the financing and delivery of healthcare services. Usually when one speaks of a Managed Care Organization (MCO), one is speaking of the entity that manages risk, contracts with providers or handles claims processing. Managed care offers a more restricted choice of (and access to) providers and treatments in exchange for lower premiums, deductibles and copayments than traditional insurance. Managed care usually uses three strategies to control costs and enhance quality of care: (1) selective contracting; (ii) direct financial incentives; and (iii) utilisation review. 4 Federal Trade Commission and the Department of Justice, ‘Improving Health Care: A Dose of Competition’, 1 33 (July 2004), available at www.ftc.gov/sites/default/files/documents/reports/ improving-health-care-dose-competition-report-federal-trade-commission-and-departmentjustice/040723healthcarerpt.pdf at 1. 5 FFS means that the payment is based on the number and type of services performed. 6 Improving Health Care’ (n 4). 7 Ibid, 1.

The Market Approach: Part II  99 Starting in the late 1960s, health policy makers began questioning the effects of these institutional arrangements.8 Specifically, they started raising the concern that the combination of health insurance, FFS payment and patients’ limited information about healthcare did not give physicians any incentives to compete on prices. On the contrary, these mechanisms encouraged physicians to over provide and consumers to over consume healthcare.9 FFS payment, some health policy makers warned, ensured reimbursement for any claimed charges.10 Hence, this form of pricing undermined the potential for price competition. It also undermined physicians’ and other healthcare providers’ incentives to effectively cooperate and integrate ‘the care they rendered’.11 In light of these concerns, over the last 30 years, state and federal health policy has promoted the emergence of alternative forms of healthcare delivery, and has induced, to varying degrees, price and quality competition among providers.12 The rapid growth of managed care in the 1990s is exactly the result of this new policy orientation towards effective competition in the healthcare sector. The growing demand for lower healthcare costs, along with the increasing presence of managed care placed enormous pressure on hospitals to reduce their costs, while improving the quality of their services. To attain these goals, hospitals started merging. The result was a period of rapid and substantial consolidation or else a merger wave. This dynamic trend in the US healthcare industry which had already started in the 1990s has not ceased. In contrast, it has increased following the implementation of the Patient Protection and Affordable Care Act (ACA) which seeks to enhance quality and reduce healthcare costs by improving coordination of care among providers through the establishment of Accountable Care Organisations.13 What do hospitals aim to achieve by merging? Under certain conditions, hospital consolidation may lead to lower costs. This is because as hospitals often insist, the more care a hospital provides, the more efficient and less expensive it may become.14 Additionally, hospitals that consolidate may manage to 8 Ibid, 2. 9 Ibid, 8. 10 Ibid. 11 Ibid, 2. 12 Ibid. 13 D Lomax and H Kim (n 1) 2; Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119 (2010), as amended by Health Care and Education Reconciliation Act of 2010, Pub. L. No. 11-152, 124 Stat. 1029 (2010) § 3011. Accountable Care Organisations (ACOs) are groups of doctors, hospitals and other healthcare providers, who come together voluntarily to give coordinated high quality care to their Medicare patients. The goal of coordinated care is to ensure that patients, especially the chronically ill, get the right care at the right time, while avoiding unnecessary duplication of services and preventing medical errors, see www.cms.gov/Medicare/ Medicare-Fee-for-Service-Payment/ACO. 14 G Curfman, ‘Everywhere, Hospitals are Merging – but Why Should we Care?’ (Harvard Health Publishing, 1 April 2015), available at www.health.harvard.edu/blog/everywhere-hospitalsare-merging-but-why-should-you-care-201504017844.

100  The Market Approach: Part II limit duplication of services, decrease administrative costs, expand their delivery network and achieve economies of scale.15 They can also enhance quality, although the extent to which hospital consolidation can improve quality is not unquestioned.16 These can be attained through various ways. Acquiring hospitals, for instance, can bring both their management expertise and their financial resources to the hospitals they acquire, allowing an expansion of the services delivered.17 An expansion of services can contribute to healthcare quality because patients can gain access to a wider range of services.18 In theory, a merger can also enhance the average quality of the services offered to patients ‘by redirecting patient flows’.19 A merged hospital entity can also ‘concentrate service offerings in the higher quality of its facilities’ improving the quality of care received by the patients of the merged entity.20 Inevitably, a merger also increases patient volumes for hospital providers. In view of medical research identifying a relationship between procedure volumes and patient volumes,21 the higher volumes a merger brings may improve the overall quality of the services provided. Furthermore, peer influence speeds up the adoption of novel forms of medical treatment.22 Therefore, a merger encouraging the sharing of experience and medical expertise among physicians and hospital administrators can contribute to quality.23 Arguably, it is possible to work internally to advance healthcare quality or to employ external collaborators to contribute with their medical expertise.24 Nonetheless, the closer relationships a merger develops ‘allow information and management systems to transfer more easily than they otherwise would’.25 A hospital merger can also reduce the costs the adoption of information systems entails. Computerised provider order entry, electronic medical records and other electronic systems which enhance the safety and effectiveness of care, 15 Improving Health Care (n 4). 16 K Madison, ‘Hospital Mergers in an Era of Quality Improvement’ (2007) 7 Houston Journal of Health Law & Policy 275; E. Wang, S Arnold, S Jones et al, Quality and Safety Outcomes of a Hospital Merger Following a Full Integration at a Safety Net Hospital. 2022 5(1) JAMA Netw Open, available at https://jamanetwork.com/journals/jamanetworkopen/fullarticle/2787652; HJ  Jiang, KR Fingar, L Liang, RM Henke and TP Gibson, ‘Quality of Care Before and After Mergers and Acquisitions of Rural Hospitals’ (2021) 4(9) JAMA Netw Open, 1–12. However, other studies show that hospital consolidation may not improve healthcare quality, see L Dafny, N Beaulieu, B Landon, J Dalton, I Kuye and JM McWilliams, ‘Changes in Quality of Care after Hospital Mergers and Acquisitions’ (2020) (384) New England Journal of Medicine 51–59. 17 Madison, ibid. 18 Ibid. 19 Ibid. 20 Ibid. 21 R Mesman, G Westert, B Berden and M Faber, ‘Why do High Volume Hospitals Achieve Better Outcomes? A Systematic Review about Intermediate Factors in Volume Outcome Relationships’ (2015) 119 Health Policy 1055. 22 Madison (n 16) 276. 23 Ibid. 24 Ibid. 25 Ibid.

How are Hospitals Paid?  101 lead to economies of scale.26 As a result, the marginal costs of offering information services decrease as more patients and medical professionals are part of the system.27 Network effects also pervade these information systems. The more doctors use the system, the more the system increases its value to other patients and providers because information can be more easily shared among providers.28 Although hospital consolidation has the potential to yield cost and qualitative efficiencies, it can also harm competition by creating market power. In light of this, some questions emerge that call for further thinking: Can the US antitrust enforcers and the courts strike the appropriate balance between the quality improvements a hospital merger brings and the risk of market power? Can they assess the quality improvements stemming from the hospital merger and weigh them against the harm caused to competition? And, if so how? Surely, these questions are not easy to address. However, this chapter seeks to carefully examine them. To do so, first, this chapter discusses how hospital consolidation can lead to market power. For this reason, it starts exploring the current regimes under which hospitals are paid. Second, it brings to the fore the applicable framework for hospital mergers in the US. By doing so, it explores how quality can become a critical consideration under a merger analysis. Then, it delves into some seminal US hospital merger cases where quality claims were analysed and assessed by the US antitrust enforcers and the courts. By doing so, it asks: How do the US antitrust enforcers and the courts perceive quality of care? What are the quality dimensions they actually value? What are the challenges the US antitrust enforcers and the courts face in evaluating and examining merging parties’ quality claims? What are the pros and cons of their approach? Can the goal of healthcare quality as a whole be taken into consideration under their approach? The last part concludes. I.  HOW ARE HOSPITALS PAID? A HISTORICAL PERSPECTIVE

Generally, hospitals are paid by two main payers: the public, or in other words the Federal Centres for Medicare and Medicaid Services (CMS) which administers the Medicare29 and Medicaid30 programmes, and the private. 26 Ibid, 276. 27 Ibid, 277. 28 Ibid. 29 Medicare provides coverage for approximately 40 million elderly and disabled Americans. Medicare Part A covers most Americans over 65 years old, and provides hospital insurance coverage. Although Medicare Part B is optional, almost all eligible parties enrol, given substantial federal subsidies to the programme. Medicare Part B provides supplementary medical coverage for, among other things, doctors’ visits and diagnostic tests. Many Medicare beneficiaries also purchase Medicare Supplemental Insurance (Medigap) policies or have coverage from a former employer. 30 Medicaid provides coverage for approximately 50 million Americans. Although the federal government sets eligibility and service parameters for the Medicaid programme, the states specify

102  The Market Approach: Part II Prior  to  1983, health insurers paid hospitals on a FFS: they informed their payers about the cost of their services and the payers fully compensated them for their services.31 As noted, the FFS method of payment significantly increased healthcare spending since it rewarded volume and discouraged efficiency. An important effort to restrain continuous increases in healthcare spending was launched in 1983, when the main public payer, CMS, implemented a more costeffective payment method, the inpatient prospective payment system (IPPS).32 This new payment scheme aimed at curbing increases in federal expenditures, promoting competition in the healthcare marketplace and encouraging hospitals to improve their operational efficiency.33 Under this form of payment, the amount a hospital receives for treating a patient ‘is based on the diagnosis related group (DRG) that justified the episode of hospitalization’.34 Each DRG has a payment weight assigned to it. This depends on the average cost of offering care to patients in that DRG. This reflects both the very sick, high risk patients that need advanced medical treatment and the low risk ones who are less expensive to treat.35 Further changes to this system were initiated following the implementation of the ACA which ‘provides bundled payments by CMS for services that patients receive across a single episode of care, such as heart bypass surgery or a hip replacement’.36 Such proposals seek to motivate hospitals and providers to improve coordination of care for patients when they are hospitalised and after they are treated and discharged.37 Private payers provide private health insurance which is essentially obtained through benefits offered by employers and individual purchases.38 Employers and other groups purchasing private health insurance are named third party payers.39 The prices of the insurance services offered by private payers are negotiated directly between the latter and the hospitals. As public payers, private payers design and apply cost effective payment schemes. The most common are per case rates, per diem rates, or

the services they will offer and the eligibility requirements for enrollees. Medicaid programmes generally cover young children and pregnant women whose family income is at or below 133 per cent of the federal poverty level, as well as many low-income adults. Most states have most of their Medicaid population in some form of managed care. Medicaid pays for a majority of long-term care in the United States. With its broad guidelines established by federal law, each state sets its own payment rates for Medicaid services. 31 Improving Health Care (n 4) 8. 32 Ibid, 9. 33 Ibid, 5. 34 Organisation for Economic Co-operation and Development (OECD), Policy Roundtables, ‘Competition in Hospital Services’. DAF/COMP (2012) 9, 241 available at: www.oecd.org/daf/ competition/50527122.pdf. 35 Ibid, 241. 36 Ibid. 37 Ibid. 38 Ibid, 243. 39 Ibid.

How are Hospitals Paid?  103 discounts-off-charges rates.40 Under a per case rate, the hospital receives a fixed amount for the hospital stay for a specific type of care, irrespective of the number of days the patient is hospitalised or the healthcare resources the provider utilises for treating the patient.41 Under a per diem rate, a hospital receives a fixed amount for each day of treatment irrespective of the actual diagnosis of the patient or the healthcare resources the provider utilises for treating the patient.42 Under a discounts-off-charges rate, the hospital receives only a percentage of its charges for the hospital stay.43 Hospitals rigorously compete with each other to enter a health insurer’s network. This is an important source of patients, who pay lower out of pocket costs when they are treated by in-network physicians.44 Robust competition for inclusion in the network allows health insurers to attain lower reimbursement rates, which ultimately leads to lower costs for patients and their employers.45 Once providers become part of an insurer’s network, they compete to attract patients on the basis of their performance and quality.46 The amount health insurers reimburse in-network providers is the result of a contract negotiation between private payers and hospitals.47 Arguably, the outcome of those negotiations depends primarily on the bargaining dynamics in the relevant market. Generally speaking, where hospitals’ bargaining position is stronger, rates will increase.48 Where the insurers’ bargaining position is stronger, rates will decrease.49 Hospitals need access to insurer networks to attract patients.50 Insurers need hospitals’ participation in a network to make it 40 Ibid, 244. 41 Ibid. 42 Ibid. 43 Ibid. 44 Alphonsus Medical Center – Nampa, Inc v St Luke’s Health System, Ltd, Reply Brief of Appellants St Luke’s Health System, Ltd, et al, No. 14-35173 (9th Cir. Sep. 2, 2014) 5. 45 Ibid. 46 Ibid. See also, In the Matter of Advocate Health Care Network, a corporation, et al, Complaint, Docket No. 9369, at 31–39; In the Matter of Penn State Hershey, Medical Center, a corporation et al, Complaint, Docket No. 9368, at 31–38; In the Matter of Cabell Huntington Hospital Inc., a corporation, et al, Complaint, Docket No. 9366, at 50–51. On 6 July 2016 the Federal Trade Commission (FTC) dropped the latter complaint in light of a new West Virginia law relating to certain ‘cooperative agreements’ between hospitals in that state, and the West Virginia Health Care Authority’s decision to approve a cooperative agreement between the hospitals, with which the West Virginia Attorney General concurred. The FTC’s initial complaint, issued in November 2015, alleged that the proposed merger violated US antitrust law. The Commission voted to dismiss the complaint since the passage Cooperative agreement laws seek to replace antitrust enforcement with state regulation and supervision of healthcare provider combinations. ‘This case presents another example of healthcare providers attempting to use state legislation to shield potentially anticompetitive combinations from antitrust enforcement’, the Commission wrote in a statement, see www.ftc.gov/news-events/pressreleases/2016/07/ftc-dismisses-complaint-challenging-merger-cabell-huntington; SW Waller, ‘How Much of Health Care Antitrust is Really Antitrust?’ (2017) Loyola University Chicago Law Journal 21, available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2819543. 47 Alphonsus Medical Center – Nampa, Inc v St Luke’s Health System, Ltd (n 44) at 6. 48 Ibid. 49 Ibid. 50 Ibid.

104  The Market Approach: Part II more attractive to patients and their employers.51 Therefore, the party with the stronger negotiation power can achieve a more favourable rate.52 Bargaining leverage primarily depends on the ‘ability to walk away from the negotiating table’.53 This ability is called ‘fallback option’ or a ‘best alternative to a negotiated agreement’.54 If multiple providers are competing for becoming part of the network, an insurer facing a demand for high reimbursement rates by one provider will abandon the negotiation and search for alternative providers to establish a marketable network.55 In markets with no alternative fall back options, though, the bargaining dynamics might be different.56 Stripped of attractive alternatives among providers in a specific area, an insurer’s bargaining power might be diminished.57 The same might happen if the hospital is very important to the formation of an attractive network because it has the status of a ‘must have hospital’. A hospital having this status might successfully demand higher reimbursement rates. Most importantly, if it belongs to a multi-hospital system, it might even require that the whole network of hospitals acquire access to the insurer’s network.58 Considering consumers’ pressure for choice, private payers might not necessarily resist the hospital’s demands and exclude an entire hospital system outright. This, however, may lead to higher health insurance premiums and a higher rate of uninsured citizens.59 Given that, currently, the number of uninsured in the US under the age of 65 exceeds 30 million, this concern is not a trivial one.60 Hospitals’ bargaining power and consumers’ increasing demand for affordable insurance ensuring access and providing choice push the main players in hospital services, hospitals and payers, to shape the negotiation agenda around two main issues: cost containment and consumers’ satisfaction through choice. Lower hospital fees and insurance premiums can be achieved through vigorous price competition. Indeed, to gain access to the payers’ network, hospitals are strongly incentivised to reduce the prices of the services they offer or to accept cost effective payment arrangements, such as the per case or per diem payment schemes. Surely, fierce price competition among providers of healthcare along with the application of various cost-effective pricing strategies may lead to reduced hospital rates and, hence, insurance premiums. But do they also induce the quality of hospital services? The answer is not necessarily a positive one. A hospital receiving a predetermined amount for a specific disease or treatment may have

51 Ibid,

4–5. 6. 53 Ibid, 6. 54 Ibid. 55 Ibid, 7. 56 Ibid. 57 Ibid. 58 Improving Health Care (n 4) 17. 59 Ibid, at 29. 60 Centers for Disease Control and Prevention, see www.cdc.gov/nchs/fastats/health-insurance.htm. 52 Ibid,

Hospital Merger Analysis  105 the incentive to reduce the unnecessary costs of treatment. At the same time, though, it might have powerful incentives to diminish the quality of its services. As discussed, under a per diem rate, the hospital receives a fixed price for each day of hospital treatment irrespective of the actual diagnosis of the patient and the resources the hospital utilises for her treatment.61 This practically means that if a hospital treats two patients suffering from a different disease for the same time period, the hospital will receive the same amount for their treatment irrespective of the cost it actually incurred. Does, however, a patient suffering from hip dislocation run the same health risk with someone suffering from breast cancer? Do they have equal needs? And more importantly, does their treatment require equal healthcare resources? Obviously, the answer is no. The public payers’ payment scheme raises similar concerns. For instance, under the IPPS payment scheme, the amount a hospital accepts for treating a patient is calculated on the basis of the DRG justifying the episode of hospitalisation.62 This means that two hospitals treating two patients diagnosed with the same disease will receive an equal amount of payment regardless of the individual needs and the special conditions of each patient. More importantly, they will also receive the same amount regardless of the quality of care each patient experienced. II.  HOSPITAL MERGER ANALYSIS: A SHORT JOURNEY TO THE APPLICABLE COMPETITION FRAMEWORK

The Agencies (the Department of Justice and the Federal Trade Commission (FTC)) assess hospital mergers applying the same legal framework they use for any type of merger.63 This framework is described in the 2010 Horizontal Merger Guidelines which outline the legal techniques and the enforcement policy with respect to horizontal mergers.64 The unifying theme of these Guidelines is that any merger that may create, enhance market power or facilitate its exercise should be prohibited.65 A merger entrenches market power if it is likely to motivate one or more firms to increase prices, restrict output, decrease innovation, or otherwise hurt consumers due to lack of competition.66 The Guidelines clarify that increased market power can be manifested in both price and non-price terms. The latter include reduced quality, variety or service. As the Guidelines explain, these

61 OECD (n 34) 244. 62 Ibid, 241. 63 Ibid, 249. 64 US Department of Justice and Federal Trade Commission, Horizontal Merger Guidelines (2010) [hereinafter ‘the Guidelines’], available at www.justice.gov/atr/public/guidelines/hmg-2010.html. 65 Ibid, 2. 66 Ibid.

106  The Market Approach: Part II ‘non-price effects may coexist with price effects, but they can also emerge in their absence’.67 Interestingly, the framework under which the Agencies examine whether a merger may reduce price or non-price competition, is identical. The Guidelines highlight that when the antitrust enforcers evaluate whether a merger may substantially reduce non-price competition, ‘they employ an approach analogous to that used to evaluate price competition’.68 But how do they shape their assessment as to the extent to which a merger can reduce competition and increase market power? The Agencies apply a five-step analytical process test for determining whether a specific merger should be challenged because it may harm competition and consumers. First, they define the relevant market and evaluate whether concentration in the market would further increase in light of the proposed merger. Second, they assess the merger’s anticompetitive effects. Third, they examine whether potential entry by other firms into the market may impose competitive constraints. Fourth, they assess whether the merger under scrutiny would generate significant efficiencies. Lastly, they determine whether, but for the merger, one of the merging firms would fail, and therefore, exit the market.69 How do quality concerns enter this test? At which stage of merger analysis can quality claims be considered? As the 2010 Merger Guidelines state, the Agencies can incorporate quality concerns into their merger analysis when they define the relevant market, evaluate the potential anticompetitive effects of the merger and when they consider its procompetitive efficiencies. Let consider how quality is specifically examined at each of these stages. A.  Defining the Relevant Market The starting point for each merger analysis is the definition of the relevant product and geographic market in which anticompetitive concerns are likely to be created.70 As the Guidelines underline, market definition focuses solely on demand substitution factors, i.e., on customers’ ability and willingness to substitute away from one product to another in response to a price increase or a corresponding non-price change such as a reduction in product quality or service.71

Although the Guidelines suggest that in a relevant product market definition test, not only a price increase but also a reduction in quality can be a demand 67 Ibid. 68 Ibid. 69 Ibid. 70 JJ Miles, ‘Anatomy of a Provider Merger Antitrust Challenge’ (Part 4), available at www. healthlawyers.org/Events/Programs/Materials/Documents/PHS15/l_miles.pdf; Horizontal Merger Guidelines (n 64) 1. 71 Ibid, 7 (emphasis added).

Hospital Merger Analysis  107 substitution factor, they do not specifically articulate how a reduction in quality is measured and assessed and what role it can actually play in the definition of the relevant product market. The Guidelines do explain the analytical framework for defining the relevant product market on the basis of consumers’ responses to price increases. This is the Hypothetical Monopoly Test (SSNIP).72 However, when it comes to the potential consumers’ responses to quality reductions, the Guidelines are silent. Undoubtedly, the integration of non-price issues in the definition of the relevant geographic market also raises analogous concerns. Again, the Guidelines imply that non-price concerns can actually play a role in the definition of the relevant geographic market. For instance, the Guidelines explain that, in general, ‘the scope of geographic markets depends on transportation costs’.73 They clarify, though, that other factors such as reputation, and service availability can create barriers to long-distance or international transactions.74 Nevertheless, as in the case of relevant product markets, the Guidelines omit to address how these non-price factors affect the definition of the relevant geographic market.75 B.  Assessing the Anticompetitive Effects In theory, when examining the coordinated and unilateral effects of a merger, the Agencies can take quality concerns into account in multiple different contexts. For instance, they gauge whether the merger under scrutiny is likely to diminish innovation competition by incentivising the merged entity to lessen its efforts to innovate below the level that would prevail if the merger did not take place.76 They also evaluate whether the merger encourages innovation by leading to the combination of complementary capabilities that would not be combined absent the merger.77 Innovation, however, is not the only quality aspect the Agencies consider. Variety and choice also seem to play a meaningful role in the merger’s unilateral effects analysis. For instance, the antitrust enforcers evaluate whether the 72 In defining the product market, the analyst chooses the narrowest product offered by both merging parties (call it the ‘candidate market’), assumes a true monopolist (a single present and future seller) of those products, and asks whether, if the monopolist raised its prices, say five to ten per cent, the price increase would be profitable. If the price increase would be profitable, the analysis stops and the relevant product market includes only those products. But if the price increase would not be unprofitable – because too many customers would switch to other products to avoid the price increase – the product market must be expanded to include the next-best substitute. The analysis is repeated until the market includes sufficient products so a price increase of all would be profitable, Miles (n 70) 16. 73 Horizontal Merger Guidelines (n 64) 13. 74 Ibid. 75 The hypothetical monopolist test requires that a hypothetical profit-maximising firm that was the only present or future seller of the relevant product(s) to customers in the region would impose at least a SSNIP on some customers in that region. 76 Horizontal Merger Guidelines (n 64) 23. 77 Ibid.

108  The Market Approach: Part II merger is likely to incentivise the merged entity to reduce variety by ceasing to sell one of the relevant products offered by the merging entities.78 They also evaluate whether a merger can lead to the efficient consolidation of products and increase variety by encouraging the merged firm to reposition its products to be more differentiated from one another’.79 A similar logic dominates antitrust enforcers’ analysis when they examine the merger’s coordinated effects. For example, the Agencies investigate whether coordinated interaction can undermine a firm’s incentive to offer consumers improved products and services by undercutting the extent to which such a strategy would win business away from competitors.80 C.  Considering the Procompetitive Efficiencies A merger’s primary benefit to the economy is its potential to yield substantial efficiencies and therefore stimulate the merged firm’s incentives to compete in the relevant market, which may lead to reduced prices, higher quality, improved products and a wider range of services.81 Efficiencies generated through merger may induce competition in multiple ways. For instance, if two ineffective competitors merge, they might form a stronger competitor, by combining complementary assets.82 Efficiencies also induce quality competition by encouraging the creation of new or higher quality products, even if they do have a direct impact on prices.83 In line with this economic rationale, merging entities often contend that their proposed merger does not necessarily reduce competition and harm consumers in light of the substantial efficiencies it generates. Specifically, merging entities often allege that the proposed merger does not raise anticompetitive concerns because the cost or qualitative efficiencies it creates outweigh its likely harm to competition and consumers. The Guidelines do explain under what conditions such claims can be successful. For the efficiencies to ‘count’ in favour of the merger, they require that efficiencies be: (a) merger specific, which means ‘accomplished with the proposed merger and unlikely to be accomplished absent either the proposed merger or another transaction having similar anticompetitive effects’; (b) verifiable, which means efficiencies that are not vague, speculative or difficult to be verified; and (c) they do not emerge from anticompetitive output restrictions.84 The proposed benefits from the efficiencies should be passed on to customers.85

78 Ibid,

24. 22. 80 Ibid, 24. 81 Ibid, 29. 82 Ibid. 83 Ibid. 84 Miles (n 70) 31. 85 Ibid. 79 Ibid,

Hospital Merger Analysis  109 In theory, both qualitative and cost efficiencies matter in the context of a merger assessment. Indeed, the Guidelines leave no doubt that quality plays an important role when efficiency claims are assessed. The Guidelines maintain: ‘just as adverse competitive effects can arise along multiple dimensions of conduct, such as pricing and new product development, so too can efficiencies operate along multiple dimensions’.86 In this context, the Guidelines acknowledge that efficiencies relating to research and development can be significant.87 They raise the concern, though, that they cannot easily be verified and may often be the result of a reduction in output.88 Importantly, the Guidelines seem to indirectly discount claims justifying price increases on the basis of quality improvements since they do not address how the Agencies would accommodate these claims. They note that ‘purported efficiency claims based on lower prices can be undermined if they rest on reductions in product quality or variety that customers value’.89 This means that quality degradation, if it results in cost reduction, cannot be taken into consideration under efficiencies analysis.90 Nonetheless, when both costs and qualitative efficiencies increase, the Guidelines, again, are silent.91 The Guidelines seem to consider only cases in which efficiencies may lead to new or innovative products, even if they do not have a direct impact on prices.92 Mergers, however, can result in higher priced products or services that may be appreciated by consumers because of their superior quality.93 Especially in the context of healthcare, while some buyers may choose to obtain the previous quality of care at a cheaper price, several buyers would choose superior quality products or services, even if buying them would require paying higher prices.94 Interestingly, although the Guidelines describe what sort of efficiency gains the Agencies value, they do not specifically explain under what legal and economic test such gains can be balanced against the merger’s potential anticompetitive effects. In other words, they fail to explain how the defendants can prove that the efficiencies stemming from their proposed transaction surpass potential anticompetitive effects. This inadequacy is not a trivial one. On the contrary, it can prove problematic considering the high burden of proof the merging parties bear when supporting the claim that their transaction generates efficiencies exceeding the likely harm to competition. Indeed, the task the merging parties are expected to perform is a challenging one. On the one hand, the Guidelines clarify that the Agencies will not challenge a merger if they think that the 86 Horizontal Merger Guidelines (n 64) 31 (emphasis added). 87 Ibid. 88 Ibid. 89 Ibid. 90 R Blair and D Sokol, ‘Quality-Enhancing Merger Efficiencies’ (2015) 100 Iowa Law Review 1969, 1972. 91 Ibid. 92 Ibid. 93 Madison (n 16) 276. 94 Ibid.

110  The Market Approach: Part II cognizable efficiencies are sufficient to offset the merger’s likely anticompetitive effects in the relevant market, eg, by preventing price increases in that market.95 On the other hand, they illustrate that in conducting their merger analysis, the antitrust enforcers ‘should not simply compare the magnitude of the cognizable efficiencies with the magnitude of the likely restrictions of competition’.96 In other words, while the Guidelines explain what type of efficiency analysis would not meet the parties’ burden of proof, they do not specifically address what type of efficiency analysis would actually meet the required burden of proof. III.  QUALITY IN THE US HOSPITAL MERGER ANALYSIS

The previous section examined how quality can become part of a merger analysis taking due account of the guidance the Guidelines offer. Additionally, it briefly discussed the hurdles merging parties may face in introducing quality concerns into a merger assessment. This part seeks to examine to what extent the hurdles and inadequacies identified in the previous section have been addressed by the US antitrust enforcers and the courts in hospital merger cases. It also explores how and to what extent the Agencies incorporate quality concerns in hospital merger cases in each stage of merger analysis. By doing so it asks do the Agencies manage to take into account the notion of healthcare quality as a whole? A.  Quality Concerns when Defining the Relevant Geographic Market Although the Guidelines clarify that quality concerns can be taken into consideration when the relevant product and geographic markets are defined, the case law in hospital merger cases demonstrates that price rather than quality concerns monopolise this stage of merger analysis. To define the geographic market the question the Agencies primarily ask is the following: where can customers of hospital services practically turn for alternative services in case the proposed merger is accepted and prices increase?97 Applying the SSNIP test the Agencies primarily focus on the question of ‘how customers would respond to a small but significant price increase (5–10 percent) imposed by a hypothetical monopolist through a defined geographic area’.98 If the analysis shows that as the result of the price increase customers are willing to travel to adjacent areas where other market players offer lower prices in sufficient numbers to make the price increase unprofitable, then the proposed 95 Horizontal Merger Guidelines (n 64) 31. 96 Ibid, 30. 97 Federal Trade Commission v Tenet Health Care Corporation, 186 F.3d 1045 (8th Cir. 1999) para 21. 98 US Court of Appeals for the 9th Circuit, Alphonsus Medical Center – Nampa, Inc v St Luke’s Health System, District Court for the District Court of Idaho, Case No. 1:12-cv-00560-BLW et al, 11.

Quality in the US Hospital Merger Analysis  111 geographic market is too narrow.99 But if the price increase would be profitable because a sufficient number of consumers would accept it in order to receive services within the geographic area, then this specific area is the relevant geographic market.100 When the Agencies think of ‘customers’ they do not consider the final recipients of healthcare services, namely the patients, but the payers that directly pay for services and negotiate with providers.101 To them, a geographic market is an area of effective competition where purchasers can seek alternative choices.102 Considering that payers’ customers usually demand local care, the antitrust enforcers believe that insurers have little choice but to pay the price increase hospitals demand rather than offer an insurance product limiting access to local care.103 Nonetheless, by concentrating mainly on the above analysis, the FTC and the courts disregard the quality aspects the definition of a geographic market in the hospital sector may entail. In fact, they disregard that patients’ choice of hospitals is also determined by a number of non-price variables, notably innovation and quality. In other words, they neglect that from the patients’ perspective a different question may actually be essential: where could consumers of hospital services practically turn for alternative providers should the merger be cleared and quality be undermined? Both the FTC and the courts acknowledge that patients focus more on quality and less on prices when they choose the hospital in which they will receive treatment. Nonetheless, they choose not to integrate patients’ perspectives into their analysis. The St Luke’s case illustrates this point. In this case, the Appellate Court underlined that ‘in the primary care service market price is not a major strategic factor in consumers’ decisions’.104 Convenience, quality and established relationships with their doctors are the factors consumers primarily care about.105 Essentially, this is because consumers do not pay the full amount of medical bills: A five-dollar increase in the price a doctor sells her services to a health insurer for an office visit may translate to a ten per cent increase in an out of pocket payment for the consumer. For this reason, consumers have a hard time identifying and assessing the prices of the services they receive.106 This analysis suffers from a drawback: Although it recognises that patients and payers do not necessarily value the same factors when they choose healthcare providers and their decisions are not driven by the same incentives, it omits to consider these differences. Insurers do care about the attractiveness and 99 Ibid, 11. 100 Ibid. 101 Ibid, 12. 102 Ibid, 27. 103 Ibid, 20. See also In the matter of Advocate Health Care Network (n 46) at 23–26; In the Matter of Penn State Hershey, Medical Center (n 46) 21–25; In the Matter of Cabell Huntington Hospital Inc (n 46) 31–36. 104 Alphonsus Medical Center – Nampa, Inc v St Luke’s Health System, Ltd (n 44) 28. 105 Ibid, 28–29. 106 Ibid, 29.

112  The Market Approach: Part II marketability of the insurance products they sell. Thus, their primary interest is to sell employers’ health insurance which is relatively cheap, and which reflects aspects of quality that can be easily recognised by them and their employees. Why? Although employers negotiate with the insurers the terms of the package they will offer to their employees, they will not be the recipients of the healthcare services the health plan covers. Since they act as the agents of their employees, they do not necessarily have strong incentives to choose the insurance product that best meets their employees’ needs. Consequently, they do not have powerful incentives to invest considerable amounts of time and money in order to identify the insurance product that meets the highest standards of quality. They might not even have enough information to choose the product that best suits their employees’ needs since it is highly unlikely that they will have a complete picture of their employees’ health conditions and needs.107 Surely, they aim to offer attractive insurance coverage so that they will attract accomplished and productive employees. At the same time, though, they want to ensure that they will not become bankrupt by offering an expensive insurance package covering multiple health risks. Considering the above, the employers would choose an insurance package on the basis of its price and the aspects of quality that can be easily identified, meaning without incurring high search costs. Geographic proximity is one of these aspects. Arguably, access is one of the quality dimensions that patients do value especially when inpatient care is involved. However, it is not necessarily the quality dimension they value most. Effectiveness, safety, timelessness and acceptability are also components of quality that define patients’ choices. Let us consider that Hospital A is in Nampa and Hospital B is located 30 km away from Nampa. If residents of Nampa choose a hospital only on the basis of geographic proximity, they will choose the Nampa hospital. However, if Hospital B offers more innovative, effective and safe elective care services they might be willing to commute and receive hospital services at Hospital B. This aspect, however, might change how a geographic market is defined. Indeed, it might lead to the definition of a wider geographic market. In two hospital merger cases, the Advocate Healthcare case108 and the Penn State Hershey Medical Center case,109 two US courts focused on patients’ quality criteria in choosing hospitals when they defined the relevant geographic market. The first case concerned the merger between two major hospitals offering general acute care (‘GAC’) inpatient hospital services in the northern suburbs of 107 A large majority of consumers in the US purchase healthcare through multiple agents – their employers, the plans or insurers chosen by their employers. This multiplicity of agents is a major source of problems in the market for healthcare services. Agents often do not have adequate information about the preferences of those they represent or sufficient incentive to serve those interests. Improving Health Care (n 4) 7. 108 FTC et al v Advocate Healthcare et al No. 1:15-cv-11473, 30 June 2016. 109 FTC et al v Penn State Hershey Medical Center et al, No. 1:15-cv-02362-JEJ, 9 May 2016.

Quality in the US Hospital Merger Analysis  113 Chicago, Illinois. In its administrative complaint, the FTC took the view that the relevant geographic market was ‘the area in northern Cook County and southern Lake County’, or else ‘the North Shore Area’.110 In reaching this conclusion the FTC particularly considered that North Shore Area residents are more willing to receive GAC inpatient hospital services close to their homes or jobs.111 In light of this, the FTC maintained that it would be unrealistic for a health insurer to market successfully to patients in the North Shore Area a health plan that did not include all hospitals located within this area. Following its complaint, the FTC attempted to prevent the two Chicago-area hospital systems from finalising their merger pending the completion of a full administrative trial on the merits.112 Nonetheless, Federal District Court Judge Alonso rejected the FTC’s request to temporarily block the deal on the basis that the FTC erroneously defined the relevant geographic market.113 Judge Alonso alleged that although ‘there is no formula for determining the geographic market’, it should be defined in a pragmatic way that reflects the commercial realities of the industry.114 The Court explored the analysis conducted by the FTC’s expert, Steven Tenn. When constructing the relevant geographic market, Tenn included local hospitals but did not include ‘destination hospitals’ that ‘attract patients from throughout the Chicago metropolitan area, at long distances’. Tenn’s assumption that the destination hospitals were not substitutes was based on the notion that patients prefer GAC near their homes, a point on which evidence was equivocal, Judge Alonso declared.115 In shaping its view, the Court took into consideration a number of testimonies. Interestingly, one of them stated that some patients typically sought to receive care close to their communities, but some also were willing to travel to receive higher quality care.116 On appeal, the Seventh Circuit overturned the lower court’s decision.117 The Appellate Court highlighted that the relevant geographic market, as defined by the District Court, was clearly incorrect.118 Specifically, it noted that the lower court treated Dr. Tenn’s analysis as if its logic were circular, but the hypothetical monopolist test instead uses an iterative process, first proposing a region and then using available data to test the likely results of a price increase in that region.119

Additionally, the Court alleged, the evidence was not equivocal on two points: most patients prefer to be treated close to home, and for this reason it is 110 In the matter of Advocate Health Care Network (n 46). 111 Ibid, 27. 112 FTC et al v Advocate Healthcare et al (n 108) 51. 113 Ibid, 9–11. 114 Ibid, 6. 115 Ibid, 10. 116 Ibid. 117 US Court of Appeals, 7th Circuit, Case No. 16-2492, FTC and the State of Illinois v Advocate Healthcare Network et al. 118 Ibid, 3. 119 Ibid.

114  The Market Approach: Part II impossible for insurers to market successfully health plans to employers with employees in Chicago’s northern suburbs if they do not integrate at least some of the merging providers into their networks.120 More than that, the Appellate Court held, the District Court’s analysis erred because it did not take into consideration ‘the market power created by the remaining patients’ preferences’.121 As the Appellate Court alleged, the District Court focused on the patients who leave a proposed market instead of focusing on hospitals’ market power over the patients who remain, which means that the hospitals have market power over the insurers who need them to offer commercially viable products to customers who are reluctant to travel further for general acute hospital care.122

Soon after the Appellate Court overturned the lower court’s decision, the merging parties decided not to complete the proposed merger.123 The Advocate CEO said: We have believed since day one that this merger would be a big win for consumers and for health care. As a healthcare ministry, we pursued this merger because it aligned with our mission and our values to advance care and lower costs for the patients and communities we are so privileged to serve.”124

The second case, the Penn State Hershey Medical Center case, concerned the merger between the two major hospital systems in the area around Harrisburg, Pennsylvania. These were the Penn State Hershey Medical Center and Pinnacle Health System. When defining the relevant market, the FTC concluded that the relevant geographic market was the ‘Harrisburg Area’.125 In shaping its conclusion, the FTC, again, relied on the assumption that geographic markets for GAC services are usually local because patients prefer to be treated by providers close to their families and work.126 As in the previous case, the FTC sought a preliminary injunction to prevent the merger while it conducted a full administrative trial on the merger’s benefits. Federal District Court Judge Jones refused to accept the request for an injunction on grounds that the Government erroneously defined the relevant geographic market.127 The geographic market, the Court said, can be determined only after a deep dive into the market realities faced by consumers.128 The Court further raised two important concerns. First, it underlined that in 2014, 43.5  per  cent of Hershey’s patients travelled to Hershey from outside of the FTC’s designated Harrisburg Area, and several 120 Ibid. 121 Ibid. 122 Ibid, 25–26. 123 Error! Hyperlink reference not valid. 124 P Minemye, ‘NorthShore, Advocate Abandon Merger after Judge’s Ruling’ (Fierce Healthcare, 8 March 2017), available at www.fiercehealthcare.com/healthcare/northshore-advocate-abandonmerger-after-judge-s-ruling. 125 In the Matter of Penn State Hershey, Medical Center (n 46) 19. 126 Ibid, at 21. 127 FTC et al v Penn State Hershey Medical Center et al (n 109) 11. 128 Ibid, 7.

Quality in the US Hospital Merger Analysis  115 thousand of Pinnacle’s patients lived far away from this area. This salient fact, the Court said, strongly indicated that the FTC had created a geographic market that was not in line with its main assumption that GAC services are ‘inherently local’. Second, the Court pointed to the fact that the FTC underestimated the alternative providers patients could turn to receive care if the merging hospitals increased prices or diminished quality.129 Judge Jones underlined that there are 19 hospitals within a 65-minute drive of Harrisburg, the majority of which are closer to patients who now come to Hershey. Given the location of Central Pennsylvania, which is mainly rural and therefore patients are required to drive to receive specific services, Judge Jones concluded that, undoubtedly, these 19 other hospitals provided a realistic alternative that patients would utilise.130 The FTC appealed the decision to the Third Circuit, and oral argument was held in July 2016.131 The FTC emphasised that Judge Jones’ analysis of the relevant geographic market was incorrect as a matter of law.132 Specifically, it alleged that at no point in its analysis did the Court examine ‘how hospital prices are established’.133 Adopting the FTC’s line of reasoning, the Appellate Court took the view that the District Court did not properly define the relevant market. Therefore, it overturned the District Court’s decision.134 Soon thereafter the merging parties announced their decision to abandon the envisaged deal.135 The merging parties said: ‘We firmly believe the integration of our two health systems would have served the best interests of patients and the entire central Pennsylvania community. But given the time and cost associated with continuing litigation, Pinnacle Health and the Milton S. Hershey Medical Center decided to bring their integration efforts to a close’.136 The inadequacies and weaknesses of a market definition analysis that primarily focuses on prices and not on quality were also pointed out in the Tenet case,137 where the Appellate Court acknowledged that the lower court underestimated the impact of non- price factors, such as quality, when defining the relevant geographic market. Indeed, in this case the lower court had rejected the 129 Ibid, 10. 130 Ibid. 131 B Levitas and B Marra, ‘Important Decision for Future Hospital Mergers’ (2016) (1) Competition Policy International 2. 132 FTC et al, Appellants, v Penn State Hershey Medical Center et al Appellees, Reply Brief, No. 16-2365. 133 Ibid, at 32. 134 United Court of Appeals for the 3rd Circuit, No. 16-2365, FTC v Penn State Hershey Medical Center et al Appellees, Opinion of the Court, Circuit Judge Fisher. 135 ‘The parties’ decision to abandon this transaction preserves hospital competition in the Harrisburg area’, said Debbie Feinstein, Director of the FTC’s Bureau of Competition. ‘Had it been consummated, the merger would have likely led to lower quality and higher cost health care, at the expense of Harrisburg residents and their employers’, see www.ftc.gov/news-events/news/press-releases/2016/10/ statement-ftcs-bureau-competition-director-debbie-feinstein-decision-penn-state-hershey-medical. 136 J Gregory, ‘Pinnacle-Penn State Hersey Merger Called Off After Loss in Court’ (HealthExec, 17 October, 2016), available at http://healthexec.com/topics/policy/pinnacle-penn-state-hersheymerger-called-after-loss-court. 137 Federal Trade Commission v Tenet Health Care Corporation (n 97).

116  The Market Approach: Part II argument that the Cape Girardeau hospitals and the Poplar hospitals were practicable alternatives on the grounds that the former were higher priced.138 As the Appellate Court explained, such an analysis is rather narrow since it disregards patients’ willingness to travel to receive better quality of care. Noting that ‘the evidence shows that one reason for the significant amount of migration from the Poplar Bluff hospitals to either Sikeston, Cape Girardeau or St. Louis is the actual or perceived difference in quality of care’ as well as that ‘healthcare decisions are based on factors other than price’, the Appellate Court stressed that the fact that some hospitals are more costly than others does not necessarily imply that they are not competitors.139 B.  Quality as an Element in the Assessment of Anticompetitive Effects A merger can be anticompetitive if it allows the remaining firms in a market to more closely coordinate prices, quality or output or if it permits the merged entity to unilaterally raise prices, reduce output or diminish quality. A close examination of some seminal US hospital merger cases shows that until recently in most cases the FTC and the US courts mainly focused on the question of whether the challenged merger is likely to encourage one or more hospitals to leverage their market power and ask for price increases from the payers.140 However, this analysis suffers from one important shortcoming: it discounts the fact that even if a merger allowed the merged entity to successfully negotiate price increases, it might also lead to quality improvements. Thus, assessing the likely anticompetitive effects of the merger necessitates that the Agencies also examine how diminished competition might not only have an impact on prices but also on quality. Interestingly, until recently, only in two hospital merger cases, the United States v Long Island Jewish Medical Center case141 and the Tenet case,142 were quality concerns examined at this stage of merger analysis. In the first one, a merger between Long Island Jewish Medical Center and North Shore Health Systems was assessed. Examining the merger’s potential anticompetitive effects raises two questions, the District Court alleged: First, will the merged entity have adequate market power so as to profitably raise prices above the competitive level for a significant period of time? Second, will the merged firm with its enhanced market power diminish the quality of care or reduce the healthcare services offered? After examining the second question, the Court concluded that 138 Ibid. 139 Ibid. 140 See Federal Trade Commission v Butterworth Health Corporation, 946 F. Supp. 1285, 1306 (W.D. Mich. 1996), aff’d, No. 96-2440, 1997 WL 420543 (6th Cir. 8 July 1997); In re Evanston N.W. Healthcare Corp, No. 9315, 2007 WL 2286195, 1, Opinion of the Commission, 57–59. 141 United States v Long Island Jewish Medical Center, 983 F. Supp. 121, 149 (E.D.N.Y. 1997). 142 Federal Trade Commission v Tenet Health Care Corporation (n 97).

Quality in the US Hospital Merger Analysis  117 the Government had failed to demonstrate that the merger would cause such non-quantitative effects. In fact, the Court found no evidence that the merged firm would lead to reduced services or treatment of its patients.143 On the contrary, it found that the merging parties’ main goal was to improve patients’ care in a number of different ways: by improving treatment and doctors’ training and advancing medical technology.144 In FTC v Tenet Health, a case that involved the merger between two hospitals in Poplar Bluff, Missouri, the US Court of Appeals for the Eighth Circuit, reversing the District Court on other grounds and permitting the merger to go forward, took the lower court to task for not adequately examining the defendants’ quality claims.145 The Appellate Court noted that although the defendants’ efficiency claims had been correctly dismissed by the District Court, the latter should have taken into consideration evidence of improved efficiency in the context of the competitive effects of the merger. It found it significant that a hospital that is larger and more efficient after the merger could offer higher quality care than the one provided by the two hospitals separately.146 The merged entity, the Court pointed out, would ‘be able to attract more highly qualified physicians and specialists and to offer integrated delivery and some tertiary care’.147 In view of ‘the significant changes experienced by the hospital industry in the recent past and the profound changes experienced by the hospital industry in the near future’, the Court of Appeals spelt out that ‘a merger deemed anticompetitive today, could be considered procompetitive in the future’.148 In some recent hospital merger cases,149 the US antitrust enforcers, while mainly focused on the hospital merger’s impact on prices, also assessed the merger’s impact on quality, but in a rather narrow way. The analysis the FTC followed in order to assess the extent to which a hospital merger might decrease quality is the following: First, it examines what are the quality improvements the merged entities managed to achieve prior the merger. Second, irrespective of the merged entities’ quality claims and the specific facts of each case, the FTC assumes that the examined merger is likely to diminish quality on the basis that following the merger the merged entity will necessarily lack the incentives to invest in quality. The FTC’s logic is unfolded in the Advocate Healthcare Network case.150 In this case the FTC acknowledged that the merging parties, Advocate and NorthShore, closely observe each other’s quality. It further acknowledged that the merging 143 United States v Long Island Jewish Medical Center (n 141) 21. 144 Ibid, 29–30. 145 Ibid, 30–32. 146 Ibid. 147 Ibid. 148 Ibid. 149 See In the matter of Advocate Health Care Network (n 46); In the Matter of Penn State Hershey, Medical Center (n 46); In the Matter of Cabell Huntington Hospital Inc (n 46). 150 In the matter of Advocate Health Care Network (n 46) 47–50. The FTC also undertakes an analogous analysis In the Matter of Penn State Hershey, Medical Center (n 46) 56–62; In the Matter of Cabell Huntington Hospital Inc (n 46) 77–85.

118  The Market Approach: Part II parties had significantly invested in expanding and improving their services to increase their market share. However, without offering any plausible justification, the FTC easily jumped to the conclusion that ‘the transaction will dampen the merged firm’s incentive to compete on quality of care and service offerings, to the detriment of all patients who use these hospitals, including commercially insured, Medicare, Medicaid, and self-pay patients’.151 The Promedica hospital merger case also illustrates that the US antitrust enforcers and the courts do not thoroughly evaluate hospital mergers’ impact on quality. This antitrust case involved the merger between two of the four major hospital systems in Lucas County, Ohio. The merging parties were Promedica, a major hospital provider, and St. Luke’s, a community hospital. The merger would allow the merging hospitals to control the market for general acute care and inpatient obstetrical services.152 The FTC challenged the merger and following extensive hearings the Administrative Law Judge (ALJ) Chappell concluded that the merger would severely affect competition and consumers by allowing the merged entity to increase the prices for general acute inpatient hospital services in Lucas County in Ohio.153 Interestingly, Judge Chappell argued that to the extent the merger leads to higher concentration and higher healthcare costs, there is no need for the FTC to further assess the transaction’s impact on quality. Specifically, this decision, the ALJ said, need not and does not conclude ‘whether the evidence demonstrates the likelihood of the anti-competitive effect of decreases in quality as well’.154 In two recent hospital merger cases, FTC v Jefferson Health and Albert Einstein Healthcare Network and FTC v Methodist Le Bonheur Healthcare, the FTC also followed a similar approach. Specifically, it relied on the notion that if the merger was accepted, the merging parties’ incentives to enhance their performance and quality will necessarily diminish. For instance, in FTC v Jefferson Health and Albert Einstein Healthcare Network155 the FTC attempted to block the merger between Jefferson Health and Albert Einstein Healthcare Network, two major hospitals providing inpatient general acute care and inpatient acute rehabilitation services in both Philadelphia County and Montgomery County, Pennsylvania. To the FTC, the envisaged merger would significantly hurt consumers. First, by significantly reducing competition between merging entities, the merger would increase their bargaining leverage with health insurers.156 Hence, it would improve merging parties’ ability to achieve higher reimbursement rates. Due to these higher reimbursement rates and other less advantageous terms, health insurers would be keen to pass on at least a portion 151 In the matter of Advocate Health Care Network (n 46) 47–50. 152 In the Matter of Promedica Health System, Complaint, Docket No. 9346, 7–8. 153 FTC, Office of ALJ, Docket No. 9346. 154 Ibid. 155 FTC v Jefferson Health and Albert Einstein Healthcare Network, Case 2:20-cv-01113-GJP (27 February 2020). 156 Ibid, 23.

Quality in the US Hospital Merger Analysis  119 of some of those increased healthcare costs to employers and their employees.157 These would take the form of increased premiums and higher out-of-pocket expenses. Second, consumers would be hurt because the merger would eliminate quality competition among providers. Members of health plans, the FTC maintained, often face similar out-of-pocket costs for in network hospitals.158 For this reason, hospitals belonging to the same network severely compete to attract patients on the basis of specific non-price dimensions.159 These include reputation, amenities, quality, access to services and technology, comfort and patient experiences. Because the merger would necessarily eliminate the merging entities’ incentives to further improve on those dimensions, the merger should be prohibited. But because Federal Judge Pappert took the view that the FTC’s complaint didn’t prove that the merger considerably hurt competition, the merger was not further challenged.160 In FTC v Methodist Le Bonheur Healthcare, the FTC also reached similar conclusions. This case concerned the proposed $350 million acquisition by Memphis-based Methodist Le Bonheur Healthcare of two Memphis-area hospitals, known as Saint Francis, owned by Dallas-based healthcare system Tenet Healthcare Corporation. In its complaint, the FTC alleged that the proposed deal would almost eliminate competition in the Memphis area for a wide array of inpatient medical and diagnostic services. If the transaction moved forward, consumers would be hurt for two reasons, the FTC maintained. First, because the hospital’s bargaining power would increase, hospitals would achieve higher reimbursement rates.161 Hence, healthcare costs would escalate. Second, if hospitals merged, their incentives to invest in non-price dimensions, such as technology, access to care, amenities and patient experience, would simply be eliminated.162 As a result, the merger should be blocked. Following the complaint, the merging parties abandoned the transaction and therefore the proposed merger was not further examined.163 Nonetheless, this analysis seems inadequate for the following reasons: First, because it seems to recognise that competition is the only factor that drives quality improvements while doctors’ skills, efforts and hospital’s management also play a meaningful role. Second, because this analysis takes for granted that absent competition any hospital will lack the incentives to invest in high quality services. Thus, the FTC’s analysis is based on a general assumption that might not necessarily apply for all hospitals pursuing alignments. 157 Ibid, 24. 158 Ibid. 159 Ibid. 160 FTC v Jefferson Health and Albert Einstein Healthcare Network, Case 2:20-cv-01113-GJP (20 December 2020). 161 FTC v In the Matter of Methodist Le Bonheur Healthcare a corporation, and Tenet Healthcare Corporation, a corporation, Docket 9396. 162 Ibid. 163 See www.ftc.gov/enforcement/cases-proceedings/191-0189/methodist-le-bonheur-healthcarematter.

120  The Market Approach: Part II C.  Healthcare Quality as an Efficiency Claim i.  Quality as an Equity Concern Under this defence, the not for profit character of a hospital’s philanthropic mission, in combination with governance by a board, consisting of community members, ensures that the cost efficiencies attained as a result of the merger will be passed on to the underserved. This claim was particularly considered by the District Court in two cases: the Butterworth164 and the Long Island Jewish165 hospital merger cases. Both of them predate the 2010 Horizontal Merger Guidelines. The Butterworth case is considered to be one of the most revolutionary hospital merger decisions yet issued.166 In this case, the District Court for the Western District of Michigan rejected the FTC’s motion for a preliminary injunction against a proposed merger of two non-profit hospitals in Michigan, even though it concluded that the Government had established a prima facie case for the anticompetitive effects of the merger. The merging parties agreed that after the merger the hospitals would control a substantial part of the market for primary care. Nonetheless, the hospitals argued that any anticompetitive effects would be unlikely since: (a) the hospitals were non-profit; (b) their boards had committed to passing savings on to the local community; and (c) the merger would achieve substantial efficiencies, such as capital avoidance. The Court held that considering the hospital’s non-profit status and the board’s commitment to the community, the cost savings generated by the efficiencies would be passed on to consumers. Comparing the projected cost savings of approximately $100 million to the likelihood of anticompetitive effects and considering the non-profit status of the merging entities, the Court alleged that the FTC had ‘failed to show that this market power is likely to be exercised to the detriment of the true consumers’.167 A similar approach was adopted by the District Court in the Long Island Jewish case, where a merger between two non-profit hospitals again was at stake. Although the Court’s decision mainly focused on the Government’s failure to prove the relevant market, the Court did evaluate the efficiencies flowing from the merger. The Court allowed the merger on the grounds that the substantial annual operating savings generated by the merger would be passed on to consumers. Considering the non-profit hospital’s mission ‘to provide high quality health care to economically disadvantaged and elderly members of the community’,168 the Court expressed the belief that the merger would ultimately 164 See Federal Trade Commission v Butterworth Health Corporation, 946 F. Supp. 1285, 1306 (W.D. Mich. 1996), aff’d, No. 96-2440, 1997 WL 420543, (6th Cir. July 8, 1997). 165 United States v Long Island Jewish Medical Center (n 141). 166 T Greaney, ‘Night Landings on an Aircraft Carrier: Hospital Mergers and Antitrust Law’ (1997) 23 American Journal of Law and Medicine 191, 212. 167 Federal Trade Commission v Butterworth Health Corporation (n 164). 168 United States v Long Island Jewish Medical Center (n 141) 149.

Quality in the US Hospital Merger Analysis  121 benefit consumers.169 The Court’s conclusion was bolstered by an agreement that was signed between the merging hospitals and the Attorney General of the State of New York. According to this agreement, the merged hospitals would pass on to the community a significant part of the cost savings attained as a result of the merger by offering high quality healthcare services to financially challenged and elderly community members.170 The FTC has openly disagreed with the main rationale of the above decisions. In general, the FTC refuses to accept community commitments as a means to prevent potential anticompetitive effects from a hospital or any other merger. As the FTC has illustrated, ‘such commitments do not solve the underlying competitive problem when a hospital merger has changed market circumstances in ways that increase the likelihood that market power will be exercised’.171 To the FTC, ‘community commitments represent a distinctly regulatory approach to what is, at essence, a problem of competition’. This problem, however, will remain even after the commitment has expired.172 Obviously, the FTC’s considerations are critical. Indeed, when these commitments expire, nothing can impede the merged hospitals from increasing their prices and recouping the profits they forewent during the period they were bound by commitments. Furthermore, the implementation of such commitments might be extremely costly since it necessitates active supervision of the merged entities’ finances and promised investments to the communities. ii.  The Healthcare Quality Improvement Claim The core point of this efficiency claim is that the envisaged hospital merger will further enhance quality of care at one or both of the merging hospitals. Hospitals have raised a plethora of quality arguments in order to support the view that on balance their proposed transaction will not necessarily cause a harm to competition. These include ‘sharing of best practices’, ‘establishment of centres of excellence’, ‘better ability to recruit physicians’, implementation of graduate education programmes and development of new service lines. In theory, the Agencies do examine these quality claims. As members of the FTC have revealed when substantiated – meaning that the evidence supports the notion that a hospital merger will improve the quality of care at the affected hospitals such claims may well carry the day, overcoming high market concentration levels, hot documents, health plan concerns about a merger and other factors that weigh in favour of enforcement.173 169 Ibid. 170 Ibid. 171 ‘Improving Health Care’ (n 4) 29. 172 Ibid. 173 J H Perry and R H Cunningham, ‘Effective Defenses of Hospital Mergers in Concentrated Markets’ (2013) Antitrust Spring 43, available at www.weil.com/~/media/files/pdfs/effective-defensesof-hospital-mergers_by_jeff_perry.pdf.

122  The Market Approach: Part II But under what conditions do the Agencies and the courts consider these claims substantiated? The bottom line is that both the Agencies and the courts are sceptical of efficiencies arguments. While efficiencies claims are easy to make, they are much more difficult to prove, particularly efficiencies that meet the requirements of the Guidelines to count in favour of the transaction.174 This does not imply that the Agencies and the courts underestimate or completely disregard the value of quality claims. It might imply, though, that efficiencies arguments may have more efficacy before the Agencies at the investigational stage than in litigation.175 The FTC dealt with the challenging question of whether and how healthcare quality claims can be taken into consideration in the context of a hospital merger analysis in the Evanston case of 2004. In this case, the FTC challenged the Evanston Northwestern Healthcare’s (‘ENH’) acquisition of Highland Park Hospital (‘Highland Park’) following the retrospective review of hospital mergers initiated by former FTC Commissioner Tim Muris in 2002. Specifically, almost two years following the announcement of the retrospective review, and four years after the deal was complete, the FTC issued a complaint highlighting that the ENH’s acquisition of Highland Park breached the antitrust mandate.176 Considering that the merger was completed well before the FTC initiated this case, the interesting thing about this case is that the FTC exceptionally examined both pre- and post-merger evidence.177 The main reason why the FTC challenged this merger was the substantial price increase in the ENH’s rates following the transaction.178 This price increase was acknowledged both by the FTC and the ENH. Nonetheless, while the FTC thought that this price increase was the result of significant market power, the ENH insisted that it was the result of the significant quality improvements the merger brought.179 In fact, the ENH maintained that the identified price increase related more to increased demand for Highland Park’s hospital services in light of postmerger quality improvements and less with market power.180 Specifically, the hospital highlighted that the merger created significant procompetitive benefits that surpassed any anticompetitive effects. To substantiate this claim, the ENH submitted evidence that it spent more than $120 million following the merger to enhance quality and expand services at Highland Park in 16 research areas, such as oncology, quality assurance, nursing, medical integration and affiliation with a teaching hospital, electronic medical records, cardiac surgery and emergency care.181 174 Miles (n 70) 30. 175 Ibid. 176 Lomax and Kim (n 1) 5. 177 In re Evanston N.W. Healthcare Corporation, No. 9315, 2007 WL 2286195, at 1, Opinion of the Commission, 4. 178 Ibid, 16. 179 Ibid. 180 Ibid. 181 Ibid, 48.

Quality in the US Hospital Merger Analysis  123 The FTC dismissed these quality justifications fully. In examining them, though, the FTC did not miss the opportunity to elaborate on its legal thinking as to the role of quality in merger analysis. The FTC confirmed that improved quality can be a factor into analysis of efficiencies. It held, though, that in this particular case, the claimed quality improvements were not the result of cost saving efficiencies created by the merger under scrutiny.182 In contrast, they were presented by the merged parties as benefits distinct from cost savings outweighing the potential anticompetitive effects.183 The FTC admitted that the relevant case law had failed to provide clear answers as to whether, and if so how, qualitative efficiencies can be incorporated into a merger analysis.184 It further admitted that although some courts had been more receptive to quality of care justifications, they have not addressed the question of whether and if so how healthcare quality improvement claims can surpass the potential harm caused to competition.185 Surprisingly, these uncertainties did not significantly affect the FTC’s conclusions. In fact, the FTC ruled that healthcare quality improvement allegations must be subject to the same detailed analysis that applies to all types of procompetitive efficiencies. Otherwise, the FTC explained, they may simply reflect ‘mere speculation and promises’.186 In shaping its conclusion, the FTC alleged that the ENH had failed to rebut the merger’s alleged anticompetitive effects for various reasons. First, because the Highland Park had committed to improving its quality and further expanding its services even absent the merger.187 Indeed, Highland Park had implemented qualitative improvements prior to the merger. For instance, it had already undertaken an internal review of its quality assurance programmes so as to further improve them.188 Additionally, as the FTC observed, all the changes that the ENH implemented at Highland Park after the merger reflected more emerging trends in the healthcare industry and the hospital sector and less healthcare quality improvements that were achieved through the merger.189 The FTC also questioned the credibility of the proofs submitted by the merging hospitals to substantiate their qualitative efficiencies noting that the ENH’s alleged benefits were primarily based on physicians’ testimonies and not on objective quality indicators.190 Essentially, the only quality improvement claim that the FTC considered ‘merger- specific’ was the ‘medical integration and affiliation with a teaching hospital’.191 However, the FTC also rejected this claim, as it found no clear

182 Ibid, 183 Ibid.

82.

184 Ibid. 185 Ibid. 186 Ibid. 187 Ibid, 188 Ibid, 189 Ibid. 190 Ibid, 191 Ibid,

49. 50. 84. 51.

124  The Market Approach: Part II evidence that the alleged qualitative improvement was sufficient enough to outweigh the merger’s potential harm to competition.192 Specifically, the FTC stressed that while studies have indicated ‘that teaching hospitals have lower risk adjusted mortality rates in certain clinical areas’, there is no clear evidence demonstrating that being owed by a teaching hospital will necessarily lead to quality improvements.193 In concluding, the FTC acknowledged that assessing the impact of quality improvements on a hospital’s performance is a complex exercise.194 It also highlighted that outcome measures are not always objective quality measures.195 It concluded, though, that these challenges should not relieve the merged entity from its ‘burden to prove extraordinary efficiencies’.196 In FTC v Rockford/OSF,197 a hospital merger in Rockford, Illinois, the merging parties also alleged that the merger would generate qualitative efficiencies in order to rebut the FTC’s findings that the merger would significantly reduce competition in the relevant market. Specifically, the defendants declared that the proposed transaction would result in substantial efficiencies in terms of annual recurring savings and capital avoidance savings.198 These cost efficiencies would allow the merging entities to further improve but also expand their healthcare services. Ultimately, this would further increase consumer welfare.199 The qualitative improvements the Rockford community would benefit from were the establishment of ‘Centers of Excellence’, the creation of a graduate medical programme and the employment of more specialists.200 The Court held that the alleged qualitative efficiencies were dependent on cost savings which were speculative. Consequently, the claimed benefits were also speculative. Interestingly, the Court clarified that even in case they were not considered speculative, they would still be rejected on different grounds. For instance, the Court held that it was highly uncertain whether increased volume of procedures would enhance quality in this particular case. It also thought that it was highly unlikely whether defendants would develop any ‘Centres of Excellence’. The Court also questioned the defendants’ claim that the merger would facilitate the recruitment of specialists, as it found no clear empirical evidence that merging entities attract more specialists.201 The Court

192 Ibid. 193 Ibid. 194 Ibid, 85. 195 Ibid. 196 Ibid, 71. The Commission ruled that the acquisition was anticompetitive, but concluded that in this ‘highly unusual case, divestiture, would be too costly and potentially risky and instead imposed a conduct remedy. The Commission’s order required Evanston to set up two separate and independent contract negotiation teams to bargain with managed care organizations to revive competition between Evanston’s two hospitals and the Highland Park hospital’, ibid, 89. 197 Federal Trade Commission v OSF Healthcare Systems, 852 F. Supp. 2d 1069 (N.D. Ill. 2012). 198 Ibid, 1088. 199 Ibid. 200 Ibid, 1093–94. 201 Ibid.

Quality in the US Hospital Merger Analysis  125 acknowledged the parties’ good intentions to improve quality. However, it rejected their quality claims on the basis that they were non-merger specific.202 In Promedica, the merging parties also raised quality claims to convince the antitrust enforcers that the merger should move forward. The merging parties identified the following efficiencies: clinical integration, expansion and improvement of inpatient obstetrical services, access for St Luke’s to ProMedica’s quality programme aimed at increasing patient safety; and access for St Luke’s to ProMedica’s quality-related technologies and potential to reconfigure services at ProMedica.203 Although the ALJ examined these quality claims, he rejected them as non-merger specific. For instance, the ALJ found that the evidence did not demonstrate that the transfer of services from one hospital to another would result in substantial economies that would benefit consumers.204 Highlighting also that the notion of quality cannot easily be assessed and measured, as well as that St Luke’s was a higher quality provider than ProMedica, the ALJ concluded that St Luke’s access to ProMedica’s quality programme did not indicate that any improvement from such programme may surpass any anticompetitive effects.205 A seminal case where quality efficiencies were also raised by merging entities is the FTC v St. Luke’s Health System case, the first fully litigated challenge by the FTC to a hospital acquisition by Saltzer, the largest medical practice in Idaho that was not owned by a hospital.206 In brief, the merging parties maintained that the merger would further enhance quality of care in several ways.207 First, the acquisition of Saltzer would allow the merged entity to move away from FFS and towards ‘risk-based’ care.208 Under FFS, doctors receive compensation for each medical procedure they undertake.209 Therefore, they are strongly incentivised to increase volume rather than reduce the costs of care.210 If, however, Saltzer moved towards risk-based care, the risk would pass on to the physicians. This would incentivise them to provide higher quality and more effective care.211 Moving away from providing FFS care would also allow Saltzer to expand access to medical care for the Medicaid and Medicare patients in Canyon County.212 It would also allow physicians to provide more integrated and less fragmented care.213 Integrated care improves quality, the parties alleged, by allowing physicians to work together as a team and treat

202 Ibid, 1094. 203 In the Matter of Promedica Health System (n 152). 204 Ibid, 198. 205 Ibid. 206 Lomax and Kim (n 1) 3. 207 Alphonsus Medical Center – Nampa, Inc v St Luke’s Health System, Ltd (n 44) 17. 208 Ibid. 209 Ibid. 210 Ibid. 211 Ibid. 212 Alphonsus Medical Center – Nampa, Inc. v St Luke’s Health System, Ltd, Findings of Fact and Conclusions of Law, No-0560, DkT, No.14-35173, para 46. 213 Alphonsus Medical Center – Nampa, Inc v St Luke’s Health System, Ltd (n 44) 18.

126  The Market Approach: Part II the patient as a whole.214 Owning Saltzer, the parties claimed, would also allow them to better utilise electronic medical records and data analytical tools, which would also enhance quality of care.215 This is because when a patient receives care by multiple providers, the electronic health record allows those providers not only to effectively communicate with one another when necessary, but also to monitor the medical progress of that patient.216 The District Court, however, was not convinced that the merger’s alleged efficiencies were merger-specific. Therefore, the District Court easily rejected them. In sum, the Court took the view that the identified benefits of integration were quite speculative, ‘amounting only to an experimental stage in the development of healthcare delivery’.217 It also found that there was no substantial evidence indicating that St Luke’s should increase the number of employed primary care physicians to make the transition to integrated care successful.218 It also considered that ‘the electronic record system already under development by St. Luke’s would allow other physicians not employed by St. Luke’s to gain access to St. Luke’s patient records’.219 The Court also rejected the defendants’ claim that the merger would allow them to expand their services to the most vulnerable populations in Nampa, the poor and the uninsured on the basis that Medicaid patients in Nampa were not deprived of access to medical care.220 Noting that ‘even if policy considerations could trump the Clayton Act, they would not do so on this record’, the Court refused to integrate access concerns into its merger assessment.221 On appeal to the Ninth Court, St Luke’s maintained that the District Court erroneously reached the conclusion that the merging parties could have improved the quality of their services without the proposed transaction. Appellants rejected the FTC’s examples of where benefits of integrated care were created without an increase in the employment of physicians, arguing that the facts in this case did not support the claim that the alleged benefits could have been achieved in the same timeframe through other means. Specifically, they highlighted that ‘previous attempts at a looser affiliation by Saltzer physicians had failed’ as well as that ‘only this transaction which allowed St Luke’s and Saltzer to share technological infrastructure, sophisticated analytics, all patient information, resources for community research, and both upside and downside accountability for patient outcomes could produce those benefits’.222 214 Ibid, 18. 215 Ibid. 216 Alphonsus Medical Center – Nampa, Inc v St Luke’s Health System, Ltd, Findings of Fact and Conclusions of Law (n 212) para 187. 217 Alphonsus Medical Center – Nampa, Inc v St Luke’s Health System, Ltd (n 44) 18. 218 Ibid. 219 Ibid, 19. 220 Ibid, 58–59. 221 Ibid, 59. 222 Alphonsus Medical Center – Nampa, Inc v St Luke’s Health System, Ltd, Findings of Fact and Conclusions of Law (n 212) 21.

Quality in the US Hospital Merger Analysis  127 The FTC agreed with the District Court’s legal reasoning fully. More importantly, it exposed its line of thinking as to the relationship between consolidation and the attainment of qualitative efficiencies. The FTC made clear that the Clayton Act contains no healthcare exception. Citing the National Society of Professional Engineers v United States case,223 it explained that Congress has declined to exempt specific industries from the application of the antitrust laws as it has rejected the notion that ‘monopolistic arrangements will better promote trade and commerce than competition’.224 The FTC pointed out that ‘the antitrust laws do not apply differently depending on the special characteristics of a particular industry’.225 On the opposite, the FTC declared, they apply to healthcare ‘in the same manner they apply to all other sectors of the economy’.226 For this reason, it explained, the antitrust enforcers have rejected the idea that a presumptively illegal transaction can be accepted only because it generates efficiencies.227 Instead, the only relevant question for the US antitrust enforcers is whether the effect of an acquisition may significantly reduce competition.228 Confirming the District Court’s legal analysis, the FTC supported the claim that the answer in this case would be a positive one.229 The FTC also grasped the chance to express its view on the unresolved and complex issue of the legal standard for an efficiency defence. Essentially, the FTC characterised this case as ‘a poor candidate for validating an efficiency defence under the Clayton Act’.230 The FTC underlined that such a defence could be successful only to the extent that St Luke’s overcame the District Court’s conclusive finding that the acquisition would substantially harm competition and consumers.231 It clarified though that even if the Court considered St Luke’s efficiency defence, it should examine it under the two-part analysis test the DC Circuit used in the Heinz case.232 The FTC acknowledged that especially for cases where there are high concentration levels, the Heinz test is extremely demanding.233 Indeed, a strong presumption of illegality requires ‘a precise proof of a very high degree of efficiency’.234 It also demands that the alleged efficiencies are the unique consequence of the merger.235 The Appellate Court affirmed the lower court’s findings. In shaping its conclusions, the Appellate Court underlined that since the Clayton Act aims to protect competition, and the alleged efficiencies must show that ‘the prediction

223 National

Society of Professional Engineers v United States, 435 U.S. 679 (1978). Medical Center – Nampa, Inc v St Luke’s Health System, Ltd (n 44) 20.

224 Alphonsus 225 Ibid. 226 Ibid. 227 Ibid, 228 Ibid,

47. 21.

230 Ibid,

47.

232 FTC

v H.J. Heinz Co, 246 F.3d 708, 715 (D.C. Cir. 2001). Medical Center – Nampa, Inc v St Luke’s Health System, Ltd (n 44) 48.

229 Ibid. 231 Ibid.

233 Alphonsus 234 Ibid. 235 Ibid.

128  The Market Approach: Part II of anticompetitive effects from the prima facie case is inaccurate’, it is not enough to show that the proposed transaction would lead to better care for St Luke’s patients.236 The Appellate Court agreed with the District Court that the claimed efficiencies were not merger specific and therefore, they could not be accepted.237 It clarified though that even if they were, the defence would still fail.238 The Court stressed that providing better care after the merger is definitely a worthy goal. However, it also stressed that ‘the Clayton Act does not excuse mergers that lessen competition or create monopolies simply because the merged entity can improve its operations’.239 Having said that, the Appellate Court fully aligned with the District Court’s ruling. In the Penn State Hershey Medical Center240 case, where the merger of the two largest health systems in the Harrisburg, Pennsylvania area was under scrutiny, the defendants also alleged that their envisaged transaction would lead to quality improvements. The defendants held that if the merger was accepted ‘the merging entities would transfer patients suffering from less severe illnesses from Hershey to Pinnacle, which had the capacity to treat them’.241 They also held that this would allow Hershey to avoid establishing a new inpatient bed tower to solve its capacity issues.242 The FTC supported the claim that Hershey could increase its capacity even absent the merger. Most importantly, the FTC found that the defendants’ proposed efficiency plans would further harm competition. The defendants’ plans ‘would force patients to go to a different hospital than the one they originally chose’ and as a result they would reduce capacity.243 Illustrating that ‘No court ever has found, without being reversed, that efficiencies rescue an otherwise illegal transaction’ the FTC concluded that defendants’ efficiency claims were non-merger specific.244 Some additional interesting points should be highlighted about this case. As previously noted, the District Court denied the FTC’s request for a preliminary injunction mainly because it thought that the Government had failed to show that the four-county area around Harrisburg was the relevant geographic market. The Court, however, also took the chance to shortly examine the defendants’ alleged quality claims. Diverting from the FTC’s efficiency analysis, the Court noted that the efficiencies evidence demonstrated that procompetitive benefits would be created for the hospitals’ patients such that the equities should favour the denial of injunctive relief.245 The District Court explained that its 236 Alphonsus Medical Center – Nampa, Inc v St Luke’s Health System, Ltd, United State Court of Appeals, Ninth Circuit, Opinion, No. 14-35173, 28. 237 Ibid, 29. 238 Ibid. 239 Ibid. 240 In the Matter of Penn State Hershey, Medical Center (n 46). 241 Ibid, 72. 242 Ibid, 73. 243 Ibid, 74. 244 Ibid, 72. 245 FTC et al v Penn State Hershey Medical Center et al (n 109) 15.

Quality in the US Hospital Merger Analysis  129 decision ‘was informed by a growing need for hospitals to adapt to an evolving landscape of healthcare that includes … the institution of the Affordable Care Act’.246 ‘Our determination reflects the healthcare world as it is, and not as the FTC wishes it to be’ the Court maintained. The Court further explained that it finds it ‘no small irony that the same federal government under which the FTC operates has created a climate that virtually compels institutions to seek alliances such as merging entities’.247 In clarifying its conclusions, the Court held that ‘it is better for the people they treat that such hospitals unite and survive rather than remain divided and wither’.248 In its appeal the FTC rejected the District’s Court’s legal analysis in its entirety. In line with the Appellate’ s Court approach in the St Luke’s case, the FTC once again underlined that ‘the Clayton Act contains no healthcare exception’ and that the antitrust laws ‘apply to hospitals in the same manner that they apply to all other sectors of the economy’.’249 On Appeal, the Appellate Court fully aligned with the FTC’s views. Quite surprisingly, the Appellate Court underlined that ‘we have never formally adopted the efficiencies defence’.250 This was also true of the Supreme Court.251 Noting, however, that some Courts of Appeal have taken the view that the efficiencies defence is cognizable, it grasped the opportunity to clarify that only efficiencies that are verifiable and mergerspecific, outweigh the potential harm to competition in highly concentrated markets252 and do not arise from an anticompetitive reduction of output,253 can be considered in the context of a merger analysis. In the Cabell Huntington Hospital case,254 respondents also claimed that the proposed deal would lead to quality enhancement opportunities. Nonetheless, again, the FTC reached the conclusion that the proposed efficiencies were unsubstantiated and lacked merger-specificity. In this case, the merging parties asserted that the merged entity ‘would realize volume-related improvements in the quality of care through the consolidation of certain clinical service lines’.255 The FTC found respondents’ analysis on this issue unconvincing on the basis that it failed to consider that the medical procedures ‘with demonstrated volume-outcome relationships were already largely consolidated at one or the other hospital, and that certain key services might not be consolidated’.256 Respondents also took the view that quality improvements could emerge from ‘standardization’ across the two facilities and the creation of a ‘bridge’ between the merging hospitals’

246 Ibid,

247 Ibid.

25.

248 Ibid.

249 FTC et al, Appellants, v Penn State Hershey Medical Center et al Appellees, Reply Brief

250 United 251 Ibid. 252 Ibid,

Court of Appeals for the 3rd Circuit (n 134) 33.

35. 36. 254 In the Matter of Cabell Huntington Hospital Inc (n 46). 255 Ibid, para 106. 256 Ibid. 253 Ibid,

(n 132) 57.

130  The Market Approach: Part II electronic health records systems to render them interoperable. However, the FTC emphasised that none of these initiatives had been substantiated, and as a result none of them were merger-specific.257 IV.  INCORPORATING HEALTHCARE QUALITY CLAIMS INTO A MERGER ANALYSIS: A MISSION IMPOSSIBLE?

The previous section explored the question of how healthcare quality concerns and justifications are examined by the Agencies when they analyse hospital merger cases. Building upon the previous analysis, this section asks: What are the quality dimensions that the antitrust enforcers consider in their analysis? Is there a clear analytical framework under which the merging entities can raise and substantiate their quality claims? What are the challenges the merging parties may face in their attempt to substantiate their quality claims? Do the Agencies have the analytical framework to consider the multiple facets of healthcare quality and balance them against the harm caused to competition? A.  Insufficient Guidance to what Healthcare Quality Actually Means The above analysis of the relevant case law in hospital merger cases demonstrates that the courts and the FTC have not provided sufficient weight to quality arguments. Quality concerns have not clearly become a substantial part of the antitrust enforcers’ analysis in the definition of the relevant product and geographic market and in the analysis of the anticompetitive effects of a hospital merger. The Guidelines also do not shed light on how quality is assessed in the context of a merger analysis as they mainly focus on hospital mergers’ impact on prices. Consequently, there is no clear articulation as to what sort of quality claims the US courts and the FTC do value. This does not imply that the Agencies and the courts neglect these arguments. Officially, members of the FTC declare that when substantiated such claims may well carry the day, overcoming high market concentration levels.258 Therefore, while in theory quality claims in the antitrust enforcers’ merger analysis are welcome, in practice they are discounted. Why? First and foremost, the US antitrust enforcers see quality claims with considerable scepticism.259 Indicatively, in an interview, Debbie Feinstein, former Director of the FTC’s Bureau of Competition, said: Often, when hospitals and doctors join forces, their goal is not just to control costs or improve care, but to get increased leverage in negotiations with health insurance

257 Ibid.

258 Perry

and Cunningham (n 173) 43. and Kim (n 1) 7.

259 Lomax

Assessing Quality in Hospital Merger Cases  131 companies and employers. They say they need better rates so that they will have more money to invest in their facilities. When you strip that down, it’s basically just saying, ‘We want a price increase’. Even if the price increase is motivated by a desire to invest more in the business, that’s problematic. That incentive to invest may not be there if you don’t have competition as a spur to innovation-if you’re not worried about losing business to the hospital down the street.260

Arguably, the FTC’s scepticism is not unjustified. Indeed, to a certain extent, hospitals may want to merge with a view to strengthening their negotiation power against health insurers. However, they might also want to merge to reduce their costs and improve the quality of their services. With the FTC and the US courts not clarifying or suggesting what they consider to be the essential dimensions of healthcare quality, this makes it unnecessarily costly and complex for hospitals that do want to merge to further enhance their quality. The FTC acknowledges that asking which measures of quality are most relevant is a core question. However, instead of providing guidance or introducing a clear analytical framework under which qualitative improvements could be actually assessed, it exclusively relies on the merging parties’ analysis to determine which quality dimensions to evaluate.261 Ultimately, the merging parties are left only with one option: to bring quality into merger analysis by relying on the incomplete guidance provided by the Guidelines. Arguably, this approach suffers from important shortcomings. To begin, this approach does not allow merging parties to bring quality claims that are in line with the main objectives of the US health system. For example, if the FTC had issued guidelines explaining how it evaluates and assesses quality and what are the quality dimensions it values most on the basis of core objectives of the ACA, such as the pursuit of better integration among healthcare providers, the merging parties would have powerful incentives to complete mergers which contribute to the pursuit of these objectives. Knowing that their proposed merger would be approved only to the extent their quality claims were in line with essential health goals, they would be encouraged to proceed with mergers that promote these objectives. Furthermore, because the merging parties are not aware of the quality dimensions the antitrust enforcers do value, the merging entities are incentivised to cherry-pick the quality measures they can more easily prove rather than the ones that are the most important from a health policy perspective. Updating the Guidelines to include a thorough discussion of qualitative efficiencies including the quality dimensions that the antitrust enforcers consider essential from a public health perspective would motivate the merging parties to focus on the aspects of quality that significantly contribute to health outcomes.

260 R Pear, ‘F.T.C. Wary of Mergers by Hospitals’ New York Times (17 September 2014), available at www.nytimes.com/2014/09/18/business/ftc-wary-of-mergers-by-hospitals-.html. 261 Perry and Cunningham (n 173) 44.

132  The Market Approach: Part II B.  Is There a Clear Analytical Framework for Incorporating Quality Claims? As previously discussed, quality claims can be raised in the context of a merger analysis. The Guidelines are straightforward on this point. However, the question under what analytical framework such claims can be substantiated, remains unaddressed. Unsurprisingly, the FTC has admitted that it would face serious challenges in assessing whether qualitative efficiency claims can outweigh potential harm to competition. Indeed, in a formal speech, Debbie Feinstein underlined that ‘although the FTC will consider merger-specific efficiencies to balance concerns of market power, the agency is increasingly taking a more stringent approach to how these defences outweigh competitive harm’ (emphasis added). As underlined by Feinstein, while the Agencies expect and encourage parties to provide … concrete evidence to support quality claims, there is an outstanding question regarding the extent to which quality improvement claims can be demonstrated with the specificity required to satisfy the FTC’s efficiencies standard as they weigh the competitive implications of a transaction.262

Thus, the FTC acknowledges that substantiating healthcare quality claims is not necessarily an easy task. Moreover, it also acknowledges that it lacks the necessary legal analytical framework to assess qualitative efficiencies and weigh them against the harm caused to competition. As the FTC officials have stated: [I]t is more difficult to determine how best to balance a possible price increase on the one hand and a quality improvement on the other hand. To date, however, that is not something we have found necessary to do. In the handful of transactions we have challenged, we have determined that the quality improvements were speculative, not substantiated and/or the merger was not necessary to achieve them.263

This should not come as a surprise. Most competition authorities face analogous challenges. What should come as a surprise, though, is that the FTC does not consider it necessary to identify the appropriate mechanism for undertaking such a balancing test, on the basis that most alleged efficiency claims can be easily rejected as non-merger specific or speculative. Undoubtedly, this policy option entails multiple risks. One risk is that it might end up being over-inclusive in case it blocked mergers that would result in efficiencies, but the efficiencies would be too difficult to predict or to prove.264 Additionally, the lack of an adequate framework under which quality claims can be actually assessed, along with the high costs the articulation of such quality

262 DL Feinstein, Director, Bureau of Competition, Federal Trade Commission, Remarks at the Fifth National Accountable Care Organization Summit, Antitrust Enforcement in Health Care: Proscription, Not Prescription (19 June 2014), available at www.ftc.gov/system/files/documents/ public_statements/409481/140619_aco_speech.pdf. 263 Ibid, 11 (emphasis added). 264 American Bar Association (n 2) 93.

Assessing Quality in Hospital Merger Cases  133 claims entails may disincentivise the merging parties from bringing healthcare quality to the heart of the merger analysis. The FTC’s and the US courts’ approach to efficiencies also reflects a problematic asymmetry in merger analysis. Under the FTC’s current approach, while the FTC can prove harm to competition by primarily relying on presumptions, the merging entities are required to prove countervailing procompetitive efficiencies so that the Agencies approve the proposed deal.265 Indeed, as the above analysis reveals, while the FTC has to predict antitrust harm in order to meet its required burden of proof, the merging parties have to provide proof of extraordinary efficiencies, or unique efficiencies. Most importantly, while the FTC can prove harm to competition by relying on ‘hot business documents’266 indicating that the merging parties’ main concern is to increase its bargaining power against insurers, the defendants have to submit proofs of extraordinary efficiencies without (a) being aware of what ‘extraordinary efficiency’ practically means, or (b) having an analytical framework under which they can balance such qualitative improvements against the harm caused to competition. Such asymmetric burdens of proof, however, work in favour of the FTC and harm courts’ ability to analyse and assess the procompetitive nature of efficiencies against the alleged anticompetitive effect.267 This asymmetry has been identified by the former FTC Commissioner Joshua Wright: Merger analysis is by its nature a predictive enterprise. Thinking rigorously about probabilistic assessment of competitive harms is an appropriate approach from an economic perspective. However, there is some reason for concern that the approach applied to efficiencies is deterministic in practice. In other words, there is a potentially dangerous asymmetry from a consumer welfare perspective of an approach that embraces probabilistic prediction, estimation, presumption, and simulation of anticompetitive effects on the one hand but requires efficiencies to be proven on the other.268

C.  What Does the FTC’s Decision-Making Policy Reveal? The FTC’s antitrust enforcement policy in healthcare focuses mainly on cost effectiveness and the maintenance of vigorous price competition between hospitals. 265 D Balto, ‘Antitrust Enforcement in Reverse: Getting Efficiencies Backwards’ (Truth on the Market, 11 September 2014), available at http://truthonthemarket.com/2014/09/11/antitrust-enforcementin-reverse-getting-efficiencies-backwards/. 266 According to the FTC, a document is ‘hot’ if it predicts that the merger will produce an adverse price or non-price effect on competition. The most obvious situation involves acquiring party documents that predict a price effect stemming from the merger: Federal Trade Commission, ‘Horizontal Merger Investigation Data Fiscal Years 1996–2011’ (January 2013), available at www.ftc.gov/reports/ horizontal-merger-investigation-data-fiscal-years-1996–2011. 267 Balto (n 265). 268 G Manne, Getting efficiencies right at the FTC: Commissioner Wright dissents in Ardagh/ Saint-Gobain merger (15 April 2014), available at https://truthonthemarket.com/2014/04/15/gettingefficiencies-right-at-the-ftc-commissioner-wright-dissents-in-ardaghsaint-gobain-merger/.

134  The Market Approach: Part II This, however, should not be surprising. Indeed, the FTC’s policy is completely in line with the rationale behind the structure of healthcare financing and delivery in the hospital sector which, as discussed in the first section of this chapter, focuses more on cost effectiveness and less on quality of care. Therefore, when the FTC assesses the likely anticompetitive effects of a hospital merger, it primarily explores the following questions: How will the envisaged transaction impact on the prices charged by hospitals? How will the proposed transaction affect the merging entities’ bargaining power? Price concerns also dominate the antitrust enforcers’ definition of the relevant product and geographic market. To a certain extent, the focus should not come as a surprise, since it is the most obvious impact and the one which can be more easily measured and assessed. But it should not be the only focus.269 For many hospitals high contract rates that can be the result of increased market power often cover only specific services. Indeed, nationwide, the average hospital ‘derives only about 36% of its revenues for healthcare services from commercial health plans’.270 Hence, while contracted rates to commercial health plans constitute an essential part of overall healthcare costs, the provision of high quality hospital services should also become an important component of a hospital merger analysis. Arguably, the US antitrust enforcers’ narrow approach may not only disincentivise merging parties from integrating quality claims into their efficiency defence. Additionally, it might disincentivise health policy researchers from developing research focusing not only on the potential impact of mergers on prices but also on quality. A relevant question that definitely deserves attention is the extent to which the types of efficiencies that hospitals seek to achieve necessitate full integration through a merger, or whether they can be also achieved through contractual arrangements and as a result, a merger is simply unnecessary.271 This was one of the decisive factors in the St Luke’s case. Surely, there are some efficiencies that can mainly be achieved through full integration, some that can be also accomplished through contractual arrangement relatively easily, and others that could be produced through contract, but not as easily and with much more time.272 Further research on how to understand to what extent the claimed efficiencies fall within this spectrum would allow the US antitrust enforcers to better evaluate whether the efficiencies claims are ‘merger specific’ or whether they confirm the motto that ‘talk is cheap’. The FTC and the courts, by narrowing their analysis to the price concerns of a hospital merger, lose the opportunity to gradually develop an analytical framework under which the quality aspects of a hospital merger are examined effectively. The antitrust enforcers, however, do not seem to recognise the 269 R Leibenluft, ‘Antitrust Provider Collaborations: Where We’ve Been and What Should be Done Now’ (2015) (40) Journal of Health Politics, Policy and the Law 847, 859. 270 Ibid. 271 Ibid. 272 Ibid.

Assessing Quality in Hospital Merger Cases  135 inadequacies their narrow approach entails. This is because when they analyse and assess the impact of a specific transaction on quality, they mainly rely on the assumption that more competition between healthcare providers will necessarily enhance all aspects of healthcare quality. Indeed, driven by the belief that healthcare is not special, the antitrust enforcers do not raise the question of whether in certain cases, closer cooperation between healthcare providers and not vigorous competition may bring quality improvements. Arguably, their attachment to this belief can be easily explained: Both the FTC and the US courts apply antitrust laws to healthcare ‘with the knowledge that they are bound by precedent and that their actions may create precedent in cases involving other industries’.273 Moreover, the application of antitrust law in healthcare is not necessarily an easy exercise for competition authorities given that the healthcare sector is highly regulated and market failures, such as information asymmetries, pervade healthcare markets.274 By relying therefore on certain assumptions and beliefs when they examine a hospitals merger’s impact on quality, the Agencies may attempt to simplify the application of antitrust law to healthcare. On the premise of these beliefs and assumptions, antitrust enforcers think that the current legal analytical framework is adequate. In fact, they do not seem to actually consider that their narrow focus on evaluating quality claims does not allow them to integrate into their analysis the insight of health policy research indicating that under certain conditions hospital consolidation and not competition improves health outcomes. They also do not seem to consider that their narrow focus may not necessarily be in line with the pursuit of desirable health policy goals, such as more coordinated or integrated care. ‘I don’t think there’s a contradiction between the goals of health care reform and the goals of antitrust’ Feinstein said in her interview, ‘as she surveyed the wave of mergers, consolidations and affiliations sweeping through the health care industry’.275 Again, in theory, under merger regulation hospital mergers improving quality through clinical integration can be approved. One would wonder, though, how the defendants would prove such quality claims without having an adequate framework that can seriously consider them. One would also wonder how health policy objectives could be considered under a hospital merger analysis since the District Court has openly expressed in the St Luke’s case that such objectives should not be considered under a merger analysis. In the Penn State Hershey Medical Center case, the FTC also adopted a similar approach as it openly disagreed with the District Court’s approach that the perceived needs of the healthcare system should take precedence over antitrust considerations. Whether vigorous antitrust and the pursuit of health policy objectives necessarily and always coincide remains a question that requires further consideration especially taking into account state regulations, such as the bill-exempting

273 Ibid,

850.

275 Pear

(n 260).

274 Ibid.

136  The Market Approach: Part II actions of the West Virginia Health Care Authority and of ‘hospitals and health care providers under the authority’s jurisdiction from state and federal antitrust law’.276 V.  SUMMING UP

The present chapter, by analysing the applicable framework for hospital mergers in the United States and by examining some seminal US hospital merger cases where quality claims were addressed, asked: How do the US antitrust enforcers and the courts perceive quality of care? What are the quality dimensions that they actually consider? Do they have the legal analytical framework to assess healthcare quality claims and balance them against the harm caused to competition? It highlights that the Agencies and the courts, by focusing on the price aspects of hospital mergers and by rejecting the possibility that in healthcare under special conditions, cooperation, coordination and integration may lead to improved quality of care, discourage the development of health policy research focusing on mergers’ impact on quality. Due to their narrow Markets approach, the Agencies and the courts may also disincentivise merging parties from bringing quality of care to the heart of the merger analysis. They may also ban mergers that may contribute to quality improvements. Hence, the FTC should issue guidelines focusing on the quality dimensions it values most on the basis of the main objectives of the US health system. It should further explain how these qualitative improvements can be balanced against the potential to competition.

276 L Schenker, ‘West Virginia Bill Would Shield Merging Hospitals from Antitrust Laws’ (Modern Healthcare, 18 February 2016), available at www.modernhealthcare.com/article/20160218/NEWS/ 160219892.

5 The Holistic Approach

C

hapters three and four focused on how healthcare quality is ­perceived and how it is taken into account by the US antitrust enforcers and the courts in the context of regulations adopted by medical boards and hospital merger cases. These chapters demonstrated that the US antitrust enforcers and the courts do examine and assess quality claims in the context of their competition analysis. However, those actors define, assess and perceive quality as in any other industry. To them, quality in healthcare is not a special concept. In fact, in applying a narrow consumer welfare approach1 they insist that choice and competition will necessarily enhance quality. More specifically, chapter three illustrated that when the regulations adopted by medical boards are under scrutiny, the US antitrust enforcers and the courts mainly take the view that ‘consumer choice’ is always the best judge of healthcare quality and competition in healthcare markets should be left to flourish without any regulatory interventions by medical associations. It also highlighted that the policy option of defining quality strictly as choice and competition: (a) underestimates the fact that healthcare markets are pervaded by numerous market failures, such as information asymmetries and negative externalities; (b) disregards the fact that health outcomes also depend on non-economic values, such as the notions of acceptability and trust, essential features of professionalism and doctor-patient relationship; and (c) fails to consider that the notion of healthcare quality can be achieved as a whole only to the extent it is evaluated at all levels of a health system and only to the extent that all functions of a health system commit to the quality goals the health system as a whole pursues. Arguably, the analysis in chapter four led to similar conclusions. This chapter highlighted that the Federal Trade Commission’s (FTC) antitrust enforcement in healthcare focuses mainly on cost effectiveness and the maintenance of price competition among hospitals. When applying competition law in hospital markets, as in medical markets, the US antitrust enforcers remain faithful to the 1 This notion of a consumer welfare approach has not been clearly defined in EU official documents. Generally, under what we will call a narrow consumer welfare approach, agreements between undertakings leading to an increase in price, a limitation in output (quantity, quality or range) or a limitation of innovation, are prohibited because they are considered detrimental to consumer welfare. Other interests are assumed to lie outside its scope, see R Claassen and A Gerbrandy, ‘Rethinking European Competition Law: From a Consumer Welfare to a Capability Approach’ (2016) 12(1) Utrecht Law Review 1.

138  The Holistic Approach assumption that vigorous competition among providers will necessarily lead to improved quality. This one-dimensional policy, however, completely disregards the fact, that as health services research reveals, under certain conditions and in a limited number of cases increased cooperation among providers and not vigorous competition may improve healthcare quality. By re-telling the story that antitrust laws should apply to hospitals in the same manner that they apply to all sectors of the economy, the US antitrust enforcers run the risk of blocking mergers that may indirectly contribute to US health policy objectives of more integrated and coordinated care. They may also risk de-incentivising health services researchers from developing research focusing not only on the potential impact of mergers on prices but on quality. Hence, under their narrow consumer welfare approach, any health policy goals that may contradict with the dogma that competition and choice ensure quality may not enter into the equation. In light of the shortcomings of the US Market Approach, some competition authorities may choose to widen the notion of consumer welfare when applying competition law to healthcare so that the multiple dimensions and aspects of healthcare quality, including safety, acceptability and professionalism are incorporated into their competition assessment as a whole.2 They might also widen the notion of consumer welfare in healthcare to ensure that their competition analysis does not harm or undermine the important health policy goals of their systems. Considering that equity is one of the core objectives of EU healthcare systems, this chapter claims that since the notions of choice and competition may in specific cases contradict with the social objectives of EU healthcare systems, notably equity and access, competition authorities in Europe may choose to extend the notion of consumer welfare when applying competition law to healthcare so that it also incorporates these non-economic goals that health systems in Europe strive to achieve. Delving into this argument, this chapter first identifies what the main objectives of EU health systems are. Then, focusing on the notion of equity and access, it explores how EU Member States conceive these notions and how they may strive to protect these goals by reviewing some international and European human right instruments where these objectives are analysed. Aiming to shed some light on how the notions of choice and competition may conflict with some essential objectives of EU health systems, such as equity, acceptability, safety, this 2 In his inaugural speech as Professor of European Law at the University of Leiden, Ottervanger made a similar proposal. Ottervanger calls for ‘a broader interpretation of the concept of consumer welfare in competition law’. Ottervanger argues for ‘ a wider definition of consumer welfare that would embrace the broad concept of consumer protection, including, for example, environmental protection’. He points out that ‘the establishment of a single European internal market is simply a means of furthering consumer welfare and general social and economic prosperity, but is not a goal in and of itself. Similarly, competition is a method in order to achieve this internal market, and not a standalone goal’. Ottervanger questions ‘whether it would be possible to create room for the concept of the citizen in competition law, and to use a broader definition of consumer welfare to encompass citizen welfare’. See P Kalbfleisch, ‘Aiming for Alliance: Competition Law and Consumer Welfare’ (2011) 2(2) Journal of European Competition Law & Practice, 108, 111–13.

Health Systems in Europe  139 chapter, in its second part, analyses the main aspects of the procompetitive regulations that introduced the choice and competition model in England from the early 1990s and provides specific examples where conflicts between the objectives of equity and choice, choice and acceptability or safety and choice may in fact emerge. The main goal of this section is to demonstrate that in light of these potential conflicts, healthcare providers or medical professionals acting either as gate-keepers or purchasers of NHS services may engage in anticompetitive behaviour in order to protect essential non-economic facets of healthcare quality that are also the main objectives of their health systems, such as continuity, access, equity and safety. Can these values be taken into consideration by EU competition law? Can competition authorities in Europe be allowed to expand the notion of consumer welfare so that they can actually balance conflicting components of healthcare quality, such as equity versus choice and competition? And, if yes, under what legal techniques? In answering these questions this chapter focuses on Article 101 of the Treaty on the Functioning of the European Union (TFEU) cases where public policy goals were in fact examined and assessed by the European Commission and the courts. In exploring whether public policy goals, such as equity, can and should be considered in a competition assessment, this chapter also responds to the antitrust scholarship’s core argument that the pursuit of social policy goals and objectives, such as equity, is not and should not become part of the antitrust agenda. This chapter draws conclusions on the basis of the English health system for mainly two reasons: First, because this health system has a long history of providing healthcare through the choice and competition model and, second, because the NHS in England attaches importance to equality and therefore it can be a representative example of health systems in Europe striving to promote equity. I.  HEALTH SYSTEMS IN EUROPE: WHAT ARE THEIR COMMON VALUES AND OBJECTIVES?

Health systems are an essential part of Europe’s high levels of social protection and contribute significantly to the goals of social cohesion and social justice.3 As highlighted by the Council’s statement on the common values and principles of the EU health systems (a document which is the result of discussions that have taken place in the Council and with the Commission in the context of the Open Method of Coordination, and the High Level Process of Reflection on Patient Mobility and healthcare development in the field of health, or else ‘the Statement’),4 ‘there are specific common values and principles that are shared 3 Council Conclusions on Common values and principles in European Union Health Systems [2006] OJ C 146/01, 1. 4 Ibid.

140  The Holistic Approach across the European Union about how health systems should respond to the needs of the populations and the patients they serve’.5 Essentially, these common values and principles are universality, equity, access to high quality care and solidarity.6 Universality means that no citizen is prevented from accessing healthcare;7 solidarity is highly correlated with ‘the financial arrangement of the national health systems’ and the need to ensure access to healthcare services for all;8 the notion of equity is highly correlated with equal access on the basis of need, irrespective of gender, ethnicity, age, socioeconomic background or the ability to pay for healthcare.9 EU health systems also continuously strive to reduce the existing health disparities, which is a growing concern of EU Member States.10 Beneath these wider values, this statement illustrates, there is also a set of principles that are common within the EU, meaning that all EU citizens could actually benefit from their application.11 These include: (a) Good quality care – this goal is attained through the continuous training of healthcare staff on the basis of clearly defined quality standards, promoting innovation and spreading good practices, establishing systems to promote good clinical governance, and thorough supervision of the performance of the health system;12 (b) Patient safety – including ‘the monitoring of risk factors and adequate, training for health professionals, and protection against misleading advertising of health products and treatments’;13 (c) Care that is based on evidence and ethics. This means that all health systems have to overcome the challenge of prioritising healthcare in a way that strikes a balance between the needs of individual patients with the financial resources available for the treatment of the population.14 The common values between EU health systems are also set forth in the opinion of a multidisciplinary and independent expert panel that was created by the European Commission in 2012 with a view to providing non-binding advice on issues relating to the effectiveness, accessibility and resilience of health systems.15 This opinion illustrates that over the last 60 years, all EU countries

5 Ibid, 2. 6 Ibid. 7 Ibid. 8 Ibid. 9 Ibid. 10 Ibid. 11 Ibid, 2. 12 Ibid, 2. 13 Ibid, 3. 14 Ibid, 2–3. 15 European Commission, Expert Panel on Effective Ways on Investing in Health (EXPH), ‘Competition Among Health Care Providers, Investigating Policy Options in the European Union’ 7. The EXPH adopted this opinion at the 10th plenary meeting of 7 May 2015 after public consultation. The creation of the Panel goes back to the conclusions on health systems adopted in June 2011 by the Council of Ministers of the EU, which invited the European Commission and the EU countries

Health Systems in Europe  141 have attempted to establish health systems that respect some common values and goals including solidarity, universality, equity and access to high quality, effective and safe health services.16 Importantly, this opinion also illustrates that increased competition among healthcare providers may not always and necessarily be the best instrument to achieve essential health goals. Moreover, introducing competition in the healthcare field may not necessarily address all the problems health systems in reality face and may also have adverse effects.17 Specifically, the opinion emphasises that the introduction of competition in healthcare may not necessarily improve all aspects of a health system’s quality.18 Also, trying to improve one dimension of a health system’s performance may inevitably undermine another. This opinion proposes, therefore, that trade-offs in terms of values and objectives are almost inevitable.19 Furthermore, EU Member States’ commitment to promote equity and ensure access to healthcare is reflected in the numerous international and European human rights instruments that they have signed, notably Article  25(1) of the Universal Declaration of Human Rights.20 As this Article states, ‘Everyone has the right to a standard of living adequate for the health of himself and of his family, including food, clothing, housing and medical care and necessary social services’ (emphasis added). Additionally, Article  12 (1) of the International Covenant on Economic, Social and Cultural Rights (ICESCR)21 declares that states recognise ‘the right of everyone to the enjoyment of the highest attainable standard of physical and mental health’.22 A clear understanding of the normative content of the right to health is provided in the 14th General Comment (GC 14) of the UN Committee on Economic, Social and Cultural Rights.23 This document highlights that the right to health in all its forms and all levels contains a number of interrelated and essential elements, the precise application of which depends on the conditions to initiate a process aiming to identify effective ways of investing in health and to provide them with independent advice on health related questions. 16 Ibid. 51. 17 Ibid, 76, para 48. 18 Ibid, 6. 19 Ibid, 16. 20 Universal Declaration of Human Rights, available at www.ohchr.org/EN/UDHR/Documents/ UDHR_ Translations/eng.pdf. 21 International Covenant on Economic, Social and Cultural Rights Adopted and opened for signature, ratification and accession by General Assembly Resolution 2200A (XXI) of 16 December 1966, entry into force 3 January 1976, in accordance with article 27, available at www.ohchr.org/EN/ ProfessionalInterest/Pages/CESCR.aspx. 22 It should be noted that the USA has signed but it has not ratified the International Covenant on Economic, Social and Cultural Rights, see https://treaties.un.org/Pages/ViewDetails.aspx?src=IND &mtdsg_no=IV- 3&chapter=4&lang=en. The USA has signed the Universal Declaration of Human Rights. 23 United Nations (UN) Committee on Economic Social and Cultural Rights (CESCR) 2000. Substantive issues arising in the implementation of the International Covenant on Economic Social and Cultural Rights – General Comments No 14 (E/C 12/2000/4).

142  The Holistic Approach prevailing in a particular State’.24 Essentially, these are availability, accessibility, acceptability and quality. • The principle of availability requires that ‘public health and healthcare facilities, goods and services are available in a sufficient quantity within a State’.25 • The principle of accessibility requires that: (a) all citizens and especially the most vulnerable populations can have access to health facilities and health services without discrimination; (b) healthcare should be provided on an affordable basis for all citizens and the payment of healthcare services, either private or public, should respect the principle of equity; (c) health facilities, goods and services must be accessible for all parts of the population, especially the vulnerable populations and marginalised groups; (d) information accessibility is ensured. This includes ‘the right to seek, receive and impart information and ideas concerning health issues;.26 • The principle of acceptability requires that all health facilities, goods and services must be in line with medical ethics, conform with the culture of citizens, communities and minorities, be sensitive to gender and life-cycle requirements, and be designed in a way that respects confidentiality and contributes to health outcomes.27 • The principle of quality necessitates that health facilities, goods and services should meet appropriate medical and scientific standards and be of good quality.28 This goal can be achieved only to the extent medical personnel are skilled, drugs are scientifically approved, the hospital equipment is safe and adequate sanitation is available.29 Like all human rights, the right to health imposes three types of obligations on states: the obligation to respect, to protect and to fulfill.30 The obligation to respect requires states not to deny, obstruct or limit equal access for all citizens to preventive, curative and palliative health services.31 The obligation to protect requires states to adopt legislation or any other measures securing equal access to healthcare and health related services provided by third parties;32 to ensure that privatization of the healthcare does not undermine the availability, accessibility, acceptability and quality of health facilities, goods and services;33 to ensure that physicians and other medical professionals meet specific standards 24 Ibid, para 12. 25 Ibid, para 12(a). 26 Ibid, para 12(b). 27 Ibid, para 12(c). 28 In this document, the principle of quality refers to the evaluation of quality at unit level according to Donabedian analysis. 29 Ibid, para 12(d). 30 Ibid, para 33. 31 Ibid, para 34. 32 Ibid, para 35. 33 Ibid.

Health Systems in Europe  143 of education, and respect the code of ethics.34 The obligation to fulfill requires states, inter alia, to recognise the right to health in their national, political and legal systems, preferably through the adoption of regulatory measures, and to pursue a health policy agenda that allows the realisation of the right to health.35 It also includes the provision of an affordable public, private or mixed health insurance system.36 At the European level, the right to health is also protected. Indeed, the European Convention on Human Rights considers the right to health ‘as part of the right to life or as part of the right to a private life, provided for respectively, in Articles 2 and 8 of the Convention’. Two other European legal documents also provide an extended analysis on the core content of the right to health and the right of access to healthcare. Essentially, these are the European Social Charter (ESC)37 and the Convention on Human Rights and Biomedicine (CHRB).38 The ESC in its Preamble illustrates that ‘everyone has the right to benefit from any measures enabling him to enjoy the highest possible standard of health attainable’ (emphasis added). The right is further laid down in Article  11 of the ESC which specifically states that the effective implementation of the right to health requires that states should, either directly or in cooperation with public or private institutions, adopt all the measures that will significantly remove the causes of ill health. The main aspects of the right to health are further examined in the interpretation of Article 11 ESC39 which unveils the core elements embedded in the provision and access to healthcare services. Essentially, this legal document underlines that all citizens should be able to access their state’s health systems and that any restrictions on the realisation of the right by vulnerable populations should not be tolerated. In particular, it points out that the conditions governing access to care should take into account the Parliamentary Assembly Recommendation 1626 (2003) on ‘the reform of healthcare systems in Europe: reconciling equity, quality and efficiency’, which, among other things, invites Member States to examine the effectiveness of their health system reforms, on the basis of citizens’ ability to access healthcare and, consequently, the improvement of the health and welfare of the entire population.40

34 Ibid, para 35. 35 Ibid, para 36. 36 Ibid. 37 European Social Charter, Turin, 18.X.1961, available at available at https://rm.coe. int/168006b642. 38 Convention for the Protection of Human Rights and Dignity of the Human Being with regard to the Application of Biology and Medicine: Convention on Human Rights and Biomedicine, Oviedo, 4.IV.1997, available at https://rm.coe.int/168007cf98. 39 This interpretation is conducted by the European Committee of Social Rights. 40 Parliamentary Assembly, Recommendation 1626 (2003), ‘The Reform of Health Care Systems in Europe: Reconciling Equity, Quality and Efficiency’, para 10.5. This document does not specifically define the notions of quality, access and equality.

144  The Holistic Approach Although the ESC is non-binding, this legal document is part of a specific mechanism of governance within Europe. The latter includes a collective complaint procedure and a monitoring procedure which relies heavily on national reports. Within this context, the European Committee of Social Rights is equipped with the task of evaluating the reports and deciding whether or not the countries participating in the process conform with the provisions of the ESC. Article  3 of CHRB also refers to the right to healthcare, stating that the access to healthcare should be provided in line with the principles of equity and accessibility. The explanatory report that delves into the core content of this Article illustrates that the core objective of Article 3 CHRB is to ensure equitable access to healthcare on the basis of citizens’ medical needs. Additionally, it highlights that access to healthcare must be equitable, which means any type of discrimination against citizens should be prohibited.41 The right to health is also protected by the Charter of Fundamental rights of the European Union42 which, with the entry into force of the Treaty of Lisbon, as Article 6 of the Treaty on the European Union states, has the same legal value as the Treaties. With respect to the right to health, Article 35 of the Charter provides that Everyone has the right of equal access to preventive healthcare and the right to benefit from medical treatment under the conditions established by national laws and practices. A high level of human health protection shall be ensured in the definition and the implementation of all Union policies and activities.

Arguably, the first part of Article 35 refers to the principles of non-discrimination, accessibility, and equality. The second part clearly underlines that a high level of health protection should be considered in the implementation of all union policies. The above analysis demonstrates that the principles of non- discrimination, accessibility, equity and efficiency can be drawn from all the provisions with regards to healthcare. Indeed: (a) the ESC in its Preamble underlines that ‘everyone has the right to benefit from any measures enabling him to enjoy the highest possible standard of health attainable’. Additionally, Article 11 of the ESC articulates that restrictions on the enjoyment of the right by disadvantaged groups should not be accepted; (b) Article 3 of the CHRB provides that access to healthcare should be provided in line with the principles of equity and accessibility; (c) GC 14 (paragraph 53) clearly imposes a duty on each state to adopt all the necessary measures to ensure that everyone has access to health facilities, goods and services. Especially with regards to the principle of accessibility,

41 Explanatory Report to the Convention for the Protection of Human Rights and Dignity of the Human Being with regard to the Application of Biology and Medicine: Convention on Human Rights and Biomedicine, Oviedo, 4.IV.1997, available at https://rm.coe.int/16800ccde5. 42 Charter of Fundamental Rights of the European Union [2000] OJ C 364/01.

Health Systems in Europe  145 it  emphasises that healthcare goods and services should be accessible to all, especially to the most vulnerable groups of the population. Most importantly, GC 14 (paragraph 35) underlines that states should ensure that the privatisation of the health sector does not undermine the acceptability, availability, accessibility and quality of health facilities, goods and services. Arguably, the ways in which Member States strive to implement these values and ensure the right to health are not identical. For instance, England’s commitment to ensure these values is reflected, among others, in the NHS Constitution that establishes the principles and values under which NHS in England operates.43 In brief, according to the NHS Constitution, seven key principles guide the operation of the NHS.44 These core principles are: (a) The NHS provides a comprehensive service, which is available to all regardless of gender, race, sexual orientation, age, disability, belief, religion, maternity or pregnancy.45 The NHS has a duty to each and every individual that it serves and must take into consideration their human rights.46 Additionally, when offering services, it is obliged to ensure equality and take due account of specific groups of society ‘where improvements in health and life expectancy are not keeping pace with the rest of the population’ (emphasis added);47 (b) Commitment to conform with the highest clinical standards and professionalism;48 (c) Access to NHS services on the basis of people’s medical needs, not on the their ability to pay for the services provided. NHS services are free of charge, except in extremely limited cases; (d) Patients’ needs should be at the centre of NHS activities.49 The NHS should assist individuals in promoting and taking care of their own health. NHS services must operate in line with patients’ preferences and needs, their families and their caregivers;50 (e) The NHS is ‘an integrated system of organizations and services bound together by the principles and values reflected in the Constitution’.51 The NHS is operating jointly with other local communities and public sector and voluntary organisations to ensure health improvements and promote citizens’ well-being;52 (f) The NHS strives to provide best value for taxpayers’ money; and (g) The NHS is accountable to the public, communities and patients that it serves.53 To what extent do the above International and European human rights documents, as well as the NHS Constitution, reflect the notion of healthcare quality 43 NHS, For England, ‘The NHS Constitution, the NHS Belongs To Us All’ (26 March 2013), available at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_ data/file/170656/NHS_Constitution.pdf. 44 Ibid, 2. 45 Ibid, 3. 46 Ibid. 47 Ibid. 48 Ibid. 49 Ibid. 50 Ibid. 51 Ibid, 4. 52 Ibid. 53 Ibid.

146  The Holistic Approach as it is defined by the Institute of Medicine and international organisations such as the World Health Organisation and the Organisation for Economic Co-operation and Development? Obviously, in these documents there is not a specific definition of healthcare quality that coincides with the definition that has been adopted by these institutions or by Avedis Donabedian. However, it should not be underestimated that the core international and European human rights documents especially, acknowledge that healthcare should be provided in accordance with the principles of equity, efficiency, acceptability and access, important goals of EU health systems and also essential facets of the healthcare quality notion. Additionally, it should not be underestimated that these documents reflect the notion that healthcare is special. This is because in all these documents equity is defined ‘as equality of access to available care for equal need’ (emphasis added). Indeed, they underline that healthcare should be distributed regardless of people’s ability to pay for it and that it should be accessible to all, especially to the underserved. In other words, these documents echo the notion that entities such as health derive equity significance from their ability to enable people to flourish54 and therefore everybody should be able to enjoy it irrespective of her well-being, socioeconomic status and her ability to pay for it. II.  CONFLICTS BETWEEN THE GOALS OF COMPETITION AND THE MULTIPLE FACETS OF HEALTHCARE QUALITY: REFLECTIONS ON THE ENGLISH HEALTH SYSTEM

As noted in chapter two, in England, following the Health and Social Care Act 2012 (HSCA 2012), the delivery of healthcare through market provision was reinforced. At the same time, the service was made subject overall to a special competition law regime that will be further discussed and analysed in the following chapter. Nonetheless, it should be noted that important steps have been made by governments of both political complexions to introduce market forces into the health system as early as in 1990. During this period, the Conservative Government passed the National Health Service and Community Care Act, that introduced the ‘internal market model’.55 Intellectual inspiration came mainly from US economist Alain Enthoven, who rigorously supported the idea that the re-organisation of the NHS on the basis of the ‘internal market model’, along with the introduction of increased competition among NHS providers, would enhance efficiency and quality.56

54 AJ Culyer, ‘Equity – Some Theory and its Policy Implications’ 2001 (27) Journal of Medical Ethics 275, 276. 55 National Health Service and Community Care Act 1990, available at www.legislation.gov.uk/ ukpga/ 1990/19/contents. 56 L. Stirton, ‘Back to the Future, Lessons on the Procompetitive Regulation on Health Services’ (2014) 22(2) Medical Law Review 180, 184.

Reflections on the English Health System  147 Essentially, the Act divided the line between the purchasing (or else the commissioning) and the provision of healthcare services across the UK.57 Two main purchasers were created: The District Health Authorities and the General Practice Fundholders (GPFHs).58 The latter were larger primary care physicians, who purchased various hospital outpatient and elective services for the patients on their lists. Essentially, GPs were acting as informed agents on behalf of their patients to ensure they had access to healthcare services.59 Providers and purchasers were connected through a contract. In the case of private providers these were private law contracts, while within the NHS Service they took the form of NHS Contracts.60 These contracts were negotiated on an annual basis and took three main forms: block contracts, that required providers to meet demand for a fixed price;61 cost-and-volume contracts that foresaw an upper limit, beyond which provision of healthcare services was possible only through additional payments;62 cost-per-case contracts on the basis of which providers received a fixed fee for each specific patient they treated.63 Purchasers had high incentives to negotiate and achieve lower prices so that they could afford to buy more care because, as it was well known, long waiting lists existed for many elective procedures.64 Until 1999, purchasers did not have access to outcome measures, such as mortality rates.65 Although purchasers might have information about the quality of the available providers, they could not easily and adequately compare the quality of the services offered by them.66 Hence, while purchasers were strongly incentivised to negotiate and attain lower prices and/or higher volumes, they lacked the necessary incentives to negotiate quality improvements.67 The re-organisation of the NHS with the introduction of the internal market did not dramatically change the NHS. This may relate to the fact that market forces were not properly introduced into the system. Although the incoming Labour Government quickly reformed the system, the core elements of the internal market were retained, notably the purchaserprovider separation.68 More specifically, although under the new regime the

57 J Cylus, E Richardson, L Findley, M Longley, C O’Neill and D Steel (2015) 17(5) United Kingdom: Health System Review. Health Systems in Transition 16. 58 N Mays, A Dixon and L Jones (2011) ‘Return to the Market: Objectives and Evolution of New Labour’s Market Reforms’ in N Mays, A Dixon and L Jones (eds), Understanding New Labour’s Reforms of the English NHS (The King’s Fund, 2011) 1–15, 3. 59 Ibid. 60 T Prosser, The Limits of Competition law, Markets and Public Services (Oxford University Press, 2005) 9. 61 Stirton (n 56) 186. 62 Ibid. 63 Ibid. 64 C Propper, S Burgess and D Gossage, ‘Competition and Quality: Evidence from the NHS Internal Market 1991-9’ (2008) 118(525) The Economic Journal 138, 139. 65 Ibid. 66 Ibid. 67 Ibid. 68 Prosser (n 60) 8.

148  The Holistic Approach purchaser–provider split was not abolished, the GPFHs were. Instead, the Primary Care Trusts (PCTs) that involved all GPs were established.69 These groups had indicative budgets, and their core mission was to gradually take over the responsibility for commissioning from the health authorities.70 Under the New Labour leadership, NHS reforms could be divided into two periods: During the first period, health policy focused on establishing national quality standards, rather than reinforcing competition among providers.71 During this first period, the reforms were characterised by a strong focus on ‘top-down policy-making’ that saw the establishment of national quality standards (for instance the reduction of waiting times), the necessary means through which care across providers would be standardised.72 To this end, between 1999 and 2002 two new regulatory authorities were established: the National Institute for Health and Clinical Excellence (National Institute for Health and Care Excellence (NICE) from 2012) and the Commission for Health Improvement (CHI) (Care Quality Commission (CQC) from 2009).73 With a view to achieving higher efficiency, consistency and quality within the NHS, NICE was responsible for assessing current and novel interventions for their effectiveness. CHI complemented NICE’s role by assessing NHS quality, performance and conformance with NICE’s guidelines. Essentially, while NICE established the quality standards, CHI’s primary role was to guarantee that those standards were met.74 During the second period, the Government strived to foster quality competition by limiting price competition. To ensure that money would follow the patients and providers had the incentives to increase activity through output, an ‘activity-based payment system’ for hospitals known as ‘Payment by Results (PbR)’ was introduced.75 This system of ‘fixed national prices’ was based on ‘health resource groups – the English version of the US system of diagnosisrelated groups’.76 The fixed price or else fee for each health resource group was calculated on the basis of average costs.77 Because price negotiations were not part of the agenda, competition among providers was essentially based on quality.78 Aiming to further enhance quality competition, the Government also adopted policies that allowed patients to exercise choice at the point of referral. Through these policies, patients could choose between any healthcare provider, private

69 Mays et al (n 58) 5. 70 Ibid. 71 Ibid. 72 Ibid. 73 Cylus et al (n 57) 16. 74 Ibid. 75 Mays et al (n 58) 7. 76 Ibid. 77 The idea was based on the Diagnosis Related Groups (DRGs) originating in the USA, where they were used to calculate payments for physician services under Medicare. 78 Stirton (n 56) 191.

Reflections on the English Health System  149 or NHS, that had agreed to offer care in line with NHS standards within the national tariff system.79 The Government believed that facilitating choice at the point of referral could reduce waiting times and improve the responsiveness of the health system.80 Therefore, from around 2002 onwards in a ‘gradual, pragmatic process’ the Government promoted supply side competition by increasing the availability and diversity of healthcare providers.81 Through time, the provision of NHS services was opened up to various accredited providers – both publicly owned and independent ones. Most prominent was the establishment of the NHS Foundation Trusts82 (NHS FTs) and Independent Sector Treatment Centres (ISTC) whose main purpose was to offer high volume, low risk surgery to NHS patients.83 Patients were also given the opportunity to choose providers for their treatment, ‘beginning with pilots of choice for cardiac surgery introduced in 2002 and culminating in the introduction of “free” choice of any eligible provider at referral in 2008’.84 The Government also attempted to promote quality competition by allowing elective patients to choose any provider that offered care on the basis of NHS standards and tariffs through the so-called ‘choose and book’ system.85 In brief, this was an electronic appointment booking system that was installed in hospitals and GP surgeries to give GPs and patients the opportunity to book their appointments online, either from home or in the GP surgery.86 New mechanisms to regulate competition were first created in 2007 when the Principles and Rules for Cooperation and Competition (‘Principles and Rules’) were established and applied by the Cooperation and Competition Panel (CCP), a newly formed body.87 Basically, these Principles and Rules relied on the idea that both cooperation and competition are desirable. For this reason, the rules considered various other values and goals along with competition. For example, when hospital mergers were examined, the protection of competition was not the only goal that entered the equation. The merger’s impact on quality also came

79 A Dixon and R Robertson, ‘Patient Choice of Hospital’ in Mays et al (n 58) 53. 80 P Allen and L Jones, ‘Diversity of Health Care Providers’ in Mays et al (n 58). 81 M Sanderson, P Allen and D Osipovic, ‘The Regulation of Competition in the National Health Service (NHS): What Difference has the Health and Social Care Act 2012 Made?’ (2017) 12 Health Economics, Policy and Law 1, 4. 82 Under the Labour regime, NHS Trusts that achieved a defined level of performance, initially a three-star rating from CHI, could apply to have Foundation Trust (FT) status. To gain this status, NHS bodies were assessed on the basis of specific quality factors. These included waiting lists, cleanliness, treatment specific data and financial management. This status allowed the FTs to reach a certain level of autonomy. NHS FTs were independent organisations not subject to direction from the Secretary of State for Health. They are public bespoke legal entities that can retain surpluses and borrow funding for capital investment from more sources. They also have greater flexibility with regard to remuneration of staff, see Mays et al (n 58) 7. 83 Sanderson, Allen and Osipovic (n 81) 6. 84 Ibid. 85 Stirton (n 56) 191. 86 Dixon and Robertson (n 79) 55. 87 Sanderson, Allen and Osipovic (n 81) 6.

150  The Holistic Approach into play.88 Importantly, the CCP had no enforcement power.89 Additionally, its advice had no statutory basis and was not binding. Indeed, the CCP’s main duty was to investigate potential violations of the Principles and Rules and to make recommendations to the Secretary of State for Health and NHS Improvement.90 As with the Labour Government, the Coalition Government under the HSCA 2012 also attempted to enhance quality competition by: (a) facilitating choice and competition among healthcare providers; (b) limiting price competition; and (c) adopting quality regulation and ensuring that multiple bodies and regulators are equipped with the duty to monitor the quality of NHS services, notably CQC, NHS Improvement and the purchasers of NHS services. More importantly, HSCA 2012, which was implemented in April 2013, established the link between competition among providers within the NHS and the application of competition law in the healthcare sector.91 Under the HSCA 2012, NHS Improvement, took over some of the responsibilities of the former CCP. As noted, NHS Improvement along with the Competition and Markets Authority (CMA) had powers to apply competition law to healthcare so that any anticompetitive restraints were prevented.92 Whereas the CCP did not have a statutory basis, NHS Improvement was given the statutory responsibility to prevent any anticompetitive behaviour, which conflicted with the interests of service users.93 Under this new regime, NHS Improvement was also responsible for enhancing competition ‘in the procurement and commissioning of NHS services’.94

88 Ibid. 89 Ibid. 90 Ibid. 91 Ibid. 92 Ibid, 7. 93 The following chapter will elaborate more on the main reforms the HSCA 2012 introduced and the competition law regime that now applies to providers of NHS services. 94 Regulation 2 of the Procurement, Patient Choice and Competition Regulations requires commissioners to act with a view to securing the needs of NHS healthcare service users and to improving the quality and efficiency of services, including though the services being provided in an integrated way (including with other healthcare services, health- related services or social care services). Additionally, Regulation 3(4) of the same Regulations requires commissioners, when acting with a view to improving quality and efficiency, to consider appropriate means of making such improvements, including through: (a) services being provided in a more integrated way (including with other healthcare services, health-related services or social care services); (b) enabling providers to compete to provide services; and (c) allowing patients a choice of provider. With regards to competition, Regulation 10(1) of the Procurement, Patient Choice and Competition Regulations prohibits commissioners from engaging in anticompetitive behaviour when commissioning services unless it is in the interests of NHS healthcare service users. Regulation 10(2) clarifies that an arrangement for the provision of NHS healthcare services must not include any term or condition restricting competition that is not necessary for the attainment of intended outcomes which are beneficial for people who use such services or the objective in Regulation 2. This is because where restrictions of competition are not necessary to achieve such benefits, they are unlikely to be in the interests of healthcare service users. Monitor had published specific guidance explaining how it aims to assess anticompetitive behaviour in the procurement services market. This is the ‘Procurement, Patient Choice and Competition Regulations Guidance’ of 2013. In this document Monitor mentions that when

Reflections on the English Health System  151 What type of competition problems can this regulatory framework create? Incentivising healthcare providers to improve the quality of their services through the implementation of specific standards and targets can lead to quick improvements on specific dimensions of healthcare quality, such as waiting times. The risk of shame and loss of contracts can undoubtedly force providers to meet the quality standard targets set. However, incentivising healthcare providers to improve specific aspects of quality might encourage providers to game. Most importantly, this policy may also restrict quality competition among healthcare providers by incentivising providers to collude on the level of quality specific targets set forth. Indeed, it is difficult to claim that healthcare providers would have incentives to further promote the quality of their services above the levels required by quality regulation considering that the marginal improvement in quality might not even be identified by patients or purchasers of NHS services due to the high information asymmetries that pervade healthcare markets. How should competition authorities respond to a provider’s argument that the quality regulation as such restricts quality competition and not the fact that they collude on specific dimensions of healthcare quality? A regulatory framework that extends choice as a means to achieve quality improvements may pose different but analogous challenges for competition enforcers. This is because patients’ choice in healthcare does not necessarily lead to quality improvements. Indeed, evidence from the Labour reforms period reveals that when patients were asked to name the single most important influence on their choice of hospital, being close to home or work was selected most often, followed by personal experience of the hospital and waiting times.95 Additionally, governments’ policies to correct the asymmetry of information between patients and healthcare providers by informing patients on the performance of the market participants do not necessarily transform patients into active choosers. This is because much of the information available to patients is either irrelevant or is not available in an accessible way. Information on the performance of hospitals on the NHS choice tool,96 for example, includes four or five hospital sites. The other website that aims to inform patients, iWantGreatCare.org,97 allows patients to share their experiences with specific providers. Patients can offer their feedback and assess providers (such as GPs, hospital consultants assessing an anticompetitive behaviour it also considered whether the behaviour gave rise to any material benefits to users of NHS healthcare services, such that the behaviour would be considered to be in the interests of healthcare service users. These, among others, may be clinical improvements such as an increase in the number of patients treated by a provider where higher patient volumes result in better outcomes; and non-clinical benefits such as better patient experience, better access for patients (for example longer and/or more convenient opening hours, improved surroundings or better amenities). 95 Dixon and Robertson (n 79) 56. 96 www.nhs.uk. 97 iWantGreatCare.org is funded by providing performance consultancy services to healthcare providers, using the data captured from patients on the site.

152  The Holistic Approach and dentists).98 Patients evaluate healthcare professionals on three main factors;99 listening skills, trust and whether they would be willing to recommend them to other patients. On the basis of this feedback, an overall rating percentage is created.100 Other patients wishing to obtain healthcare services can then search for providers by geography and specialism to compare the available ratings and reviews.101 Relying however on these tools to choose healthcare providers or treatments is risky. Asking patients to evaluate their healthcare providers on the basis of specific dimensions, such as trust and listening skills, might either incentivise providers to focus only on these dimensions at the expense of others, such as professional calibre and effectiveness, or might facilitate the flow of false information because each patient’s experience is personal and thus subjective. Since the information on quality these search engines provide is either inadequate or limited, patients do rely on doctors’ experience and advice when they have to choose either the appropriate medical treatment or healthcare providers. This is the reason why both in England and in the Netherlands GPs do not only offer their medical services, but they also act as gate-keepers. From the perspective of healthcare quality objective this might be desirable. Arguably, if patients cannot adequately assess providers’ performance on the basis of the clinical aspects of quality, they might choose a provider on the basis of short waiting lists. From the perspective of competition, though, this might not be desirable since the more doctors behave as their patients’ agents the more their market power increases. GPs may have their own views on whether a hospital offers good or bad services. In fulfilling their duties as purchasers of healthcare (PCTs, for example during the Labour period),102 they may try to impose their own views on the standards of quality healthcare providers should meet. The same can be said when GPs act as gate-keepers. Following a decision made by the British Medical Association or by the purchasers of healthcare, GPs in performing their role as gate-keepers may agree to stop referring patients to specific hospitals that do not meet their own quality standards of medical treatment. Undoubtedly, the fact that GPs are among the few actors that see patients go to the hospitals they refer them to and return with their stories of what happened, while also to some extent having insight into the medical outcomes produced, this may well make them crucial actors for qualifying public values, such as healthcare quality in their referrals.103 Is this scenario possible? 98 Office of Fair Trading (currently CMA), Empowering Consumers of Public Services through Choice Tools (April 2011) OFT1321, 18. 99 Ibid. 100 Ibid. 101 Ibid, 16. 102 As noted at the beginning of this section, the purchasers of the NHS services or else commissioners are basically GPs. While during the Labour period they were called PCTs after the introduction of the HSCA 2012, as the following chapter explains, they were subsequently called Clinical Commissioning Groups (CCGs). 103 T Zuiderent-Jerak Kor Grit and T van der Grinten, ‘Markets and Public Values in Healthcare’, iBMG Working Paper W2010.01 (Erasmus University Rotterdam, 2010)).

Reflections on the English Health System  153 Considering that doctors appreciate the value of professionalism more than the value of choice, the answer should be positive. Doctors distrust the official performance statistics that aim to help patients choose healthcare providers. Rather, they prefer to help patients choose on the basis of their patients’ previous experiences and their relationships with providers.104 While GPs could guide patients in choosing the appropriate treatment or hospital by helping them to understand all the costs and benefits of their options, in fact they don’t. A comprehensive evaluation of patient choice in four areas of England shows that, by January 2009, although patients were entitled to choose any NHS or registered non-NHS provider, most patients who were offered a choice said that they had been given between two and five options, with the inclusion of a privately run hospital in only 8 per cent of choices.105

Additionally, multiple interviews with GPs and patients in the same study demonstrated ‘that GPs often offered choice in a tokenistic way, rarely initiating a discussion of the merits or of the options available’.106 Although many GPs could appreciate the value of choice in theory, they abstained from offering choices in reality. From their point of view, most patients were not interested in making a choice. Instead, patients preferred the GP to decide on their behalf. GPs also felt that they lacked the necessary time to thoroughly discuss the available options with patients. Patients appreciated the opportunity of having a choice.107 Nonetheless, instead of choosing for themselves, they preferred their GP to choose on their behalf.108 The installation of the electronic appointment booking system ‘Choose and Book’ in hospitals and GP surgeries, the purpose of which was to facilitate GPs’ and their patients’ efforts to book their appointments online in the GP surgery or from home, did not motivate physicians to help patients exercise choice. Interestingly, even before the Choose and Book system was installed, GPs were opposed to it. Indeed, almost 80 per cent expressed the view that they felt ‘a little negative’ or ‘very negative’ about the installation and the implementation of the system. Also, 93 per cent of physicians felt that ‘there had been inadequate consultation on the system’.109 Due to some technical issues, GPs faced difficulties in logging on to the system or the system often crashed during a booking.110 Physicians also complained that because of inadequate training, they found it quite difficult to ‘keep up to date with the regular modifications to the system, and that the inability to refer to a named consultant (unlike in

104 Dixon 105 Ibid, 106 Ibid.

and Robertson (n 79) 56. 54.

107 Ibid. 108 Ibid. 109 Ibid, 110 Ibid.

55.

154  The Holistic Approach a traditional paper-based referral) broke the links they had established with hospital clinicians’.111 Although a target of 90 per cent of appointments to be booked through Choose and Book was set, and financial incentives were given to encourage its use, only 50 per cent of first outpatient appointments were being booked through Choose and Book by 2010.112 GPs’ participation was key to the successful implementation of this policy and their lack of motivation to promote the use of the Choose and Book system meant implementation was deferred.113 To protect specific facets of healthcare quality, such as the notions of safety, continuity and acceptability, the purchasers of NHS services may issue guidance advising the GPs to abstain from referring patients on the basis of the Choose and Book system and refer patients to specific providers that meet their own quality and safety standards. To the extent GPs comply with this guidance, how should competition authorities evaluate such an agreement? How should they assess the claims of the purchasers of NHS services that in certain cases, restricting choice and competition in healthcare markets might be necessary for the protection of healthcare quality? Extending patients’ choices to foster quality might also harm equity defined as equality of (opportunity of) access for equal need. Arguably, extending patients’ choice by allowing private providers to offer more profitable, nonurgent elective services inevitably leaves NHS providers with the essential, high risk, urgent care, which they could previously cross-subsidise with revenue from elective care.114 For example, ISTCs that were introduced during the Labour Government to offer elective, non-urgent care, have been severely criticised for their potential to harm equity and access as a result of their tendency to cherrypick the more profitable, elective services. This is because these entities were established specifically to treat low cost, elective patients rather than high-risk, high-cost patients.115 In fact, experience during the Labour period illustrates that where for-profit entities found it challenging to make profits, they chose to withdraw from the market and shut down their primary care clinics.116 Because for-profit entities chose to operate in areas with an inadequate number of GPs, this undermined access to primary care.117 How should competition authorities evaluate a decision made by the purchasers of NHS services advising GPs to restrict choice and refer more patients for elective care to NHS hospitals engaging also in risky non-elective procedures so that they can cross-subsidise these costly procedures and guarantee the continuity of the services they offer?



111 Ibid. 112 Ibid. 113 Ibid.

114 Allen 115 Ibid, 116 Ibid. 117 Ibid.

and Jones (n 80) 22. 18.

Reflections on the English Health System  155 Additionally, as already noted, the Labour Government attempted to induce quality competition and facilitate choice by introducing PbR, the payment of fixed national prices for the treatments provided by hospitals. The Coalition Government that enacted the HSCA 2012 also enforced a similar regime. It restricted price competition so that providers compete primarily on quality. Should healthcare providers, such as hospitals, be allowed to agree on the maximum levels of quality of the amenities they offer so as to save more profits and cross-subsidise their risky and more costly non-elective surgeries? These questions become even more important considering a broader array of evidence demonstrating that the conditions in which we are born, grow, live and work have a profound impact on health and inequalities in health.118 How? Poverty damages health. To highlight the social gradient in health, Michael Marmot119 has pointed out that ‘if you catch the Jubilee tube line, for each stop east from Westminster in central London, life expectancy drops a year.120 If we live in a neighbourhood that is somewhere between the humblest and the most exalted, our life expectancy is somewhere between the low level in the poor areas and the higher in the richer.121 Subtle differences in neighbourhood or in other conditions affecting the people who live there have grave import for health and length of life. The richer the area, the better is our health. Why? Most obviously, the environment in which we live is a social determinant of health.122 For instance, poorer neighbourhoods are primarily located near highways, production plants and hazardous waste sites, since land there is more affordable and resistance to polluting industries, significantly weaker.123 The quality of housing also suffers in less privileged areas. Compared with affluent families, low income children and adults demonstrate ‘a six-fold increase in rates of high blood lead levels while middle-income adults and children show a twofold increase’.124 Poor children that live in urban areas also suffer from childhood asthma at a higher rate.125 Employment opportunities in local communities may

118 M Marmot, The Health Gap, The Challenge of An Unequal World (Bloomsbury, 2015) 27. 119 Professor Sir Michael Marmot is Director of the International Institute for Society and Health and MRC Research Professor of Epidemiology and Public Health, University College, London. Marmot has led a research group on health inequalities for the past 30 years. He is Principal Investigator of the Whitehall Studies of British civil servants, investigating explanations for the striking inverse social gradient in morbidity and mortality. He leads the English Longitudinal Study of Ageing (ELSA) and is engaged in several international research efforts on the social determinants of health. He chairs the Department of Health Scientific Reference Group on tackling health inequalities. 120 Marmot, supra note 118 at 28. 121 Ibid. 122 N Rice and PC Smith, ‘Ethics and Geographical Equity in Health Care’ (2001) 27 Journal of Medical Ethics 256. 123 NE Adler and K Newman, ‘Socioeconomic Disparities in Health: Pathways and Policies’ (2002) 21(2) Health Affairs 60. 124 Ibid, 66. 125 Ibid.

156  The Holistic Approach also influence health.126 A lack of a strong social support system, such as social care and a high quality transport or school system, might also negatively affect health outcomes. Homelessness can also lead to severe health problems.127 Indeed, nearly 40  per  cent of homeless individuals suffer from chronic disease such as high rates of cardiovascular and infectious diseases, along with high rates of alcohol and substance abuse. Individuals facing housing instability are also more likely to receive care in hospital emergency departments rather than in primary care clinics.128 Most importantly, when homeless people seek care, they are more likely than the general population to face complex health issues.129 This explains why homeless people ‘are admitted to inpatient units 5 times more often and have average lengths of stay that are longer than those who were not considered homeless’. In light of this reality, the purchasers of NHS services may issue a decision advising GPs to refer more patients for elective care to NHS hospitals that offer high risk, non-elective services in poor disadvantaged areas so that these hospitals can cross-subsidise their more expensive, non-elective services. How should competition authorities respond to the claims of purchasers of NHS services that such a decision that restricts choice in the market of elective services is necessary for the financial stability of the NHS hospitals offering high risk, costly surgeries in poor disadvantaged areas? Competition authorities may face analogous tragic dilemmas when assessing hospital merger cases: Should, for example, competition authorities be allowed to accept a hospital merger, although it may further increase market power in the respiratory or cardiovascular services market on the basis that it may allow the merged entity to employ the most reputable respiratory or cardiovascular specialists? Should this merger be allowed on the basis that it will contribute to merging entities’ financial stability and therefore access to these services to the most vulnerable among us? One could argue that these questions have more theoretical than practical value. For instance, they may say that the possibility that GPs would engage in anticompetitive behaviour when performing their role as gate-keepers or purchasers of NHS services in order to protect core objectives of their health systems, such as equity, safety or continuity of care is rather limited. Nonetheless, a policy report published by CCP in 2011 aiming to provide guidance to purchasers of healthcare (or else commissioners) on whether and under what conditions restraints on patient choice and competition can be justified on the basis that they may bring benefits to patients and taxpayers,130 illustrates 126 Rice and Smith (n 122) 256. 127 CA Jones, A Perera, M Chow, I Ho, J Nguyen and S Davach, ‘Cardiovascular Disease Risk Among the Poor and Homeless – What We Know So Far’ (2009) 5 Current Cardiology Reviews 69. 128 Ibid. 129 Ibid. 130 Cooperation and Competition Panel (CCP), ‘Review of the Operation of “Any Willing Provider”, for the Provision of Routine elective Care’ (CCP, 2014) para 6.

Reflections on the English Health System  157 exactly the  opposite. In this report, CCP underlines that the purchasers of healthcare (PCTs during the Labour period) ‘constrained patients’ ability to choose their routine elective care provider most frequently through influencing GP referral decisions, and in some cases, directing GPs to refer patients to (or away from) certain providers’131 In this report, CCP indicates that during the Labour period, in some cases PCTs had refused to complete contracts with specific providers offering routine elective care services.132 PCTs were trying to influence GP referral decisions through four main mechanisms: providing information to GPs about the quality of care offered by providers; recommending to GPs the providers to which patients should be referred to; suggesting the prohibition of patient referrals on specific providers; and implementing further approval processes where GPs wished to refer patients to specific providers.133 Interestingly, in justifying their conduct, PCTs held that restraining patient choice and competition may in certain conditions even promote patients’ interests through: (a) increasing value for money by referring patients to cheaper providers; (b) ensuring service continuity and provider’s financial stability; and (c) promoting clinical staff training.134 CCP highlights that such expected benefits should be evaluated on a case by case basis and should be balanced against the identified restraints to competition. Acknowledging that continuity in NHS hospital services is an essential objective of their health system, and therefore should not necessarily be expelled from a competition analysis, in this report CCP underlines: For a restriction on patient choice in routine elective care to deliver benefits in terms of service continuity, the potential loss of routine elective care volumes by a provider would need to result in a significant risk that other services – with critical access requirements for patients – could no longer be sustained. While this argument is frequently advanced, we have not yet seen persuasive evidence of this relationship, and we would expect commissioners to rely on robust evidence of this relationship before putting in place such a restriction.135

The above analysis does not aim to support the view that all the aforementioned competition law concerns can be properly addressed and examined only on the basis of a wider consumer welfare notion. In contrast, competition authorities may address some of the above identified competition problems by implementing a narrow consumer welfare approach. For example, in addressing healthcare providers’ claim that the quality regulation as such restricts quality competition in the healthcare sector and not their agreement to focus on specific dimensions of healthcare quality, competition authorities may evaluate such an agreement without having to extend the notion of consumer welfare. They may, for

131 Ibid,

para 7. para 10. 133 Ibid, para 58. 134 Ibid, para 13. 135 Ibid, 16. 132 Ibid,

158  The Holistic Approach example, support the view that such an agreement restricts quality competition and as a result is clearly anticompetitive. However, in addressing some other of the identified potential competition concerns, if competition authorities adopted a narrow consumer welfare approach, then health objectives such as access, equity and acceptability may not necessarily enter the equation. Should therefore competition authorities in Europe extend the notion of consumer welfare when they apply competition law in healthcare so that the non-economic goals their systems pursue are not precluded from their assessment? And, if so, how? The section that follows addresses these vital questions by assessing the extent to which some non-economic facets of healthcare quality, namely equity, safety and accessibility can be considered by competition authorities in the context of Article 101 TFEU. After delving into this question, this section identifies the reasons why competition authorities should not disregard these objectives when they apply competition law in healthcare. III.  PROTECTING HEALTHCARE QUALITY UNDER EU COMPETITION LAW

A.  Assessment of Healthcare Quality on the Basis of Article 101(1) TFEU i.  Restrictive Interpretation of the Term ‘Undertaking’ Some non-competition goals have influenced the interpretation of the term ‘undertaking’ which has largely been shaped by the case law of the European Courts.136 Given that the concept of an undertaking ‘makes it possible to determine the categories of actors to which the competition rules apply’,137 one technique by which the European Courts have integrated public policy goals into their analysis is ‘by denying the status of an undertaking to the entity alleged to be infringing’.138 But what is an undertaking? To begin with, the EU Treaties do not define the term ‘undertaking’.139 This is described in Article 1 of Protocol 22 of the Agreement on the European Economic Area (EEA) as an entity carrying out activities of a commercial or economic nature. The concept has, however, been further developed by the case law of the Court of Justice which has given a functional definition to the term. Specifically, in the Hofner and Elser v Macroton case the Court took the view that ‘every entity engaged in economic activity regardless of the legal status of the

136 C Semmelmann, Social Policy Goals in the Interpretation of Article 81 EC (Nomos, 2008) 108. 137 O Odudu, ‘Are State Owned Healthcare Providers Undertakings Subject to Competition Law?’ (2011) 32 European Competition law Review 231. 138 B Sufrin, ‘The Evolution of Article 81 (3) of the EC Treaty’ (2006) 51(4) The Antitrust Bulletin 915, 956. 139 O Odudu, The Boundaries of EC Competition Law, the Scope of Article 81 (Oxford Studies in European Law, 2006) 24.

Healthcare Quality Concerns in EU Comp Law  159 entity and the way in which it is financed’ can be considered an undertaking.140 In assessing whether an entity is considered an undertaking what plays a critical role is whether the entity engages with an economic activity. Indeed, the term focuses exclusively on the nature of the activity performed by the entity under scrutiny. Therefore, it is irrelevant whether the entity is of a public or private nature or whether it performs a profit or non-profit activity. Consequently, an entity might be considered an undertaking only for a segment of its activities while the rest may not be subject to the competition rules.141 The functional approach of the European Courts when defining the term undertaking has been explained by Advocate General Jacobs in his Opinion regarding the AOK case: The Court’s general approach to whether a given entity is an undertaking within the meaning of the Community competition rules can be described as functional, in that it focuses on the type of activity performed rather than on the characteristics of the actors which perform it. Provided that an activity is of an economic character, those engaged in it will be subject to Community competition law.142

Despite the General Court’s statement in SELEX Sistemi Integrati SpA v Commission,143 noting that ‘the various activities of an entity must be considered individually’, the Court of Justice has supported the view that three specific conditions must hold so that an activity is regarded economic: (a) the offering of products on the market; (b) the possibility that the activity could at least in principle be performed by a private undertaking in a profitable way; and (c) where the entity carries the financial risk of the enterprise.144 If these conditions are met the question of whether the body is profit making or whether it is set up for an economic purpose is simply irrelevant.145 Importantly, in specific cases the Court has not hesitated to take the view that certain healthcare providers are not undertakings in order to ensure that the social objectives these entities actually pursue are not obstructed by the application of competition law. The FENIN case clearly reflects this point.146 In this case, an association of businesses complained that hospitals in the Spanish National Health Service breached competition laws by consistently delaying the payment of invoices.147 Specifically, they held that this conduct constituted an abuse of a 140 Case C-4111990 Hofner and Elser v Macrotron [1991] ECR 1-1979; [1993] 4 CMLR 306 at para 21. 141 A Jones and B Sufrin., EC Competition Law (Oxford University Press, 2014) 124. 142 AOK-Bundesverband and Others, Opinion of Advocate General Jacobs, delivered on 22 May 2003, para 25. 143 T-155/04 SELEX Sistemi Integrati SpA v Commission [2007] 4 CMLR 372. 144 Odudu (n 139) 26. 145 Jones and Sufrin (n 141) 128–29. 146 Case C-205/03 Federacion National de Empresas de Instrumentacion Cientifi ca Medica Tecnica y Dental (FENIN) v Commission of the European Communities [2006] ECR I-6295. 147 Ibid, para 4; J Lear, E Mossialos and B Karl, (2010) ‘EU Competition Law and Health Policy’ in E Mossialos, G Permanand, R Baeten and T Hervey (eds), Health Systems Governance in Europe: The Role of European Union Law and Policy (Cambridge University Press, 2010) 337 and 342.

160  The Holistic Approach dominant position and as a result it violated Article 82 EC (now Art 102 TFEU). The General Court held that the hospitals could not be considered undertakings. In shaping its view, the General Court specifically considered that the hospitals under scrutiny are funded from social security contributions and other state funding, they provide services free of charge on the basis of universal coverage and they operate on the basis of the solidarity principle.148 The Court of Justice fully aligned with the lower court’s legal analysis. Because the goods purchased by the entities would be used for the provision of public services and would not be resold in the market, the entities’ purchasing activity was not economic. As a result, the hospitals should not be considered undertakings.149 The Court has adopted a similar approach in cases involving conflicts between the principle of solidarity under which specific social and healthcare funds operate and the protection of competition. Consider the Court’s legal reasoning in Poucet and Pistre,150 INAIL151 and AOK152 cases. In these cases, the Court concluded that the compulsory healthcare insurance schemes at issue were not undertakings since they pursued a social objective and operated on the basis of the solidarity principle. In reaching this conclusion, in the Poucet and Pistre case,153 the Court elaborated on the principle of solidarity. Solidarity, the Court said, entails ‘the redistribution of income between those who are better off and those who, in view of their resources and state of health, would be deprived of the necessary social cover’.154 The Court held that ‘the schemes at issue were fulfilling an exclusively social function in the discharge of their legally defined duties’ and therefore could not be considered undertakings. In shaping its view, the Court specifically considered that: (a) contributions were c­ompulsory155 and proportional to the members’ income regardless of their state of health;156 (b)  all citizens received similar benefits; and (c) the social schemes in surplus subsidised those schemes that faced structural financial difficulties.157 In the same vein, in the INAIL case,158 the Court found that a compulsory scheme providing workers’ compensation insurance operated on the principle of solidarity, since ‘the benefits paid to insured persons were not strictly proportionate to the contributions paid by them’, the level of contributions was defined by law and were supervised by the state.159 The Court stressed that the absence

148 FENIN (n 146) para 8. 149 Ibid, para 25–28. 150 Joined Cases C-159/91 and 160/91 Poucet and Pistre [1993] ECR I-637. 151 Case C-218/00 Cisal and INAIL [2002] ECR I-691. 152 Joined Cases C-264/01, C-306/01, C-354/01 and C-355/0I AOK Bundesverband v Ichthyol Gesellschaft Cordes [2004] ECR 1-2493. 153 Poucet and Pistre (n 150) para 3. 154 Ibid, para 10. 155 Ibid, para 13. 156 Ibid, para 10. 157 Ibid, para 12. 158 INAIL (n 151). 159 Ibid, 43–44.

Healthcare Quality Concerns in EU Comp Law  161 of any association between the contributions paid and the benefits offered constitutes a form of solidarity between higher income workers and lower income workers, who would lack adequate social protection if such an association existed.160 Because of this element, the Court held that INAIL performs an exclusively social activity and could not, therefore, be considered an undertaking in the parlance of EU competition law.161 In the AOK case, in examining whether the fixing of maximum contributions by the German health insurance funds towards the costs of medicinal products was illegal under the European competition rules, the Court followed a similar line of thinking.162 The Court found that the insurance funds at issue did not perform an economic activity as they were entirely non-profit making and they functioned on the basis of the principle of solidarity.163 In drawing this conclusion, the Court particularly considered that it was obligatory for the employees to be insured under the statutory health insurance scheme.164 The Court also considered that the social schemes at issue implemented a risk equalisation system that made sickness funds insuring the less risky patient groups contribute to the financial stability of those insuring higher risk patient groups.165 Interestingly, in this case the Court concluded that the social schemes at issue operated on the basis of the solidarity principle and therefore were not engaged in an economic activity although: (a) the insurance premiums were not only calculated on the basis of the income of the insured party but also on the basis of a rate set by the insurance company; and (b) the sickness funds competed on the basis of the level of the contribution rates in order to attract people for whom insurance under the scheme was obligatory and those for whom it was voluntary.166 In a nutshell, in all the above cases, the Court thought that the social schemes operated under the solidarity principle due to the following factors: (a) all members of the risk group were covered irrespective of their risk profile; (b) the level of contributions was proportional to income; (c) the old-age scheme was financed as a pay-as-you-go system; and (d) the social schemes that faced financial constraints were subsidised by the profitable ones.167 Additionally, in all these cases, the compulsory affiliation was held to be both an inherent characteristic and a logical consequence of the solidarity principle.168 Obviously, in

160 Ibid, 42–45. 161 Ibid, 45. 162 AOK (n 152). 163 Ibid, paras 49–55. 164 Ibid, para 6. 165 Ibid, para 10. 166 According to the applicable statute, insured persons might freely choose their sickness fund as well as their doctor or the hospital in which they had treatment, Ibid, paras 8 and 56. 167 A Winterstein, ‘Nailing the Jellyfish: Social Security and Competition Law’ (1999) 23 European Competition Law Review 324, 329. 168 Ibid, 11.

162  The Holistic Approach these cases the Court excluded the activity of the healthcare funds from the application of competition law in order not to allow competition to obstruct their performance. Access to healthcare services for the most vulnerable groups of a society would be significantly reduced if redistribution of income between the better off and those who are deprived of an adequate safety net did not take place. In balancing two conflicting objectives, solidarity and access to healthcare services against choice and competition between healthcare funds, the Court took the view that the choice of healthcare funds by the healthier and wealthier parts of a society should be restricted so that access to healthcare services is ensured for all citizens, regardless of their ability to pay. ii.  The Restrictive Approach Regarding Article 101 TFEU Another technique by which European Courts have sought to find the adequate balance between conflicting policy objectives is by establishing the principle that competition rules should be interpreted ‘in light of the Treaty as a whole’.169 Under this approach any competition law assessment must first examine the overall context in which the agreement was completed and more particularly its legal and economic context. On the basis of this principle, the European Courts have excluded agreements from the application of Article 101(1) TFEU on the basis they aim to achieve a legitimate objective. In the Albany170 case for instance, the Court examined whether a decision concluded by the organizations representing employers and workers in a given sector, in the context of a collective agreement, to set up in that sector a single pension fund responsible for managing a supplementary pension scheme and to request the public authorities to make affiliation to that fund compulsory for all workers in that sector was contrary to Article 101 TFEU.171

The Court held that certain competitive restraints are inherent in collective agreements between organisations representing workers and employers.172 The Court also took the view that the social policy goals pursued by such agreements would be negatively affected if they were subject to Article 101(1) TFEU.173 It concluded that the agreements completed in the context of collective negotiations between employers and employees in pursuit of such objectives should in light of their purpose and nature, be excluded from the application of Article 101(1) TFEU.174 169 CA Witt, ‘Public Policy Goals Under EU Competition Law – Now is the Time to Set the House in Order’ (2012) 8(3) European Competition Journal 443, 458. 170 Case C-67/96 Albany International [1999] ECR I-5751. 171 Ibid, 53. 172 Ibid, 58. 173 Ibid, 59. 174 Ibid, 60.

Healthcare Quality Concerns in EU Comp Law  163 A few years later, in the Wouters175 case, the Court adopted a similar analysis when it examined the extent to which a Dutch Regulation, introduced by the Bar in the Netherlands (the Bar), which prevented the establishment of multidisciplinary partnerships between members of the Bar and accountants was compatible with Article 101 TFEU.176 The Court took the view that the regulation in question constituted an agreement of an association of undertakings which restrained competition. Nonetheless, it alleged that this restrictive effect had to be examined in the light of the objectives of the regulation in question, namely the protection of the integrity of the legal services.177 The Court said: For the purposes of application of that provision to a particular case, account must first of all be taken of the overall context in which the decision of the association of undertakings was taken or produces its effects. More particularly, account must be taken of its objectives, which are here connected with the need to make rules relating to organization, qualifications, professional ethics, supervision and liability, in order to ensure that the ultimate consumers of legal services and the sound administration of justice are provided with the necessary guarantees in relation to integrity and experience. It has then to be considered whether the consequential effects restrictive of competition are inherent in the pursuit of those objectives.178

The Court concluded that the regulation’s restrictions did not go beyond what was necessary for the protection of the proper practice of the legal profession. Consequently, there was no violation of Article 101(1) TFEU.179 The same line of legal reasoning can be found in Meca-Medina.180 In this case, two professional swimmers who tested positive for doping agent Nandrolone during a World Cup challenged the rules related to anti-doping tests that had been introduced by the International Olympic Committee.181 The Commission, after assessing whether the anti-doping rules under scrutiny were compatible with EU competition law, concluded that they were not subject to Articles 101 and 102 TFEU,182 a decision that was also confirmed by the General Court.183 The Court of Justice found that even if the anti-doping rules under scrutiny constituted a decision of an association of undertakings restraining the 175 Case C-309/99 Wouters v Algemene Raad van de Nederlandse Orde van Advocaten [2002] ECR I-1577. 176 Ibid, para 15–17. 177 G Monti, ‘Article 81 and Public Policy’ (2002) 39(5) Common Market Law Review 1087. 178 Wouters (n 175) para 97. 179 Ibid, para 109. The Wouters approach was also recently followed in Case C-1/12 Ordem dos Técnicos Oficiais de Contas v Autoridade da Concorrência OTOC ECLI:EU:C:2013:127, in relation to the quality of chartered accountant services with the aim of attaining sound administration of companies’ accounting and taxation issues. Nonetheless, in this case the Court considered that the restriction was not necessary for the pursuit of the claimed objective, see paras 93–100. 180 Case C-519/04 P. Judgment of the Court (Third Chamber) of 18 July 2006. David Meca-Medina and Igor Majcen v Commission of the European Communities. 181 Ibid, 8. 182 Ibid, 20. 183 Ibid, 11.

164  The Holistic Approach athletes’ freedom of action, they do not restrict competition within the meaning of Article 101 TFEU, since the rules aimed to pursue a legitimate objective: the need to secure equal opportunities for athletes and ensure sports integrity.184 However, it should be noted that the Court of Justice did not follow the General Court’s findings that the rules were as such outside the scope of competition law but instead adopted the Wouters approach by using a proportionality test to find that Article 101(1) TFEU was not infringed. In the Ordre National des Pharmaciens (ONP) case, the Commission examined a non- economic defence under Article  101(1) TFEU.185 This case concerned the decision by the ONP, the professional body of pharmacists in France, to impose minimum prices on the French Market for clinical laboratory tests.186 According to the ONP, imposing a minimum price was necessary to protect public health and safety. The Commission did not assess the claim under Article 101(3) TFEU but under Article 101(1) TFEU. Specifically, it examined whether the agreement should fall outside the scope of Article 101 TFEU according to the exception established by the Court in the Wouters line of case law.187 The Commission decided that the Wouters exception did not apply in this case. Unlike the Dutch Bar Association in Wouters, the ONP lacked the power to regulate the conduct under scrutiny.188 Also, the Commission considered that the existing legislation relating to laboratory tests was sufficient to safeguard public health and safety and that the French state would have intervened if the applicable regulation had failed to do so. In other words, the Commission did not find the ONP’s actions proportionate. Its assessment under Article 101(3) TFEU was limited to stating that ONP had not submitted any evidence showing that the conditions for exemption under Article  101(3) TFEU, which requires economic advantages benefitting consumers, could be fulfilled.189 It should be noted that the Court in these cases referred in general wording to the need to attain legitimate objectives rather than public policy goals, which implied that there was no breach of competition laws.190 Hence, in sectors other than healthcare, the Court seems to have developed an approach on the basis of which general interest issues can be integrated in the context of EU competition law.191 To the extent certain restrictions of competition are inherent in the pursuit of specific legitimate objectives, competition law is not violated. Evidently since in healthcare the pursuit of public policy objectives, such as equity, are often incompatible with the pursuit of competition, a similar approach can actually be adopted by competition authorities in the healthcare field. 184 Ibid, 43. 185 ONP Case 39.510, the case is not available in English. 186 A Witt, The More Economic Approach to EU Antitrust Law (Hart Publishing, 2016) 172. 187 Ibid. 188 Ibid, 173. 189 Ibid. 190 L Hancher and W Sauter, EU Competition and Internal Market Law in the Healthcare Sector (Oxford, Oxford University Press, 2012) 239. 191 Ibid.

Healthcare Quality Concerns in EU Comp Law  165 B.  Healthcare Quality Considerations under Article 101(3) TFEU i.  The Commission’s Main Policy before the Modernisation of EU Competition Law With the entry into force of Regulation 1/2003, the conditions under which public policy considerations can be considered in the context of a competition analysis have fundamentally changed.192 Under the previous legal framework, the Commission, in its dual function as enforcement agency that had the exclusive power to grant exceptions under Article 101(3) TFEU and a policy making institution, had broad discretion in determining the extent to which Article 101(3) TFEU applied.193 The Commission dealt with several cases in which the parties attempted to successfully support the argument that their agreement did not necessarily prohibit Article 101(1) TFEU because it promoted goals and values that were also protected by other Treaty provisions.194 Their claim was essentially based on Article  101(3) TFEU, which articulates that specific types of benefit created by an anticompetitive agreement may outweigh the agreement’s competitive restraints, if the agreement under scrutiny passes on to consumers a fair share of the alleged benefits, does not impose restrictions that are disproportionate to the pursuit of the alleged benefits and does not allow the parties involved to almost remove competition in a significant part of the product market.195 The types of benefit referred to in Article 101(3) TFEU are the ‘improvement of the production or the distribution of goods’ and the ‘promotion of technical or economic progress’.196 In evaluating the parties’ claim and applying Article 101(3) TFEU, while the Commission did not exclude the possibility of taking public policy goals into account, it made use of this possibility rather cautiously.197 Such examples are the Commission’s Synthetic Fibres,198 the Stichting Baksteen,199 the Ford/VW,200 the Philips and Osram201 and the Exxon/Shell202 decisions. In the Stichting Baksteen case,203 the Commission examined agreements between competitors aiming to restructure an industry facing structural 192 Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty [2003] OJ L1/1.; H Schweitzer, ‘Competition Law and Public Policy: Reconsidering an Uneasy Relationship’ (EUI Law Working Papers Law 2007/30) 5. 193 Ibid. 194 Witt (n 169) 446. 195 Ibid. 196 Ibid. 197 Schweitzer (n 192) 5. 198 Synthetic Fibres (Case IV/30.810) Commission Decision of 4 July 1984 [1984] OJ L207/17. 199 Stichting Baksteen (Case IV/34.456) Commission Decision of 29 April 1994 [1994] OJ L131/15. 200 Ford/Volkswagen (Case IV/33.814) Commission Decision of 23 December 1992 [1993] OJ L20/14. 201 Philips/Osram (Case IV/34.252) Commission Decision of 21 December 1994 [1994] OJ L378/37. 202 Exxon/Shell (Case IV/33.640) Commission Decision of 18 May 1994 [1994] OJ L144/20. 203 Stichting Baksteen (n 199).

166  The Holistic Approach overcapacity (so-called ‘crisis cartels’).204 In applying Article  101(3) TFEU, the Commission found that this agreement contributed to technical and economic progress and, therefore, should be exempted from the application of Article 101(1) TFEU. In reaching this conclusion, the Commission particularly considered that due to the closure of the least efficient production units, production would be concentrated in the more modern plants, which would then be able to operate at higher capacity and production levels.205 The Commission also recognised that since the agreement allowed a coordinated closure of the least efficient production units, restructuring would be realised under acceptable social conditions, including the redeployment of employees.206 In a similar manner, in the Synthetic Fibres case207 the Commission exempted a capacity reduction agreement considering it would lead to product specialisation and enhance technical efficiency and innovation.208 Again, in applying Article 101(3) TFEU, the Commission stressed that ‘the coordination of plant closures would make it easier to cushion the social effects of the restructuring by making suitable arrangements for the retaining and redeployment of workers made redundant’.209 In the Ford/VW case210 the Commission examined an agreement between the two car manufacturers Ford and Volkswagen that established a joint venture company for the creation and production of ‘a multi-purpose vehicle’ in Portugal.211 Taking the view that the analysed agreement would actually improve the production of goods through the rationalisation of product development and manufacturing, the Commission exempted the joint venture agreement on the basis of Article  101(3) TFEU. The Commission underlined that both parties to the agreement had valuable expertise in the field of research and car automation and that their collaboration would allow them to further advance their technical expertise.212 Interestingly, in shaping its view, the Commission underlined that the joint venture would lead to the creation of about 5000 jobs and would attract investment in the supply industry.213 Because the agreement at stake would bridge the gap between Portugal and the Community through one of its core industries, it would also contribute to the harmonious development of the Community and would reduce regional disparities, one of the key objectives of the Treaty.214 Nevertheless, the Commission did clarify that ‘this would not be enough to make an exemption possible’ unless the conditions of

204 Monti

(n 177) 1071. Baksteen (n 199) para 26. 206 Ibid, para 27. 207 Ibid, para 15. 208 Ibid, para 35. 209 Ibid, para 37. 210 Ford/Volkswagen (n 200). 211 Ibid, para 1. 212 Ibid, para 25. 213 Ibid, para 36. 214 Ibid, para 36. 205 Stichting

Healthcare Quality Concerns in EU Comp Law  167 Article 85 (3) were fulfilled, but it is an element which the Commission has taken into account.215 In the Philips Osram216 case the Commission exempted a joint venture agreement between Philips and Osram regarding the production and sale of certain lead glass tubing and components for incandescent and fluorescent lamps.217 The Commission found the agreement anticompetitive. Considering, however, that it would contribute to the rationalisation of production through the elimination of obsolete facilities and would lead to lower total energy usage and a better prospect of realising energy reduction and waste emission programmes, the Commission, again, exempted the agreement on the basis of Article 101(3) TFEU.218 Similarly, in the Exxon/Shell219 case, the Commission exempted a joint venture for the production of polyethylene, concluding that the analysed agreement would contribute to the reduction of customers’ use of raw materials, and the amount of plastic waste.220 To the Commission, the joint venture under scrutiny would additionally reduce the environmental and health risks the transport of polyethylene entailed.221 Interestingly, the Commission noted that the reduction in the use of plastic waste ‘would be perceived as beneficial by many consumers at a time when the limitation of natural resources and threats to the environment are of increasing public concern’.222 ii.  The Commission’s Main Policy after the Modernisation of EU Competition Law After a long process that officially started in April 1999223 and ended up with the publication in the Official Journal of the ‘Modernisation Package’ and the procedural reform of EU competition law,224 the Commission started diverting from its initial policy substantially. In the brave new world of modern antitrust enforcement the Commission was willing to accept only one goal, economic efficiency.225

215 Ibid, para 36. 216 Philips/Osram (n 201). 217 Ibid, para 1. 218 Ibid, para 25. 219 Exxon/Shell (n 202) 1278. 220 Ibid, paras 67–68; Witt (n 169) 451. 221 Exxon/Shell (n 202) para 68. 222 Ibid, para 71. 223 Commission White Paper of 28 April 1999 ‘Modernization of the Rules Implementing Articles  85 and 86 of the EC Treaty’ COM (1999) 101 final; A Komninos, ‘Non-Competition Concerns: Resolution of Conflicts in the Integrated Article 81 EC’ (University of Oxford Centre for Competition Law and Policy, Working Paper (L) 08/05) 2. 224 Ibid. 225 B Von Rompuy, Economic Efficiency, The Sole Concern of Modern Antitrust Policy? (Kluwer Law International, 2012) 512.

168  The Holistic Approach Setting the stage for the application of its new more economic approach, in 1999, the Commission published a White Paper on the modernisation of the rules implementing Articles  101 And 102 TFEU.226 The prior authorisation system which was introduced by Regulation 17 and had provided the Commission the exclusive power to authorise agreements notified by their parties and apply Article  101(3) TFEU, had proved to be ineffective in a Community of 15.227 Following the implementation of Regulation of 1/2003 that removed the authorisation system completely, the national competition authorities became primarily responsible for the application of Articles 101 and 102 TFEU. Arguably, although it was not the primary objective of the White Paper to have an impact on the substance of competition laws,228 in fact it did. This is because the White Paper contained two interesting comments with regards to the interpretation of the substantive competition rules.229 First, it stated that when handling individual cases, the Commission would adopt a more economic approach to the application of Article  101(1) TFEU.230 Second, it underlined that the primary objective of Article 101(3) TFEU was to offer a legal framework for  the economic analysis of practices restraining competition rather than to allow the non-application of competition rules because of political considerations.231 Under the old regime, an essential facet of the Commission’s decision making practice was its broad margin of discretion. Under the new regime, this facet could not survive.232 The movement towards a more economic approach was soon reflected in the Commission’s soft law instruments: its guidelines and notices. More specifically, in its 2004 Guidelines on the application of Article 81(3) (now 101(3)), the Commission spelt out that the goal of the cartel prohibition is the promotion of consumer welfare.233 The objective of Article 101 TFEU, the Commission said, is to promote competition on the market so that consumer welfare is enhanced and the efficient allocation of resources is ensured.234 Interestingly, the draft version of the 2004 Guidelines on Article 81(3) stated that ‘it is not, on the other hand, the role of Article  101 TFEU and the Authorities enforcing this Treaty provision to allow undertakings to restrict competition in the pursuit of general interest aims’.235 Nonetheless, this passage was softened in the published version 226 Witt (n 169) 453. 227 Ibid. 228 Komninos (n 223) 2. 229 Witt (n 169) 453. 230 Commission White Paper (n 223) para 78. 231 Ibid, para 57. 232 Schweitzer (n 192) 8. 233 B Baarsma, ‘Rewriting European Competition Law from an Economic Perspective’ (2011) 7(3) European Competition Journal 559–85. 234 Communication from the Commission – Notice – Guidelines on the application of Article 81(3) of the Treaty, para 13. 235 J Nowag, Environmental Integration in Competition and Free Movement Laws (Oxford University Press, 2016) 230–31; Draft Commission Notice – Guidelines on the Application of Article 81(3), para 38.

Healthcare Quality Concerns in EU Comp Law  169 of the Guidelines: ‘Goals pursued by other Treaty provisions can be taken into account to the extent that they can be subsumed under the four conditions of Article 101(3).’236 The Commission’s new more economic approach substantially transformed its view on what type of advantages may outweigh an agreement’s anticompetitive effects in the context of Article  101(3) TFEU. More specifically, again, in its 2004 Guidelines on Article  101(3) TFEU, the Commission seems to be in favour of a narrow interpretation of Article 101(3) TFEU that primarily takes into consideration efficiencies that are measurable.237 The Guidelines clarify that the primary objective of the first condition of Article  101(3) TFEU is to identify both the efficiency gains generated by the agreement and their economic significance.238 Given that for Article 101(3) TFEU to apply, the efficiency benefits generated by the agreement must surpass its harm to competition, antitrust enforcers must identify the link between the agreement at stake and the alleged efficiencies and the magnitude of these efficiencies.239 These efficiencies can be both cost and qualitative efficiencies that bring benefit to consumers through increased innovation and consumer choice. Surely, the emphasis on economic efficiency gains within the scope of Article 101(3) TFEU is neither surprising nor ground breaking.240 Many exemption decisions from the early years were based on exactly such efficiency effects. Nonetheless, the novelty lies in the fact that the Guidelines consider no other benefit capable of offsetting competitive harm.241 Therefore, one can conclude from these Guidelines that social benefits, industrial policy considerations, environmental benefits, the reduction of regional disparities or furthering the harmonious development of the Union, cannot as such outweigh an agreement’s anticompetitive effects.242 This is also reflected in the Commission’s decision making practice after the introduction of the White Paper and the subsequent modernisation of EU competition law. In the new more economic approach era, where decisions assess an agreement’s alleged beneficial effects, they take into account economic efficiencies only. The French beef market case243 perfectly reflects this change. In this case, the Commission examined an agreement concluded by six French federations, the main purpose of which was to fix the minimum purchase price for certain types of cattle and temporarily stop imports of beef into France.244 The agreement was concluded as a response to the sharp drop in beef consumption 236 Ibid, 42. 237 Ibid, paras 49–50. 238 Ibid, para 50. 239 Ibid. 240 Witt (n 186) 166. 241 Ibid. 242 Ibid. 243 French Beef (Case COMP/C. 38.279/F3) Commission Decision of 2 April 2003 [2003] OJ L209/12. 244 Ibid, para 1.

170  The Holistic Approach in Europe after the mad cow disease crisis. The Commission concluded that the agreement’s main objective was to restrain competition.245 The Commission omitted to assess whether the analysed agreement may be exempted on the basis of Article 101(3) TFEU since the parties forming the agreement had not requested an exemption.246 The Commission, however, grasped the opportunity to highlight that even if the parties involved had notified the agreement, they would fail to gain an exemption because not all four conditions of Article 81(3) of the Treaty were met.247 Since the French Beef case, the Commission has not discussed industrial or social policy benefits in an actual decision.248 In fact, while no actual case presented itself, at Union level, the Commission grasped the opportunity to expose its views with regards to crisis cartels in a case pending before the Irish High Court in 2010.249 The case involved, again, a restructuring agreement in the Irish beef Industry, which aimed to reduce overcapacity following another outbreak of BSE.250 In this case the Commission identified the efficiencies an agreement aiming to reduce overcapacity can achieve.251 It noted that a restructuring agreement that aims to limit overcapacity by facilitating some market players’ exit from the market can lead to cost savings, if the remaining parties increase output and capacity utilisation.252 However, it clarified that so-called ‘crisis cartels’ whose goal is to limit overcapacity cannot be justified because of reduced demand in times of economic crisis.253 The Commission underlined that competition in times of economic recession may lead the inefficient firms to exit the market. Nonetheless, this is part of the competitive process. Having clarified that, the Commission did not exclude the possibility of granting an exemption in situations where market forces alone cannot solve the overcapacity problem.254 Once again, the conclusion one can draw from this case is that the only types of benefit that the Commission considers when evaluating restructuring agreements under Article  101(3) TFEU are efficiency improvements.255 In applying Article 101(3) TFEU, employment or other social concerns no longer seem to enter into the equation. The CECED case256 also reflects the Commission’s commitment to applying a more economic approach with regards to Article 101(3) TFEU. Nonetheless, 245 Ibid, para 127. 246 Ibid, para 130. 247 Ibid. 248 Witt (n 186) 169. 249 Ibid. 250 Ibid. BSE stands for Bovine Spongiform Encephalopathy. 251 Observations of the Commission under Article  15, para  3 of Regulation 1/2003 in 2003 No 7764P, the Competition Authority v Beef Industry Development Society LTC (BIDS), available at http://ec.europa.eu/competition/court/amicus_curiae_2010_bids_en.pdf. 252 Ibid, 24–28. 253 Ibid, 33. 254 Ibid 35–39. 255 Witt (n 186) 169. 256 CECED (Case IV.F.1/36.718) Commission Decision of 24 January 1999 [2000] OJ L187/47.

Healthcare Quality Concerns in EU Comp Law  171 it reflects at the same time the Commission’s commitment to promoting environmental objectives through the application of competition law.257 This case concerned an agreement that was entered into by most manufacturers of washing machines in Europe and was designed to phase out washing machines which consumed high quantities of electricity.258 This agreement was considered anticompetitive for mainly two reasons: First, because it reduced consumer choice. Second, because those manufacturers without any expertise in building the more energy-efficient washing machines would be at a competitive disadvantage as they adapted to the new market conditions.259 The Commission, however, granted an exemption considering that the agreement would lead to reduced energy generation and pollution. As the Commission argued, ‘the future operation of the total of the installed machines providing the same service with less indirect pollution would be more economically efficient than without the agreement’.260 In its analysis the Commission highlighted both the individual and the collective benefits of the agreement: As to the individual economic benefits, the Commission stressed that savings on electricity bills would allow the consumers to recoup the increased costs of upgraded, more expensive washing machines within nine to 40 months.261 As to the agreement’s collective benefits, the Commission noted: According to Article 174 of the EC Treaty, environmental damage should be rectified at source. The Community pursues the objective of a rational utilization of natural resources, taking into account the potential benefits and costs of action. Agreements like CECED’s must yield economic benefits outweighing their costs and be compatible with competition rules. Although electricity is not a scarce resource and consumption reductions do not tackle emissions at source, account can also be taken of the costs of pollution.262

The Commission then estimated the savings in marginal environmental damage from reduced emissions, and found that the societal benefits created by the agreement would be at least seven times higher than the increased prices of more environmentally friendly washing machines.263 These benefits, the Commission said, ‘would adequately allow consumers a fair share of the benefits, even if no benefits accrued to individual purchasers of washing machines’.264 Monti suggests that there are two ways to interpret the combination of economic and environmental concerns.265 The first, based on ‘ecological modernization theories’, suggests that the protection of the environment has

257 G

Monti, EC Competition Law (Cambridge University Press, 2007) 92. para 23. 259 Ibid, para 30–37. 260 Ibid, para 48. 261 Ibid, para 52–53. 262 Ibid, 55. 263 Ibid, para 56. 264 Ibid. 265 Monti (n 257) 93. 258 Ibid,

172  The Holistic Approach an economic value as such. An agreement’s environmental costs and benefits are as economically relevant as its effect on other facets of economic efficiency. Hence, the argument goes, CECED widens the notion of economic efficiency so as to take into consideration the agreement’s effect on the protection of the environment and sustainable development.266 This interpretation is consistent with the Commission’s stance on the White Paper of 1999 that the primary goal of Article 101(3) TFEU is to offer a legal framework for the economic analysis of practices harmful to competition. A second method to interpret the role of environmental concerns in competition cases is to suggest that the obligation imposed by Article 11 TFEU to integrate the protection of the environment in the EU policies and activities means that the pursuit of this goal is superior to the protection of competition. For this reason it can justify restrictions of competition if they ensure the protection of the environment.267 Whatever the interpretation, as CECED is the first case where the Commission was engaged in the economic quantification of environmental benefits268 in order to exempt an agreement on the basis of Article 101(3) TFEU, the point the Commission makes through CECED is clear: environmental concerns matter as long as they are ‘calculated’ and translated into identifiable economic benefits.269 One year after CECED, in DSD, the Commission granted an individual exemption on grounds that the agreement did not only generate economies of scale, but also gave ‘direct practical effect to environmental objectives’ laid out in Community Law by a Directive on ‘Packaging Waste’.270 The Commission noted: There are positive network effects in the collection of household packaging waste, and substantial scale and scope advantages can be achieved, so that to entrust collection to a single collector for the duration of the agreement produces gains in efficiency. At the same time DSD, the purchaser of the service, is given the assurance that its requirements can be met on a regular and reliable basis, in a sensitive area which was previously organized under public law.271

This decision indicates the increased significance that achieving environmental goals through market players’ agreements play in the eyes of the EU.272 The Commission took the same approach in EASE where 16 major manufacturers of video recorders and televisions committed to decrease the levels of electricity consumption of video recorders and televisions when they are in standby mode. Noting that the savings in energy and the environmental benefits generated by 266 Ibid. 267 Ibid, 94. 268 Nowag (n 235) 230. 269 A Maziarz, ‘Do Non-Economic Goals Count in Interpreting Article  101(3)?’ (2014) 10(2) European Competition Journal 341, 351. 270 Monti (n 177) 1074; Commission Decision of 17 September 2001 (Case COMP / 34.493 – DSD) [2001] OJ L 319/1. 271 DSD, Ibid, para 145. 272 Monti (n 177) 1074.

Healthcare Quality Concerns in EU Comp Law  173 the agreement clearly contributed to technical and economic progress and, most likely would be passed on to consumers, the Commission closed the case via a comfort letter.273 iii.  The Court’s Broad Approach to Article 101(3) TFEU In contrast with the Commission’s more economic approach which, following the modernisation of EU competition law, exempts agreements from the application of Article 101(3) TFEU only to the degree to which they create efficiencies, the Court keeps adhering to a formula coined in the 1960s, according to which an agreement can be exempt to the extent it yields ‘appreciable objective advantages of such a kind as to compensate for the resulting disadvantages for competition’.274 This formula is found in the Grundig-Verkaufs-GmbH v Commission case where the Court held that the content of the concept of improvement is not required to depend upon the special features of the contractual relationships in question. This improvement must in particular show appreciable objective advantages of such a character as to compensate for the disadvantages which they cause in the field of competition.275

A similar, broad interpretation of the concept of improvement was also adopted by the Court in a more recent case of 2009, the GlaxoSmithKline v Commission case, where the Court once again held that that in order to be capable of being exempted under Article 101(3) TFEU, an agreement must contribute to improving the production or distribution of goods or to promoting technical or economic progress. That contribution is not identified with all the advantages which the undertakings participating in the agreement derive from it as regards their activities, but with appreciable objective advantages of such a kind as to compensate for the resulting disadvantages for competition (emphasis added).276

Nothing in the Court’s approach indicates that the appreciable objective advantages under Article 101(3) TFEU amount solely to increases in consumer welfare.277 In contrast, the Court’s definition does not indicate that the advantages under scrutiny are strictly economic.278 Therefore in interpreting the types of benefit an exemption under Article 101(3) TFEU requires, the Court,

273 European Commission, ‘XXVIIIth Report on Competition Policy 1998’ (Published in conjunction with the ‘General Report on the Activities of the European Union 1998’) (European Communities, 1999) 152. 274 Witt (n 169) 468. 275 Joined Cases 56 and 58-64 Établissements Consten S.à.R.L. and Grundig-Verkaufs-GmbH v Commission of the European Economic Community Judgment of the Court of 13 July 1966. 276 Joined Cases C-501/06 P, C-513/06 P, C-515/06 P and C-519/06 P GlaxoSmithKline Services Unlimited v Commission of the European Communities Judgment of the Court (Third Chamber) of 6 October 2009, para 92. 277 Witt (n 169) 468. 278 Ibid.

174  The Holistic Approach diverting from the Commission’s more economic approach, takes the view that a broader notion of consumer welfare is possible. IV.  HOW CAN HEALTHCARE QUALITY BE EVALUATED AS A WHOLE?

In light of the above analysis, it may be concluded that there are two basic approaches under which the non-economic facets of healthcare quality can be taken into consideration under an Article 101 TFEU analysis: the Commission’s more economic approach on the basis of Article 101(3) TFEU and the Court’s wider, more pluralistic approach under Article 101(1) and (3) TFEU.279 Under the Commission’s approach, a competition assessment may primarily focus on allegations related to the promotion of efficiencies and consumer welfare.280 In contrast, under the Court’s approach, although economic analysis is still a vital part of the competition assessment, non-competition concerns and objectives are not necessarily excluded from its competition assessment.281 In light of the analysis in the previous section, the section that follows delves into the question of whether and how the protection of the non-economic dimensions of healthcare quality, such as equity, could be considered under both approaches. A.  Integrating Healthcare Quality in the Context of the Commission’s More Economic Approach In general, public policy objectives may be taken into account by Competition Authorities in Europe on the basis of Article 101(3) TFEU in accordance with the Commission’s economic assessment in the CECED case. The agreement at issue in this case was entered into by most manufacturers of washing machines in Europe and was designed to phase out washing machines which consumed high quantities of electricity.282 The Commission found the agreement anticompetitive. Nonetheless, the Commission exempted the agreement from the application of Article 101 TFEU on grounds that it would reduce energy generation and pollution. Interestingly, in its assessment, the Commission alleged that

279 In EU Member States, such as the UK and the Netherlands, where competition has been introduced in their health systems through procompetitive regulation, it is highly unlikely that healthcare providers or purchasers of NHS services will not be considered undertakings. This is the reason why this legal technique is not discussed separately in this section. This legal technique of protecting healthcare quality through the exclusion of the application of competition law may be adopted by competition authorities only in jurisdictions where there is no specific procompetitive regulation that introduces competition in the health system, such as Italy and Greece. 280 S Lavrijssen, ‘What Role for National Competition Authorities in Protecting Non-Competition Interests after Lisbon?’ (2010) 35(5) European Law Review 636, 640. 281 Ibid. 282 CECED (n 256) para 23.

Evaluating Healthcare Quality  175 agreements like CECED may generate economic benefits surpassing their costs and therefore could be in line with competition rules. In this case the Commission abstained from applying a strict proportionality test when it considered whether an exemption should be granted. Although it examined the question of whether the same benefits could be attained through less restrictive means, its assessment was not thorough.283 Antitrust scholars have argued that this demonstrates that when the protection of the environment is at stake the Commission is willing to widen the notion of consumer welfare.284 On the basis of this approach, environmental benefits can be translated into efficiency gains that can be balanced against the restriction of competition.285 This is because the pursuit of sustainable development is a key priority both for Treaty on European Union (TEU) and TFEU.286 As the Commission in this case translated reduced pollution levels into efficiencies, in an analogous manner, competition authorities in Europe could translate, for example, reduced harm to safety or increased access to healthcare services into efficiencies. Is this mission possible? Prior to answering this question, we should first discriminate between cases where the concept of efficiency may conflict with some non-economic facets of healthcare quality, such as equity, and cases where they may in fact align. To shine a light on this point, an example seems necessary. In England, the purchasers of NHS services may agree to buy more elective care from NHS hospitals that offer risky non-elective services in poor urban areas so that these hospitals can cross-subsidise their more costly non-elective services. These purchasers of NHS services or else the commissioners may argue that their anticompetitive agreement ensures hospitals’ financial stability and ensures access to care for all parts of our society and it should therefore be exempt on the basis of Article 101(3) TFEU. Should competition authorities in this case translate the protection of equity or increased access into efficiencies? I believe that in this case competition authorities may not have to perform this task in order to integrate equity concerns into their analysis as this agreement may not only increase access for the disadvantaged groups of a society but it may also yield productive and allocative efficiencies. Why? As explained in the first chapter, allocative efficiency is achieved when resources are allocated so that the welfare of the community is maximised. If the agreement at issue aims to guarantee the financial stability of hospitals that are located in urban areas then access to risky and complex non-elective surgeries is ensured not only for the disadvantaged groups of a specific geographic area but for the community as a whole. In this case the objectives of efficiency and equity may align and therefore equity concerns may not have to be translated into a broader concept of efficiencies. In other cases, however, especially when

283 Lavrijssen

(n 280) 643. Monti (n 177) 1075. 285 Lavrijssen (n 280) 643. 286 Ibid. 284 Ibid;

176  The Holistic Approach the notion of safety, continuity or acceptability is at stake, competition authorities may indeed have to translate these notions into a wider notion of qualitative efficiencies in order to grant an exemption on the basis of Article 101(3) TFEU. They might for example have to take the view that the protection of continuity and trust in the patient-doctor relationship improves health outcomes and safety or that a restriction of choice may be necessary so that health improvements are ensured. For instance, as noted, GPs in England act as gate-keepers too. In performing this role and in agreement with the purchasers of NHS services, they may boycott specific hospitals that do not meet their standards of healthcare quality by not referring patients to these hospitals. In this case, competition authorities could take the quality argument of the parties into account on the basis of Article  101(3) TFEU by translating their safety argument into qualitative efficiencies. Translating however the non-economic facets of healthcare quality into efficiencies may be a much more complex task in cases where these facets contradict with the main goal of competition law, efficiency, in the sense of maximising consumer welfare. As the first chapter indicated, there are different concepts of equity. Equity can be viewed as equality of expenditure per capita, equality of input (resources) per capita, equality of (opportunity of) access for equal need, equal utilisation for equal need, equality of health,287 equity as choice.288 In health systems pursuing equity as equality of opportunity of access for equal need, healthcare is distributed quite independently of people’s willingness to pay for such services. In these systems, healthcare is mainly distributed on the basis of people’s need. However, the pursuit of such an objective implies that an act of redistribution takes place between different social groups. This in some cases might be in contrast with one of the main goals of EU competition law, the maximisation of consumer welfare, which is an efficiency objective and not one of distribution. Indeed, the use of a consumer welfare standard may treat the same people unequally in their roles as workers and producers but entails treating all consumers as equally deserving with respect to the activity of consumption.289 To elaborate on my point, an example seems to be again necessary. GPs in England in their role as gate-keepers may conform to a decision made by purchasers of NHS services to refer more patients for elective care in NHS bodies located in disadvantaged rural areas so that these bodies can cross-subsidise their high demand for respiratory, cardiovascular or emergency care services. In this case, the parties of the agreement restrict the choice of consumers seeking elective services in order to ensure choice and access to the disadvantaged groups

287 GH Mooney, ‘Equity in Health Care: Confronting the Confusion’ (1983) 1(4) Effective Health Care 179. 288 A Wagstaff, ‘QALYS and the Equity-Efficiency Trade- Off’ (1991) (10) Health Economics 21, 29. 289 B Von Rompuy, Economic Efficiency, The Sole concern of Modern Antitrust Policy? (Kluwer Law International, 2012) 48.

Evaluating Healthcare Quality  177 of our society seeking non-elective costly services. In this case, the parties’ anticompetitive agreement may analogise to an exercise of distributive justice since it restricts choice for consumers seeking elective services to ensure choice and access to consumers seeking urgent non-elective services in disadvantaged rural areas. At the same time, it involves an economic taking from entities specialising in elective care to entities specialising in non-elective care. In cases where the objectives of equity and efficiency conflict, competition authorities may choose again to widen the notion of consumer welfare in healthcare by integrating equity concerns into their analysis. By widening this notion, they could actually balance conflicting facets of healthcare quality such as equity versus efficiency. Under what legal techniques could they perform this task? In a way analogous to CECED, competition authorities may translate increased equity gains into efficiency gains. This could be achieved, for example, if the antitrust enforcers incorporated into the Article 101(3) TFEU framework a wider notion of efficiencies, such as the one introduced by Donabedian. Donabedian identified three different types of efficiencies in healthcare: (a) clinical efficiency, which requires that providers prescribe and implement care that does not include harmful or unnecessary forms of treatment;290 (b) production efficiency which requires the efficient production of the goods and services that are utilised in the provision of care;291 (c) distributional efficiency which requires the distribution of care among different groups of patients (characterised by sex, ethnicity, age, economic status, location and type of illness) in a way proportionate to expected health improvements.292 In that sense, competition authorities in Europe may take equity concerns into account by weighing distributional efficiency against harm to competition. In a way also analogous to the CECED and DSD cases, competition authorities in Europe may take the view that the protection of the non-economic facets of healthcare quality, such as equity, has an economic value as such. Indeed, reducing health inequalities has an economic value since improvements in health for all parts of the population leads to economic growth. This is because good health may be both the result and the cause of high income.293 This can work in various ways. To start, health can contribute to labour productivity. For instance, healthy workers may rarely require sick leave and are more efficient when working. Good health can also improve education outcomes.294 Indeed, childhood health can positively impact cognitive development and enhances learning outcomes for children.295 In addition, because 290 A Donabedian, An Introduction to Quality Assurance in Health Care (Oxford University Press, 2003) 10. 291 Ibid. 292 Ibid. 293 DE Bloom and D Canning, ‘Population Health and Economic Growth’ (Commission on Growth and Development, The World Bank, Working Paper No.24) 1. 294 Ibid. 295 Ibid.

178  The Holistic Approach adult mortality can diminish the future returns to investments in education, improving health outcomes for adults can enhance their incentives to invest in education.296 Health may also contribute to higher savings. Indeed, a higher life expectancy can strengthen people’s incentives to save for retirement or to pursue business opportunities. This may lead to economic progress.297 In addition, increased medical bills can force poor families to sell productive assets. This may definitely undermine their ability to escape poverty.298 By attaching an economic value to the objective of equity, competition authorities may say that an anticompetitive agreement aiming to protect equity impacts positively on economic progress. This technique would in fact be in line with the Commission’s position in the 1999 White Paper explaining that the primary objective of Article 101(3) TFEU is to offer a framework for the economic analysis of restrictive practices. Another method, under which competition authorities may apply in order to integrate equity considerations into their analysis, is by taking into account that societies pursuing the objective of equity as equality of opportunity of access are not indifferent as to who consumes healthcare. These societies consider that equity in health has an instrumental value since it aims to compensate specific groups of a society for the disadvantages and suffering they incur for reasons beyond their control. They also consider that entities such as health derive equity significance from their ability to enable people to pursue their dreams. For this reason, in these societies healthcare resources are not unevenly distributed, concentrated in urban areas and scarce in rural areas. In light of these concerns, competition authorities may take the view that consumer welfare is an aggregation of individual interests that are diverse and that can be combined only by some process of weighing up the circumstances of different consumer groups.299 Therefore, competition authorities may be keen to contend that ensuring access and therefore choice for the most vulnerable consumer groups is more important than ensuring choice for consumer groups in less need. Going back to the example at issue, competition authorities might, for example, say that ensuring choice for the vulnerable groups seeking urgent non-elective care in isolated areas is more important than protecting choice for other, less vulnerable consumer groups seeking elective care.300 Therefore, although the agreement at issue restricts choice in the relevant market for elective services and is therefore anticompetitive on the basis of Article 101 TFEU, at the same 296 Ibid. 297 Ibid. 298 Ibid, 2. 299 A Atkinson, Inequality, What Can be Done? (Harvard University Press, 2015) 126. 300 Professor Lianos has also advanced an argument in favour of the distributive justice objective of EU competition law based on the political and moral philosophy of J Rawls when Article 101(3) is at issue, see I Lianos, Some Reflections on the Question of the Goals of EU Competition Law’ (2013) CLES Working Paper Series, 3/2013, 21–23.

Evaluating Healthcare Quality  179 time it extends choice in the market of non-elective urgent services targeted towards the most vulnerable groups and is therefore procompetitive on the basis of Article 101(3) TFEU. B.  The Protection of Healthcare Quality as a Legitimate Objective-Public Goal The protection of the non-economic aspects of healthcare quality, such as equity, may also be considered if they are seen as public policy objectives, the pursuit of which requires an exception from the application of competition law. Arguably, the equity objective could be considered a legitimate objective whose protection requires an exception on the basis of Article 101(1) TFEU. This approach would be in line with the principles established by the Court in the Wouters, Albany and Meca-Medina cases. In these cases, the Court established the principle that any agreement should be interpreted in light of its objectives, its legal and economic context. More specifically, in the Wouters case the Court granted an exception on the basis of Article 101(1) TFEU in order to ensure the legitimate objectives the anticompetitive Dutch regulation aimed to pursue, notably the integrity and quality of professional services. The Court followed the same approach in the Albany and Meca-Medina cases. In these cases, the Court again exempted the anticompetitive agreements at issue in order to ensure the protection of labour and the integrity of sports. In addition, the Courts and the antitrust enforcers may take the non-economic aspects of healthcare quality into account on the basis of Article 101(3) TFEU by adopting a wider interpretation of the notion of’ ‘technical and economic progress’, as the Court did in the GlaxoSmithKline v Commission case as well as the Grundig-Verkaufs-GmbH v Commission case. As noted, nothing in these cases suggests that the appreciable objective advantages Article 101(3)TFEU requires are limited to increases in consumer welfare. Therefore, under this approach the non-economic facets of healthcare quality, such as equity, could be integrated into a competition assessment even if they were not translated into efficiencies. In that regard, one may argue that the application of the Court’s more pluralistic approach may be more appropriate in cases where the economic benefits of the agreements at stake cannot be easily quantified and assessed.301 In these cases, if a strict economic assessment approach was applied, a number of non-competition concerns which might be fundamental from a public policy perspective, such as the protection of equity, would be ignored either because their contribution to efficiency is indirect or because they cannot be easily translated into economic terms.



301 Komninos

(n 223) 10.

180  The Holistic Approach C.  Obstacles to a Holistic Protection of Healthcare Quality Antitrust scholarship might criticise my proposal that competition authorities in Europe could protect the multiple facets of healthcare quality by extending the notion of consumer welfare both on normative and legal grounds. In the section that follows, I will identify the potential criticism and I will also explain why this approach could be applied by competition authorities without harming the goals of EU competition law and policy. To begin, on normative grounds, critics of my proposal would argue that if competition authorities adopted a wider definition of consumer welfare in their competition assessment, they would balance conflicting goals, such as equity versus efficiency that the competition authorities do not have the democratic legitimacy to balance. According to this argument, when antitrust enforcers excuse a restriction of competition by undertakings in light of non-efficiency gains they are sanctioning an economic taking from consumers and such a practice can be considered as an act of distributive justice.302 Competition law confers on consumers ‘… a property right or entitlement to purchase competitively priced goods’ and ‘higher than competitive prices constitute unfair takings of consumers’ property’.303 In that sense, the Commission has defined protecting effective competition as implying ‘protection of the consumer’s interest by ensuring low prices’.304 Consequently, delimiting the legal right in respect of free competition by reference to the integration clauses in the TFEU may analogise to an exercise of distributive justice to the extent it involves an economic taking from one social group to the other. In such instances, government actors actually exercise distributive justice, and the Courts merely review their decisions for constitutionality.305 The argument that competition authorities may lack the democratic legitimacy to balance competition with non-competition goals is important. This argument however does not fully consider that the Commission already exercises to a certain extent distributive justice when it applies Article 101(3) TFEU. Article 101(3) TFEU maintains that an agreement that restraints competition can be exempted if it promotes efficiency, with two conditions: First, that the efficiencies flowing from the anticompetitive agreement be passed on to consumers and second, that competition in the relevant market is not abolished.306 These conditions echo the ordoliberal concern over accumulation of economic power, which requires the Commission to exempt agreements considering their effect not only on total efficiency but also distributive justice.307 This argument, however, can 302 F Kieran, ‘A Separation Approach to Non-Efficiency Goals in the EU Competition Law’ (2013) 19 European Public Law 199. 303 Ibid. 304 Ibid. 305 Ibid, 200. 306 Monti (n 177) 1061. 307 Ibid.

Evaluating Healthcare Quality  181 also be rebutted if we take into consideration current legal and political research demonstrating that, in practice, it is not necessarily easy to draw a strict and bright line between policy implementation and policy making.308 Indeed, even in cases where decisions seem to be concerned with implementation, the complexity of the economic and legal analysis that the competition authorities often undertake when examining for example, a research and development agreement, or when balancing various market parties’ conflicting interests, means that competition authorities may often be burdened with the difficult exercise of making difficult socioeconomic choices.309 Let us consider, for instance, the CECED case. In this case the Commission engaged in an economic assessment in order to incorporate environmental concerns in its analysis. However, in applying Article  101(3) TFEU the Commission also made a difficult socioeconomic choice: It deprived consumers of the choice to prefer a cheaper washing machine now rather than a more expensive, environmentally friendly one in the future, in order to pursue its sustainable development agenda.310 Hence, rather than deny that competition authorities exercise a high degree of discretion when they engage in a complex economic and legal assessment and often make difficult policy choices – it may be better to accept this fact and implement the necessary mechanisms through which their power to perform their duties in a consistent and transparent manner will be ensured.311 Most importantly, this argument completely disregards the fact that if competition authorities do not take into account in their assessment the noneconomic goals their societies democratically have decided to pursue, such as equity, these competition assessments then are not legitimate, in the sense that they do not match ‘the substantive goals of the society in question’.312 Surely, one could claim that competition authorities should not be expected to engage in healthcare resource allocation or to assess to what extent a specific agreement benefits the poorer or the wealthier parts of our society. Nonetheless, when it comes to inequalities and social justice in a developed economy, antitrust law cannot be calibrated to help, but it can be calibrated not to harm.313 This point is crucial. Indeed, in cases where health policy objectives conflict with the goals of choice and competition, if competition authorities did not take these health objectives into account, these objectives may be substantially harmed. As previously discussed, in a considerable number of competition cases, such as the INAIL, Poucet and Pistet and AOK cases, the Court held that 308 Lavrijssen (n 280) 654. 309 Ibid. 310 Sufrin (n 138) 956. 311 Lavrijssen (n 280) 638. 312 A Gerbrandy, ‘Addressing the Legitimacy Problem for Competition Authorities Taking into Account Non-Economic Values: The Position of the Dutch Competition Authority’ (2015) 40(5) European Law Review 769, 773. 313 DA Crane, ‘Antitrust and Wealth Inequality’ (2016) 101 Cornell Law Review 1171, 1176.

182  The Holistic Approach the compulsory healthcare insurance schemes at issue were not undertakings since they operated on the basis of the principle of solidarity and as a result their activity was not subject to the rules of EU competition law. In all these cases, the compulsory affiliation was considered to be both a core characteristic and a logical consequence of the principle of solidarity. Essentially, in these cases the Court balanced two conflicting objectives: the goal of solidarity with the goals of competition and choice. Acknowledging the risk of cream-skimming, the Court in these cases decided to deprive the wealthier and healthier parts of a society from the freedom to choose healthcare funds so as to ensure that the access to healthcare services for the sicker and poorer parts of a society is not restricted. If the Court in these cases had taken the opposite view and had concluded that health policy objectives should not become part of a competition assessment, the goals of equity and accessibility may be undermined. Indeed, if compulsory affiliation was not an inherent feature of the healthcare fund’s operation, the employees’ contributions would be proportionate to their risk profile rather than their income. Additionally, the insurers would have the incentive to insure only the healthiest among us that do not even need access to care.314 Ultimately this would lead to a race to the bottom with insurers trying to exclude high risk costly consumers by increasing their barriers to entry to health insurance services.315 As a result, the values of equity and accessibility would be seriously harmed. The same analysis could in fact be applied in one of the potential competition problems I presented in the previous section. In England, hospitals do not compete on price but on quality since they are paid on the basis of fixed tariffs for the treatments they provide. To ensure their financial stability, healthcare providers may agree on the maximum levels of quality of the amenities they offer so as to save more profits and cross-subsidise their risky non-elective surgeries. In other words, they may restrict quality competition with regards to a specific dimension of quality, acceptability, in order to ensure the safety and continuity of non-elective risky services. This agreement is clearly anticompetitive since it restricts quality competition on a specific dimension of quality. Nonetheless, it cannot be disregarded that this agreement also has same procompetitive effects. As already highlighted in the second chapter, medical markets are pervaded by information asymmetries. Consequently, patients cannot easily evaluate all dimensions of healthcare quality, such as effectiveness and safety. Surely, they can evaluate the quality of the amenities providers offer or physicians’ listening skills. To attract patients, providers may therefore attempt to compete only on the aspects of quality patients can in fact evaluate such as the quality of the facilities they offer. This however might disincentivise them from investing in core aspects of quality, such as the safety of non-elective risky procedures. Therefore, by restricting quality competition with regards to one dimension

314 Hancher 315 Ibid.

and Sauter (n 190) 341.

Evaluating Healthcare Quality  183 of quality acceptability, they may actually ensure the safety and the continuity of the risky non-elective services. A court or a competition authority that may consider the procompetitive effects of this agreement may risk disregarding that safety is one of the most important objectives of EU health systems. Further, if competition authorities applied competition law in healthcare in a way that neglects these objectives, their competition assessment would also disregard the fact that the EU does not have exclusive competence in the field of healthcare and that, in contrast, national governments have the competence to design their health systems and organise the provision of healthcare.316 Additionally, the integration of non-competition goals, such as equity, into a competition assessment is in line with the horizontal Treaty provisions requiring that specific objectives should be taken into account in the definition and implementation of all EU policies and activities, thus including antitrust enforcement.317 Article 7 TFEU maintains that ‘the Union shall ensure consistency between its policies and activities, taking all of its objectives into account and according to the principle of conferral of powers’. Article 9 TFEU states that the Union shall more specifically take into account requirements linked to the promotion of a high level of employment, the fight against social exclusion, the guarantee of adequate social protection, a high level of education and training and the protection of human health in defining and implementing its policies and activities. Article 11 maintains that ‘environmental protection requirements must be integrated into the definition and implementation of the Union’s policies and activities, in particular with a view to promoting sustainable development’ (emphasis added). Article 12 states that ‘consumer protection requirements shall be taken into account in defining and implementing other Union policies and activities’. Article 167(4) states that the Union shall take cultural aspects into account in its action under other Treaty provisions. Article  168 TFEU states that ‘a high level of human health shall be ensured in the definition and implementation of all Union policies and activities’. Article 175 TFEU states that ‘the formulation and implementation of the Union’s policies and actions and the implementation of the internal market shall take into account the objectives set out in Article 174 TFEU and shall contribute to their objectives’. Article 208(1) TFEU states that ‘the Union shall take into account of the objectives of development cooperation in the policies that it implements which are likely to affect developing countries’. As a matter of law, it is unclear what impact the cross-sectional clauses should have on the application of the EU competition rules. Nonetheless, the wording of the clauses relating to environmental protection and human health is notably stronger than the ones relating to other policies. With regards to human health, the Treaty states that a high level of human health should be ensured in the definition and implementation of all Union policies and activities. The choice of

316 See

https://europa.eu/european-union/topics/health_en. Rompuy (n 225) 223–24.

317 Van

184  The Holistic Approach the specific wording ‘shall be ensured’ should not be ignored, especially because for the other cross-sectional articles of the Treaty a different wording has been chosen: ‘the Union shall take into account’.318 Critics of my proposal may also point to two important issues. The first one is that indirect economic benefits or health policy objectives should not be taken into account as this approach would be in contrast with the Commission’s Guidelines with regards to the application of Article  101(3) TFEU, mentioning that a competitive restraint in one market cannot generally be outweighed by procompetitive effects in a different market.319 Indeed the Guidelines maintain: The assessment under Article 81(3) of benefits flowing from restrictive agreements is in principle made within the confines of each relevant market to which the agreement relates. The Community competition rules have as their objective the protection of competition on the market and cannot be detached from this objective. Moreover, the condition that consumers must receive a fair share of the benefits implies in general that efficiencies generated by the restrictive agreement within a relevant market must be sufficient to outweigh the anti-competitive effects produced by the agreement within that same relevant market. Negative effects on consumers in one geographic market or product market cannot normally be balanced against and compensated by positive effects for consumers in another unrelated geographic market or product market. Only where two markets are related (and) the group of consumers affected by the restriction and benefiting from the efficiency gains is sustainably the same can such benefits be taken into account.320

Yet, in a number of cases, the Commission takes into consideration procompetitive effects on different markets although the harm to competition takes place in another. For example, although research and development agreements will not necessarily benefit the current consumers of the product, they tend to create dynamic efficiencies that may benefit future consumers.321 Another example is the effects on downstream markets which are typically relevant in the Article  101(3) TFEU analysis of consumer benefit.322 In these cases while the harm to competition takes place upstream, the benefit occurs downstream. Additionally the General Court in GlaxoSmithKline explained that ‘advantages may arise not only in relevant markets but also on other markets’.323 Moreover, in MasterCard324 the General Court clarified that it is settled case-law that the appreciable objective advantages to which the first condition of Article 81(3) EC relates may arise not only for the relevant market but also for 318 Ibid. 319 Commission Guidelines (n 234) para 43. 320 Ibid. 321 Nowag (n 235) 235. 322 Ibid. 323 Case T-168/01 GlaxoSmithKline Services Unlimited v Commission [2006] ECR II-2969, para 248; see also comment by A. Ezrachi, EU Competition Law: An Analytical Guide to the Leading Cases (Bloomsbury, 2015). 324 Case T-111/08 MasterCard and Others v European Commission ECLI:EU:T:2012:260.

Summing Up  185 every other market on which the agreement in question might have beneficial effects, and even, in a more general sense, for any service the quality or efficiency of which might be improved by the existence of that agreement.325

The second point is that to the extent non-economic goals are taken into consideration, the consistent and uniform application of competition law throughout the EU Member States may be undermined.326 However, the fact that competition authorities may balance non-competition with competition goals does not necessarily mean that they do not perform their tasks in an objective and impartial way. Moreover, while the case law of the Court of Justice requires the Commission and the competition authorities to specifically consider the economic and legal context in which the anticompetitive agreements take place when performing their competition assessment, it does not require them to adopt uniform decisions regardless of the relevant context.327 V.  SUMMING UP

This chapter examined the crucial question of whether the competition authorities in Europe should extend the notion of consumer welfare when they apply competition law in healthcare in order to protect the notion of healthcare quality as a whole or else in Donabedian’s language at all levels of a health system. In other words, it examined whether under the Holistic Approach the notion of healthcare quality can be considered as a whole.328 To clarify, this chapter did not claim that all the above analysed potential competition problems require an assessment under a wider consumer welfare approach. Indeed, competition authorities may assess under a narrower consumer welfare standard whether providers restrict quality competition by colluding on specific levels of quality. It argued, however, that especially in cases where the notions of choice and competition conflict with the health policy objectives of EU health systems, such as equity, continuity, safety, competition authorities may seriously consider whether they should integrate in the concept of consumer welfare these objectives so that their assessment does not harm them. This chapter also presented specific examples from the English procompetitive regulation in healthcare where these conflicts may in fact arise. It also examined how and under what legal techniques competition authorities may extend the notion of consumer welfare in healthcare so that they can balance conflicts between the goals of competition and the non-economic facets of healthcare quality. It concluded that under the more economic approach of the

325 Ibid,

228. Townley, Article 81 EC and Public Policy (Hart Publishing, 2009) 38–39. 327 Lavrijssen (n 280). 328 Ibid. 326 C

186  The Holistic Approach European Commission, as well as the more pluralistic approach of the European courts, this mission is possible. This chapter emphasised that if competition authorities did not consider these non-economic objectives of EU health systems in their competition assessment, inevitably their assessments would lose their legitimacy in the sense that they would not match the substantive goals of societies that have democratically decided to pursue health policy objectives, such as equity.

6 The Regulatory Approach

T

he previous chapter raised the question of whether competition authorities in Europe might choose to protect healthcare quality as a whole by widening the notion of consumer welfare in healthcare. In elaborating on this policy option, that chapter first explained the main aspects of the procompetitive regulations that introduced the choice and competition model in England since the early 1990s. That chapter claimed that this procompetitive regulation might harm specific dimensions of healthcare quality, such as equity, acceptability and safety. In light of this concern, it contended that GPs performing their role either as gate-keepers or commissioners might engage in anticompetitive behaviour in order to ensure and protect these essential facets of healthcare quality. Drawing inspiration from the procompetitive health regulation in England, the previous chapter took the view that competition authorities in Europe that have started introducing the choice and competition model in providing healthcare services might inevitably have to address similar competition problems. In addressing these problems, competition authorities might have to strike the appropriate balance between the notions of choice and competition and essential objectives of their health systems, such as equity. It took the view that under a narrow consumer welfare approach or the Market Approach, competition authorities in Europe may fail to integrate into their assessment the main objectives and values of their health systems, as well as some non-economic facets of healthcare quality, such as the notions of acceptability and professionalism. Hence, it raised the question of whether competition authorities in Europe might choose to take these elements into account by widening the notion of consumer welfare in healthcare. This chapter aims to analyse a different policy option under which competition authorities in Europe may attempt to balance conflicts between competition and essential facets of healthcare quality. This is the policy option that was in fact introduced by the Health and Social Care Act (HSCA) 2012 that made a direct correlation between competitive behaviour in the NHS and competition law.1 Under this policy option, competition authorities are responsible for

1 M Sanderson, P Allen, D Osipovic, ‘The Regulation of Competition in the National Health Service (NHS): What Difference has the Health and Social Care Act 2012 Made?’ (2017) 12 Health Economics, Policy and Law 7.

188  The Regulatory Approach the protection of vigorous competition in healthcare, while health authorities are responsible for advising competition authorities on issues relating to the protection of healthcare quality. This policy option was, in fact, been adopted in 2012 in England when mergers between NHS Foundation Trusts (FTs) were involved. As the HSCA 2012 provided, mergers involving one or more NHS FT were subject to the Enterprise Act 2002 (HSCA s 79). Under this framework, these types of mergers were reviewed by the Competition and Markets Authority (CMA) with NHS Improvement, the health services regulator in England, which took an advisory role in relation to the benefits of the merger for patients.2 The question is, did the cooperation of these authorities ensure that healthcare quality in the merger assessment of NHS FTs was actually taken into account as a whole? And if yes, how? To adequately examine this question, this chapter first outlines the main healthcare reforms the Coalition Government introduced following the HSCA 2012. It particularly examines the main responsibilities of the key bodies that are active in healthcare, notably NHS Improvement, the commissioners, the Care Quality Commission (CQC) and NHS England. In analysing these reforms, this chapter illustrates that some specific facets of the regulatory framework under which NHS FTs operated, might incentivise NHS FTs to merge. It additionally highlights that while CMA was responsible for ensuring competition in the provision of NHS services, NHS Improvement was responsible under the HSCA, not only to promote competition but also to ensure the continuity of these services. In light of this concern, this chapter points out that the regulator’s involvement in the assessment of mergers between NHS FTs may to a certain extent have transformed CMA’s merger analysis with regards to NHS FTs. Is this scenario a possible one? In considering this question, this chapter reviews the competition law framework under which mergers between NHS FTs were assessed by NHS Improvement and the CMA. It particularly explores how under this framework NHS Improvement and the CMA assessed quality when they examined mergers that involved NHS FTs. It also reviews some merger cases between NHS FTs and sees whether and to what extent the conflicting objectives between these actors may indeed have transformed CMA’s merger analysis with regards to NHS FTs. As chapter two illustrated, this regime was abolished. As the Health and Care Act stated,3 the CMA’s function to examine mergers involving NHS bodies was removed.4 While the CMA will continue to enforce competition in the private healthcare market, the NHS will be involved in the assessment of mergers between NHS bodies, to guarantee that the merger assessment takes due account of patients’ interests and health. This policy reform reflects the idea 2 Ibid. 3 See www.gov.uk/government/publications/health-and-care-bill-factsheets/health-and-care-billcompetition; see also https://www.legislation.gov.uk/ukpga/2022/31/contents/enacted, clauses 82–85. 4 Ibid.

Introduction to the Main Facets of the HSCA 2012  189 that collaboration rather than competition may lead to quality improvements and ensure people’s health. This policy reform was also motivated by the idea that CMA is not the right body to review NHS mergers, and, hence, the NHS should be able to make decisions about provider mergers itself.5 The CMA’s narrow competition perspective, the argument goes, may fail to adequately consider other non-competition objectives that may, however, be vital from a health perspective. Despite the abolition of the Regulatory Approach, delving into this regime seems vital. First, by thoroughly analysing the Regulatory Approach, this chapter gives valuable insight into the pros and cons of this approach and hence informs regulators and policy makers that may think of adopting it in the future. It also shows that CMA did not actually adopt a narrow competition perspective when examining mergers involving NHS mergers and hence the critique that the CMA should not be involved in the merger assessment when a NHS FT is involved does not seem valid. I.  AN INTRODUCTION TO THE MAIN FACETS OF THE HSCA 2012: HOW DOES THIS FRAMEWORK FORCE HOSPITALS TO MERGE?

A.  The Main Facets of the Procompetitive Regulation in Healthcare Following the Social Act of 2012 The quasi-market and accompanying regulatory mechanisms, the previous chapter analysed, were first introduced into the English NHS in 1990 when the then Conservative Government adopted the National Health Service and Community Care Act that created ‘the internal market’. Essentially, this Act differentiated between the provision and the purchasing of healthcare services across the UK. The New Labour Government attempted to soften the rhetoric about markets and competition. However, when elected in 1997, the New Labour Government did not abolish the purchaser/provider split. After 2002, in a ‘gradual, pragmatic’ process, the Government induced supply side competition by increasing the diversity of the providers that offered care.6 During the Labour period, several accredited providers – both publicly owned and independent entities – such as the Independent Sector Treatment Centres (ISTCs) could enter the market for the provision of NHS services.7 Patients’ ability to choose was also improved. Specifically, patients were given the opportunity to choose the providers that would treat them at the point of referral.8 New mechanisms to

5 Ibid. 6 Ibid, at 4. 7 Ibid. 8 A Dixon, R Robertson, ‘Patient Choice of Hospital’ in N Mays, A Dixon and L Jones (eds) Understanding New Labour’s Reforms of the English NHS (London, The King’s Fund, 2011) 53.

190  The Regulatory Approach regulate competition were reinforced in 2007 when the Principles and Rules for Cooperation and Competition were established.9 After the Coalition Government in May 2010 was formed, a new chapter in competition in health services started.10 In fact, the White Paper, ‘Equity and Excellence, Liberating the NHS’ published in July 2010 unfolded the Government’s vision with respect to the reform of NHS Services.11 Following a heated debate, the legislation that implemented the reforms, the HSCA 2012, was finally adopted.12 The White Paper’s main theme was patient choice. For this reason, the White Paper underlined that improving the diversity of healthcare providers was a key priority.13 The White Paper also emphasised the Government’s intention to further improve the role of NHS Improvement. The latter was responsible for inducing competition, regulating prices and safeguarding the continuity of healthcare services.14 Essentially, the HSCA which was passed on 19 January 2011 implemented the policies set forth by the 2010 White Paper.15 In brief, the HSCA continued the longstanding policy that the NHS should be a market-based health system. Under this regime, the patients would be offered healthcare services that had been previously bought by commissioners on their behalf.16 Additionally, any willing provider was free to provide NHS services. These reforms would widen patients’ choice, enhance competition among providers and promote innovation and quality.17 In other words, under these reforms, competition would become more real. The Government believed two things: First, that some NHS bodies lacked the necessary incentives to operate in the market.18 In fact, some NHS purchasers had established close relationships with specific providers and, hence, were less willing to consider purchasing services from alternative providers. Due to this barrier to entry, the private sector lacked the necessary incentives to operate in the NHS services market. Second, even in cases where NHS bodies were willing to engage in market behaviour, they were unable to do so because of the top down regulation that the central Government imposed.19 9 Sanderson, Allen and Osipovic (n 1) 6. 10 L Stirton, ‘Back to the Future, Lessons on the Procompetitive Regulation on Health Services’ (2014) 22(2) Medical Law Review 180, 191. 11 NHS, Department of Health, ‘Equity and Excellence: Liberating the NHS’ (The Stationery Office, July 2010) (hereinafter ‘2010 White Paper’); E Spencelayh and J Dixon, ‘Mergers in the NHS Lessons from the Decision to Block the Proposed Merger of Hospitals in Bournemouth and Poole’ (The Health Foundation, Policy Analysis, 2014) 9. 12 Stirton (n 10) 192. 13 Sanderson, Allen and Osipovic (n 1) 4; 2010 White Paper (n 11) 5. 14 2010 White Paper (n 11) 4. 15 Spencelayh and Dixon (n 11) 10. 16 ACL Davies, ‘This Time, It’s For Real: The Health and Social Care Act 2012’ (2013) 76 (3) Modern Law Review 564. 17 Spencelayh and Dixon (n 11) 10. 18 Davies (n 16) 566. 19 Ibid.

Introduction to the Main Facets of the HSCA 2012  191 To overcome these barriers and foster competition among providers, on the purchaser side, the HSCA 2012 introduced radical institutional reforms. The Act abolished the Primary Care Trusts (PCTs) that the Labour Government had established. Replacing the PCTs, a consortia of GP practices, named Clinical Commissioning Groups (CCGs), bought healthcare services on behalf of their patients.20 CCGs were mainly responsible for purchasing urgent and emergency care, some out-of-hours primary medical services, maternity and newborn services, elective hospital care and community health services.21 Because of the tariff pricing system, any negotiation on the basis of price is limited. Hence, the factors on the basis of which CCGs purchased healthcare services were the speed, quality and quantity of the services offered.22 In exercising their duties, CCGs were supported by various non-statutory bodies, such as clinical networks.23 CCGs had the duty to comply with procurement regulations, including the Procurement Choice and Competition Regulations, and EU and national procurement law.24 The HSCA 2012 also introduced the NHS Commissioning Board (now NHS England), whose main activity was to supervise CCGs and commission primary care services (to make sure that there was no potential conflict of interest with GP-led CCGs) and some specialised services.25 In undertaking its duties, NHS England was monitored by Clinical Reference Groups (CRGs). These are specialised teams of patients and professionals who established national policies and specifications with regards to various clinical areas. These included, for instance, guidance on the minimum number of procedures hospitals had to undertake in order to ensure safety.26 CCGs had statutory duties towards NHS England. These included the improvement of NHS services in terms of quality and compliance with specific auditing and financial obligations. NHS England and the Secretary of State shared the common goal of ensuring a comprehensive health service.27 NHS England was also bound to perform its duties with a view to promoting the continuous improvement of healthcare services.28 At the same time, NHS England was also committed to promoting

20 Stirton (n 10) 192. 21 NHS England, ‘Understanding the New NHS, A Guide for Everyone Working and Training within the NHS’, available at www.westernsussexhospitals.nhs.uk/wp-content/uploads/2016/05/ simple-nhs-guide_A5-Printable.pdf. 22 Davies (n 16) 571. 23 Stirton (n 10) 193, NHS England, ‘Developing Clinical Senates: The Way Forward’ (25 January 2013), available at www.england.nhs.uk/2013/01/clinical-senates/. 24 Stirton (n 10) 194; Article 76 HSCA 2012. 25 C Ham, B Baird, S Gregory, J Jabbal and H Alderwick, ‘The NHS under the Coalition Government, Part One’ (The Kings Fund, February 2015) 29. 26 Ashford and St Peter’s and Royal Surrey County, ‘CMA Report on the Anticipated Merger of Ashford and St Peter’s Hospitals NHS Foundation Trust and Royal Surrey County Hospital NHS Foundation Trust’ (16 September 2015) para 2.34. 27 National Health Services Act 2006 1, 1.1, 9. 28 Ibid, 13E.

192  The Regulatory Approach choice, autonomy, efficiency, effectiveness and reducing health inequities.29 In securing the provision of high quality services, NHS England was also obliged to have reference to guidance introduced by the National Institute for Health and Care Excellence (NICE).30 NHS England cooperates with NICE in order to create a Commissioning Outcomes Framework ensured accountability and transparency with respect to the quality of services commissioned by CCGs and the ways in which these services enhanced performance in relation to the NHS Outcomes Framework.31 Additionally, as chapter two noted, the HSCA 2012 also transformed NHS Improvement into the main sector regulator for NHS services. In general, NHS Improvement is committed to protecting the interests of individuals who used healthcare services by securing that the provision of these services: (a) was efficient, effective, and economic; and (b) met specific qualitative standards.32 As the HSCA 2012 illustrated, when performing its duties, NHS Improvement must take due account, amongst other things, of: (a) the goal of ensuring continuous improvement in the efficiency with which NHS services are offered; (b) the need for commissioners to ensure fair access to NHS services; (c) the need for commissioners to ensure that individuals who needed access to healthcare services could actually access them; (d) the desirability of providers who offer healthcare services for the NHS cooperating with each other so that health outcomes were improved; and (e) the need to promote research into issues relevant to the NHS by providers who offered healthcare services.33 In brief, NHS Improvement was mainly responsible for: (a) ensuring continuity of essential services in the event of financial failure: (b) price-setting; and (c) tackling anticompetitive behaviour. To elaborate, NHS Improvement ensured continuity of essential services by assessing risks to the continued provision of NHS services and by exercising proactive financial oversight.34 NHS Improvement performed these duties through the licensing requirements and conditions that NHS FTs were required to meet.35 In fact, since April 2013, all NHS FTs were obliged to hold a licence from NHS Improvement, stating the specific conditions these entities were obliged to meet. These included financial

29 Ibid, 13F–13Z. 30 The duty to have reference to NICE guidelines is a reference to NICE’s power to issue guidelines under section 234 of the HSCA 2012, which came into force on 1 April 2013. 31 The NHS Outcomes Framework provides a national overview of how well the NHS is performing, is the primary accountability mechanism between the Secretary of State for Health and NHS England and drives up quality throughout the NHS by encouraging a change in culture and behaviour focused on health outcomes not process, source: Department of Health, ‘The NHS Outcomes Framework 2014/15’ (12 November 2013). 32 Article 62 HSCA 2012. 33 Article 66 HSCA 2012. 34 Monitor, ‘Risk Assessment Framework’ (updated August 2015), 8, available at https://assets. publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/455893/RAF_ revised_25_August.pdf. 35 Articles 85 and 88 HSCA 2012.

Introduction to the Main Facets of the HSCA 2012  193 stability and governance requirements.36 NHS improvement evaluated whether there is an increased risk to the financial stability of a provider of crucial NHS services which may threaten the continuity of those services and/or poor governance at an NHS FT, by applying the Risk Assessment Framework.37 Under this Framework, NHS Improvement determined FTs’ governance rating using information from various sources, such as the outcomes of CQC inspections. For instance, trusts that met high quality standards were given a green rating. In contrast, when NHS Improvement considered that an intervention is necessary, a red rating was given. NHS FTs could also be under review.38 Given that there is a strong link between this traffic light system and providers’ reputation, an NHS FT under review had strong incentives to address any governance concerns, even if NHS Improvement had not enforced a specific action.39 NHS Improvement was also responsible for enforcing licence conditions.40 In fact, NHS Improvement was entitled to enforce monetary penalties, accept enforcement undertakings, or revoke a provider’s licence if the latter had not obeyed a licence condition.41 Licensing serves another essential role: it explains how a provider’s potential failure can be addressed.42 In general, if the market operates efficiently, there is always the possibility that inefficient providers will exit. But when public services are at stake, some key services cannot be allowed to fail because they are deemed essential for their users.43 For NHS FTs, this key issue was addressed through the implementation of the Trust Special Administration (TSA) regime. Under this regime, NHS Improvement had the right to appoint a TSA to a NHS FT if NHS Improvement believed that the trust was financially unstable or in cases where the FT was unable to provide services that met minimum quality standards.44 Prior to implementing this regime, NHS Improvement should receive the advice of the Secretary of State, the CQC and the commissioners. TSAs were required to make recommendations to NHS Improvement about ‘actions to secure into the future the delivery of quality, safe and financially sustainable essential services of the FT in administration’.45

36 ‘Risk Assessment Framework’ (n 34) 4. 37 Ibid. 38 Ibid, 6. 39 Ashford and St Peter’s and Royal Surrey County, CMA Report (n 26) 16. 40 Section 88 HSCA 2012. 41 Monitor, ‘Enforcement Guidance’ (28 March 2013) Chapter 3, available at https://assets. publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/284474/ ToPublishEnforcementGuidance28March13_0.pdf. 42 Davies (n 16) 570. 43 Ibid. 44 The Trust Special Administration provisions are set out in sections 65A–65O of the NHS Act 2006, as inserted by section 174 of the HSCA 2012 and amended by the Care Act 2014. 45 Department of Health, ‘NHS Trust and Foundation Trust Special Administration – A Guide for Unsecured Creditors’ (November 2015), available at https://assets.publishing.service.gov.uk/government/ uploads/system/uploads/attachment_data/file/472982/creditors_guidance_factsheet.pdf.

194  The Regulatory Approach NHS Improvement was also responsible for ‘the administration of the national tariff prices chargeable for services on the NHS’ otherwise known as price setting.46 The pricing provisions of the HSCA 2012 is comprised of a comprehensive payments system, including a set of specific currencies units of healthcare for which payments are made, and associated prices, as well as a set of principles, rules and methods to determine prices and govern modifications and variations to national tariffs.47

The national tariffs were determined each year and applied to the majority of acute healthcare services provided by hospitals, including A&E services and outpatient attendances.48 The tariff for each specific service provided aims to fully cover the cost of that service. It is calculated on the basis of the national average costs reported by NHS providers and a market forces factor (MFF) which took into consideration regional differences in costs, such as the costs of land and labour.49 NHS Improvement was responsible for tackling anticompetitive behaviour as the Act gave NHS Improvement competition powers in the Competition Act 1998 concurrently with the CMA.50 On the basis of clause 62(3) of the HSCA 2012, NHS Improvement was obliged to exercise its functions with the goal of preventing anticompetitive conduct which was against the interests of people who use these services. Thus, NHS Improvement had the power to investigate anticompetitive agreements, including cartels, or allegations of abuse of a dominant position.51 NHS Improvement also had the power, again concurrently with the CMA, to perform market investigations, especially where there were concerns that competition functions poorly in the healthcare sector.52 CMA was also obliged to cooperate with NHS Improvement when mergers between NHS FTs were under scrutiny. In fact, where the CMA decided to undertake an investigation under the Enterprise Act 2002 with regards to a matter involving an NHS FT, it should inform NHS Improvement of its intention to initiate an investigation.53 NHS Improvement was then obliged to offer the CMA advice on the merger’s potential to create benefits for consumers. Not all benefits, however, could enter the equation. Indeed, the merger’s potential benefits could strictly take the form of those stated in the Enterprise Act 2002, or else ‘relevant customer benefits’.54 46 Chapter 4 of the HSCA 2012, Article 115; Stirton (n 10) 193. The national tariff replaced the ‘Payment by Results’ (PbR) system, under which (broadly speaking) commissioners paid healthcare providers for each patient seen or treated, taking into account the complexity of the patient’s healthcare needs. 47 Ashford and St Peter’s and Royal Surrey County, CMA Report (n 26) para 250. 48 Ibid, para 2.52. 49 Ibid, 2.54. 50 Article 72 HSCA 2012. 51 Stirton (n 10) 193. 52 Ibid. 53 Article 79(4) HSCA 2012. 54 Article 79(5) HSCA 2012.

Introduction to the Main Facets of the HSCA 2012  195 Under the HSCA 2012, CQC remained the independent regulator of healthcare services in England. CQC’s role is to supervise, inspect and regulate services to ensure they meet minimum safety and quality standards, as well as to publish inspection ratings to facilitate patients’ efforts to choose healthcare providers.55 Although the implementation of quality regulation was not initially a key priority, the Coalition Government amended the applicable framework for quality regulation.56 This was deemed to be the necessary response following the findings of the Francis Inquiry into failures of care at Mid Staffordshire NHS Foundation Trust.57 Under this regulatory framework, CQC was required

55 Memorandum of Understanding between Monitor and the Care Quality Commission, 2. 56 Ham et al (n 25) 41. 57 Ibid, 40. Between 2005 and 2008 conditions of appalling care were able to flourish in the main hospital serving the people of Stafford and its surrounding area. During this period this hospital was managed by a Board which succeeded in leading its Trust (the Mid Staffordshire General Hospital NHS Trust) to foundation trust (FT) status. In preparation for its application for FT status, the Trust had been scrutinised by the local Strategic Health Authority (SHA) and the Department of Health (DH). Monitor had also subjected it to assessment. It appeared largely compliant with the then applicable standards regulated by the Healthcare Commission (HCC). Local scrutiny committees and public involvement groups detected no systemic failings. In the end, the truth was uncovered in part by attention being paid to the true implications of its mortality rates, but mainly because of the persistent complaints made by a very determined group of patients and those close to them. This group wanted to know why they and their loved ones had been failed so badly. The setting up of the Mid Staffordshire NHS Foundation Trust Public Inquiry was announced to Parliament by the then Secretary of State for Health on 9 June 2010. The first inquiry heard harrowing personal stories from patients and patients’ families about the appalling care received at the Trust. On many occasions, the accounts received related to basic elements of care and the quality of the patient experience. These included cases where: (a) Patients were left in excrement in soiled bed clothes for lengthy periods; (b) assistance was not provided with feeding for patients who could not eat without help; (c) Water was left out of reach; (d) In spite of persistent requests for help, patients were not assisted in their toileting; (e) Wards and toilet facilities were left in a filthy condition; (f) Privacy and dignity, even in death, were denied; (g) Triage in A&E was undertaken by untrained staff; (h) Staff treated patients and those close to them with what appeared to be callous indifference; (i) There was a lack of basic care across a number of wards and departments at the Trust; (j) The culture at the Trust was not conducive to providing good care for patients or providing a supportive working environment for staff; (k) There was an atmosphere of fear of adverse repercussions; (l) a high priority was placed on the achievement of targets; (m) The consultant body largely dissociated itself from management; (n) There was low morale amongst staff; (o) There was a lack of openness and an acceptance of poor standards; (p) Management thinking during the period under review was dominated by financial pressures and achieving FT status, to the detriment of quality of care; (q) There was a management failure to remedy the deficiencies in staff and governance that had existed for a long time, including an absence of effective clinical governance; (r) There was a lack of urgency in the Board’s approach to some problems, such as those in governance; (s) Statistics and reports were preferred to patient experience data, with a focus on systems, not outcomes; and (t) There was a lack of internal and external transparency regarding the problems that existed at the Trust. One of the key issues raised in the report was the role played by external organisations which had oversight of the Trust. The report noted that: ‘The Inquiry has received a considerable number of representations that there should be an investigation into the role of external organizations in the oversight of the Trust. Concern is expressed that none of them, from the PCT to the Healthcare Commission, or the local oversight and scrutiny committees, detected anything wrong with the Trust’s performance until the HCC investigation. While such an investigation is beyond the scope of this Inquiry, local confidence in the Trust and the NHS is unlikely to be restored without some form of independent scrutiny of the actions and inactions of the various organizations to search for an explanation of why the

196  The Regulatory Approach to investigate whether the services that are offered are effective, safe, caring and in line with people’s needs.58 The new regulatory regime implemented the following changes: a new form of ‘intelligent monitoring of providers’ to evaluate potential risks to the quality of care, thereby identifying the providers that may fail before they actually do so.59 Under this regime, providers should be assessed on the basis of 150 quality indicators.60 This framework also foresaw wider use of qualitative data based on the patients experiences and clinicians’ expertise, inspections conducted by teams of experts and new forms of performance ratings that evaluated both the trust as a whole and individual services.61 B.  The Effect of the Procompetitive Regulation on the Incentive to Merge To begin with, as noted, the Coalition Government, in introducing the HSCA 2012, attempted to protect healthcare quality by: (a) promoting choice and quality competition among providers; and (b) enforcing quality regulation and ensuring that multiple actors and regulators were responsible for monitoring the quality of NHS services. This section aims to demonstrate the specific dimensions of this framework that incentivised hospitals to merge. These dimensions were: the tariffs setting, the vigorous enforcement of quality regulation, the TSA regime. How did these specific dimensions incentivise providers to merge? As noted, NHS Improvement set the national tariffs each year. These aimed to cover providers’ costs when offering healthcare services. Obviously, in calculating the tariff, NHS Improvement should particularly consider providers’ incentives to offer not only cost-effective but also high quality services. Under the applicable regime, one of the autonomies NHS FTs enjoyed is that they could retain their potential surpluses. Exactly because they enjoyed this freedom, they had the incentives to cut their costs and improve the efficiency of their services. As long as the tariff covered their costs, they also had incentives to increase the volume of the patients they treated. Nonetheless, if the tariff was not high enough to fully cover the costs, hospitals may ultimately exit the market. appalling standards of care were not picked up. It is accepted that a public inquiry would be a way of conducting that investigation, but also accepted that there may be other credible ways of doing so’. See The Mid Staffordshire NHS Foundation Trust Public Inquiry chaired by Robert Francis QC, Report of the Mid Staffordshire NHS Foundation Trust Public Inquiry, Executive Summary, 1–13. 58 Ham et al (n 25) 45. 59 Ibid, 16. 60 Ibid, 42. Intelligent Monitoring is built on a set of indicators that look at a range of information including patient experience, staff experience and performance. The indicators relate to the five key questions CQC asks of all services: Are they safe, effective, caring, responsive and wellled? Each trust’s Intelligent Monitoring report is publicly available in line with CQC’s commitment to transparency. See, Care Quality Commission, ‘Intelligent Monitoring: NHS Acute Hospitals’ 4, available at https://democracy.leeds.gov.uk/documents/s104806/Late%20item%20b%20-%20 CQC%20Intelligent%20Monitoring%20-%20FAQs.pdf. 61 Ham et al (n 25) 42. See www.cqc.org.uk/news/releases/cqc-refreshes-its-priority-bands-inspection.

Introduction to the Main Facets of the HSCA 2012  197 This risk was a serious one as the marginal rate rule example clearly demonstrates. The marginal rate rule was adopted in 2010/11 in light of the significant growth in the volume of patients that were admitted to hospital as emergencies.62 This rule set ‘a baseline value for income from emergency admissions for each provider. For emergency admissions above this baseline, the provider received only 30% of the normal price’.63 The mindset at the time expected that increased demand here was induced by providers. Hence, if providers were discouraged from admitting emergency patients, demand would be reduced.64 After the rule was implemented though, this belief proved to be erroneous. Since demand for urgent and emergency care was real, it continued to rise. Therefore, the only effect marginal tariff had in practice was the transferring of risk to providers. Obviously to avoid financial failure providers’ incentives to merge increased. Providers were also keen to merge in order to meet the high quality standards the applicable quality regulation imposed. As noted, healthcare providers, such as NHS acute hospitals, were rated by CQC on the basis of approximately 150  quality indicators. Among others, these indicators aimed to measure the safety, effectiveness, responsiveness and leadership of providers. They also indicated where inspection should focus on. After each inspection, CQC produced a report that measured each providers’ quality. These reports were publicly available. Hence, they could be consulted by all actors involved in the choice of providers, namely patients, GPs and commissioners. Unless hospitals performed well in these reports, they risked losing contracts and, hence, patients. Consequently, providers felt extreme pressure to meet the quality standards CQC periodically set forth. Because of this pressure, hospitals were highly encouraged to invest in research, amend their amenities and increase the employment of reputable staff. Nonetheless, if the tariff they received for their services was not high enough to allow them to meet these quality standards they could choose either to cease investments in quality at the expense of their ratings or to invest in quality at the expense of their financial performance. This risk was not a fictional one. After the findings of the Francis Inquiry were published and quality regulation received greater attention by the Coalition Government, NHS providers attempted to improve their performance and avoid bad ratings by recruiting additional nurses and staff.65 While this was deemed the necessary response, it also led to growing financial pressures in a system where providers faced significant financial challenges. In response, the Government increased funding for frontline care. But, despite this development,

62 NHS England, ‘Monitor and NHS England’s Review of the Marginal Rate Rule (December 2013) 2, available at www.gov.uk/government/uploads/system/uploads/attachment_data/file/300862/Monitor_ and_NHS_England_U2019s_review_of_the_marginal_rate_rule.pdf. 63 Ibid. 64 Ibid, 23. 65 Ham et al (n 25) 16.

198  The Regulatory Approach many providers still struggled to avoid deficits.66 Instead of losing their licence or exiting the market, NHS FTs were keen to merge. Under the TSA regime, as noted, NHS Improvement had the right to appoint a TSA to a NHS FT if it believed that there was a high risk that the NHS FT might be unable to pay its debt or where the FT failed to meet adequate standards of quality. The duty of a TSA was twofold: (a) to acquire total control of the FT, replacing the functions of the FT board; and (b) to offer recommendations in a report to the Secretary of State about actions to guarantee the provision of safe, high quality and financially sustainable key services of the NHS Trust in administration. The proposed solution might in certain cases involve merging all or part of the business of the struggling trust with another entity. In all of the above cases, if the merger between NHS FTs was not approved, the merging entities might have to exit the market. Inevitably, this could undermine essential health objectives, such as access and continuity of care. Could the CMA consider these goals and accept a merger on the basis that it might contribute to health objectives? In general, one may argue that the CMA should not consider these goals as these could not be seen as customer benefits in the sense of the benefits described in the Enterprise Act of 2002. Indeed, Article 30 of the Act indicates that a benefit can take the form of a relevant customer benefit if it contributes to: (a) wider choice, higher quality or lower prices; and (b) enhanced innovation. Nonetheless, if the story ended here, it would be incomplete. This is because as noted, under Article 79 of the HSCA 2012, the CMA was obliged to receive NHS Improvement’s advice in relation to the benefits of the merger for patients. Could NHS Improvement’s involvement in the merger assessment transform how the notion of customer benefits is in fact assessed? Answering this question requires us to recall NHS Improvement’s main duties in accordance with the HSCA 2012. As noted, NHS Improvement was mainly responsible for ensuring competition, regulating prices and securing the continuity of NHS services where there were no alternative provider(s). NHS Improvement was also obliged to serve the interests of users of healthcare services by ensuring that their provision was effective and efficient, and conformed to minimum standards of quality.67 Especially with regards to competition, NHS Improvement should perform its duties with the goal of preventing anticompetitive behaviour in the provision of health services for the purposes of the NHS which was against the interests of people who used such services.68 With the exemption of promoting competition,69 when performing its duties, NHS Improvement should take due



66 Ibid.

67 Section

62 HSCA 2012.

69 Section

74 HSCA 2012.

68 Ibid.

Introduction to the Main Facets of the HSCA 2012  199 account, amongst other things, of the need for commissioners of healthcare services to ensure that access to NHS services was fairly distributed among citizens.70 Promoting competition and securing continuity of services and access are goals that Could be potentially conflicting. To the extent that healthcare providers do not feel that they will exit the market if they fail to provide high quality services, their incentives to compete on quality becomes, inevitably, weak. In performing its multiple duties could NHS Improvement strike the appropriate balance between these potentially conflicting objectives? In theory, yes. This was because the HSCA 2012 clearly stated that when NHS Improvement exercised its competition function, it could take into account its general noncompetition duties only if these related to matters to which the CMA was entitled to have regard.71 Especially in the case of mergers, the HSCA additionally stated that NHS Improvement should provide the CMA with advice on the transaction’s potential customer benefits in the form of those within section 30(1)(a) of the Enterprise Act 2002.72 This implies that at least in principle NHS Improvement could not exercise its competition function with an eye to protect access to NHS services or the financial stability of the merged entities. However, since clause 39(4) of the HSCA additionally stated that NHS Improvement could also provide the CMA with advice on any other matters relating to the merger, as NHS Improvement considered appropriate, the integration of health objectives and wider social concerns into the merger analysis cannot be totally precluded. The injection of non-competition goals into the merger assessment through the NHS Improvement’s involvement could not also be excluded considering two things: first that NHS Improvement was likely to be performing its duties consistently which makes it difficult to believe that it would make decisions in the vacuum.73 It is difficult for example to think that NHS Improvement was not tempted to widen the notion of customer benefits when assessing hospital mergers in cooperation with the CMA, although one of its main regulatory tasks was to ensure the continuity of healthcare services, especially in case a provider faced the risk of exiting the market because of financial failure. It is also difficult to see why NHS Improvement would not accept the argument that a merger is necessary for the continuous provision of healthcare services in poor remote areas despite its adverse effects on competition as in performing its regulatory tasks NHS Improvement was obliged to consider the need for commissioners of healthcare services to ensure fair access to the NHS services. Should the risk of exiting be considered when mergers are reviewed? Should the continuity of services have been considered by CMA and NHS Improvement

70 Section 66 HSCA 2012. 71 Section 74 HSCA 2012. 72 Section 79 HSCA 2012. 73 A Sanchez Graells, ‘Monitor and the Competition and Markets Authority’ (University of Leicester School of Law Research Paper No 14-32, 2014), 9.

200  The Regulatory Approach when in the context of their merger assessment they examined whether a merger may yield customer benefits? Although this question is crucial, it is not easy to address. This is because if CMA and NHS Improvement excluded any equity or accessibility concerns from their merger analysis, then their assessment might undermine essential health objectives. These can be goals that are pursued by other authorities, such as the CCGs or NHS England. Surely, even if CMA and NHS Improvement did not consider these objectives in their analysis, access to NHS services could not be completely restricted. This is because in case of financial failure, as noted, NHS Improvement could apply the TSA regime. Nonetheless, especially in rural cases where alternative providers may be limited, the risk of restricted access in the short term could not be precluded. However, integrating equity concerns into a hospital merger assessment so that continuity is ensured may harm the efficiency of the merged entities in the long term. This is because evidence shows that trust mergers present significant challenges to the organisations that acquire services.74 The experience of the Heart of England NHS Foundation Trust in taking over Good Hope Hospital in 2009 illustrates this point. Specifically, in this case, the performance of a well-performing organisation was negatively affected following the acquisition. King’s College Hospital NHS Foundation Trust also faced similar challenges after the acquisition of Princess Royal University Hospital in south London.75 Therefore, even if CMA and NHS Improvement accepted the proposed mergers to make a merger assessment that is in line with the essential goals of the English health system, they may attain the goal of protecting these objectives in the short term but not in the long term. The section that follows is devoted to delving into these tradeoffs. Specifically, it explores whether, and to what, extent these conflicting objectives between CMA, the commissioners and NHS Improvement might transform the assessment of mergers between NHS FTs. To conclude this assessment, the section that follows first reviews the competition law framework under which mergers between NHS FTs were examined by NHS Improvement and the CMA. It also explores how under this framework NHS Improvement and the CMA assessed quality when they examined mergers between NHS FTs. It also identifies the dimensions of quality that actually mattered to them when they evaluated the merger’s impact on quality. To adequately analyse these issues, the section that follows also reviews some indicative merger cases between NHS FT and sees whether and to what extent the above identified conflicting objectives between these different actors in healthcare transformed CMA’s merger analysis with regards to NHS FTs.



74 Ham 75 Ibid.

et al (n 25) 14.

Does the CMA Consider Quality in Merger Cases?  201 II.  HOW AND TO WHAT EXTENT DOES THE CMA INTEGRATE QUALITY CONCERNS IN THE CONTEXT OF NHS MERGERS?

The HSCA 2012 provided that the CMA exclusively examined mergers between NHS FTs. In addition, the CMA had the power to review mergers between an NHS FT and an NHS trust and mergers between NHS trusts and other entities in England (NHS mergers).76 Not surprisingly, since under the HSCA healthcare providers competed on the basis of quality and not on the basis of price, when assessing a mergers’ impact on competition, the CMA’s analysis focused on quality. Mergers solely between NHS trusts were not reviewed by the CMA, but exclusively by NHS Improvement.77 The general framework under which CMA reviewed mergers was described in the 2010 Merger Assessment Guidelines. In 2014 the CMA issued specific guidance (‘the Guidance’) with regards to mergers involving a NHS FT and mergers between NHS trusts and other firms in England.78 In this Guidance, although the CMA recognised that mergers between NHS trusts (NHS mergers) might yield substantial qualitative and cost efficiencies such as financial savings, sharing of best practices, better integration of health services and improved clinical outcomes for patients, it also recognised that they may also undermine quality competition by eroding NHS providers’ incentives to improve services for patients.79 Therefore, when the CMA assessed an NHS merger, it examined both the potential adverse effects for patients and/or commissioners emerging from restricted competition, and the merger’s benefits for patients and commissioners.80 In making this assessment, the CMA aimed to ensure that the merger was in the overall interest of patients.81 Interestingly, in carrying out this review, it seems that the CMA did not undertake a strict competition assessment. Indeed, to a certain extent the CMA could consider the health policy goals pursued by CQC, NHS Improvement or the commissioners. This is because in analysing a merger case, the CMA gathered and evaluated evidence from various resources, including the merging providers, the Department of Health, NHS Improvement,

76 CMA, ‘CMA Guidance on the Review of NHS Mergers’ CMA29 (31 July 2014) 4, available at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/ 339767/Healthcare_Long_Guidance.pdf. 77 NHS trusts are under the common control of the Secretary of State for Health. Monitor advised the NHS Trust Development Authority (TDA) on the impact mergers between NHS trusts would have on choice and competition. As far as possible, Monitor adopted an approach that was consistent with the approach taken by the CMA for NHS foundation trusts and other enterprises. TDA took into account Monitor’s advice and any recommended actions when making its final decision on whether to proceed with a proposed merger. 78 CMA Guidance (n 76). 79 Ibid, 1. 80 Ibid, 2. 81 Ibid.

202  The Regulatory Approach NHS England, the CQC, commissioners, local patient representatives and thirdparty providers.82 Additionally, when assessing the impact of an NHS merger on competition, the CMA also particularly considered the structure and regulatory framework the merging entities were subject to.83 In brief, to identify the potential costs and benefits of an NHS merger the CMA applied a two-phase merger control regime. At Phase 1, the CMA examined whether the potential merger might result in a substantial lessening of competition (SLC).84 If so, the CMA was obliged to undertake an in-depth assessment (Phase 2), although merging parties could also choose to amend aspects of the transaction to address any competition concerns identified by the CMA (known as Undertakings in Lieu), thereby obtaining a resolution at Phase 1, conditional on acceptance of the remedies. The CMA could also choose not to initiate a Phase 2 investigation if it considered that: (a) the market was not important enough to justify a Phase 2 investigation; (b) the merger might bring benefits to customers that surpassed the effect of the SLC; or (c) the proposed merger ‘was not sufficiently advanced or likely to proceed to justify a Phase 2 investigation’.85 As noted, NHS Improvement was obliged to advise the CMA ‘with regards to the benefits of NHS mergers that were examined by the CMA or on any other matters it deemed to be appropriate’.86 Despite the fact that the CMA did not have to follow NHS Improvement’s advice, the CMA made clear that it took into serious consideration NHS Improvement’s expert advice on the merger’s benefits.87 At Phase 2, a CMA panel of independent members undertook an in-depth investigation to assess: (a) whether a relevant merger situation had been created or was likely to be created;88 (b) if so, whether the creation of that situation had led or was likely to lead, or to result in a SLC with adverse outcomes for patients and/or commissioners within any market or markets in the UK.89 If the CMA panel concluded that there was a risk of an anticompetitive effect, it should also decide: (a) whether action should be undertaken with the purpose of mitigating, preventing or remedying the SLC involved; (b) if action is deemed 82 Ibid. 83 Ibid. 84 Ibid, 23. 85 Ibid, 42. 86 Section 79 HSCA 2012. 87 CMA Guidance (n 76) 23. 88 The CMA has jurisdiction to examine a merger where two or more enterprises cease to be distinct and – either the UK turnover of the acquired enterprise exceeds £70 million – or the enterprises which cease to be distinct supply or acquire goods or services of any description and, after the merger, together supply or acquire at least 25% of all those particular goods or services of that kind supplied in the UK or in a substantial part of it. Transactions which do not give rise to a relevant merger situation are still subject to general competition provisions contained in the Act and the Competition Act 1998. In healthcare, entire organisations such as NHS foundation trusts and NHS trusts controlling hospitals, ambulance services, mental health services, community services and individual services or specialties were enterprises for the purpose of UK merger control. 89 CMA Guidance (n 76) 6.

Does the CMA Consider Quality in Merger Cases?  203 necessary, what the most appropriate action was and ‘what Should be remedied, mitigated or prevented’.90 How and under what techniques does CMA assess whether a SLC had occurred? How does the CMA assess quality at this stage of merger assessment? And, most importantly, did the CMA consider the wider health policy objectives of the English health system when making this assessment? The section that follows is dedicated to examining these core questions. A.  Quality Concerns in Assessing SLC To begin with, a SLC occurs when following the merger, the competitive rivalry will be significantly less intense than would otherwise be the case, leading to adverse outcomes for patients or commissioners.91 When examining an NHS merger, the CMA specifically examined whether the merger may result in a SLC in two distinct markets. Basically, these were (a) competition in the market or else competition to attract patients and (b) competition for the market or else competition to attract contracts to provide services.92 Competition in the market takes place where patients were able to choose among providers of the same service.93 Since payments for NHS services were made to NHS FTs on the basis of nationally mandated prices across England, competition in the market was based on quality.94 On the other hand, competition for the market occurred because commissioners had to choose the providers that could best meet the needs of the patients.95 This form of competition was based on quality, although in certain cases, it is also based on price. When the SLC applies, a comparison takes place between the merger scenario and the competitive situation absent the merger.96 The competitive situation that would most likely exist absent the merger is called ‘the counterfactual’.97 Hence, choosing the appropriate counterfactual is the necessary step in assessing whether or not there is a SLC.98 The counterfactual may be either less or more competitive than the prevailing conditions of competition.99 Examples of possible counterfactuals are: the prevailing conditions of competition, a provider exiting the market (exiting provider), another merger than the envisaged merger (involving one of the merging providers) and loss of potential entry.



90 Ibid. 91 Ibid,

7. 23–24. 93 Ibid, 23. 94 Ibid. 95 Ibid. 96 Ibid, 24. 97 Ibid. 98 Ibid. 99 Ibid. 92 Ibid,

204  The Regulatory Approach Specifically, in forming a view on an exiting provider scenario, the CMA particularly considered three specific conditions: (a) whether the provider would exit the market; (b) whether an alternative provider would acquire the provider’s assets; and (c) where the patient and the commissioner contracts of the provider would go in case the provider exited the market.100 In assessing the first condition, the CMA took due account of the regime that applied to ensure that NHS hospitals and other providers confirmed with specific regulatory obligations including those in provider licenses regarding financial and clinical measures.101 If, for example, one of the merging entities was placed into the TSA process, this could ultimately lead to the dissolution of the provider.102 If this scenario seemed inevitable, the CMA could consider that the provider would exit the market absent the merger. Therefore, the merger would not necessarily lead to a SLC. In assessing the second condition, whether there would be an alternative acquirer for the provider’s assets, the CMA particularly took into account quality as it seriously examined any submissions as to why an alternative provider would not have offered safe clinical services or not done so on a financially viable basis.103 On the other hand, when the CMA examined the third condition, where the patient and commissioner contracts could go absent an alternative provider, the Guidance did not clarify to what extent quality concerns enter the CMA’s analysis. The Guidance stated that if, absent the merger, patients’ and commissioners’ contracts ‘were likely to have been dispersed across several providers, the merger, by transferring most or all of the commissioner and patients contracts to the acquiring provider’ would significantly restrict competition.104 If, on the other hand, most of the commissioner contracts and patients ‘were expected to switch to the acquiring provider’, the merger would not necessarily negatively affect competition.105 In other words, when assessing this counterfactual scenario, the CMA assessed how the contracts would have been dispersed but not how they would have been performed. Quality considerations also became part of the CMA’s assessment when the possible counterfactual scenario appeared to be that one of the merging parties could cease to provide specific services. According to the Guidance, when this countervailing scenario was assessed, merging parties can make submissions as to whether one of the alternative providers is ‘less likely to be a strong alternative choice for patients or commissioners due to clinical or financial difficulties and therefore less likely to exercise a strong competitive constraint on the other merging provider’.106



100 Ibid, 101 Ibid,

26. 27.

103 Ibid,

31.

105 Ibid,

29. 30.

102 Ibid. 104 Ibid. 106 Ibid,

Does the CMA Consider Quality in Merger Cases?  205 If the CMA concluded that the most appropriate counterfactual scenario was the exiting provider scenario, the CMA could propose that the merger would have little impact on competition. In many NHS merger cases, the merging entities attempted to prove that absent the merger they may exit the market. Indeed, in the UCLH case,107 which concerned the transfer of all neurosurgery inpatient and day care services from Royal Free London NHS Foundation Trust (RFH) to University College London Hospitals NHS Foundation Trust (UCLH), the parties submitted that absent the merger the appropriate counterfactual was ‘the unplanned cessation of neurosurgery at RFH for reasons of clinical safety’.108 The reason for this was that the London Deanery had already informed RFH that, given its size, ‘its neurosurgery medical rota was not sustainable and the funding for training posts would in fact be removed’.109 Considering that even without the funding, it would have been possible for RFH to continue its services, the CMA did not find that the exiting provider scenario was the appropriate one.110 Interestingly, although the CMA refused to accept that due to the parties’ financial difficulties exit was inevitable, it considered in its assessment the parties’ financial and quality concerns indirectly when it examined the competitive constraint that RFH would impose on UCLH if the transaction did not take place.111 Considering the commissioners’ views that given RFH’s small size there were risks associated with the unit as well as that the proposed merger would further improve quality, the CMA concluded that ‘there would be sufficient choice of remaining neurosurgery providers posttransaction’ to address any competition concerns stemming from the merger. Having reached this conclusion, the CMA accepted the merger.112 In a similar manner, in the Ashford case, which involved the merger between Ashford and St Peter’s Hospitals NHS Foundation Trust (ASP) and Royal Surrey County Hospital NHS Foundation Trust (RSC), the merging parties submitted that, if the merger did not proceed, the financial and clinical sustainability of their organisations would be at serious risk given the financial challenges they faced. According to the parties, these financial challenges were highly related to the external environment in which they operated.113 This environment, the parties claimed, was characterised by: (a) ‘tight funding allocations for commissioners’ combined with continuously high demand for health services; and (b) ‘relatively close proximity to central London teaching hospitals, from which many specialized services for patients in Surrey had historically been delivered,

107 Acquisition by University College London Hospitals NHS Foundation Trust (UCLH) – Royal Free London NHS Foundation Trust’s neurosurgery services ME/5574-12, decision. 108 Ibid, 22–23. 109 Ibid. 110 Ibid, para 30. 111 Ibid, para 81. 112 Ibid, 86. 113 Ashford and St Peter’s and Royal Surrey County, CMA Report (n 26) 3.10.

206  The Regulatory Approach combined with a push by commissioners towards greater centralization of these services’.114 In light of these factors, absent the merger, the parties expected either to remain in or enter into deficit.115 The parties insisted that absent the merger they would not be able to comply with the safety standards of nursing as set by the latest national guidance, and they would not be able to deliver services seven days per week.116 An inability to meet these quality standards would negatively affect the competition they offered to each other and to other providers.117 In evaluating the parties’ claims and choosing the appropriate counterfactual, the CMA particularly considered NHS Improvement’s financial failure regime, as well as the merging entities’ ratings. While the CMA did not consider that the parties would exit the market, the CMA acknowledged that the parties might face financial constraints in light of continuous tariff deflation and increasing requirements to improve both efficiency and quality. According to the CMA, these difficulties would negatively affect the providers’ ability to improve the quality or increase the range of their services.118 In the Heatherwood merger case,119 the merging parties again raised the concern that the proposed merger should be accepted on the basis that it was necessary for their financial stability. In fact, the parties claimed that Heatherwood and Wexham Park Hospitals (HWPH), two of the merging parties, were struggling trusts and that the quality of their services had been reduced over time.120 In proving their claim, the merging entities submitted to the CMA the CQC’s most recent inspections. They also informed the CMA that HWPH were subject to regulatory intervention by NHS Improvement because they failed to comply with some of their licence conditions.121 NHS Improvement confirmed the parties’ allegations. In fact, NHS Improvement informed the CMA that HWPH had been in significant breach of their licensing conditions since July 2009 and that they had been subject to numerous regulatory interventions.122 The CMA, once again, was not convinced by the merging parties’ allegations that due to their clinical or financial difficulties, they would exit.123 This is because, according to the CMA, the parties had not submitted compelling evidence demonstrating that absent the merger, HWPH would have inevitably exited.124

114 Ibid, 3.11. 115 Ibid, para 4.6–4.7. 116 Ibid, para 4.8. 117 Ibid, 4.10. 118 Ibid, para 4.45. 119 Anticipated acquisition of Heatherwood and Wexham Park Hospitals NHS Foundation Trust by Frimley Park Hospital NHS Foundation Trust ME/6432-14, decision. 120 Ibid, para 20. 121 Ibid, para 21. 122 Ibid, para 22. 123 Ibid, para 24. 124 Ibid, para 31.

Does the CMA Consider Quality in Merger Cases?  207 Interestingly, in this case, NHS Improvement offered the CMA its advice in accordance with section 79(5) of the HSCA 2012. NHS Improvement took the view that given the information available to it, it was unable to determine whether any relevant customer benefits were likely to be created.125 However, with regards to its advice on matters relating to the proposed acquisition, NHS Improvement underlined that due to HWPH’s quality, financial sustainability and management issues, the merger seemed to be the best mechanism through which the problems at HWPH would be addressed and improvements to patients’ services would be attained.126 NHS Improvement clarified that Heatherwood and Wexham FTs had faced significant financial restraints, management and quality issues for a long period and, hence, had been subject to several regulatory interventions.127 NHS Improvement expressed its belief that ‘the proposed acquisition was likely to deliver a quicker and more sustainable solution to these issues than further regulatory intervention by NHS Improvement could achieve’.128 Given the above concerns, NHS Improvement did not think the merger should be rejected.129 CCGs, patients and competing providers’ local representatives also supported the merger. These parties specifically referred to Frimley Park Hospital’s (FPH) ability to address the management issues at HWPH, as well as the opportunity for FPH to further increase scale and thus improve its ability to deal with the challenges faced by NHS FTs.130 In the Bournemouth case, where the Competition Commission (CC) examined the merger between the Royal Bournemouth and Christchurch Hospitals NHS Foundation Trust (RBCH) and Poole Hospital NHS Foundation Trust (PH), the parties also attempted to convince CC that due to the clinical and financial challenges they faced, many of which were quite common with NHS hospitals offering acute care, the most appropriate counterfactual was the provider exiting scenario.131 Again, in assessing this claim, the CC particularly considered the merging parties’ financial situations as well as NHS Improvement’s failure regime. The CC concluded that ‘in the counterfactual both parties would remain as stand-alone entities, providing broadly similar service offerings to

125 Ibid, para 18. 126 Ibid. 127 Monitor, ‘Anticipated Acquisition of Heatherwood and Wexham Park Hospitals NHS Foundation Trust by Frimley Park Hospital NHS Foundation Trust. Advice to the Competition and Markets Authority under Section 79(5) of the Health and Social Care Act 2012’ (2 May 2014) 1–2, available at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_ data/file/317250/Advice_to_CMA_-_Frimley_merger.pdf. 128 Ibid. 129 Ibid. 130 Heatherwood and Wexham Park Hospitals NHS Foundation Trust merger decision (n 119) at paras 108–109. 131 Competition Commission (CC), Royal Bournemouth and Christchurch Hospitals NHS Foundation Trust/Poole Hospital NHS Foundation Trust, para 16. This is the first merger involving NHS foundation trusts that was considered by the CC.

208  The Regulatory Approach their current offerings’.132 Therefore, the merging parties’ proposed counterfactual scenario was not accepted. In examining whether a SLC is likely to occur, the CMA took the following steps: (a) it identified the relevant markets; (b) it examined the unilateral and coordinated effects on competition; (c) it assessed closeness of competition; and (d) it considered countervailing factors such as merger benefits, entry and expansion and buyer power. The CMA, as the following sections show, took into account quality concerns on all these levels of merger analysis. i.  Identifying the Relevant Market In identifying the relevant product market, the CMA took the view that each specialty comprised a separate relevant market. Within each specialty, CMA considered outpatient and inpatient as separate product markets noting that ‘there is an asymmetric constraint between inpatient and outpatient, with inpatient providers capable of readily supply-side substituting into outpatient services but not vice versa’.133 The CMA also considered that outpatient services that were offered only in the community should be identified as separate markets.134 The CMA also considered that elective and non-elective activities were separate markets, despite the fact that the provision of elective activities might in certain cases be constrained by non-elective providers.135 The market for NHS services and the market for private services also constituted separate markets.136 When defining the geographic market, the CMA considered that location was a decisive factor to patients/GPs when they had to choose a hospital, and hospitals offering the same services in different locations did not necessarily constitute perfect substitutes for one another.137 Essentially, this view reflected the CMA’s Guidance, stating that, ‘in publicly funded healthcare services, the relevant geographic market may be based on the locations of providers and will be informed by an assessment of the willingness of patients to travel for consultation or treatment, the catchment area’.138 By calculating the catchment area, the CMA essentially identified the extent of the areas (in terms of travel distance from the hospital) from which the majority of patients originated.139

132 Ibid, at para 21. 133 CMA Guidance (n 76) 12. 134 CC’s Bournemouth and Poole merger decision (n 131) para 5.53. 135 CMA Guidance (n 76) 32. 136 Ibid, para 6.38. 137 CC’s Bournemouth and Poole merger decision (n 131) para 5.56; Heatherwood and Wexham Park Hospitals NHS Foundation Trust merger decision (n 119) at 14. 138 CMA Guidance (n 76) 32. 139 Ashford and St Peter’s and Royal Surrey County, CMA Report (n 26) para 5.33; CC’s Bournemouth and Poole merger decision (n 131) 5.57; Acquisition by University College London Hospitals NHS Foundation Trust (n 107); Anticipated Acquisition of Chelsea and Westminster NHS Foundation Trust of West Middlesex University NHS Trust, decision, paras 52–56.

Does the CMA Consider Quality in Merger Cases?  209 This indicates the area with regards to which the merging hospitals were likely to be realistic alternatives to each other for patients/GPs. The CMA indicated that the catchment area depended on many factors, such as drive-times, public transport and availability. Considering that the vast majority of patients travelled to the hospital by car, the CMA approximated catchment areas by using ‘drive-times or isochrones’.140 As part of its assessment, the CMA also considered the restraints imposed on the parties by competitors located further away than indicated by the isochrones.141 To identify the catchment area and calculate driving times, the CMA particularly considered the area from which 80 per cent of patients travelled (calculated mainly from their GP practice) split by the type of service and specialty (elective, non-elective and outpatient). Having assessed the areas from which 80 per cent of patients travel, the CMA then calculated the drive-times that captured 80 per cent of the patients treated by each merging hospital. By using the drive-time data and by drawing isochrones around the sites of the merging parties, the CMA mapped the catchment area of each merging hospital.142 This task then allowed the CMA to identify to what extent the merging parties’ catchment areas overlapped by specialty.143 The CMA noted that ‘the catchment area is typically narrower than the geographic market identified using the hypothetical monopolist test’.144 It underlined though that it took this into account in its competitive assessment when it looked at the merging parties’ rivals and the competitive pressures they imposed on the merging entities.145 Does this definition of the geographic market take into account quality? Indirectly, yes. To the extent patients choose healthcare providers not only on the basis of the location but also on the basis of the quality of the services they receive by each provider, then it could be held that the driving time data and the drawing isochrones reflect the patients’ concerns on hospitals’ quality. Indeed, especially for elective care, the higher the quality of a specific provider, the more the patients may be willing to travel to be treated. Nonetheless, since reality actually shows that patients can assess specific dimensions of quality, such as waiting times, as well as that GPs often refer patients to specific hospitals because of their relationship with a specific consultant, it could be argued that patients’ and GPs’ choice of hospital does not necessarily reflect the overall performance of the hospital.



140 CC’s 141 Ibid.

Bournemouth and Poole merger decision (n 131) 5.58.

142 Ashford

and St Peter’s and Royal Surrey County, CMA Report (n 26) para 5.41. para 5.42. 144 Ibid, 5.51. 145 Ibid; CC’s Bournemouth and Poole merger decision (n 131) para 5.71. 143 Ibid,

210  The Regulatory Approach ii.  Examining the Effects on Competition As noted, the CMA measured a merger’s impact on quality in two distinct markets: the competition in the market and competition for the market. For this reason, I will also analyse the CMA’s assessment in these two markets in separate sections. a.  Competition in the Market When examining how and to what extent an NHS merger may restrict quality in competition in the market, the CMA applied a narrow approach to the dimensions of quality it actually considered. This is because when the CMA measured the impact of an NHS merger on quality, the CMA focused its analysis mainly on clinical factors such as mortality and infection rates, ratio of nurses or doctors to patients, best practice, equipment and non-clinical factors such as waiting times, cleanliness and parking facilities.146 At first glance any assessment with regards to the merger’s impact on health policy objectives, such as equity and accessibility, seemed to be excluded. Nonetheless, as the UCLH merger case indicates, the CMA might indirectly have taken these concerns into account as part of its assessment. Indeed, in this case, the CMA instead of explicitly stating that it examined the merger’s impact on patients’ access to hospital services, the CMA stated that it examined the transaction’s impact on travelling time for patients.147 In other words, instead of raising the question of whether the transaction would impact patients’ access to NHS health services, it in fact asked whether the transaction would increase patients’ travelling time. In assessing the merger’s anticompetitive effects on competition in the market, the CMA assessed the extent and nature of current competition. In brief, the CMA identified the services that were offered by both merging providers (the overlap services) and then asked whether with regards to each of the overlap services: (a) patients and/or GPs had the ability to choose provider; (b) the choice of provider was influenced by the quality and/or price of the services offered; (c) the merging providers had incentives to compete to attract patients absent the merger; and (d) the merging entities were close rivals.148 Again, this stage of merger analysis is essential. This is because if the CMA reached the conclusion that the merging parties were not close rivals, or they did not have incentives to compete to attract patients or quality did not drive GPs’ or patients’ choice, then the CMA would conclude that the merger’s effect on competition is insignificant. Hence, the merger would be accepted.



146 CMA

Guidance (n 76) para 1.5. by University College London Hospitals NHS Foundation Trust (n 107) para 60.

147 Acquisition 148 Ibid.

Does the CMA Consider Quality in Merger Cases?  211 Importantly, when analysing these issues, the CMA particularly considered not only the merging parties’ views but also third parties views’ such as commissioners.149 Especially when evaluating merging parties’ incentives to compete in the overlap services, the CMA particularly examined whether and how the regulatory framework might affect the merging parties’ incentives to compete. In fact it considered: (a) the profitability of increasing activity considering the cost structures and the applicable tariff; (b) capacity constraints; and (c) the relationships between merging entities and CCGs.150 Interestingly, while the CMA thought that the merging parties in general had high incentives to compete with regards to elective services, it constantly took the view that the merging parties did not have high incentives to compete with regards to non-elective services. Let’s consider the Bournemouth merger case. In this case, the CC examined the merger’s impact on competition both on elective and non-elective services.151 In assessing the merger’s impact on non-elective services, the CC thoroughly examined the regulatory framework on the basis on which NHS FTs operated. The CC observed that in non-elective services patients do not exercise choice. This is because when they need access to non-elective hospital services, they are transported by emergency services according to ambulance protocols.152 Hence, there is less opportunity for patients to consider quality and exercise choice when they use non-elective services.153 This is the reason why the CC underlined that patients do not have access to publicly available information on the basis of which they could compare the quality of non-elective services (with the exception of A&E departments where reviews are available on the NHS website).154 In shaping its view, the CC further examined whether the profitability of non-elective services in fact restricted the parties’ incentives to compete. The CC concluded that the merging parties lacked the necessary incentives to attract additional patients due to the 30 per cent marginal rate tariff for emergency services.155 Analysing this regime, the CC found that ‘only 30 per cent of the normal tariff is paid on all services resulting from emergency admissions once the total value of all these services in a given year exceeds the value or “baseline”’.156 The CC noted that as the intention of this tariff was to reduce the number of emergency admissions, the parties did not have strong incentives to compete.157 In light of this reality, the CC alleged that the proposed merger would not result in a SLC with respect to non-elective services.158



149 CMA

Guidance (n 76) para 7.22. para 61. 151 CC’s Bournemouth and Poole merger decision (n 131). 152 Ibid, para 55. 153 Ibid. 154 Ibid, 6.255. 155 Ibid, para 55. 156 Ibid, 6.261. 157 Ibid, 6.272. 158 Ibid. 150 Ibid,

212  The Regulatory Approach In contrast, in the same case, in assessing whether the examined merger would result in a SLC in elective services, the CC took exactly the opposite view. In this type of service, the CC alleged, patients and GPs do exercise the right to choose provider for their first consultant-led outpatient appointment, a right which is enshrined in the NHS Constitution.159 In this type of service, the CC also said, quality influences choice as evidence from economic literature indicates that besides location, infection rates, waiting time, mortality rates are quality factors that do affect choice of hospital.160 The CC further examined the issue of quality competition between hospitals via the patient and GP surveys the CC commissioned.161 In addition, in contrast with non-elective services, in elective services, the CC said, the parties are strongly incentivised to compete to attract patients in order to increase their revenues.162 The CC concluded that although the parties’ incentives were weakened to some extent due to ‘uncertainty over payment for extra activity and, at the aggregate level, by constraints on expanding overall capacity’, incentives to compete for elective services remained strong.163 In reaching this conclusion, the CC particularly considered that the merging  parties’

159 Ibid, para 42. 160 Ibid, para 6.88. 161 In this survey the CC asked patients and GPs: (a) whether patients were aware that they could choose which hospital they went to; (b) what factors patients/GPs considered important in relation to choosing a hospital; (c) the factors that were discussed between the GP and the patient (where a discussion occurred); (d) which hospitals were discussed/considered; and (e) how patients would change their behaviour/GPs would change their recommendations in response to a change in quality or if the treatment they were being referred for was unavailable. In the latter case, where respondents indicated that they would choose a different hospital, the CC asked how strongly they preferred their first option to the second option (on the basis that if they strongly preferred their first option they might be less likely to react to the changes in quality of the magnitude the CC might be concerned about). Specifically, it examined the factors that influence choice and the extent to which patients and GPs would react to changes in relative quality of the merger trusts. It found that the five aspects named most frequently as ‘essential/very important’ all related to aspects of clinical quality, namely: clinical expertise of healthcare professionals; availability of specialist medical equipment at the hospital; quality of nursing care; clinical outcomes; and quality of aftercare in follow-up visits. It also showed that the next most frequently-named aspects related to waiting times, ease of access/parking, appointment times offered and previous experience. In order to better understand the strength of quality competition between the parties, the CC also looked at the extent to which patients/GPs respond to changes in quality generally or, to put it another way, by how much quality would need to decrease/increase in order to induce a change in hospital choice. Acknowledging that there are many dimensions of quality, some of which are difficult to quantify, the CC used waiting time as a measure to complete its assessment. Focusing on one measure of quality, waiting time, is practical and provides useful indicative results for these purposes, the CC acknowledged. The survey indicated that if waiting times were to increase by 10% at RCBH, 26% of RBCH patients would switch hospital, which implied an (own) waiting time elasticity of 2.6. This result led the CC to conclude that a significant proportion of patients exercised choice in relation to hospitals. The CC also examined the evolution of hospital shares over time at the GP practice level, which showed some variation over time, indicating that factors other than location were likely to be influencing patients’ choices. 162 Ibid, 6.124. 163 Ibid, 48.

Does the CMA Consider Quality in Merger Cases?  213 elective surgeries were generally profitable at the margin. It also considered that the merging parties tended to be remunerated fully by the CCGs when they exceeded planned activity. Therefore, the merged entities had incentives to increase the volume of patients.164 The CC also considered that the applicable quality regulatory framework did not undermine parties’ incentives to compete. In reaching this finding, the CC examined whether regulatory factors might limit competition’s role in influencing quality, because either they set specific quality standards or because they provided financial rewards to an extent that influenced the parties’ ability or incentives to compete on quality.165 The CC noted that NHS providers, including foundation trusts, must comply with a wide range of regulatory obligations and best practice guidelines with regards to the quality of services they offer. It also noted that failing to comply with some quality standards should have negative ramifications as a specific regulatory framework existed that might prevent some aspects of quality from deteriorating. In the CC’s view, though, the requirements set by the regulatory framework did not necessarily affect the parties’ incentives for quality at the margin, since both entities exceeded the minimum quality standards in many areas. The CC emphasised that national targets (such as waiting time targets) did not necessarily preclude quality competition as ‘hospitals are incentivized by published information about their performance in relation to the target not only to meet targets but perform well in relation to their closest competitors’.166 Noting that all UK hospitals should comply with the same regulatory framework as the parties and vary significantly in terms of performance, the CC concluded that quality regulation did not impede competition on quality.167 In light of this analysis, the CC concluded that ‘the merger would be likely to lead to unilateral effects in the elective inpatient specialties’.168 Because of the loss of actual competition among the parties, the merging entities would be less incentivised to further improve the quality of the services that they offered to patients.169 In the Ashford merger case, the CMA also assessed the merger’s impact on parties’ incentives to compete on quality on both elective and non-elective services. In assessing the merger’s anticompetitive effects in elective services, the CMA examined how commissioning arrangements, capacity and payment

164 It should be noted that the parties disagreed with the CMA’s analysis on the basis that if they engaged in expanding activity without commissioner approval, they would not expect to be remunerated in the same way as they had been in the last three years. They claimed that in 2009/10 they expanded their activity significantly above the agreed level and were not fully paid for the activity they carried out (see para 6.158); and that since then, they had been careful not to take on additional activity without the support of commissioners, and that when activity exceeds the pre-agreed level it was for reasons acceptable to the commissioner and they could expect to be paid. 165 CC’s Bournemouth and Poole merger decision (n 131) para 6.179. 166 Ibid, 6.182. 167 Ibid, 6.180–6.181. 168 Ibid. 169 Ibid.

214  The Regulatory Approach structures may impact the merging parties’ incentives to compete with one another.170 After assessing the structure of the parties’ commissioning arrangements, profitability and capacity levels, the CMA considered that premerger the parties had an incentive to keep current levels of patient referrals and increase the volume of the patients they attracted for elective services.171 In shaping its view, the CMA examined the commissioners’ and regulators’ role in addressing falling service quality by redesigning services or patient pathways. It also considered commissioners’ submissions indicating that following intervention, the threat of fines or service removal strengthens the trust’s incentives to improve the services they offer to patients.172 Considering, however, that in the elective services market the merging parties faced competitive constraints and patients and GPs could choose alternative providers, if the quality of their services declined, the CMA concluded that the merger would not result in a SLC with respect to elective services.173 In the same case, when assessing the merger’s effect on non-elective services, the CMA repeating its analysis in the Bournemouth case,174 emphasised that the providers did not have high incentives to compete with respect to these services. The CMA again maintained that the patients who need emergency services cannot choose the hospital that will treat them. It also found that the provision of emergency services did not necessarily create profits which undermined providers’ incentives to compete for emergency patients.175 The CMA observed that in the last two years, the merging parties had surpassed the baseline for emergency admissions with their main commissioners. Therefore, the revenue hospitals earned on the basis of marginal non-elective admissions was only 30 per cent of the full tariff.176 Taking due account of all these factors, the CMA concluded that the parties had limited financial incentives to attract additional non-elective referrals. On the basis of this finding, the CMA held that the merger would not result in a substantial lessening of competition with regard to emergency services.177 In the Central Manchester University Hospitals merger case, where the CMA examined the merger between Central Manchester University Hospitals NHS FT (CMFT) and University Hospital of South Manchester NHS FT (UHSM), the CMA also assessed the merger’s impact on quality with regards to both elective and non-elective services. More specifically, the CMA examined how the merger may impact the quality of a NHS elective and maternity



170 Ashford

and St Peter’s and Royal Surrey County, CMA Report (n 26) para 6.43. para 6.63. 172 Ibid, para 6.73. 173 Ibid, para 22. 174 CC’s Bournemouth and Poole merger decision (n 131). 175 Ibid, 7-20–7.22. 176 Ibid. 177 Ibid, 55. 171 Ibid,

Does the CMA Consider Quality in Merger Cases?  215 services; (b) NHS specialised services; (c) NHS non-elective services; and (d) community services. What were the CMA’s main findings? When assessing the merger’s potential anticompetitive effects, the CMA emphasised that recent developments have diminished the role of competition in NHS services and had undermined providers’ ability to compete.178 Despite this, the CMA concluded that the merging parties did not lack the incentive to compete with regards to NHS elective and maternity services.179 In reaching this conclusion, the CMA particularly considered the parties’ internal documents showing that there was rigorous competition among the parties with regards to the provision of maternity and specialised services, as well as their available capacity.180 For this reason, the CMA reached the conclusion that if accepted, the merger might create a SLC in NHS elective and maternity services.181 With regards to the non-elective services, the CMA concluded that the merging parties lacked the necessary incentives to compete.182 The CMA reached this conclusion in light of the merging parties’ capacity constraints that undermined their incentives to increase the volume of their patients. Additionally, the CMA emphasised, besides the merging parties, there were other alternative providers of non-elective services where patients could choose to seek treatment. Due to these factors, the CMA concluded that competition for non-elective services was not expected to be reduced because of the proposed merger. Additionally, when examining the closeness of competition between competitors, the CMA, again, took into consideration quality. Nonetheless, the analysis under which the CMA consdered quality when it assessed closeness of competition did not fully reflect the economic reality of healthcare markets. To further illustrate my point, I first explain how CMA assessed closeness of the competition. When evaluating closeness of competition, the CMA started its assessment by analysing ‘referral patterns and the overlaps between the catchment areas of the merging providers together with those of any other local providers’, given that patients choose hospitals, especially on the basis of location.183 The CMA might also ‘survey patients or use existing evidence on diversion ratios’ (for example, evidence of where patients turned to receive services in case of a temporary reduction in quality). The Ashford merger perfectly illustrates under what methodology the CMA measured the closeness of competition.184 In this case, when assessing closeness of competition the CMA: (a) asked patients

178 Central Manchester University Hospitals NHS Foundation Trust and University Hospital of South Manchester NHS Foundation Trust, Summary of final report, 1 August 2017. 179 Ibid, 6. 180 Ibid. 181 Ibid. 182 Ibid, 7. 183 CMA Guidance (n 76) 6.53. 184 Ashford and St Peter’s and Royal Surrey County, CMA Report (n 26).

216  The Regulatory Approach where they would turn to receive care if the hospital that treated them offered lowered quality services: (b) analysed referral data. In analysing these data, the CMA looked at the percentage of patients referred to each provider from GP practices that referred at least one patient to either one of the merging entities over four years. As a proxy for evaluating to which hospital patients/GPs of the parties might turn to in light of a decrease in quality at the relevant party, the CMA assumed that ‘patients/GPs would switch providers in accordance with the share of patient/GP referrals received by the other providers at the GP practice concerned (proportional analysis)’.185 The CMA underlined that ‘GP referral analysis is based on the actual choices of provider (at outpatient level, and inferred choices for day-cases and inpatients), which allows CMA to determine historical patient/GP preferences’.186 The CMA used this information to infer the providers to which patients/GPs might switch in the event of a decline in quality at one of the merging parties, making the assumption that historical patient/GP preferences of provider provide good predictions of future patient/GP provider choices.187

The CMA considered this to be ‘a reasonable assumption to apply in the healthcare setting’, since healthcare markets are pervaded by information asymmetries and as a result patients cannot assess the quality of the service that they receive before they enjoy the service. In supporting its main assumption, the CMA also took into account findings from the academic literature demonstrating that the higher the volume of patients a GP refers to a specific provider, the higher the chances that in the future this GP will also refer patients to that provider. Applying this method of analysis, the CMA identified 19 specialties where the parties seemed to be close rivals.188 Applying a similar analysis in the Heatherwood case, the CMA concluded that HWPH was not FPH’s rival competitor in any specialty and FPH was HWPH’s closest rival only with regards to a limited number of specialties for which other NHS providers also rigorously competed.189 In reaching its conclusion, the CMA particularly considered that third parties had not raised any competition concerns. On the contrary, the merger had received support from a large number of third parties, notably CCGs, patient groups and other NHS providers.190 Hence, the CMA easily reached the conclusion that the possibility that the merger would give rise to a SLC in relation to competition in the market was extremely limited.191

185 Ibid, 35–36. 186 Ibid, para 6.132. 187 Ibid. 188 Ibid, 6.142. 189 Heatherwood and Wexham Park Hospitals NHS Foundation Trust merger decision (n 119), para 10. 190 Ibid, para 84. 191 Ibid.

Does the CMA Consider Quality in Merger Cases?  217 In the Chelsea merger case where the CMA examined whether the merger between Chelsea and Westminster NHS Foundation Trust (CWFT) and West Middlesex University NHS Trust would undermine quality competition in elective, non-elective, inpatient and outpatient services and specialised services in West London, the CMA also tried to assess the closeness of competition by undertaking an analogous legal methodology. In this case, the CMA concluded that the parties were differentiated ‘either in terms of the scope and level of specialization or the geographic areas from where each party drew its patients for different specialties’.192 Because of this assessment, the CMA concluded that the merger would not lead to a SLC in the relevant markets.193 In the Central Manchester University Hospitals merger case, the CMA also assessed merging parties’ closeness of competition in the NHS maternity and elective services. To do so, the CMA relied on GPs’ referral data and CMFT’s business plans indicating that the other merging entity – UHSM – is one of the main competitors which aspires ‘to be a leading centre for vascular surgery in GM and investment in the service is evident’.194 Given these factors, the CMA concluded that the merger ‘was likely to give rise to horizontal unilateral effects in 18 NHS elective and maternity services’.195 The methodology applied by the CMA in these cases for assessing closeness of competition is primarily based on the assumption that GPs and patients can immediately assess and understand providers’ changes in quality which may not necessarily be the case. Moreover, even if GPs were immediately able to understand that a hospital has reduced its quality on the basis of its rating, GPs may still advise their patients to receive services from the same provider because of their relationship with a specific health consultant. This is the reason why GPs’ referrals may not always reflect providers’ closeness of competition with regards to all facets of quality. b.  Competition for the Market As noted, in its merger assessment, the CMA examined not only the merger’s impact on quality competition in the market but also on quality competition for the market. When assessing the merger’s impact on competition for the market, the CMA’s approach was quite lenient. This is because in all cases, in shaping its assessment, the CMA exclusively relied on commissioners’ views that competition for the market either did not exist or did not contribute to quality improvements. In the Bournemouth merger case, for example, the CMA

192 Anticipated Acquisition of Chelsea and Westminster NHS Foundation Trust of West Middlesex University NHS Trust (n 139) paras 62–108. 193 Ibid, 4. 194 Central Manchester University Hospitals NHS Foundation Trust (n 178) 6. 195 Ibid.

218  The Regulatory Approach examined whether the merger may reduce competition with regards to services which commissioners may change or reconfigure, as the merger would definitely decrease the number of suppliers in the market.196 Given the information provided by the commissioners, the CMA concluded that the merger would not give rise to SLCs with regards to the market for elective, non-elective, community or specialised services.197 Interestingly, the commissioners told CMA that ‘they would be reluctant to procure services via competitive processes to increase quality, noting the potential for destabilizing suppliers’.198 The commissioners explained that if the existing provider was offering services at an acceptable level, it was highly unlikely that they would use the potential of change of supplier as a means to further improve quality.199 If the quality of the services the suppliers offered fell below an acceptable level, they confirmed, they would work closely with suppliers to address this issue.200 If they decided to reconfigure as a means to improve quality, it would be a last resort and it would be unlikely that the existing supplier would have a good chance of winning the tender.201 Taking these observations seriously into consideration, the CMA concluded that ‘the level of quality at which services would be opened up to competition’ would not be influenced by the merger, and so the constraint on quality would also not change.202 In its assessment the CMA further took into account that with respect to non-elective and elective services, ‘the award of contracts in competitive situations had occurred rarely’ and that the parties had bid against each other only in a limited number of cases.203 In the Ashford case, the CMA again assessed the merger’s impact on competition for the market with respect to (a) competition to offer Surrey-wide community services, and (b) competition to offer ‘other discrete community services contracts’.204 When assessing how the merger may affect competition to provide community services, the CMA particularly took into consideration the history of tenders, commissioners’ plans for tenders in Surrey in the future, and whether the parties had incentives to compete with respect to such tenders. With regards to the Surrey-wide community services, commissioners considered that the merging hospitals would face competitive constraints from several other bidders.205 With regards to tenders ‘for discrete community services’, the CMA also alleged that the merging parties lacked a clear competitive advantage



196 CC’s

Bournemouth and Poole merger decision (n 131) para 60. 6.320. 198 Ibid, 6.317 (emphasis added). 199 Ibid. 200 Ibid. 201 Ibid. 202 Ibid. 203 Ibid, 6.320. 204 Ashford and St Peter’s and Royal Surrey County, CMA Report (n 26) 10.9–10.40. 205 Ibid, 10.19. 197 Ibid,

Does the CMA Consider Quality in Merger Cases?  219 compared with other bidders and since alternative choices were available competition would not be diminished.206 Therefore, the CMA considered that the merger would not reduce competition for the market.207 In the Heatherwood merger case,208 the CMA again assessed whether the merger might undermine competition in relation to NHS non-elective or elective services commissioned by CCGs and specialised services commissioned by NHS England Specialised Commissioning. In light of third party responses that the NHS Bracknell and Ascot CCG were the only CCGs where the merging hospitals were the two major providers of NHS hospital services as well as the fact there were a number of alternative NHS providers with a similar array of hospital services, the CMA reached the conclusion that the proposed merger would not harm competition for the market.209 In the Chelsea case the CMA also examined whether the envisaged merger may further reduce competition in relation to NHS elective or non-elective services commissioned by CCGs and specialised services commissioned by NHS England Specialised Commissioning. Because the merging parties submitted tender data showing that there was no material overlap between them in bidding for tender services and the relevant local CCGs expressed the view that the parties did not compete with each other for tendered contracts, the CMA concluded that there were no concerns as to the merger’s effect on competition for the market.210 In the Central Manchester University Hospitals merger case, the CMA also assessed the merger’s impact on competition for the market. Specifically, CMA examined how the merger may affect competition among parties to provide ‘NHS specialised services, which were commissioned at a city, sub-regional, regional or national level’.211 The CMA found that the proposed merger would definitely reduce ‘the number of credible providers of certain specialised services from two to one in three cardiothoracic services and from three to two in one specialised cardiothoracic service and one specialised vascular disease service’ and as a result competition for the market would definitely be harmed.212 The CMA acknowledged that the commissioners, such as NHS England, possessed buyer power. However, it was not strong enough to completely eliminate any potential reduction to quality competition.213

206 Ibid, 10.31–10.32. 207 Ibid. 208 Heatherwood and Wexham Park Hospitals NHS Foundation Trust merger decision (n 119). 209 Ibid, 4. 210 Anticipated Acquisition of Chelsea and Westminster NHS Foundation Trust of West Middlesex University NHS Trust (n 139) paras 19–22. 211 Central Manchester University Hospitals NHS Foundation Trust (n 178) 7. 212 Ibid. 213 Ibid.

220  The Regulatory Approach iii.  Assessing Countervailing Factors While mergers can diminish competition and harm patients’ interests, they can also yield significant efficiencies. These efficiencies can allow the merged entity to become a stronger and more efficient competitor if, for example, the merger itself encourages the entities involved to further improve the quality of services or cut prices.214 Indeed, if the efficiencies generated by the merger are important and timely enough, they can intensify rivalry among firms and prevent a merger giving rise to a SLC.215 Efficiencies that do not necessarily intensify rivalry can also be considered relevant customer benefits, to the extent that they are likely to emerge within a reasonable period of time.216 Measuring, however these efficiencies is not an easy task. This is because all the relevant information the CMA may need in order to verify these claimed efficiencies is usually held by the merging parties.217 For the CMA to fully consider efficiency claims, the CMA must have clear evidence that such efficiencies stem directly from the merger, as well as that they will be likely, timely and large enough to prevent a SLC.218 The CMA may also take the view that a merger may not lead to a SLC on the basis that there will be constraints post-merger, such as entry and expansion, or countervailing buyer power. In assessing whether these factors were substantial constraints post-merger, the CMA took into account quality. Indeed, as the CMA stated, in order for entry or expansion to constrain the merging entities after the merger, it is necessary that (a) other entities could profitably expand or initiate activity in response to an increase in price or a reduction in quality by the merging firms, and (b) patients or commissioners were willing to turn to those providers in large numbers so that a potential quality reduction or price increase would be unprofitable for the merged entity.219 When assessing potential countervailing buyer power, the CMA also considered whether the Commissioners would have the ability to prevent the merged entity from reducing quality or increasing price by turning to alternative providers or threatening to switch to alternative providers.220 Since in most of cases the CMA accepted the merger on the basis that there was no SLC, the CMA did not substantially assess either qualitative efficiencies or other countervailing factors in its merger assessment. iv.  Assessing Relevant Customer Benefits As noted, where the CMA concluded at the end of a Phase 1 assessment that the merger resulted or might result in an SLC, the CMA might decide to clear the



214 CMA 215 Ibid. 216 Ibid.

Guidance (n 76) para 6.70.

217 Ibid,

6.71.

219 Ibid,

6.74.

218 Ibid. 220 Ibid.

Does the CMA Consider Quality in Merger Cases?  221 merger if any relevant customer benefits arising from the merger outweighed the SLC concerned or any adverse effects of the SLC.221 The CMA took into account relevant customer benefits also in the context of a Phase 2 assessment. What were the customer benefits that actually mattered to the CMA? The CMA’s answer to this question is straightforward. As the CMA’s Guidance clarified, relevant customer benefits could take the form of (a) higher quality, lower prices or wider choice of services or goods in any market in the UK, or (b) greater innovation with regards to such services or goods.222 Such benefits, among others, might include higher quality services through the implementation of a particular model of care, greater innovation, increased consultant or staff cover and greater ability to attract funding for research and development.223 As the Guidance underlined, the extent to which any of these benefits constituted relevant customer benefits would be decided on a case-by-case basis.224 The customer benefits had to be merger specific. In making this assessment, the CMA considered whether the customer benefit was likely to be created in any event and whether the merging entities would be able to achieve the benefits independently or through arrangements, such as another merger, that did not create competitive concerns.225 The CMA also considered whether it believed the benefits were likely to be realised. To this end, the CMA reviewed implementation plans.226 The burden of proof the merging parties had to meet in order to secure that their alleged benefits were considered customer benefits was quite high. As the Guidance stated, the more advanced and detailed the plans for the implementation of the merger were, the more convincing they were likely to be.227 The merging providers’ incentives to achieve the benefits were also relevant to the likelihood of implementation.228 When considering incentives, the Guidance also stressed, the CMA also took into account the competitive constraints post-merger.229 For the more extensive benefit proposals (accident and emergency reconfiguration), the CMA expected that for each benefit the merging entities alleged, they should be able to show that the expected customer benefits were likely to occur and that they had taken all the necessary steps so that these benefits were achieved, namely: (a) they had decided what the preferred proposal was; (b) they had

221 Ibid, 7.3. 222 Ibid, para 7.12. 223 Ibid, para 7.12; see also Monitor’s guidance with regards to customer benefits: Monitor, ‘Supporting NHS Providers: Guidance on Merger Benefits’, 13–19, available at https://assets. publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/340823/ Monitor_mergerbenefits_guidance.pdf. Both CMA and Monitor refer to the same type of benefits. 224 Ibid, 7.14. 225 Ibid, para 7.17. 226 Ibid, para 7.18. 227 Ibid. 228 Ibid. 229 Ibid.

222  The Regulatory Approach discussed plans with clinicians; (c) they had created a model of care by cooperating with merging providers’ clinicians, relevant commissioners, as well as any clinical experts and any relevant advisory group as appropriate; and (d) they had thoroughly assessed the clinical advantages (and any disadvantages) as well as the financial or economic viability of the plans.230 In order for the CMA to determine not to refer a merger to Phase 2 in light of relevant customer benefits, it should conclude that all potential relevant customer benefits surpassed the SLC and any adverse effect of the SLC in all affected markets.231 Interestingly, the CMA emphasised that the relevant customer benefits should not necessarily occur in the market in which the SLC was likely to be created.232 Hence, the merging entities were free to show that significant relevant customer benefits might be created in one market as a result of the merger that would surpass any harm to competition caused in another market(s).233 Balancing up the benefits against the harm to patients involved consideration of the fact of each specific case.234 When exercising its discretion to determine whether the alleged relevant customer benefits were large enough to surpass the SLC concerned and any negative effect of the SLC, the CMA, the Guidance says, particularly considered both the magnitude of the alleged benefits and the likelihood they would occur, and set this against the scale of the alleged anticompetitive effects and the likelihood of them being created.235 The stronger the anticompetitive effects of the merger, the larger the relevant customer benefits should be to overcome such anticompetitive concerns.236 Since in most of the examined cases the merger was accepted because the CMA assessed that there was no SLC, the CMA has not discussed in many cases whether the merger would yield relevant customer benefits. This, however, did not imply that the merging parties did not raise the claim that their merger would yield customer benefits. In the UCLH merger case, for example, the merging parties put forward the claim that following the merger, patients receiving neurosurgery services at UCLH who previously received treatment at the RFH would receive higher quality services. In providing its advice, NHS Improvement alleged that this potential benefit did not necessarily constitute ‘a relevant customer benefit because the treatment of neurosurgery patients at UCLH rather than the RFH is unlikely to be dependent on the transaction’.237 230 Ibid, 7.21. 231 Ibid, 7.24. 232 Ibid. 233 Ibid. 234 Ibid, 7.26. 235 Ibid. 236 Ibid, 7.27. 237 Monitor, ‘Transfer of Neurosurgery Services from the Royal Free London NHS Foundation Trust to University College London Hospitals NHS Foundation Trust, Monitor’s Advice to the Office of Fair Trading under Section 79(5) of the Health and Social Care Act 2012’ (6 March 2013) 3–4, available at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/ attachment_data/file/284836/130306_UCLH-Royal_Free_-_Final_Advice.pdf.

Does the CMA Consider Quality in Merger Cases?  223 However, in light of the CMA’s conclusion that there was no realistic prospect of a SLC, the CMA did not examine the alleged benefits in substance. In the Ashford case,238 the merging parties alleged that their proposed merger would create important customer benefits. Specifically, these were: (a) increased access to consultant-led or nurse-led care in gastroenterology, interventional radiology services, neurology, specialist diabetes, stroke; (b) establishment of a treatment centre and diagnostic centre at Ashford Hospital; and (c) better management of neonatal services.239 In assessing these benefits, NHS Improvement concluded that expanding access to consultant-led care in stroke, gastroenterology, and interventional radiology services constituted relevant patient benefits.240 These specific patient benefits all related to improved access to a service, and in particular expanding access to senior clinicians.241 According to the NHS Improvement, increasing access to a consultant out of hours and during weekends was ‘a clinically significant service improvement in these specialties, each of which provides emergency care for acutely ill patients’.242 Again, in this case, since the CMA found that the merger would not lead to a SLC in any of the examined specialties, the CMA did not examine the mergers’ proposed benefits in substance.243 In the Bournemouth case, the merging parties insisted that the merger would improve quality of care and create substantial customer benefits in five clinical areas: cardiology; haematology; maternity; A&E and emergency surgery.244 More specifically, concerning maternity services, the merging hospitals claimed that the merger would facilitate the establishment of a new maternity unit.245 For cardiology, the hospitals claimed that the merger would allow them to combine cardiology rotas. Specifically, this meant that patients at Poole would have access to cardiologist services 24/7.246 With regards to haematology, the parties claimed that the merger would allow them to consolidate the level 3 haematology services at Poole hospital, with a ‘“spoke service” at Bournemouth hospital’.247 The parties put forward the claim that this investment would help them enhance healthcare quality and improve clinical outcomes for patients. The parties also

238 Ashford and St Peter’s and Royal Surrey County, CMA Report (n 26). 239 Monitor, ‘Monitor’s Advice to the Competition and Markets Authority on the Merger Benefits of the Proposed Merger of Ashford and St Peter’s Hospitals NHS Foundation Trust and Royal Surrey County Hospital NHS Foundation Trust’ 5, available at https://assets.publishing.service. gov.uk/government/uploads/system/uploads/attachment_data/file/412388/NEW_Ashford_merger_ report.pdf. 240 Ibid. 241 Ibid. 242 Ibid. 243 Ibid, 3.14. 244 CC’s Bournemouth and Poole merger decision (n 131) 9.6. 245 Ibid. 246 Ibid. 247 Ibid, para 69.

224  The Regulatory Approach alleged that the merger would enable a reconfiguration of A&E services which would lead to enhanced A&E consultant cover.248 According to the parties ‘if A&E were reconfigured, then emergency surgery would be consolidated on the major injury A&E site, allowing that site to have a dedicated emergency theatre 24/7’.249 Additionally, the CC examined the following benefits: mergeravoided costs; potential financial savings; merger-enabled investments; and cost savings to commissioners.250 To evaluate these claims, the CC assessed whether the acclaimed benefits could be considered benefits to patients and whether these benefits met the statutory test for relevant customer benefits.251 The CC made clear that this test required the proposed benefit to be a benefit to customers in the form of better choice, reduced prices, improved quality and greater innovation.252 This test also required that the benefit would be achieved within a reasonable period of time, the benefit would result from the merger, and the benefit was merger specific. To make its assessment, the CMA examined the merging parties’ detailed plans and proposals. In line with NHS Improvement’s advice, the CC alleged that the benefits claimed by the parties could be considered ‘relevant customer benefits’.253 As to the first benefit, the creation of the maternity unit, the CC concluded that the parties did not have an advanced plan for the establishment of the maternity unit. The CC also disregarded the parties’ proposed benefits as to the hematology services on the basis that no significant evidence indicating that the merged entity would continue with the reconfiguration of the services had been submitted. The CC also rejected the last claimed benefit, the reconfiguration of A&E services, since it considered that the parties did not have a detailed model of care.254 Not finding that any of the parties’ proposals would be likely to result in relevant customer benefits, the CC easily prohibited the proposed merger.255 Quite recently, the CMA re-examined the Bournemouth merger case following the merging entities’ request and, this time, the CMA cleared the proposed merger. The CMA’s merger assessment changed because of the fact that the regulatory framework in which the merging parties operated had changed substantially.256 Specifically, in its assessment, the CMA admitted that NHS providers had been facing a number of challenges including significant growth in demand for services, financial pressures and capacity constraints, and were

248 Ibid, 72(d). 249 Ibid, para 9.112. 250 Ibid, para 72. 251 Ibid. 252 Ibid, para 71. 253 Ibid, para 72. 254 Ibid. 255 Ibid, para 76. 256 Anticipated Merger between The Royal Bournemouth and Christchurch Hospitals NHS Foundation Trust and Poole Hospital NHS Foundation Trust Decision on Relevant Merger Situation and Substantial Lessening of Competition.

Does the CMA Consider Quality in Merger Cases?  225 subject to significant levels of regulatory oversight.257 In addition to these national policies, the CMA also identified specific local factors that limited any competition between the merging parties, such as the use of block contracts (and not payment by results) by their primary commissioner, the move to an integrated care system (ICS) and the introduction of financial risk sharing mechanisms within the ICS.258 Given these factors, the CMA concluded that the merging parties do not have strong incentives to compete and hence the merger did not give rise to any competitive concerns in the market for elective services.259 Hence, the merger was accepted.260 However, unlike the above cases, in one more recent case, the Central Manchester University Hospitals merger case, the CMA took into consideration the merging parties’ alleged customer benefits.261 For instance, the merging parties alleged that the merger would allow the merged entity to attain financial savings, improve their ability to invest in innovation, recruit specialised key staff and use their hospital resources much more efficiently.262 The merger would also allow the parties to improve their role in the broader healthcare landscape for Greater Manchester.263 In assessing these potential benefits, the CMA emphasised that not all of the alleged benefits were considered relevant customer benefits within the meaning of the Enterprise Act. Additionally, neither NHS Improvement nor the merging parties tried to convince the CMA that all the potential benefits emerging from the merger are relevant customer benefits. Despite this, however, the CMA accepted the merger. First, the CMA said that due to specific factors, these alleged benefits may be realised within a short time period. These factors were the management team’s experience, the regulatory supervision by NHS Improvement and the merging parties’ strong financial incentives to attain these benefits.264 Second, the CMA emphasised that NHS Improvement and the commissioners supported the merger. Third, the CMA emphasised that the proposed merger was likely to contribute to clinical outcomes for patients as it would reduce morbidity and mortality.265 Importantly, without applying a strict proportionality test, the CMA took the view that the adverse effects likely to result from the SLC in NHS elective and

257 Ibid, 2. 258 Ibid, 3–4. 259 Ibid. 260 A similar analysis was adopted by the CMA in a recent merger between Aintree University Hospital Foundation Trust (AUHFT) and Royal Liverpool and Broadgreen University Hospitals NHS Trust (RLBUHT). Given the way hospitals are funded and the fact that the regulatory framework in which hospitals operate motivates hospitals to collaborate rather than compete, the CMA cleared the proposed merger. 261 Central Manchester University Hospitals NHS Foundation Trust (n 178) 8–10. 262 Ibid. 263 Ibid. 264 Ibid. 265 Ibid, 12.

226  The Regulatory Approach maternity services and NHS specialised services seemed to be lower than the alleged benefits.266 Hence, the merger was accepted.267 III.  EVALUATING THE CMA’S APPROACH AS A WHOLE: WHAT ARE THE ASPECTS OF QUALITY THE CMA CONSIDERS IN ITS MERGER ASSESSMENT?

The previous section aimed to discover whether and to what extent the conflicting objectives between the actors involved in the assessment of NHS mergers, notably the CMA and NHS Improvement, may have transformed the CMA’s merger analysis with regards to NHS FTs. To adequately examine this question, the previous section analysed how CMA defined and assessed healthcare quality in the multiple stages of its merger assessment. This section shines a light on the following two questions: Did NHS Improvement’s or CCGs’ commitment to ensure continuity and access to NHS services impact CMA’s assessment of NHS mergers? Did the CMA transform its merger analysis so that it takes these non-competition concerns into account? And if yes, how? To begin with, in contrast with the US market approach, the CMA was clear about the dimensions of quality it actually considered in its assessment. These, according to the Guidance, as well as the analysed merger cases were clinical factors, such as mortality rates and infection rates, and non-clinical factors such as cleanliness, waiting times, access and parking facilities. In addition, acknowledging that competition law does not apply in a vacuum the CMA has issued a special Guidance under which NHS mergers are in fact assessed and examined. Interestingly, unlike the US Market approach, this Guidance reflected the notion that health is special and hence the application of antitrust to the healthcare sector should not disregard the importance of health and access to healthcare services. Indeed, when the CMA assessed whether a hospital merger may lead to a SLC, it examined both the potential adverse effects for patients/ and or commissioners arising from a loss of competition and the benefits of the envisaged merger for patients and commissioners. Above all, as the Guidance underlined, the CMA aimed to ensure that the merger was in the overall interest of patients. Additionally, acknowledging the special character of health, the Guidance stated that when assessing NHS mergers, the CMA considered the views of third parties that are actively involved in healthcare provision, such as that of the commissioners. The CMA also considered the views of regulators, such as NHS Improvement’s and CQC’s, as well as the specific regulatory framework that applied for healthcare. In other words, it seems that the Guidance offered a merger framework under which the opinions of medical professionals



266 Ibid. 267 Ibid.

Evaluating the CMA’s Approach as a Whole  227 (commissioners), health regulators and antitrust enforcers as to how healthcare quality was evaluated and enhanced could be considered as a whole. Moreover, both NHS Improvement and the CMA were straightforward as to the merger’s benefits that could in fact be considered relevant customer benefits: These were (a) improved quality or wider choice of services or goods in any market in England; or (b) greater innovation with regards to such services or goods. Examples of such benefits included higher quality services through service reconfiguration or the implementation of a particular model of care, greater innovation through research and development and greater ability to attract funding for research and development, as well as financial savings. Are these, however, the only dimensions of quality or the only customer benefits the CMA integrated into its assessment? Surely, the answer should be a negative one. This is because indirectly the CMA also integrated in its assessment other non-competition concerns, such as continuity and access. How did the CMA perform this task? The above analysis of the case law demonstrates that the CMA had found a way to integrate these non-competition concerns into its assessment without performing the difficult task of balancing health policy objectives, such as continuity and access, against the harm caused to competition either for patients or commissioners. The CMA had also found a way to take into consideration the objective of continuous access to NHS services without either widening the notion of consumer welfare so that it encompassed both competition and noncompetition objectives, such as equity and access, or explicitly stating that a competition law framework aiming to ensure quality should not disregard the wider objectives of the sector at which it applied. Under what mechanisms then did the CMA manage to consider in its assessment these non-competition concerns? Through three main mechanisms. The first one, as noted, was by integrating in its assessment the views of various authorities that their main objective was not to ensure competition. Indeed, to assess an NHS merger, the CMA gathered and considered evidence from various sources including NHS Improvement, NHS England, the CQC and CCGs. As the Guidance illustrated, the CMA considered these authorities’ views in choosing the appropriate counterfactual,268 in assessing whether the merging parties have incentives to compete269 and whether the merger’s alleged benefits were relevant customer benefits.270 Because NHS England, CCGs and NHS Improvement were particularly concerned about the financial stability of the NHS FTs and their ability to provide continuous services, to the extent a merger was alleged to be necessary for the merging parties’ financial stability, these authorities fully supported the merger.



268 CMA

Guidance (n 76) para 6.11. 6.50. 270 Ibid, 722. 269 Ibid,

228  The Regulatory Approach The Heatherwood merger271 case illustrates this point. In this case the merging parties claimed that the proposed merger was necessary for their financial stability. In providing its advice on the basis of section 79(5) of the HSCA 2012, NHS Improvement stated that given HWPH’s quality, sustainability and management issues, the merger seemed to be the only way through which HWPH’s problems could actually be addressed and the best way of achieving the necessary improvements to services for patients. NHS Improvement clarified that the merging parties had faced significant quality, financial and management issues for a long time and had been subject to numerous regulatory interventions. Without performing a rigorous assessment of the costs and benefits of all potential solutions, NHS Improvement said that the proposed acquisition would more effectively address these issues than further regulatory intervention by NHS Improvement could achieve. Thus, to NHS Improvement, the failure of the regulatory framework to ensure the continuity of the NHS services in fact meant that the merger should be accepted. Not surprisingly, some patients, CCGs, competing NHS providers and local representatives also supported the merger. These parties specifically referred to FPH’s ability to address potential management issues at HWPH and the serious financial and clinical issues faced by the trust. They also pointed out that the proposed merger would allow FPH to increase scale and thus be better able to deal with the increasing pressure faced by NHS FTs, and the provision of higher quality services for patients locally. The UCLH case also illustrates my point. In this case, the parties submitted that absent the merger, the appropriate counterfactual was the unplanned cessation of neurosurgery at RFH for reasons of clinical safety. The CMA rejected the view that the proposed counterfactual was the appropriate one. However, considering the commissioners’ views that the proposed merger would actually improve quality, the CMA concluded that there would be sufficient choice in remaining neurosurgery providers post-merger to address any competitive concerns emerging from the transaction. In assessing these mergers why did commissioners and NHS Improvement adopt a lenient approach as to the merger’s anticompetitive concerns? And most importantly, why did the CMA integrate their lenient approach into its analysis? Both NHS Improvement and CCGs were responsible for ensuring access to NHS services. Surely, NHS Improvement was also responsible for preventing anticompetitive behaviour. However, since NHS Improvement exercised its regulatory powers in a continuous manner, it should not be expected that NHS Improvement would adopt its decisions in a vacuum. My analysis demonstrated that the commissioners never challenged mergers for an additional reason: because they actually do not believe that competition promotes quality or contributes to the objectives they pursue. Recalling commissioners’ views regarding the impact of the above analysed mergers on competition for the



271 Heatherwood

and Wexham Park Hospitals NHS Foundation Trust merger decision (n 119).

Evaluating the CMA’s Approach as a Whole  229 market, it is quite obvious that commissioners do not believe in the dogma that the more providers there are in the relevant market, the higher the quality. The commissioners’ approach is not surprising. The commissioners are doctors and as the previous chapter clearly indicated, doctors do not believe in the value of choice. This is perfectly reflected in the Bournemouth case where the commissioners exposed their views as to the merger’s impact on competition for the market. They clearly spelt out that they would be unwilling to procure services via competitive processes to further improve quality noting the potential for destabilising suppliers. This is understandable. Commissioners have to ensure that all parts of the population have access to healthcare services regardless of their ability to pay for them. Hence, if they had to choose between continuity and competition, they would opt for continuity. Commissioners in line with the medical perspective on ensuring quality, believe collaboration and choice in fact improves health outcomes, not necessarily competition. This is why in the same case the commissioners also alleged that if a supplier was providing services at an acceptable level of quality, they would be unwilling to change supplier as a means to further improve quality. Alternatively, they said, if quality fell below a certain level, they would closely cooperate with the supplier to address this issue. However, why did CMA allow these actors’ views to substantially impact on its analysis? I believe it does for two reasons – first, because CMA would be unwilling to apply competition law in a way that disregards the objectives of the English health system, such as access and continuity and, second, because the healthcare sector is a highly sensitive sector politically. The second mechanism under which the CMA integrated in its assessment non-competition concerns was by taking the view that especially with regards to non-elective services, parties’ incentives to compete on quality were zero. Indeed, in most analysed merger cases, when assessing the merger’s impact on the market of non-elective services, the CMA insisted that due to the regulatory framework at which NHS trusts operate, the latter did not have incentives to compete on quality. Arguably, when the CMA assessed parties’ incentives to compete in the market of non-elective services, the CMA constantly repeated that due to the 30 per cent marginal rate tariff, the parties did not have financial incentives to attract additional non-elective referrals, and patients did not choose their provider when they needed emergency care. In light of these concerns, the CMA easily ends up concluding that in the market of non-elective services parties did not have incentives to attract patients and compete on quality. Hence, the merger would not lead to SLC. In the elective services market, the CMA’s approach, until recently, was different. With respect to these services, in the majority of cases, the CMA claimed that providers had incentives to compete and attract patients since in these markets, patients and GPs exercise choice, they exercise choice on the basis of providers’ quality and providers have incentives to increase patient volume since this market is more profitable. Consequently, in these markets, it was more likely that the CMA would conclude that a merger might lead to a SLC.

230  The Regulatory Approach However, even when the CMA examined the merger’s impact on competition in these markets, the CMA rarely ended up concluding that the merger was likely to reduce providers’ incentives to compete on quality. In most cases, the CMA concluded that the parties would face competitive constraints and therefore the risk of a SLC is low. Nonetheless, even in the market for elective services, the CMA could support the view that the merging parties did not in fact compete on quality. This was because CMA’s assumptions that patients and GPs do exercise choice and take into account quality when they exercise this choice does not fully reflect the healthcare market’s reality. As noted in chapter two, patients cannot easily shape their choice when they choose healthcare providers. Patients do want choice. Nonetheless, they rely on GPs advice when they have to make a choice. This is because patients would be able to choose providers on the basis of quality only if they could fully assess and compare all dimensions of quality of different healthcare providers. This, however, would require that patients have advanced medical knowledge which surely is not the case. Doctors, of course, can assist their patients in choosing healthcare provider since they have the scientific knowledge to judge the quality of different healthcare providers. However, as I have already showed, doctors do not necessarily devote time to this task. They help their patients to choose but they do so either on the basis of the patients’ personal experiences or the relationships they have with specific healthcare consultants. This means that even in the market for elective services, choice does not necessarily drive quality. Therefore, even in these markets, the CMA could conclude that providers do not have the incentives to compete on multiple dimensions of quality and therefore clear the proposed merger. However, it should be noted that recently the CMA altered its approach and it started supporting the view that hospitals lack the necessary incentives to compete even with regards to the provision of elective services. Indeed, as noted in the Bournemouth case, the CMA noted that given the regulatory framework in which the merging parties operated, the way they were funded and the recent national policies that aimed to promote collaboration among providers and not necessarily competition, the merging parties lacked the necessary incentives to compete on quality. Hence the merger between them would not negatively impact competition. The third mechanism under which the CMA considered non-economic concerns is by translating health policy objectives, such as access, into dimensions of quality that the Guidance allowed the CMA to consider in their analysis. This is the approach that was applied by the CMA in the UCLH case where in fact the CMA, instead of explicitly stating that it examined the merger’s impact on patients’ access to hospital services, stated that it examined the transaction’s impact on travelling time for patients.272 In other words, in this case, instead



272 Acquisition

by University College London Hospitals NHS Foundation Trust (n 107) para 60.

Evaluating the CMA’s Approach as a Whole  231 of raising the question of whether the transaction would impact patients’ access, it in fact asked whether the transaction would increase patients’ travelling time. By arguing that the CMA had found a way to integrate into its analysis health policy objectives, such as access, indirectly, I do not aim to claim that these objectives should not enter the equation. In contrast, I take the view that if a competition assessment completely disregarded these objectives, these objectives may be considerably harmed. I claim though that competition authorities, such as the CMA, should assess and integrate these objectives into their analysis in a more transparent way. The CMA, for instance, should either have integrated these objectives into the definition of customer benefits or it should have balanced them against harm to competition. Surely, this analysis is not an easy one. However, this analysis would ensure transparency and accountability. More importantly, if CMA adopted this approach, its analysis would not send the signal to the healthcare providers that ‘the closer you are to bankruptcy, the more welcome you are to merge’. Therefore, it would protect also CMA’s reputation. Moreover, an alternative approach would also ensure that healthcare providers’ incentives to improve the efficiency of their services were not substantially reduced. Although in most cases the CMA did not attempt to balance the merger’s potential benefits against the harm caused to competition, in one case, the Central Manchester University Hospitals merger case, the CMA performed this task. However, even in this case the CMA’s approach was quite lenient. Without applying a strict proportionality test, and although the CMA admitted that some of the merger’s alleged benefits could not be considered relevant customer benefits in the parlance of the Enterprise Act, the CMA concluded that unless the merger was accepted the merger’s alleged benefits would not be realised and the merger’s benefits surpassed the costs. Hence, the merger should be cleared. The above analysis also illustrates that the criticism on the basis of which the abolition of the Regulatory Approach was proposed, is not necessarily valid. Indeed, the CMA’s function to examine mergers involving NHS bodies was recently removed according to the Health and Care Bill on the basis that the CMA’s narrow competition perspective may fail to adequately consider other non-competition objectives that may, however, be vital from a health perspective. However, the above analysis illustrates that the CMA’s approach to mergers involving NHS FTs was quite lenient. Specifically, it illustrates that the CMA took into account in its assessment both the regulatory framework in which the hospitals operated and the views of other authorities in the healthcare sector, such as NHS England and NHS Improvement. The CMA’s lenient approach was also reflected in the fact that the CMA cleared almost all of the merger cases it examined. Hence, the argument that mergers among NHS FTS should not be examined by the CMA because its analysis may fail to take into consideration that health is special is simply unconvincing.

232  The Regulatory Approach IV.  SUMMING UP

This chapter indicated that the regulatory framework under which NHS FTs operate motivated them to merge. Indeed, in light of the serious financial difficulties they faced, this might be the only way NHS FTs could reduce the risk of exiting the market. The continuous reduction in the NHS budget, the reduced tariff they received for emergency care and the high standards of quality they had to meet to ensure their licence were factors that contributed to their financial distress. Acknowledging that absent most of the proposed mergers, the merging parties would be unable to ensure their financial stability, the CMA assesses NHS mergers in a way that facilitated their clearance. As this chapter has illustrated, the CMA performed this task by indirectly integrating continuity in its assessment. I claimed that this was not a wise move since it sent to NHS FTs the message that ‘the closer you are to bankruptcy, the more welcome you are to merge’. I also claimed that to the extent competition authorities, such as the CMA, decide to take health policy objectives into account, they should do it in a way that is transparent. The CMA, for example, could have explicitly stated in its guidelines or guidance either that these objectives were considered relevant customer benefits or that these objectives could be balanced against the harm caused to competition. In my view this approach would not only ensure accountability and transparency but it would also protect the competition authority’s reputation. Moreover, an alternative approach would not substantially reduce NHS FTs’ incentives to compete.

7 Reflections I.  THE BOOK’S CORE FINDINGS

T

his book posed and examined the question of how healthcare quality concerns can be integrated into a competition law analysis. To answer this question, this book did not merely rely on the usual heuristic on which competition authorities usually rely when assessing the main extent to which a specific transaction or agreement affects quality: that in general, intense rivalry among market players will necessarily lead to quality improvements. On the contrary, by examining how healthcare markets actually work, what their limits are, and how healthcare quality is defined and assessed both from antitrust, health policy and physicians’ perspectives, this book developed three core arguments. First, it claimed that the introduction of competition in medical and hospital markets may not necessarily improve all facets of healthcare quality. In contrast, the book showed that the introduction of procompetitive regulation in hospital and medical markets may undermine core dimensions of healthcare quality, notably safety, acceptability and equity. Second, it argued that considering healthcare markets’ special social and economic features, regulation may not necessarily protect all facets of quality in care. Third, it demonstrated that the main actors involved in the provision of healthcare, mainly providers, medical associations and GPs, acting either as gate-keepers or purchasers of healthcare services (or else commissioners) may risk engaging in anticompetitive agreements aiming to ensure that essential facets of healthcare quality are actually protected. The commissioners, for example, may agree with the GPs when they act as gate-keepers to boycott specific hospitals that do not meet their own standards of healthcare quality. They may also agree to purchase more elective care from NHS hospitals that also offer high risk, non-elective services in poor and underserved areas so that these hospitals can cross-subsidise their more expensive and non-elective services. It also demonstrated that hospitals operating in a competitive environment may attempt to ensure their financial stability and improve the quality of their services by pursuing mergers that ultimately restrict choice, competition and further enhance market power. In addressing these potential competition problems, this book demonstrated that the question of how quality is defined and evaluated in the context of a competition analysis in the healthcare sector is crucial. As chapter two of this book highlighted, competition authorities would be unable to adequately

234  Reflections examine and assess the competition problems that emerge due to conflicts between the goal of competition in hospital and medical markets and core facets of healthcare quality, unless they thoroughly examined a fundamental question first: How should we define and assess healthcare quality? What are the facets of healthcare quality that we commit to protect and integrate into our analysis? Importantly, this book sought to address this question by examining the notion of healthcare quality not only through the lens of antitrust, but also through the lens of medicine and health policy. What this book showed is that while the notion of quality from antitrust perspective mainly relates to the concepts of choice and innovation, the notion of quality from a health policy perspective mainly relates to the notions of equity, access, safety, acceptability, effectiveness, efficiency and continuity. This book further indicated that while medical professionals mainly believe that quality will be the result of the medical process and the protection of professionalism, competition authorities generally take the stance that quality will be improved only to the extent that vigorous competition in the healthcare market place is maintained. Moreover, this book indicated that while competition authorities generally believe that the more participants there are in the market, the higher their incentives to improve the quality of their services, health policy makers insist that in certain cases less competition, not more, may lead to quality improvements. Having explored how the notion of healthcare quality can actually be defined and assessed from medicine, health policy and antitrust perspectives, this book then identified three different models under which competition authorities may assess how a specific anticompetitive agreement or hospital merger may affect healthcare quality. These are: (a) the Market Approach under which competition authorities may define quality in healthcare strictly as choice, competition and innovation. Undoubtedly, this approach is in line with the central mantra of competition policy that the more players in a market, the higher the quality of the services they offer; (b) the Holistic Approach under which competition authorities may extend the notion of consumer welfare in healthcare so that this goal encompasses not only the notions of efficiency, choice and innovation, but also the wider objectives and values especially European health systems strive to attain; and (c) the Regulatory Approach under which competition authorities may cooperate with health authorities when they assess the impact of a specific transaction on healthcare quality. In the context of this model, as it applied until recently in England, mergers between NHS Foundation Trusts (FTs) were assessed not only through the lens of competition law but also through the lens of medicine and health policy. This is because, as the last chapter of this book showed, when the Competition and Markets Authority (CMA) examined the impact of an NHS merger on healthcare quality, it integrated in its merger analysis the views of purchasers of healthcare services, or else commissioners, as well as the opinion of NHS Improvement, that was responsible not only for preventing anticompetitive conduct in the healthcare sector but also for protecting the effectiveness, quality and continuity of NHS services.

The Book’s Core Findings  235 Further, the CMA integrated in its merger analysis the opinion of the Care Quality Commission (CQC), the main regulator in the UK responsible for ensuring that healthcare providers meet some minimum standards of healthcare quality. Under this regime, when the CMA examined an NHS merger, and unlike the Federal Trade Commission (FTC) that on the basis of its Market Approach mainly examines how a hospital merger may impact on prices, the CMA focused its analysis on how the envisaged merger may affect quality. In doing so, the CMA applied a specific merger regime that thoroughly explained what the quality factors the CMA actually considered important and how it integrated in its merger analysis third party opinions, such as those of the commissioners and NHS Improvement’s advice on the merger’s potential customer benefits. The CMA adopted this quality focus merger regime because in England healthcare providers compete on quality but not on prices. This book’s hypothesis was that under the Market Approach competition authorities might fail to protect the notion of healthcare quality as a whole. The book tested this hypothesis by using as a case study the US antitrust approach with regards to medical and hospital markets. The book chose to examine this case study not only because in the US healthcare services are mainly governed by market principles, but also because US antitrust in general remains faithful to the narrative that the pursuit of social objectives and goals should not enter the antitrust agenda. The book tested its hypothesis in chapters three and four. Chapter three examined how the FTC and the US courts take into consideration quality when they examine breaches of competition law by medical associations, claiming that their anticompetitive conduct is necessary for the pursuit of healthcare quality. Chapter four examined how the FTC and the US courts take into consideration healthcare quality when they examine and assess hospital mergers. These chapters demonstrated that when the US antitrust enforcers and the courts evaluate how and the extent to which an agreement or merger may impact on quality, they re-tell the story that healthcare is not special. Since their antitrust analysis reflects this belief, in the majority of cases it also echoes the notion that as in other markets, more competition will ensure quality. This does not in any case imply that the FTC and the US courts completely disregard the quality claims or justifications that medical associations or hospitals bring to the fore. Quite the opposite, they do examine them. Nonetheless, when examining these quality claims, the approach of the US courts and the FTC is rather narrow. Chapter three for example demonstrated that the medical associations’ quality claims enter into the equation only to the extent that they take the form of a market failure defence. Hence, the possibility of integrating into their antitrust analysis a quality claim that is structured as a public safety defence is simply excluded. In identifying the shortcomings of this approach, chapter three highlighted three important issues. First, it indicated that this approach completely disregards the fact that when patients choose healthcare providers, they may fail to choose the provider that best meets their wants and needs. This is because

236  Reflections patients do not necessarily have the knowledge and the ability to make decisions that will improve their welfare. Second, it underlined that this narrow approach underestimates that healthcare markets are pervaded by negative externalities and that the US antitrust enforcers and the courts, by merely assessing how a specific restriction of competition may affect the available choice for consumers, simply omit to consider the costs to the overall society unsafe choices impose. Animated also by Avedis Donabedian’s argument that the pursuit of healthcare quality cannot be achieved unless all functions of the health system commit to the quality goals that the health system as a whole pursues, this chapter also illustrated that since a doctor’s commitment to protect quality is highly linked to their commitment to professionalism, an antitrust policy that aims to holistically protect healthcare quality should not disregard this facet of the notion. In seeking alternative solutions, this chapter proposed that the US antitrust enforcers and the courts should evaluate and assess quality claims not only on the basis of the way they are constructed, as market failure defences or public safety justifications, but also on the basis of the risks to healthcare quality, as a multidimensional concept, each particular conduct creates. This alternative approach might not necessarily transform the antitrust enforcers’ conclusions in the examined cases. However, it would ensure that antitrust enforcers and medical associations do not constantly try to impose their own views on what the main dimensions of healthcare quality are and how they should be improved. Undoubtedly, chapter four’s core findings lead to similar observations and conclusions. This chapter illustrated that the FTC and the US courts have not provided sufficient weight to quality arguments. This, again, does not in any case imply that the US antitrust enforcers refuse to examine them. Essentially, it implies that price concerns and not quality concerns dominate antitrust enforcers’ merger analysis in hospital markets. In addition to chapter three, chapter four pointed out the shortcomings of the US courts’ and antitrust enforcers’ narrow approach as to how healthcare quality is improved in the context of hospital markets. First and foremost, chapter four demonstrated that antitrust enforcers’ narrow US Market Approach does not allow them to integrate into their analysis the voices of health service researchers, indicating that in a limited number of cases less competition, not more, may lead to quality improvements. It further showed that their narrow approach as to how healthcare quality is improved in hospital markets may disincentivise the merging parties from bringing quality of care arguments to the heart of the merger analysis. Additionally, it may also disincentivise health service researchers from further developing research on the relationship between hospital mergers and quality improvements. Most importantly, since as US antitrust enforcers and the courts assess a merger’s impact on healthcare quality, they keep re-telling the story that the Clayton Act contains no healthcare exemption and that antitrust laws apply to hospital markets in the same way as they apply to all other industries – they do not closely examine the merger’s impact on the health objectives their health system as a whole pursues. In other words, their analysis is not in line with Donabedian’s core

The Book’s Core Findings  237 argument that healthcare quality can be protected as a whole only to the extent it is assessed at all levels at which healthcare actually takes place. Surely, the advantages of the US Market Approach should neither be underestimated nor disregarded. Indeed, an antitrust analysis that relies on the notion that vigorous competition will necessarily improve quality and that quality should strictly be defined as choice, innovation and competition is a legal analysis that is easy to apply. This is because such an analysis does not require the antitrust enforcers to expand their understanding of how healthcare quality should actually be protected and achieved in the healthcare sector when they assess how a specific agreement or merger may impact quality. Moreover, it does not require the antitrust enforcers and the US courts to integrate into their analysis the views of health service researchers or medical professionals on how healthcare quality improvements are achieved in hospital and medical markets. In other words, their approach is not only easy to apply but, additionally, it does not entail significant costs. This is because under the US Market Approach, the enforcement of competition law in the healthcare sector would not require a more costly legal analysis. More importantly, the US Market Approach also ensures deterrence. This is because to the extent health policy goals or the non- economic facets of healthcare quality do not enter the antitrust analysis, medical associations or hospitals have little incentive to enter into agreements or to pursue transactions that may in fact mask their self-interest or their desire to undermine price or quality competition. This is because the burden of proof that they actually have to meet in order to convince the US antitrust enforcers and the courts that a specific agreement or merger is in fact necessary for the protection of healthcare quality is high. Further, an approach that in fact remains faithful to the narrative that quality equals wider choice and increased competition ensures that the antitrust enforcers and the courts do not apply competition law in healthcare in a way that reflects their personal preferences or political ideologies on how healthcare should be distributed. In other words, the US Market Approach also ensures transparency and accountability. Considering the shortcomings of the US Market Approach, this book then made a step forward and asked: Should competition authorities attempt to widen the definition of quality in healthcare so that it also encompasses the perspectives of other actors in healthcare, such as medical professionals and health policy makers on how healthcare quality is protected and attained? Should they expand the definition of healthcare quality so that it is also in line with the policy goals their health systems constantly strive to attain? To answer this question, this book examined the Holistic Approach in chapter five. Considering that EU health systems operate on the basis of specific principles and values, such as equity, solidarity, safety and access, the book examined the Holistic Approach by focusing on the application of EU competition law in EU health systems. In attempting to identify how and to what extent the EU competition authorities may apply the Holistic Approach, chapter five asked: Can competition authorities take these objectives into account under EU competition law? And, if

238  Reflections so, how? To thoroughly examine this question, this chapter first identified how conflicts in fact appear between the goals of choice and competition and health policy goals, such as equity, access and safety when procompetitive regulation is introduced in health systems and how these conflicts may in fact incentivise the main actors in healthcare to engage in anticompetitive agreements with an eye to protecting healthcare quality as a whole. To this end, chapter five used as a case example the procompetitive regulation that has established the choice and competition model for healthcare provision in England since the early 1990s. This chapter highlighted that the main actors in healthcare in England, such as the purchasers of healthcare services, providers or the GPs in pursuing their role as gate-keepers, may enter into anticompetitive agreements or decisions in order to protect the goals of equity, safety and acceptability – essential facets of healthcare quality. This chapter demonstrated that these objectives may be taken into consideration in the context of Article 101 of the Treaty on the Functioning of the European Union (TFEU) both on the basis of the Commission’s more economic approach and the Court’s more pluralistic approach. In reaching this conclusion, this chapter examined some seminal European cases in which the European Commission and the EU Courts integrated in their Article 101 TFEU analysis non-competition goals, such as professional integrity, solidarity, the protection of the environment or the protection of employment. This chapter argued that in line with the Commission’s more economic approach in the CECED or in the Meca-Medina cases,1 competition authorities may incorporate into their analysis health policy objectives and goals, such as equity by translating these objectives into a wider notion of efficiencies. Considering for example the effect of health on labour productivity, savings and school education, competition authorities may take the view that access to healthcare has an economic value as such and therefore although a specific agreement may restrict choice and competition, it should be exempted on the basis of Article 101(3) TFEU as it protects equity and therefore impacts positively on economic progress. Competition authorities in Europe may also adopt an alternative approach: they may choose to translate equity gains into efficiency improvements by widening the notion of efficiencies in healthcare. They may for instance take the view that in healthcare the notion of efficiencies also encompasses the notion of distribution efficiency in Donabedian terms, which actually requires the distribution of care among different classes of patients in a way proportionate to expected improvements in health. Competition authorities may also integrate into their analysis health policy objectives such as equity by adopting the European Court’s pluralistic approach with regard to Article 101(1) and 101(3) TFEU. In line, for example,

1 CECED (Case IV.F.1/36.718) Commission Decision of 24 January 1999 [2000] OJ L187/47; Case C-519/04 P David Meca-Medina and Igor Majcen v Commission of the European Communities.

The Book’s Core Findings  239 with the Court’s approach in the Albany or the Wouters cases,2 competition authorities may hold that the protection of equity is a legitimate objective and its protection requires that a specific agreement that restricts choice but protects equity should be exempted from the application of competition law on the basis of Article 101(1) TFEU. In line also with the Court’s wider approach in the GlaxoSmithKline v Commission case, competition authorities may integrate the non-economic facets of healthcare quality into their analysis by widening the interpretation of the notion ‘technical and economic progress’ in the context of Article 101(3) TFEU. This chapter did not only delve into the question of how under EU competition law the multiple facets of healthcare quality can be actually considered, it also made an important normative claim: it argued that competition authorities should consider health policy objectives in their competition assessment, because if they failed to do so, their analysis would lose their legitimacy in the sense that they would not match the substantive goals of their societies that have democratically decided to operate on the basis of specific principles and values, such as equity and access. Arguably, the Holistic Approach’s merits are many. First and foremost, as chapter five indicated, EU competition law offers a flexible framework under which the notion of healthcare quality can be considered as a whole. Indeed, both under Article 101(1) and 101(3) TFEU the values this notion encompasses can be integrated into a competition analysis. Nonetheless, in the context of Article 101(3) TFEU the parties to this agreement have the burden of proving that although their agreement restricts competition, it is necessary for the protection of the goals of equity, safety or acceptability. Under Article 101(1) TFEU, however, competition authorities have the burden of proving that this agreement pursues a specific legitimate objective and its protection requires exemption from the application of competition law. Furthermore, in applying Article 101(3) TFEU the parties to the agreement would have to meet the standards of a strict proportionality test in order to be exempted from the application of Article 101 TFEU. However, in applying the Wouters or the Meca-Medina approach, competition authorities would have to meet a proportionality test much less demanding. Hence, to the extent healthcare quality dimensions are examined on the basis of Article 101(3) TFEU, deterrence is enhanced. This is because in this case, the parties to the agreement would have to perform the task of translating the health policy objectives their anticompetitive agreements claim to pursue into efficiencies. Undoubtedly, this task is not an easy one. Therefore, the parties’ agreement would have the incentive to argue that their agreement meets the conditions of Article 101(3) TFEU only to the extent the objectives of their agreement in fact pursue an economic value. Indeed, as chapter five of this book indicated, the

2 Case C-67/96 Albany International [1999] ECR I-5751; Case C-309/99 Wouters v Algemene Raad van de Nederlandse Orde van Advocaten [2002] ECR I-1577.

240  Reflections Commission in applying its more economic approach with regard to Article 101 TFEU would not in any case exempt an agreement on the basis of Article 101(3) TFEU if it aimed to protect objectives that cannot be translated into efficiencies. Moreover, the parties would have to prove that they are unable to protect the non-economic facets of healthcare quality in a way less restrictive to competition. Again, meeting this condition of the Article 101(3) TFEU test is not an easy task. Nonetheless, applying Article 101(3) TFEU in cases where the parties of an agreement claim that they have agreed to restrict competition and choice in order to protect essential dimensions of healthcare quality entails an essential risk: that this agreement may not be exempted from the application of Article 101 TFEU just because the objectives it aims to attain contribute to efficiency only indirectly. Hence, I argued that in cases where the economic dimension of a non-competition concern is not evident enough, the application by competition authorities of the Court’s more pluralistic approach may be more appropriate. Surely, the Holistic Approach also has its shortcomings. First and foremost, under this approach competition authorities would have to perform the difficult task of balancing the goals of competition and choice against health policy objectives and goals that they may not necessarily have the expertise to assess and evaluate. Indeed, the antitrust enforcers’ task is to ensure vigorous competition, not to assess whether access to affordable and high quality healthcare is in fact restricted. Additionally, competition enforcers, experts and scholars do not necessarily agree as to the extent to which non-competition goals can and should enter the antitrust agenda. Therefore, absent a specified framework or guidance issued by the competition authorities explaining how and under what conditions health policy goals or the non-economic facets of healthcare quality should become part of the antitrust analysis, the application of competition law in the healthcare sector may lead to considerable inconsistencies. While some authorities may remain faithful to the notion that non-competition goals should not enter the equation, others may insist that the healthcare sector is a special one and as a result competition law should be applied in this sector in a way that does not disregard the sector’s essential objectives. Inevitably, these diversified views between competition authorities in Europe as to how and to what extent health policy objectives may transform competition analysis in the healthcare sector may lead to further discrepancies as to the extent to which non-competition goals should be considered in the context of an Article 101 TFEU analysis in other sectors as well, such as the environment. Chapter six examined the Regulatory Approach under which competition authorities cooperated with multiple regulators and actors in healthcare in order to ensure that their analysis did not disregard the goals of their health systems. In the context of this model, the CMA applied a specific competition regime when it assessed a competition restriction’s impact on healthcare quality; this regime has been abolished. However, under this framework, when the CMA examined whether and to what extent a merger between NHS FTs may restrict competition, it integrated quality concerns in all stages of its merger analysis: when defining the relevant geographic market; when assessing the substantial

The Book’s Core Findings  241 lessening of competition (SLC); and also when evaluating, in cooperation with NHS Improvement, the commissioners and the CQC, the merger’s potential customer benefits. In applying this model, when the CMA examined whether and to what extent a merger between NHS FTs may restrict competition, it integrated quality concerns in all stages of its merger analysis: when defining the relevant geographic market, when assessing the substantial lessening of competition (SLC) and also when evaluating, in cooperation with NHS Improvement, the commissioners and the CQC, the merger’s potential customer benefits. This chapter identified the main pros and cons of this policy option. This chapter asked: Did the cooperation of these multiple authorities ensure that healthcare quality in the merger assessment of NHS FTs is actually considered as a whole? To adequately answer this question this chapter first examined the specific merger regime under which the CMA assessed a merger’s impact on quality competition. This chapter showed that in contrast to the US Market Approach, the CMA was clear about the quality dimensions that it actually considered in its merger assessment. These were clinical factors, such as infection rates and mortality rates, as well as non- clinical factors such as waiting times. This chapter further indicated that the CMA and NHS Improvement, again in contrast with the US Market Approach, were straightforward as to the merger’s benefits that could in fact be considered relevant customer benefits and could therefore outweigh restrictions of competition. In sum, these could be lower prices, higher quality and greater innovation in relation to NHS services. This chapter indicated that although the continuity of health services and the financial stability of the NHS FTs were not considered relevant customer benefits as defined by the Enterprise Act of 2002, the CMA had found a way to consider these objectives in its merger assessment indirectly and without performing the difficult task of balancing them against the restriction of choice and competition for either patients or commissioners. This chapter identified three mechanisms under which CMA attained this goal: (a) by integrating in its merger assessment the views of authorities that their primary objective is not to ensure competition, but to protect the continuity of NHS services. As noted, these authorities were mainly NHS Improvement and the commissioners; (b) by taking the view that in the relevant market of non-elective services, due to the regulatory framework at which NHS FTs operate and the weak financial incentives these entities had to attract patients, they lacked incentives to compete; (c) by translating health objectives, such as accessibility, into quality dimensions, such as travelling time. In brief, the CMA acknowledging that absent most of the proposed mergers, the merging parties would be unable to ensure their financial stability and the continuity of their services, it accepted most NHS mergers on the basis that they would not necessarily further reduce competition in the market. What are the mains pros and cons of the Regulatory Approach? Undoubtedly, the Regulatory Approach’s main advantage is that it offers a framework under which the opinions of physicians acting as commissioners, health regulators and antitrust enforcers as to how healthcare quality is achieved and improved can be actually considered as a whole. Indeed, in acknowledging that competition

242  Reflections law does not apply in a vacuum, the CMA integrated in its analysis the voices of all actors responsible for ensuring that the competitive forces in the English healthcare sector do not undermine essential dimensions of healthcare quality. Nonetheless, this approach also suffers from a few shortcomings. Arguably, the CMA’s approach with regards to mergers between NHS FTs reflects the notion that ‘the closer you are to bankruptcy, the more welcome you are to merge’. Such an approach not only harms the competition authority’s reputation but most importantly could weaken NHS FTs’ incentives to operate efficiently. Since they knew that their potential financial failure would not force them to exit, their incentives to improve the efficiency of the services they offered were rather weak. Second, the methodology under which CMA took non-competition goals into account, such as access and the continuity of NHS services, lacked transparency. This chapter proposed that if CMA’s goal was to take these objectives into account, then it should have explicitly stated in its merger-specific regime either that these objectives were considered relevant customer benefits or that these goals could be balanced against the harm caused to competition. Although this balancing act may not be an easy one, it would ensure transparency, accountability and, most importantly, it would not send the message to the competing NHS FTs that the weaker you are the more welcome you are to merge. Therefore, deterrence would also be enhanced. II.  INTEGRATING HEALTHCARE QUALITY AS A WHOLE: MISSION IMPOSSIBLE?

The book’s main findings lead us to the conclusion that in general healthcare quality concerns can be integrated into a competition analysis under all three specified approaches: the Holistic Approach, the Regulatory Approach and the US Market Approach. Surely, this does not imply either that under all these identified models, all dimensions of healthcare quality can be actually considered as a whole or more importantly that these dimensions can be balanced against the harm caused to competition. Indeed, under the US Market Approach such a task cannot be performed. This is because, as the US courts and the FTC constantly reiterate, the Sherman and the Clayton Acts contain no healthcare exceptions. Indeed, as this book has demonstrated, under the narrow US Market Approach health policy objectives, such as equity and access, cannot be integrated into an antitrust analysis. Nonetheless, it should not be underestimated that even under the US Market Approach quality considerations can enter the equation, as the CDA case clearly indicated.3 Indeed, in this case the Supreme Court did not hesitate to admit that to a certain extent healthcare markets are special. Surely, in this case the

3 California Dental Association v Federal Trade Commission, 128 F.3d 720 (9th Cir. 1997), judgment vacated, 526 U.S.756 (1999).

Integrating Healthcare Quality as a Whole  243 Supreme Court did not make a step forward by claiming that considering healthcare markets’ special facets, the US antitrust enforcers or the US courts should balance restrictions of competition against improvements to healthcare quality. However, the Supreme Court explicitly said that in applying competition law in healthcare, the US antitrust enforcers should not disregard the special economic features of healthcare markets, such as the market failures that pervade them. Hence, in my view, the CDA case offers a more flexible framework under which healthcare considerations can be integrated into a competition analysis. Let me elaborate on this point. In the Teladoc case,4 the Texas Medical Board attempted to convince the District Court that telemedicine can lead to poor quality or insufficient care since correct diagnosis necessitates face to face encounters with patient and physical examination. The District Court was not convinced. In fact, by insisting that the Supreme Court has explicitly rejected the notion that improved patient safety is a sufficient justification for a society of professionals to adopt an anticompetitive policy, it rejected the Board’s quality justifications fully. If, however, the District Court had examined this claim through the lens of the Court’s reasoning in the CDA case, the outcome of the case might have been different. Indeed, if in this case, the District Court had taken the view that healthcare markets are pervaded by asymmetries of information and that physical examination, especially for certain types of treatment, might in fact be necessary for the correction of this market failure, the District Court might be willing to examine more closely the Texas Medical Board’s safety argument in substance. This example indicates that under the US Market Approach, as applied by the Supreme Court in the CDA case, there is some room for the antitrust enforcers to integrate safety claims in their assessment. Nonetheless, this does not in any case imply that all healthcare quality considerations can be taken into account under the US Market Approach, even as it was applied by the Supreme Court in the CDA case. This is because under the narrow US Market Approach, as already underlined, health policy goals such as equity, cannot become part of the antitrust agenda. The above example shows, though, that some essential facets of healthcare quality, such as safety or effectiveness, may be considered by the US antitrust enforcers in the context of the US Market Approach. The book demonstrated that while protecting the multiple dimensions of healthcare quality in the context of the US Market Approach is a mission less possible, under both the Holistic and the Regulatory Approach this mission is possible. This is because in my view, what is crucial for the adoption of a holistic approach to healthcare quality is not only the approach under which healthcare quality is actually integrated into a competition analysis, but also competition authorities’ commitment to protect most facets of this notion. I believe that to the extent competition authorities commit to respect the principles and values under 4 Teladoc et al v Texas Medical Board, 112 F.Supp.3d 529, 533 (W.D.Tex. 2015) (quoting 22 Tex. Admin. Code § 161.1 (2016)).

244  Reflections which their health systems operate, they can in fact take into account all dimensions of healthcare quality both under the Holistic and the Regulatory approaches. To shine a light on this argument, again I provide an example. Chapter five asked: Should GPs in their role as commissioners be allowed to buy more elective care from NHS hospitals that offer high-risk, non-elective services in poor rural areas so that these hospitals can cross-subsidise their more costly non-elective services? In dealing with this question, to the extent competition authorities in Europe commit to integrate this equity concern into their analysis, they could in fact perform this task under both the Commission’s more economic approach and the Court’s more pluralistic approach. Under the Court’s more pluralistic approach, competition authorities might say that this agreement pursues a legitimate objective, the protection of equity, and therefore should be exempted from the application of Article 101 TFEU. They may also say on the basis of the Commission’s more economic approach that this agreement reduces risks to health safety and therefore it contributes to efficiency or that it promotes distributional efficiency which is part of a wider notion of efficiencies in healthcare. Such equity concerns could have also been considered by the CMA when it examined mergers between NHS FTs. Chapter five, for example, pointed to the issue that childhood asthma incidence is rising in poor urban neighbourhoods and asked: Should competition authorities be allowed to clear a hospital merger, although it leads to market power in the respiratory services market on the basis it will allow the merged entity to employ the most reputable respiratory specialists? Should this merger be allowed on the basis that it will ensure merging entities’ financial stability and therefore provide access to these services to the most vulnerable groups of our society? Under the Regulatory Approach, NHS Improvement could issue an opinion advising the CMA to accept this merger on the basis that absent the merger the provision of good quality respiratory services for less advantaged groups within a society might be restricted. This analysis demonstrates that competition authorities in Europe have the tools to consider the multiple dimensions of healthcare quality irrespective of the approach they apply in the context of their analysis. In protecting healthcare quality as a whole what is important is not only the approach that they will adopt, but competition authorities’ commitment to assess an agreement or a merger’s impact at all levels at which healthcare takes place. This means that when competition authorities perform this task, they should also consider the health policy objectives their system aims to attain. If they neglected these objectives not only would they run the risk of reaching decisions that may harm these objectives, but most importantly they would run the risk of making assessments that they are not legitimate in the sense that they do not respect the special value their societies attach to health and healthcare. Additionally, as the US Market Approach demonstrated, an assessment that would exclude from its assessment any non-competition goal, may yield conflicts between medical professionals, health policy makers and antitrust enforcers on how healthcare quality should be pursued and protected. From Donabedian’s point of view, this conflict would

Looking Towards the Future  245 undermine commitment in achieving healthcare quality as not all functions and institutions in the healthcare system would actually agree on what the main facets of healthcare quality are. However, it should be noted that competition authorities should take into account the policy objectives of a health system in a way that is transparent. This means that in cases where they decide that they should accept a restriction to competition in order to ensure a health policy objective they should explicitly explain in their analysis: (a) what is the goal they want to protect; and (b) why this restriction is necessary for the protection of this goal. If they balanced these objectives indirectly and without explicitly identifying the objective they are trying to protect through this balancing act, then there would be room for competition authorities to integrate into their analysis their ideological or political views on how healthcare should be distributed. Again, their assessment would lack legitimacy. This suggests that if competition authorities chose to integrate healthcare quality concerns under the Holistic Approach they may have to issue guidance explaining under what conditions and how they balance restrictions of competition against specific facets of healthcare quality. It also suggests that if competition authorities chose to integrate healthcare quality concerns into their assessment on the basis of the Regulatory Approach, they should identify clearly the dimensions of healthcare quality they actually protect and the reasons why these dimensions can only be protected through a restraint on competition. III.  LOOKING TOWARDS THE FUTURE: ANTITRUST IN THE ERA OF DATA DRIVEN MERGERS IN THE HEALTHCARE FIELD

This book focused on the question of how healthcare quality concerns can be factored into an antitrust analysis by examining horizontal restraints in medical markets and hospital merger cases. This, however, does not imply that quality concerns may not be raised in other markets in the healthcare field, specifically, health insurance markets, or that in vertical or conglomerate merger cases quality concerns may rarely be a concern. Quite the opposite. Some recent cases on both sides of the Atlantic reveal that the question of how quality should be defined and assessed in the context of vertical /conglomerate mergers could not be more topical. Let us consider two recent merger cases: the Google/Fitbit merger5 that was recently cleared by the European Commission and the United States v United Health and Change Healthcare deal6 that was recently challenged by the US 5 European Commission, ‘Mergers: Commission Clears Acquisition of Fitbit by Google, Subject to Conditions’ (Press release, 17 December 2020), available at https://ec.europa.eu/commission/ presscorner/detail/en/ip_20_2484. 6 US Department of Justice v United Health Group and Change Healthcare (24 February 2022), available at www.justice.gov/opa/press-release/file/1476676/download.

246  Reflections Department of Justice. This section illustrates that these data-driven mergers have the potential to diminish competition in multiple markets, including the health insurance markets and, most crucially, may raise the barriers to entry to health insurance and healthcare services for the most unhealthy among us: the high-risk consumers and vulnerable populations that need access to healthcare. In other words, the section that follows shows that these mergers may undermine essential facets of healthcare quality, notably equity and access and even contribute to the existing health inequities in both Europe and the US.7 It then asks the question of whether, and how, antitrust enforcers on both sides of the Atlantic may address the harms that data-driven mergers in healthcare entail by drawing some inspiration from the US Market Approach, the Holistic Approach and the Regulatory Approach. Specifically, this section will identify under which of the above approaches the risks to equity and access these mergers can create may be more thoroughly assessed by the enforcers and the courts in both Europe and the US. A.  Case I: The Google/Fitbit Merger In December 2020 the European Commission approved the acquisition of Google by Fitbit.8 The approval, however, was conditional on full compliance with certain commitments offered by Google. How might this merger hurt competition and consumers? And how likely it is that Google’s proposed commitments would fully address these harms? After scrutinising the deal, the Commission raised the concern that the proposed transaction may hurt competition in several markets. In particular, the Commission took the view that the envisaged merger had the potential of eliminating competition in: a) advertising; b) digital healthcare; and c) creation of wrist-worn wearable devices.9 How? To start with, a merger between Google and Fitbit would allow Google to gain access to numerous users’ health and fitness data; it would also allow the tech giant to gain access to technology necessary for the development of a database similar to that of Fitbit.10 Because the deal would allow Google to expand the already vast amount of data that can be used for the creation of personalised advertisements, Google’s rivals would be unable to compete in the online search advertising market, online display advertising market, and the entire ‘ad tech’ ecosystem.11 Ultimately, the Commission said, the deal could hurt advertisers

7 See also T Stavroulaki, ‘Mergers that Harm Our Health’ (2022) 19 Berkeley Business Law Journal 89. 8 European Commission (n 5). 9 Ibid. 10 Ibid. 11 Ibid.

Looking Towards the Future  247 who would run the risk of facing increased prices, reduced choice and less innovation.12 The merger, the Commission further indicated, may also reduce competition in the digital healthcare space. Currently, several players have access to fitness and health data provided by Fitbit through a web application programming interface (Web API), in order to offer services to Fitbit users and use their data in return.13 The Commission pointed to the fact that following the transaction, Google would have incentives to restrain competitors’ access to the Fitbit Web API.14 If Google implemented this strategy, the Commission explained, startups in the emerging European digital healthcare space would be at a competitive disadvantage.15 Finally, the Commission also expressed concern that following the transaction, Google may have strong incentives to put rival producers of wrist-worn wearable devices at a competitive disadvantage.16 Google, the Commission explained, could successfully attain this goal by undermining their interoperability with Android smartphones. But are these the only ways through which the deal may harm competition and consumers? As several antitrust experts indicated, the answer should be negative. Indeed, the proposed deal may also harm consumers and competition in other markets, most crucially the health insurance/healthcare markets. By acquiring control of Fitbit’s sensitive and individualised health data and by combining this data with data from its current services in the online search and advertising markets, Google would be able to use its advanced health analytics to classify consumers into broader health-related categories: the ones who are expected to remain fit and healthy and the ones who might soon get sick; those who religiously adhere to a healthy diet and those who cannot resist junk food and candies; the consumers that go for a run when they are stressed and the ones that drink more beers when they feel overwhelmed.17 Moreover, Google could also use its sophisticated health analytics to predict people’s future health. For instance, Google would be able to identify ‘the diabetic-concerned’, ‘the depression-concerned’ and ‘cancer-concerned’ consumer groups. Google could make enormous profits out of these predictions. For instance, to the extent Google offers services in the health insurance services market, Google could use these analytics to identify the types of high risk customers that it is likely to attract.18 Then, it could design its health plans to be attractive

12 Ibid. 13 Ibid. 14 Ibid. 15 Ibid. 16 Ibid. 17 See also Stavroulaki (n 7). 18 See for instance M Bourreau, et al, ‘Google/Fitbit Will Monetise Health Data and Harm Consumers’ (Centre for Economic Policy Research, September 2020) 8, available at https://cepr.org/ active/publications/policy_insights/viewpi.php?pino=107.

248  Reflections to ‘profitable’ consumers and less attractive to the high-risk ‘unprofitable’ ones. For instance, if Google can predict that it is likely to increasingly attract the ‘diabetic-concerned’ consumer groups, it could avoid cooperating with specific healthcare providers that have a strong reputation for curing patients with diabetes.19 At the same time, Google would try to attract the low-risk, healthier consumers by offering them special discounts. But even if Google chooses not to enter the health insurance services market, it may still profitably use its advanced health analytics. Specifically, it could sell them to health insurers or to healthcare providers. By using these analytics in a discriminatory fashion, providers could deny access to healthcare and health insurance services to high-risk consumers that need access to their services. Such strategies would not only harm high-risk consumers but the society as a whole. This is because to the extent high-risk consumers are left uninsured, low-risk consumers also suffer, primarily for two reasons. First, because such discriminatory policies may further increase health disparities and undermine society’s social fabric.20 Second, because of the negative externalities pervading healthcare markets.21 As Covid-19 clearly demonstrated, if citizens lack access to adequate health insurance and healthcare services, a pandemic cannot be combatted and all people – rich and poor, healthy and sick – suffer. Did the Commission consider these risks? The answer is clearly negative. Although antitrust experts expressed the worry that by further strengthening its ability to gain access to consumers’ health data, and by undermining its competitors’ ability to do so, Google may be able to exercise market power across markets, such as the health insurance or even the housing market, the Commission did not feel the urge to consider these potential harms.22 Pointing to the fact that privacy concerns do not necessarily amount to competition concerns, as well as that any harms to privacy emerging from the deal would be addressed by the fact that Google is obliged to abide with the provisions and principles of the General Data Protection Regulation (GDPR), which provides that ‘the processing of personal data concerning health shall be prohibited, unless the person has given explicit consent’, the Commission did not allow any privacy concerns to enter the equation.23 By refusing however to allow privacy concerns to enter its analysis, and by not examining how Google’s access to health data may harm competition and consumers in less visible ways, the Commission disregarded how the proposed transaction may undermine the quality of the health insurance services and even contribute to the rising health inequities in Europe. This however may not necessarily be the case if the Commission assessed this

19 See also Stavroulaki (n 7) fn 6 at 119. 20 Ibid. 21 Ibid. 22 C Caffarra and T Valletti, ‘Google/Fitbit Review: Privacy IS a Competition Issue’ (VOX EU CEPR, 4 March 2020), available at https://voxeu.org/content/googlefitbit-review-privacy-competition-issue. 23 European Commission (n 5).

Looking Towards the Future  249 merger in a manner analogous to the Holistic and the Regulatory Approach as described in this book. For instance, in the context of the Regulatory Approach the Commission could examine this merger in cooperation with the European Data Protection Board, the body that advises the European Commission on the application of EU data protection law. Although there is not regulatory framework obliging the Commission to assess mergers in cooperation with the Board, there may be several reasons why this may be a good idea, especially in the case of data- driven mergers in the health and healthcare field. First, because of the special value European health systems attach to health and healthcare and second because, as noted, to the extent big tech players have access to consumers’ health data they can exercise their market power across markets, including health insurance, housing and labour markets. Not surprisingly, the European Data Protection Board had issued a statement before the Commission’s final word, noting that ‘the possible further combination and accumulation of sensitive personal data regarding people in Europe by a major tech company could entail a high level of risk to the fundamental rights to privacy and to the protection of personal data’.24 Had the Commission cooperated with the European Data Protection Board and received its advisory opinion in the context of its merger assessment, the Commission may not have applied merger law in a way that disregarded the merger’s impact on access to health insurance and healthcare services. By doing so, however, it applied a merger assessment that risks undermining essential EU health policies and objectives. In the context of the Holistic Approach, the Commission may also successfully consider the merger’s impact on access to health insurance and healthcare services. This is because if the Commission examined this merger in a manner similar to the Holistic Approach, the Commission would also assess how the proposed deal may affect the health systems’ main objectives. Specifically, the Commission would examine how, by gaining increasing access to consumers’ health data, core facets of the healthcare quality notion and core objectives of EU health systems may be undermined. As chapter five indicated, the goals of access and equity are vital goals of EU health systems. The reduction of health inequities and inequalities are also vital goals. Hence, by applying the Holistic Approach, the Commission may broaden its analysis, assess the merger’s impact across markets, including healthcare and health insurance services markets and apply merger law in a way that respects Europe’s health values. Surely, the Commission could also combine the Regulatory and the Holistic Approach. Indeed, it could (a) explore in cooperation with the European Data Protection Board how the proposed deal may harm people’s privacy and (b) also

24 C Caffarra and T Valletti, ‘Google Gobbling Fitbit is a Major Privacy Risk, Warns EU Data Protection Advisor’ (Techcrunch, 20 February 2020), available at https://voxeu.org/content/ googlefitbit-review-privacy-competition-issue.

250  Reflections explore how potential harms to privacy may also harm people’s access to healthcare and health insurance services and contribute to the existing inequities. Surely, some could argue in accordance with the Commission’s point of view that to the extent Google cannot use people’s health data without their explicit consent on the basis of the GDPR, the above risks are not real. However, this point of view underestimates two core issues. First, that if it is more profitable for any giant tech player to breach the GDPR and pay a fine than obey the GDPR and not use people’s health data, the tech player will breach the GDPR. Google and any big tech player may take this risk, especially knowing that a violation of the GDPR may not necessarily be easily detected. The Facebook/WhatsApp merger story reveals such risks. That merger ended with an unconditional clearance after a Phase 1 review on the basis that no traditional competition concerns were raised. Facebook at the time also gave the empty promise not to exploit WhatsApp data following the proposed deal.25 Although Facebook was fined €110 million for having misled the European Commission, it still got to combine and exploit the data.26 Crucially, Facebook successfully prevented another rival social network platform from entering the market and threatening its dominance. B.  Case II: The United Health/Change Merger Quite recently the Department of Justice (DoJ) filed a civil lawsuit to prevent United Health Group Incorporated (United) from acquiring Change Healthcare Inc (Change).27 The complaint takes the view that the proposed multi-billion deal would significantly reduce competition in both the health insurance industry and the market for a vital technology used by health insurers to quickly process health insurance claims. But how may this deal threaten the muchneeded competition in the health insurance industry? United is one of the major health insurers in the United States. It also operates a large network of physician groups, outpatient surgical centers and a healthcare technology unit that handles and facilitates the review and processing of health insurance claims.28 Change is the major independent supplier of technologies used by healthcare providers to submit their health insurance claims.29 It is also widely used by several health insurance companies to review, assess and process these claims.30 These claims data reveal sensitive information both for the insured and the health insurers’ business strategies. For instance, they reveal



25 Ibid. 26 Ibid. 27 US

Department of Justice v United Health Group and Change Healthcare (n 6). 4. 29 Ibid. 30 Ibid. 28 Ibid,

Looking Towards the Future  251 the type of treatment individuals are subject to, as well as their health insurance coverage.31 They also provide a valuable insight into ‘the inner workings of the health insurers and their health plans’.32 Change does not only process vast amounts of sensitive claims data. In addition, it retains the right to use over 60 per cent of this data for health analytics purposes.33 United’s rivals need access to Change’s health technologies to keep their healthcare costs low for their members and review and pay providers’ claims quickly.34 Otherwise they may be unable to rigorously compete with United which operates its own health claims data processing unit. Because the proposed transaction would give United unprecedented access to highly sensitive business information about its major health insurance competitors, the DoJ took the view that competition in the health insurance industry may be diminished. Indeed, by acquiring Change, United would gain invaluable competitive insights into its rivals’ business strategies, payment rules and proprietary plans.35 Ultimately, this would undermine its rivals’ incentives to innovate and offer higher quality products and services.36 Moreover, the DoJ explained, by acquiring access to Change’s health analytics and data, United would be able to identify the high-risk consumer groups that require costly and continuous care.37 For these consumer groups United would have the incentives to compete less rigorously.38 Surely, while this strategy may be profitable for United, it would be harmful for competition. This is because rival health insurers lacking access to the same amount and quality of data, may be unable to increase similar barriers to entry for high-risk consumer groups. Because, as a result, they may end up attracting the costlier and higherrisk consumers, they would soon exit the market. Ultimately, competition in the health insurance market may be eliminated and consumers would face higher prices and lower quality of health insurance services. Unlike the Google/Fitbit merger, in this case, the enforcers specifically considered how by increasing its access to health data, access to health insurance services for vulnerable consumers may be reduced. This may be the case because, unlike GDPR, the Health Insurance Portability and Accountability Act (HIPAA), the privacy law that aims to protect health information in the United States, is extremely limited in its reach.39 For instance, although health insurers are subject to the HIPAA provisions, ‘the rule does not govern deidentified



31 Ibid,

32 Ibid. 33 Ibid,

5.

5–6. 5. 35 Ibid, 6. 36 Ibid, 8. 37 Ibid. 38 Ibid. 39 Stavroulaki (n 7) 98. 34 Ibid,

252  Reflections data and many big data sources are deidentified, at least to some extent’.40 For this reason, the HIPAA may not prevent United from using Change’s health information and data for health analytics purposes. Recognising this risk, the US antitrust enforcers specifically considered in their merger assessment how consumers’ health information and data may be used by United in a discriminatory fashion. In other words, in this case the antitrust enforcers considered how the envisaged merger may impact high-risk consumers’ access to health insurance and healthcare services.41 Although in this specific case the antitrust enforcers did not disregard the merger’s impact on vulnerable populations and high-risk consumers, and hence did not apply a merger analysis that may even contribute to the existing health inequities, this does not imply that in analogous cases, their analysis may not necessarily benefit both from the Holistic and the Regulatory Approach. For instance, let us assume that in the United/Change Healthcare merger, the merging parties raise an efficiency defence. For instance, let us assume that they raise the claim that while the proposed deal may harm the high-risk consumer groups, it may benefit the low-risk ones: the healthier ones that rarely need care. This is because following the deal, United may be better able to identify the lowrisk consumers and rigorously try to compete for them, for example by offering them more attractive insurance terms. In other words, the merging parties may say that while competition for the most unhealthy among us may be reduced, competition for the healthier ones may be intensified. Hence, unless the US antitrust enforcers assessed the merger’s net harm on competition and consumers, the merger cannot be enjoined. In this case, unless the enforcers successfully argue that the high-risk consumers constitute a separate product market under the Hypothetical Monopoly Test (Small Significant Non-Transitory Increase in Price (SSNIP), and that according to the Supreme Court’s ruling in Philadelphia National Bank, the harm a merger may cause in one relevant market cannot be outweighed by the benefits 40 Ibid. 41 Sadly, the district court rejected the Government’s data concerns and blessed the merger. Why did the district court remain unconvinced by the Government’s main claims? Section 7 of the Clayton Act, the lower court explained, prevents any mergers and acquisitions “where in any line of commerce” are likely to substantially lessen competition or create a monopoly. To prove a Section 7 violation, the court said the government must show “that the proposed merger is likely to substantially lessen competition, which encompasses a concept of reasonable probability.” If the government shows that the merger may have an anticompetitive effect, then it establishes its prima facie case. If so, the burden of proof shifts to the defendant to offer evidence that the Government’s anticompetitive effects are unlikely to occur. If the defendant meets the required burden of proof, then the burden of showing additional anticompetitive effects shifts to the Government. Applying this legal test, the district court concluded that the Government failed to establish a prima facie case. The lower court said two things: first, that the Government’s data-misuse concern is simply unrealistic. Second, that the Government’s core claim that the United/Healthcare deal may undermine insurers’ incentives to innovate is not convincing. see: Theodosia Stavroulaki, How the Wrong Presumptions led to the Wrong Conclusions in the United/Change Healthcare Merger, ProMarket (2022): https:// www.promarket.org/2022/11/11/how-the-wrong-presumptions-led-to-the-wrong-conclusionsin-the-united-change-healthcare-merger//.

Looking Towards the Future  253 it may bring to another one, the merging parties’ efficiency claim may actually be accepted. In this type of scenario, the antitrust enforcers may still be able to enjoin the merger if they relied on the Holistic Approach and hence examined how the specific merger may affect the goals of the health system as a whole. Under the Affordable Care Act (ACA), the primary health regulation in the USA, any discriminatory premium rates or any type of discrimination on the basis of citizens’ pre-existing health conditions is simply prohibited.42 As the data-driven merger between United and Change may facilitate the health insurer’s efforts to discriminate against high-risk individuals and thus evade the legal requirements imposed by the ACA, the antitrust enforcers may allege that the merger can be blocked. Since access to health insurance services for all citizens irrespective of their social status and pre-existing health conditions is a fundamental goal of the US health system, any merger that may harm this objective should not be accepted. Essentially, the argument would go, by evading the ACA, United would put its rivals at a competitive disadvantage.43 This is because other health insurers that may not be able to evade the core provisions of the ACA by discriminating against high-risk individuals may incur higher costs than United. Ultimately, because they would be excluded from the health insurance services market, competition in this market would be significantly reduced. Hence, both the Regulatory and the Holistic Approach may be extremely useful for antitrust enforcers around the globe seeking to address the more invisible harms to consumers data-driven mergers in the healthcare field entail. Because, as this section has indicated, such mergers may reduce access to healthcare and health insurance services for high-risk consumer groups and thus contribute to the existing health inequities on both sides of the Atlantic the antitrust enforcers may significantly benefit from the application of these approaches. New York City, Washington Square Park 12-12-2023

42 Patient Protection and Affordable Care Act of 2010, Pub. L. No. 111-148, § 1201, 124 Stat. 146 (2010); Stavroulaki (n 7) 94–95. 43 See also Stavroulaki (n 7) 121.

254

Index Introductory Note References such as ‘178–79’ indicate (not necessarily continuous) discussion of a topic across a range of pages. Wherever possible in the case of topics with many references, these have either been divided into sub-topics or only the most significant discussions of the topic are listed. Because the entire work is about ‘healthcare’, the use of this term (and certain others which occur constantly throughout the book) as an entry point has been restricted. Information will be found under the corresponding detailed topics. acceptability  5, 8, 53–54, 96–97, 137–39, 142, 145–46, 233–34 and continuity  57, 154 and equity  xiii, 233 notion  8, 93, 137, 187 and quality  142 and safety  97, 238 access  10–13, 125–26, 138–47, 175–78, 226–27, 229–31, 246–49, 251–53 and choice  176–77 and continuity of care  xviii, 1, 198, 227 continuous xviii, 227 to dental care  65 equal  11, 140, 142, 144 equality of opportunity of  176, 178 equitable viii, 27, 144 and equity  21, 41, 57, 138, 239, 242, 246, 249 to health facilities  142, 144 to health insurance  248–53 to hospital services  210, 230 to NHS services  145, 199–200, 210, 226 to preventive dental care  65–66 accessibility  5, 8, 140, 142, 144–45, 182, 200, 210 and equity  144, 182, 210 accountability viii, 27, 66, 92, 126, 231–32, 237, 242 Accountable Care Organisations (ACOs)  99 accredited providers  149, 189 acquisitions  119, 122, 125, 127, 200, 207, 228, 246; see also mergers actors  152, 158–59, 197, 200, 226, 229, 240, 242

advertisements, personalised  246 advertising  40, 54, 63, 75–76, 82–85, 88, 246 discounts  75, 82 restrictions  76, 83–85, 87 non-price  83–85, 87 Advocate Healthcare  112, 117 A&E departments/services  43, 45, 211, 223–24 affiliation  76, 122–23, 126, 135, 162 compulsory  161, 182 Albany  162, 179, 239 Albert Einstein Healthcare Network  118 allocative efficiency  7, 55, 175 alternative providers  104, 111, 190, 198, 200, 204, 214–15, 220 AMA (American Medical Association)  59, 78–81, 88–89, 91 analytical frameworks  49, 62, 96–97, 107, 130–36 analytics  126, 247–48, 251–52 anticompetitive agreements  47, 52, 175, 177–80, 185, 194, 233–34, 238–39 anticompetitive behaviour/conduct  60, 64, 150–51, 156, 192, 194, 198, 234–35 anticompetitive effects  48–50, 83–84, 106, 108, 116, 120, 133–34, 169 alleged  123, 133, 222 assessment  107–8 potential  50, 106, 109, 116, 121, 123, 215 antitrust  xiv, xvi, 59–60, 62–63, 65, 69–70, 93–94, 233–34; see also competition agenda xii, 139, 235, 240, 243 analysis  86, 89, 91, 95–97, 235, 237, 240, 242

256  Index authorities  51–52, 61–62, 96 cases  xi, xiv, 83, 87, 89, 118 and data-driven mergers  245–53 defences  66, 80–81, 90 enforcement  91, 96, 137, 183 enforcers xv–xvii, 53–55, 60–62, 89–97, 130–31, 134–38, 235–37, 252–53 and balancing of quality perspectives  86–97 and healthcare quality  64–85 experts  247–48 immunity  68 law xvii, 59–60, 63–65, 96–97, 127, 129, 135, 138 policy  94–95, 236 vs professionalism  62–64 rules  59–60, 65, 68 Any Qualified Provider (AQP) principle  26 AOK  159–61, 181 application of competition law  ix–x, xii–xiv, 46, 46–58, 137–38, 159, 162, 239–40 appreciable objective advantages  173, 179, 184 appropriate balance xii, 14, 22, 62, 93, 96, 101, 187 appropriateness  5, 10, 22 Arizona v Maricopa County Medical Society  60 Ashford  205, 213, 215, 218, 223 assessment, mergers xviii, 56, 109–10, 188–89, 198–200, 226, 241, 249 asthma, childhood  51, 155, 244 asymmetries  44, 133 information  31, 44, 52–53, 62–63, 87–88, 135, 137, 151 athletes  164 authorities xviii, 62, 168, 178, 188, 227, 231, 240–41 antitrust  51–52, 61–62, 96 competition xvii–xviii, 138–39, 174–75, 177, 185, 187–88, 238, 244 health  xii, xvii–xviii, 44, 56–57, 148, 188, 234 availability  19, 48, 75, 84, 142, 145, 149, 209 balance, appropriate xii, 14, 22, 62, 93, 96, 101, 187 balancing  ix–x, xv–xvi, xviii, 55, 130, 132–33, 139–40, 180 of quality perspectives  86–97 bargaining power  104, 119, 133–34 barriers  12, 28, 41, 46, 182, 190–91, 246, 251 benefits  15, 32, 143–44, 160–61, 169–73, 184, 221–28, 252–53

alleged  123, 126, 165, 221–23, 225–27, 231 customer  198–200, 202, 221–25, 227, 231 economic  171, 175, 179 environmental  169, 172, 175 to patients  156, 224 potential  171, 194, 222, 225, 231 relevant customer  56, 194, 198, 207, 220–27, 231–32, 241–42 bidders  218–19 Bismarck systems  26 Bournemouth  207, 211, 214, 217, 223–24, 229–30 British Medical Association  45, 52, 152 burden of proof  80–81, 109–10, 133, 221, 237 buyer power  208, 219–20 Cabell Huntington Hospital  129 California Dental Association, see CDA capacity  43, 52, 128, 212–13 constraints  211, 215, 224 cardiac surgery  102, 122, 149 cardiology  223 cardiovascular services market  156 care, see also Introductory Note access to, see access continuity  32, 34, 41, 156, 251 continuous  34, 251 coordinated xvii, 138 elective  154, 156, 175–77, 209, 233, 244 emergency  122, 191, 197, 211, 214, 223, 229, 232 higher quality  33, 98, 113, 117 high-quality  18, 79 integrated  125–26, 135, 225 lower quality  12, 31, 91, 93 primary  78, 120, 154 processes  19–20 Care Quality Commission, see CQC cartels  168, 194 crisis  166, 170 catchment areas  208–9, 215 CC (Competition Commission)  207, 211–13, 224 CCGs (Clinical Commissioning Groups)  191–92, 200, 207, 211, 213, 216, 219, 226–28 CCP (Cooperation and Competition Panel)  149–50, 156–57 CDA (California Dental Association)  79, 82–88, 242–43 CECED  170–72, 174–75, 177, 181, 238

Index  257 Central Manchester University Hospitals  214, 217, 219, 225, 231 centres of excellence  121, 124 challenges  36, 43, 46, 124, 130, 132, 200, 207 financial  205, 207 Charter of Fundamental Rights  144 Chelsea  217, 219 Chicago  113–14 childhood asthma  51, 155, 244 children  9, 51, 66, 155, 177 chiropractors  79–81, 88–89, 91 choice xi, 13, 27–29, 35–37, 49–54, 153–56, 176–79, 228–30 and access  176–77 alternative  111, 219 and competition  viii–x, xiii, xvii, 51–54, 90, 96, 137–39, 238 model  vii–x, xiii, xvii, 24–26, 28, 32–33, 139, 187 consumer  137, 169, 176 exercise of  vii, ix, 35, 148, 211, 229–30 good  35, 92 of hospital  111, 151, 209, 212 limits of  34–37 NHS tool  42, 44, 151 and outcomes  34–37 patient  24–25, 153, 156–57, 190 of providers  98, 197, 210 tools  42–43 value of  34, 153, 229 wider  49, 198, 221, 227, 237 Choose and Book  149, 153–54 CHRB (Convention on Human Rights and Biomedicine)  143–44 Clayton Act  126–29, 236, 242 cleanliness  8, 43, 210, 226 Clinical Commissioning Groups, see CCGs clinical efficiency  7, 54, 177 clinical factors  210, 226, 241 clinical outcomes  52, 93, 201, 223, 225 clinical safety  205, 228 CMA (Competition and Markets Authority) xviii, 56, 188–89, 194, 198–200, 202–32, 234–35, 240–42 evaluation of approach as a whole  226–31 and quality concerns in NHS mergers  201–26 command and control vii commissioners  187–88, 192–93, 200–6, 214, 217–20, 224–29, 233–35, 241 commitments  52–54, 57, 63, 89–91, 95, 121, 236, 243–46 common values and objectives  32, 139–46

comparisons  6, 14, 20–21, 42, 44, 203 competition vii–xviii, 127–33, 135–39, 187–91, 201–6, 213–16, 218–20, 225–43; see also antitrust analysis  xi–xii, xvi–xvii, 47, 53, 55, 57, 137–38, 242–43 assessment  138–39, 174, 179–83, 185–86, 231, 239 authorities  ix–xii, xv–xviii, 50–58, 174–78, 185–88, 231–35, 237–40, 242–45 and choice  viii–x, xiii, xvii, 51–54, 90, 96, 137–39, 238 effective  49, 99, 111, 180 enforcers  151, 240 and innovation  xvii, 237 law  ix–x, xii–xv, 55, 157–59, 161–65, 167–69, 179–80, 239–40 application  ix–x, xii–xiv, 46–58, 137–38, 159, 162, 239–40, 243 framework xviii, 56, 188, 200, 227 in healthcare  xi, xvi–xvii, 55, 158, 185, 237 and healthcare quality  46–57 policy  xi, xiv, 50, 234 price  92, 97, 99, 104, 106, 133, 148, 150 problems  ix, xvii, 47, 57, 151, 182, 187, 233–34 protection xviii, 149, 160, 172, 184 quality  42–44, 148–51, 155, 157–58, 182, 212–13, 217, 219 real  41, 46 rigorous xvii, 63, 70–71, 86, 93, 215 risks for healthcare quality  24–58 risks to equity  34 rules xv, 158–59, 162, 168, 171, 175, 183 vigorous xvii, 61, 95, 135, 138, 234, 237, 240 Competition and Markets Authority, see CMA Competition Commission, see CC competitive constraints  86, 106, 205, 214, 218, 230 competitive disadvantage  171, 247, 253 competitive environment  22, 233 competitive harm  132, 169 competitive processes  61, 92, 170, 218, 229 competitive restraints  64, 70, 77, 87, 94–95, 150, 162, 165 competitors  71, 89, 108, 116, 165, 209, 213, 215 compulsory affiliation  161, 182 conflicting objectives  162, 182, 188, 199–200, 226

258  Index conflicts  xv, xvii, 53, 57, 138–39, 234, 238, 244–45 potential  xiii, xviii, 11, 47, 139, 191 Conservative governments  146, 189 consolidation xvii, 98–99, 108, 127, 129, 135 hospitals x, 99–101 constraints  3, 13, 212, 218 capacity  211, 215, 224 competitive  86, 106, 205, 214, 218, 230 financial  161, 206 consumer choice  137, 169, 176 consumer groups  10, 178, 247–48, 251–53 consumer welfare xvii–xviii, 55–56, 138–39, 157–58, 168, 173–80, 185, 187 approach, narrow  137–38, 157–58, 187 definition  57 maximisation  55, 176 notion  xii, xvii–xviii, 138–39, 157–58, 174–75, 180, 185, 227 consumerism  36, 38 consumers  27–30, 36–37, 61–64, 75–76, 111, 118–20, 184, 246–49 high-risk  246, 248, 252 low-risk  248, 252 continuity  10, 154, 176, 182–83, 185, 198, 200, 226–29 and acceptability  57, 154 of care  32, 34, 41, 156, 251 and access  xviii, 1, 198, 227 of NHS services  xviii, 198, 234, 241–42 of services  42, 157, 190, 199 contracts  21, 26, 134, 147, 151, 203–4, 218 Convention on Human Rights and Biomedicine, see CHRB cooperation  80, 135–36, 143, 149, 188, 190, 241, 249 Cooperation and Competition Panel, see CCP coordinated care xvii, 138 cost effectiveness viii, 8, 27, 102, 133–34, 137 cost efficiencies  48–49, 54, 101, 109, 120, 124, 169, 201 cost savings  8, 71, 120–21, 123–24, 170, 224 costs  6–8, 48–49, 93–94, 98–102, 104–5, 171, 194, 196 environmental  172 healthcare  1, 7, 27, 98–99, 119, 134, 251 higher  12, 32, 50, 63, 72, 253 lower  31, 54, 99, 103, 114 transport  28, 45–46 Council of Europe  4–5, 18 counterfactual  203–4, 207–8, 228 appropriate  203, 205–7, 227–28

courts and balancing of quality perspectives  86–97 European Union, see European Union and healthcare quality  64–85 lower  70, 81, 85, 113, 115, 117, 160 United States, see United States, courts CQC (Care Quality Commission)  148, 188, 193, 195, 197, 201–2, 235, 241 cream-skimming ix, 25, 28–29, 34, 182 crisis cartels  166, 170 cross-subsidies  154–56, 175–76, 182, 233, 244 customer benefits  198–200, 202, 221–25, 227, 231 Customer Benefits  220 customer benefits potential  199, 235, 241 relevant  194, 198, 207, 220–22, 224–25, 227, 231–32, 241–42 customers  25, 28, 31, 84–85, 106, 108, 110–11, 114 data health  247–51 outcomes  20–21 referrals  216–17 revolution xviii, 58 data-driven mergers  245–53 defences  71, 80–81, 91, 120, 127–28, 132, 235 antitrust  66, 80–81, 90 efficiency  127, 134, 252 public safety  72, 74, 89–91 state action  68–69 delivery viii, 18, 26, 47, 80, 134, 146, 193 healthcare vii–ix, 18, 25–27, 34, 98–99, 126 demand  12, 14, 71, 83, 104, 106, 111, 197 democratic legitimacy  55, 180 dental care  65–67, 73, 90, 94 preventive  65–66 dental x-rays  72–73 dentists  66–67, 71–72, 82, 86, 152 Department of Health (DH)  26, 201 Department of Justice (DoJ) xii, 78, 105, 246, 250–51 diagnosis related group, see DRG digital healthcare space  247 disadvantaged groups  52, 54, 144, 175–76 disadvantaged rural areas  176–77 discounts  75–76, 82–83, 116 disease  15, 35, 44, 64, 104–5 chronic  32, 156

Index  259 disparities health  9, 94, 140, 248 regional  166, 169 distribution  8, 14–15, 45, 55, 165, 173, 176–77, 238 equitable  9, 16 fair  9, 12 distributional efficiency  7, 177, 244 distributive justice  177, 180 doctor-patient relationship xiii, 8, 31, 54, 61, 80, 96, 137 doctors  36–40, 52–54, 59–63, 77–80, 91–95, 97–100, 125–26, 152–53 documents  139, 146 hot  121, 133 legal  143–44 DoJ, see Department of Justice Donabedian, Avedis xiii, 2–5, 7–8, 16–18, 53, 95–97, 177, 236 DRG (diagnosis related group)  102, 105 DSD  172, 177 duties  60, 144–45, 150, 152, 160, 181, 191–92, 198–99 EASE  172 economic activities  158–59, 161 economic analysis  15, 174, 178 economic benefits  171, 175, 179 economic efficiency  55, 169, 172 economic progress  165–66, 173, 178–79, 238–39 economic values  93, 172, 177–78, 238–39 economists, health xvii, 28–29, 57 education  2, 13, 33, 37, 51, 143, 177–78, 183 effective competition  49, 99, 111, 180 effectiveness  ix, xii–xiii, 5–6, 45–46, 53–54, 57, 96–97, 234 clinical  52 cost viii, 8, 27, 102, 133–34, 137 and safety  xii, 1, 43, 53–54, 100, 182 efficacy  5, 67, 122 efficiencies  5–7, 14–16, 48–49, 108–9, 132–34, 172–77, 179–80, 238–40 alleged  126–27, 169 allocative  7, 55, 175 analysis  109, 123 claimed  128, 134, 220 claims  109, 117, 120–30, 132, 220, 252 clinical  7, 54, 177 cost  48–49, 54, 101, 109, 120, 124, 169, 201 distributional  7, 177, 244

economic  55, 169, 172 and equity  5, 11, 14, 22, 144 extraordinary  124, 133 procompetitive  106, 108–10, 123, 133 productive  6–7 qualitative  48–49, 101, 108–9, 123–24, 127, 131–32, 169, 176 and quality  ix–x, 23–24, 41, 50, 146, 206 significant  106, 220 standard  132 substantial  108, 120, 124 technical  6, 166 wider notion  177, 238 efficiency defence  127, 134, 252 elective services/care  154, 156, 175–78, 209, 211–14, 217–19, 230, 233 markets  156, 214, 225, 229–30 NHS  214–15, 217, 219, 225 seeking  176–77 elective surgeries  39, 213 electronic appointment booking system  149, 153 electronic systems  33, 100 emergency care/services  122, 191, 197, 211, 214, 223, 229, 232 emergency surgery  223–24 empirical evidence  19, 124 employees  90, 112, 114, 119, 161–62, 166, 182 employers  102–4, 112, 114, 119, 131, 162 enforcement  60, 121 antitrust  91, 96, 137, 183 enforcers  246, 251–52 antitrust xv–xvii, 53–55, 60–62, 89–97, 130–31, 134–38, 235–37, 252–53 competition  151, 240 English health system  xii, xiv, 146–47, 149, 151, 153, 155, 157; see also NHS Enterprise Act xviii, 56, 188, 194, 198–99, 225, 231, 241 Enthoven, Alain  146 entry  25, 28, 30, 33, 41, 220, 246, 251 barriers  64 and exit  28, 30 potential  106, 203 environment  9, 155, 167, 171–72, 175, 205, 238, 240 external  205 physical  12 social  9 environmental benefits  169, 172, 175 environmental protection  183

260  Index equality  11–13, 139, 144–45, 154, 176 of access  xiv, 11–13, 140, 142, 144, 146 of expenditure per capita  11, 176 of health  11–12, 176 of input per capita  11, 176 of opportunity of access  176, 178 equitable access viii, 27, 144 equity ix–x, 5, 10–16, 44–46, 52–55, 138–42, 174–81, 237–39 and acceptability  xiii, 233 and access  21, 41, 57, 138, 239, 242, 246, 249 and accessibility  144, 182, 210 definitions  11–13 and efficiency  5, 11, 14, 22, 144 gains  177, 238 health  9, 22, 34, 51, 55 in health  10, 178 notion xii, 8, 140, 234 protection of  175, 179, 239, 244 risks to  34 ESC (European Social Charter)  143–44 essential services  192 ethics  38, 40, 70, 82–83, 88, 90, 140, 143 and market principles  37–41 professional  32, 37, 39, 163 European Commission xviii, 139–40, 186, 238, 245–46, 249–50 integration of more economic approach and healthcare quality  174–79 policy before modernisation of EU competition law  165–67 European Data Protection Board  249 European health systems  xii, xiv, 138–46, 234, 249 European Social Charter, see ESC European Union  140, 144, 175; see also European health systems Charter of Fundamental Rights  144 Commission policy before modernisation of EU competition law  165–67 Court approach to Art 101(3) TFEU  173–74 GDPR (General Data Protection Regulation)  248, 250–51 integration of Commission economic approach and healthcare quality  174–79 policies and activities  144, 183 protecting healthcare quality under competition law  158–74 TFEU xii, 48–49, 139, 158, 162–70, 172–81, 183–84, 238–40

Evanston  122 evidence  73, 80–81, 83, 113, 116–18, 121, 124–26, 212 empirical  19, 124 examinations, physical  69, 77–79, 243 exemptions  164, 166, 169–73, 175–76, 198, 236, 239 exit  28, 30, 41, 170, 193, 196, 198–99, 204–6 expenditure, per capita, equality of  11, 176 expertise  79, 84, 86, 91, 166, 171, 196, 240 management  100 medical x, 62, 100 technical  166 externalities, negative  32, 64, 92–94, 137, 236 Exxon/Shell  165, 167 failures financial  192, 197, 199–200, 206, 242 market  52, 86, 89, 91, 96, 135, 137, 243 fair access  192, 199 Federal Trade Commission, see FTC fee for service, see FFS feedback  35, 92, 151–52 fees  63, 75–76, 82–83, 98, 104, 148 FENIN  159 FFS (fee for service)  98–99, 102, 125 financial challenges  205, 207 financial constraints  161, 206 financial failure  192, 197, 199–200, 206, 242 financial incentives  154, 214, 225, 229, 241 financial resources  19, 27, 30, 100, 140 financial savings  201, 224–25, 227 financial stability  51, 156–57, 161, 175, 227–28, 232–33, 241, 244 fixed prices  39, 105, 147–48, 155 forces, market xi, 25, 28, 38, 50, 62, 146–47, 194 Ford/VW  166 Foundation Trusts (FTs)  149, 188, 192–94, 198, 200–1, 226–28, 231–32, 240–42 FTC (Federal Trade Commission)  65–68, 71–79, 83–86, 89–91, 94–97, 113–25, 127–37, 235–36 decision-making policy  133–36 FTs, see Foundation Trusts funding  160, 197, 205, 221, 227 public  27, 33 GAC (general acute care)  112–13, 118 gate-keepers  39, 45, 53, 152, 156, 176, 233, 238

Index  261 GDPR (General Data Protection Regulation)  248, 250–51 general acute care (GAC)  112–13, 118 General Data Protection Regulation, see GDPR General Practice Fundholders (GPFHs)  147–48 geographic markets  106–7, 110–15, 130, 134, 184, 208–9 GlaxoSmithKline  173, 179, 184, 239 goals  viii–xii, xv–xviii, 8–11, 95–97, 138–42, 167–70, 198–200, 240–42; see also objectives conflicting  89, 96, 180 health policy  55, 138, 201, 237–38, 243 main  17, 22, 55, 82, 91, 94, 117, 176 non-competition  180, 183, 189, 227, 231, 240, 242, 244 non-economic  138, 158, 181, 185 quality  16–17, 95, 97, 137, 236 substantive  181, 186, 239 Goldfarb  59–60, 70 goods  7, 9, 32, 160, 165–66, 173, 221, 227 private  30, 32 public  32 Google  246–48, 250 governance  44, 56, 120, 140, 144, 193 GP practices/surgeries  149, 153, 191, 209, 216 GPFHs (General Practice Fundholders)  147–48 GPs  39–41, 53–54, 147–49, 151–54, 156–57, 209–10, 212, 216–17 Netherlands  45, 152 and patients  149, 153, 217 guidance  154, 156, 191–92, 201, 204, 221–22, 226–27, 230 haematology  223 harm xiii–xiv, 36–39, 46–47, 74–76, 94–97, 184–85, 231–32, 252–53 competitive  132, 169 potential  123–24, 129, 132 health, see also Introductory Note authorities  xii, xvii–xviii, 44, 56–57, 148, 188, 234 condition  6, 13, 15–16, 19, 31–32, 112 data  247–51 disparities  9, 94, 140, 248 economists xvii, 28–29, 57 equality of  11–12, 176 equity  9, 22, 34, 51, 55 improvements  viii, xii, 4–5, 14, 20, 61, 145, 148

inequalities  8–9, 16, 177, 192, 248 inequities  94, 246, 248–49, 252–53 insurance xiv, 99, 112, 130, 246–49, 252 markets  34, 245–46, 251 private  25, 39, 102 services  182, 247–51, 253 insurers  25, 30, 73–74, 102–3, 111, 113, 118, 250–51 objectives  55, 158, 181, 198–200, 236 outcomes  1, 3, 6–8, 44, 52–54, 89, 135, 137 , see outcomes plans  112–14, 119, 121, 247, 251 policy  xii–xiii, xvi, 148, 233–34, 245, 249 goals  55, 138, 201, 237–38, 243 objectives  57, 135, 182, 184–86, 232, 239–40, 242, 244 perspective  ix, xii, xiv, 22, 95, 131, 234 policy makers  xvi–xvii, 10–12, 14, 16–17, 22, 51, 53, 99 public  14, 74, 90, 93, 142, 164 regulators  1–2, 227, 241 right to  xvi, 141–45 risks  25, 105, 112, 167 services  vii, x, xii, 3, 6, 8, 198, 201 researchers  x, xii, 3–4, 54, 236–37 systems  viii–ix, xi–xiv, xvi–xviii, 1–2, 26–28, 137–41, 185–87, 236–38 English  xii, xiv, 139, 146–58, 200, 203, 229 European  xii, xiv, 138–46, 234, 249 market-based  44, 190 United States  2, 98, 131, 136, 253 Health and Care Act 2022  56 Health and Social Care Act, see HSCA Health Insurance Portability and Accountability Act (HIPAA)  251–52 healthcare, see also care and Introductory Note access to  140–41, 143–44, 147, 162, 226, 229, 246, 248 costs  1, 7, 27, 98–99, 119, 134, 251 delivery vii–ix, 18, 25–27, 34, 98–99, 126 exceptions  127, 129, 242 funds  160, 162, 182 markets  ix–xi, xiii, 28–30, 32–34, 51–53, 59–61, 86–89, 242–43 complexities  41–46 providers  17–18, 24–28, 31–33, 42–47, 135, 150–53, 230–31, 248 purchasers  46, 152, 156–57 quality, see quality and Introductory Note

262  Index resources  7–8, 12, 14, 16, 24, 103 services, see Introductory Note health-damaging products  10 Heatherwood  206–7, 216, 219, 228 heuristics  37, 50–51, 233 hierarchy managerial vii social  9–10, 15 high risk patients  44, 46, 102 Highland Park  122–23 high-risk consumers  246, 248, 252 HIPAA (Health Insurance Portability and Accountability Act)  251–52 holistic approach  56–58, 96–97, 137–86, 237, 239–40, 242–43, 245–46, 249 conflicts between competition goals and healthcare quality  146–58 English health system  146–58 European health systems  139–46 evaluation of quality as a whole  174–85 homelessness  156 homeopathy  52–53, 89 Horizontal Cooperation Agreements xi, 48 horizontal restraints xii, 57 hospital markets  xii, xvii, 33, 54, 57, 137, 233, 235–36 hospital mergers, see mergers hospital services  41, 51, 104, 110–12, 210, 219, 230 hospitals  18–21, 42–47, 51–54, 102–5, 111–22, 128–31, 151–53, 208–9 consolidation x, 99–101 history of payment arrangements  101–5 major  112, 118 merging  115, 118, 121, 123, 129, 209, 218–19, 223 NHS  xiv, xviii, 56, 154, 156, 175, 204, 207 teaching  122–24 hot documents  121, 133 HSCA (Health and Social Care Act) 2012 xii, xviii, 26, 146, 150, 187–88, 190–99, 201 main facets  189–200 human rights  138, 141–43, 145 ICS (integrated care system)  225 imperfections, market  28–34, 79, 88, 91 implementation of processes  21 INAIL  160–61, 181 incentives  99, 111–12, 117–19, 210–15, 221, 229–32, 241–42, 251 financial  154, 214, 225, 229, 241

necessary  25, 27, 31, 33, 190, 211, 215, 230 and procompetitive regulation  196–200 strong/high vii, 112, 147, 193, 211, 214, 225, 247 incomes  9, 51, 78, 102, 155, 160–62, 177, 182 redistribution  160, 162 Indiana Federation of Dentists  71, 86 indicators  19, 197 measurable  4 outcome  19, 21 process  19–20 quality  44–45, 123, 196–97 inefficient providers  41, 193 inequalities  9, 13, 25, 155, 181, 249 health  8–9, 16, 177, 192, 248 information  36, 42–44, 52–53, 62–63, 84, 92, 100–1, 151–52 asymmetries  31, 44, 52–53, 62–63, 87–88, 135, 137, 151 consumer  85 simple  36, 93 systems  100–1 injunctions, preliminary  114, 120, 128 innovation  xi, xv–xvi, 48–51, 107, 221, 224–25, 227, 234 and competition  xvii, 237 and quality  111, 190 innovative products  48–49, 109 inputs  6–7, 11, 176 available  3–4, 15, 17 equality of  11, 176 Institute of Medicine, see IOM insurance  104, 161 health xiv, 99, 112, 130, 246–49, 252 premiums  13, 104, 161 products  111–12 insurers, health  25, 30, 73–74, 102–3, 111, 113, 118, 250–51 integrated care  125–26, 135, 225 integration xvii, 98, 107, 115, 126, 134, 136, 183 better  131, 201 clinical  125, 135 medical  122–23 quality  242–45 integrity  31, 37–38, 163, 179 professional  38–39, 238 sports  164, 179 intentions  56, 89, 125, 190, 194, 211 interests  36, 52, 150–51, 188, 191–92, 194, 198, 201 internal market xiv, 25, 146–47, 183

Index  263 interventions  6–7, 10, 12, 14, 46, 63, 93, 193 IOM (Institute of Medicine)  3–5, 53, 146 iWantGreatCare.org  42–43, 52, 151 Jefferson Health  118 joint venture agreement  166–67 joint ventures  48, 166–67 Labour governments  44, 147, 150, 152, 154–55, 157, 189, 191 labour productivity  9, 177, 238 Le Bonheur Healthcare  118–19 Le Grand, Julian  viii–x, xiii, 13, 27–28, 30, 41–42, 45–46 legal analysis  68, 70–71, 73, 83–85, 87–89, 94, 96, 237 legal documents  143–44 legal reasoning  74, 127, 160, 163 legitimacy  5, 186, 239, 245 democratic  55, 180 legitimate objectives  164, 179 lemons problem  63–64 lenient approach  228 licensing  63–64, 75, 88, 192–93, 206 life expectancy  15, 27, 145, 155, 178 lifestyle  9, 21, 31 health-related  12, 15 local providers  12, 18, 215 lower courts  70, 81, 85, 113, 115, 117, 160 management expertise  100 issues  207, 228 systems  100 marginal rate rule  197 market approach  xi, xvii–xviii, 56–136, 138, 187, 234–35, 241–44, 246 core of FTC and US courts approach  86–90 history of hospital payment arrangements  101–5 merger analysis, see mergers, analysis pros and cons of FTC and US courts approach  90–97 quality as efficiency claim  120–30 market definition analysis  106, 115 market failures  52, 86, 89, 91, 96, 135, 137, 243 defences  87, 90–91, 235–36 market forces xi, 25, 28, 38, 50, 62, 146–47, 194 market imperfections  28–34, 88, 91 correction to protect quality  79–85 market mechanisms  25, 38, 84

market players x, 68, 110, 170, 172, 233 market power x, 45, 101, 105–6, 114, 116, 120–22, 248–49 market principles  235 and medical ethics  37–41 market realities  41, 92, 114 market values  26, 29, 38–40 injection  28, 38–39, 54 introduction  26, 29, 40 marketing  50, 54 marketisation  26–27, 40, 54 markets vii–ix, 29–45, 84–86, 184–85, 202–6, 216–19, 229–30, 245–51 elective services/care  156, 214, 225, 229–30 geographic  106–7, 110–15, 130, 134, 184, 208–9 health insurance  34, 245–46, 251 healthcare  ix–xi, xiii, 28–30, 32–34, 41, 51–53, 86–89, 242–43 special or not  28–46 hospital  xii, xvii, 33, 54, 57, 137, 233, 235–36 medical ix, 39, 53, 62, 64, 233–34, 237, 245 relevant  106–8, 110–15, 128, 130, 178, 184, 208, 240–41 respiratory services  51, 244 Marmot, Michael  155 Massachusetts  75, 77, 83, 91 maternity  12, 145, 191, 214–15, 217, 223–24, 226 Meca-Medina  163, 179, 238–39 Medicaid  65, 101–2, 118, 125–26 medical associations  40, 47, 54, 62–64, 79, 90–91, 97, 235–37 medical ethics, see ethics medical expertise x, 62, 100 medical integration  122–23 medical markets ix, 39, 53, 62, 64, 233–34, 237, 245 medical professionals  x, xvi–xvii, 3–4, 52–53, 60–63, 86, 95, 237; see also doctors; dentists medical services x, 28, 39, 45, 53, 57, 73, 92 medical treatment  15, 20, 52–53, 62, 88, 93, 100, 102 Medicare  101, 118, 125 merged entities  50–51, 107–8, 116–18, 124–25, 128–29, 199–200, 220, 224–25 merger cases xii, 188, 200–1, 203–26, 229, 231, 245

264  Index mergers  100–1, 105–14, 116–28, 134–36, 198–207, 213–37, 244–47, 252–53 analysis  48–50, 105–10, 122–23, 129, 131–36, 199–200, 234–36, 240–41 incorporation of healthcare quality claims  130–36 analysis stage  106, 110, 116, 210 assessment xviii, 56, 109–10, 188–89, 198–200, 226, 241, 249 of anticompetitive effects  107–8 benefits  114, 201–2, 227, 231, 241 cases  110, 112, 116, 118, 120, 130–31, 133, 135 CMA and quality concerns  201, 226 data-driven  245–53 envisaged  118, 203, 219, 226, 235, 246, 252 impact  210–11, 213–14, 217–19, 229–30, 236, 241, 244, 249 incentive to merge and procompetitive regulation  196–200 NHS  201–19, 226–27, 232, 235, 241 potential impact on prices  134, 138 procompetitive efficiencies  106, 108–10, 123, 133 quality in US analysis  110–30 merging entities  108, 118–20, 124–25, 128–31, 133–34, 204–6, 209–11, 220–22 merging hospitals  115, 118, 121, 123, 129, 209, 218–19, 223 merging parties  114–15, 117–20, 124–26, 129–31, 133–34, 204–11, 213–25, 227–28 merging providers  114, 201, 203–4, 210, 215, 221–22 MFF (market forces factor)  194 models  vii, ix, xii–xiii, xvii–xviii, 25, 57–58, 234, 240–41 of care  221–22, 227 choice and competition  vii–x, xiii, xvii, 24–26, 28, 32–33, 139, 187 modernisation  165, 167–69, 173 Monti, G.  171 mortality rates  19–22, 43–44, 52, 124, 147, 212, 226, 241 most vulnerable groups  145, 162, 179, 244 multiple providers  30, 104, 126 National Health Service, see NHS National Health Service and Community Care Act  146–47, 189 National Institute for Health and Care Excellence  148, 192

National Society of Professional Engineers  69, 73, 127 natural resources  167, 171 negative externalities  32, 64, 92–94, 137, 236 Netherlands  vii–viii, x, xv, 24–25, 39–40, 53–54, 163 GPs  45, 152 network effects  101, 172 networks  25, 103–4, 114, 119, 191 insurer  103–4 neurosurgery  205, 222, 228 New Labour  148, 189 NHS (National Health Service)  52, 56, 145–50, 153, 188–90, 192–94, 197–98, 200–1 choice tool  42, 44, 151 Constitution  145, 212 elective services  214–15, 217, 219, 225 England  188, 191–92, 200, 202, 219, 227 FTs (Foundation Trusts)  149, 188, 192–94, 198, 200–1, 226–28, 231–32, 240–42 hospitals  xiv, xviii, 56, 154, 156, 175, 204, 207 Improvement  150, 188, 192–94, 198–202, 206–7, 222–23, 225–28, 241 advice  198, 202, 224, 235 framework  188, 200 mergers  226–27, 232, 235, 241 CMA and quality concerns  201–26 providers  146, 154, 194, 197, 213, 216, 224 services xviii, 26, 145, 149–50, 188–93, 198–200, 227–28, 241–42 access to  145, 199–200, 210, 226 purchasers of  139, 150–51, 154, 156, 175–76 TSA (Trust Special Administration) regime  193, 196, 198, 200, 204 non-competition concerns xviii, 174, 179, 226–27, 229 non-competition goals/objectives  180, 183, 189, 227, 231, 240, 242, 244 non-dentists  67, 74–75, 90, 94 non-economic facets of healthcare quality xviii, 26, 56, 174–77, 179, 185, 187, 239–40 non-economic goals  138, 158, 181, 185 non-elective care/services  177–79, 182, 209, 211, 217–18 non-elective services  156, 175, 177, 211–15, 229, 233, 241, 244 non-elective surgeries  155, 175, 182 non-price advertising restrictions  83–85, 87 North Carolina  65, 67–68, 74–75, 90, 94

Index  265 obesity  35, 92 objective advantages, appreciable  173, 179, 184 objectives xiv–xv, 138–39, 162–63, 174–75, 183, 231–32, 237–42, 244–45; see also goals conflicting  162, 182, 188, 199–200, 226 core xiii, 51, 55, 131, 138, 156, 249 health  55, 158, 181, 198–200, 236 legitimate  164, 179 main xi, 131, 136, 138–39, 187, 249 non-competition  189, 227, 231 social  xii, xv, 138–39, 159, 235 OECD (Organization for Economic Cooperation and Development)  2, 5, 96, 146 online search market  246–47 ONP  164 optometrists  31, 75–77, 91 Organization for Economic Cooperation and Development, see OECD outcomes  6–8, 13, 18–22, 29, 84, 90, 92, 96 and choice  34–37 clinical  52, 93, 201, 223, 225 data  20–21 desirable  29–30 indicators  19, 21 measures  14, 19–22, 44, 124, 147 patient  33, 126, 202–3 outpatient services  208, 217 output restrictions  49, 108 overcapacity  166, 170 paediatric quality  19 pandemic xvi, 92, 248 Parker v Brown  65 patient centredness  10, 38 patient choice  24–25, 153, 156–57, 190 patient groups  7, 12, 15–16, 161, 177, 216 higher risk  161 patient outcomes  33, 126, 202–3 patient referrals, see referrals patient safety  1, 74, 125, 140, 243 patient volumes x, 33, 100, 151, 229 patients  17–22, 26–34, 36–47, 97–105, 111–19, 151–54, 207–17, 222–31 emergency  197, 214 high risk  44, 46, 102 referring  53, 80, 152, 154, 157, 176 payers  102, 104, 111, 116 private  102–3 public  18, 102, 105 third party  30, 102

Payment by Results, see PbR PbR (Payment by Results)  26, 148, 155, 225 PCTs (Primary Care Trusts)  148, 152, 157, 191 Penn State Hershey Medical Center  112, 114, 128, 135 performance  1–2, 5–6, 21–23, 27–28, 33, 43–45, 151–52, 213 and quality  103, 118 Philips Osram  165, 167 physical examinations  69, 77–79, 243 physicians, see doctors pluralistic approach xviii, 179, 186, 238, 240, 244 policies  xv, xvii, 12, 72–74, 88–90, 151, 180–81, 183 basic  71, 73, 90 national  67, 191, 225, 230 reform  56, 188–89 statutory  71, 90 policy goals, see goals policy makers  xvi, xviii, 1, 12, 14–15, 22, 26, 57 health xvi–xvii, 10–12, 14, 16–17, 22, 51, 53, 99 policy objectives, see objectives policy options xviii, 56–57, 132, 137, 187–88, 241 polluting industries  51, 155 pollution  9, 171, 174 potential harm  123–24, 129, 132 Poucet and Pistre  160, 181 power  38, 91, 150, 164, 181, 183, 194, 201 bargaining  104, 133–34 buyer  208, 219–20 market x, 105, 134 preferences  8, 12–13, 24, 27, 35, 91, 114, 216 preliminary injunctions  114, 120, 128 premiums, insurance  13, 104, 161 prescription  69, 78–79 preventive dental care, access to  65–66 price competition  92, 97, 99, 104, 106, 133, 148, 150 price negotiations  71, 148 prices  29–31, 48–50, 82–84, 98–99, 104–13, 115–18, 134, 235–37 fixed  39, 105, 147–48, 155 higher  39, 63, 109, 251 lower  71, 76, 91, 109–10, 147, 198, 221, 241 minimum  164 regulation  190, 198

266  Index primary care  78, 120, 154 clinics  154, 156 physicians  126, 147 Primary Care Trusts, see PCTs Principles and Rules for Cooperation and Competition  149–50, 190 privacy  8, 248–51 private goods  30, 32 private health insurance  25, 39, 102 private payers  102–4 process indicators  19–20 procompetitive benefits  48, 50, 53, 128 procompetitive effects  81, 182–84 procompetitive efficiencies  106, 108–10, 123, 133 procompetitive regulation  139, 187, 189–96, 233, 238 and incentive to merge  196–200 product markets  107, 165, 184, 208 product quality xi, 48, 94, 106, 109 production  48–49, 165–67, 173 productive efficiency  6–7 productivity, labour  9, 177, 238 products  10, 18, 30, 32–33, 36, 47–48, 50, 108 health-damaging  10 professional associations  72, 78, 81, 88 professional ethics  32, 37, 39, 163; see also medical ethics professional integrity  38–39, 238 professional standards  52, 76 professionalism  38, 61, 63, 95, 137–38, 145, 234, 236 vs antitrust  62–64 commitment to  95, 236 protection of  95, 234 quality as  64–69 professionals vii, 31, 63, 70, 85, 87, 94–95, 191 medical  x, xvi–xvii, 3–4, 52–53, 60–63, 86, 95, 237 non-licensed  90 non-qualified  33 qualified  94 professions  32, 38, 40, 51–52, 59–60, 73, 83, 86 profitability  211, 214 profits  32, 121, 154–55, 159, 182, 214, 247 Promedica  118, 125 proof, burden of  80–81, 109–10, 133, 221, 237 protection environmental  183 of equity  175, 179, 239, 244 of professionalism  95, 234

of public safety  47, 78 social  139, 161, 183 providers vii–x, 21–22, 44–47, 147–55, 189–93, 196–98, 203–4, 216–17 accredited  149, 189 alternative  104, 111, 190, 198, 200, 204, 214–15, 220 choice of  98, 197, 210 healthcare  17–18, 24–28, 31–33, 42–47, 135, 150–53, 230–31, 248 inefficient  41, 193 local  12, 18, 215 merging  114, 201, 203–4, 210, 215, 221–22 multiple  30, 104, 126 NHS  146, 154, 194, 197, 213, 216, 224 private  25, 147, 154 qualified  64, 94 unqualified  67, 75, 94 public funding  27, 33 public goods  32 public health  14, 74, 90, 93, 142, 164 public payers  18, 102, 105 public policy goals  139, 164–65 objectives  164, 174, 179 public safety  64, 70, 73, 78, 81, 86, 90–91, 93 claims  69–79, 90–92 defence  72, 74, 89–91 justifications  95, 236 protection of  47, 78 public service ethos  95 public services  vii, ix, 65, 83, 160, 193 purchaser-provider separation  147 purchasers  71, 111, 147–48, 156, 171–72, 233–34, 238 rational  25 qualifications  17, 33, 52, 54, 163 qualified providers  64, 94 qualitative efficiencies  48–49, 101, 108–9, 123–24, 127, 131–32, 169, 176 qualitative improvements  123–24, 131, 133, 136 quality, see also Introductory Note and acceptability  142 arguments  121, 130, 176, 236 choice of core dimensions  10–16 claims  61, 74, 90, 101, 117, 121–22, 125, 235–36 analytical framework for  132–33 incorporation in merger analysis  130–36

Index  267 commitment to  16, 95 competition  42–44, 148–51, 155, 157–58, 182, 212–13, 217, 219 and competition law  46–57 considerations under Art 101(3) TFEU  165–79 and courts  64–85 definition  1–23, 52–54, 146, 237 and definition of relevant geographic market  110–16 dimensions  43, 112, 130–31, 136, 209–10, 226–27, 230, 241 and efficiency  ix–x, 23–24, 41, 50, 146, 206 as efficiency claim  120–30 as equity concern  120–21 goals  16–17, 95, 97, 137, 236 improvement claim  121–30 improvements  2–3, 16–17, 48–49, 51, 116–17, 122–24, 132, 233–34 indicators  44–45, 123, 196–97 and innovation  111, 190 insufficient guidance on meaning  130–31 integration  242–45 justifications  71, 74, 79, 81, 91, 123 levels of analysis in concept  16–18 main dimensions  4–10 measurement  18–19 obstacles to holistic protection  180–85 and performance  103, 118 product xi, 48, 94, 106, 109 as professionalism  64–69 protection  x, xii–xiii, xviii, 57, 62, 154, 158, 237–38 by correction of market imperfections  79–85 as legitimate objective  179 as public safety claim  69–79 reductions  49, 107 regulation  150–51, 157, 195–97, 213 risks  90, 236 of competition  24–58 standards  140, 148, 152, 193, 195, 197, 206, 213 minimum  64, 193, 213 in US hospital merger analysis  110–30 quasi-market system vii reason, rule of  70–71, 73, 76–77, 81, 84, 87–89 redistribution of income  160, 162 referrals  19, 80, 148–49, 152, 157, 189, 214, 217 additional non-elective  214, 229 data  216–17

patient/GP  216 traditional paper-based  154 reforms  25, 40, 135, 143, 148, 188, 190–91 policy  56, 188–89 regulation  46, 65–67, 77–79, 91, 93, 137, 163, 168 procompetitive  139, 187, 189–96, 233, 238 quality  150–51, 157, 195–97, 213 regulators  xvi, xviii, 11, 16, 18, 22, 189, 196 health  1–2, 227, 241 regulatory approach xvii–xviii, 56–58, 121, 187–232, 234, 240–46, 249, 252 regulatory frameworks  151, 188, 195, 211, 213, 224, 226, 228–32 regulatory interventions  137, 228 by NHS Improvement  206–7, 228 relevant customer benefits  56, 194, 198, 207, 220–27, 231–32, 241–42 relevant markets  106–8, 110–15, 128, 130, 178, 180, 184, 240–41 definition  106–7 and quality  110–16 identification  208–10 research x–xi, 3–4, 35, 37, 78–79, 92, 95–96, 227 developing  134, 138, 236 research and development agreements  181, 184 resources  4, 6–7, 10–12, 18, 27, 29–30, 41, 175–76 allocation  7, 14, 16, 22 financial  19, 27, 30, 100, 140 healthcare  7–8, 12, 14, 16, 24, 103 natural  167, 171 respiratory services market  51, 244 responsibilities xvii, 17, 22, 26, 36, 148, 150, 188 responsiveness viii–ix, 4–5, 149, 197 restraints  59, 61, 68, 70, 72, 76–77, 81, 83 competitive  64, 70, 77, 87, 94–95, 150, 162, 165 horizontal xii, 57 restrictions  76–77, 87–88, 143–44, 157, 164–65, 175–76, 241, 245 output  49, 108 rights fundamental  144, 249 to health  xvi, 141–45 human  138, 141–43, 145 risks  79, 81, 90–94, 197, 199–200, 232–33, 244, 246–50

268  Index of competition for healthcare quality  24–58 health  25, 105, 112, 167 to healthcare quality  28, 90, 236 high  34, 154, 156, 182, 198, 233 potential  94, 196 rivalry  61, 96, 203, 220, 233 rivals  41, 209–10, 216, 246–47, 250–51, 253 rule of reason  70–71, 73, 76–77, 81, 84, 87–89 rural areas  12, 33, 45, 78, 178, 244 disadvantaged  176–77 safety ix–x, 5–6, 90–91, 95–96, 138–39, 175–76, 182–83, 237–39 and acceptability  97, 238 claims  78, 243 clinical  205, 228 and effectiveness  xii, 1, 43, 53–54, 100, 182 patient  1, 74, 125, 140, 243 public  64, 70, 73, 78, 81, 86, 90–91, 93 Saltzer  125–26 savings  171–72, 238 cost  8, 71, 120–21, 123–24, 170, 224 financial  201, 224–25, 227 scientific standards  95, 142 scrutiny  61, 65, 68, 106–7, 123, 159–60, 163–65, 167 search engines  52, 152 SELEX Sistemi Integrati SpA  159 self-interest  38, 54, 68, 89, 92, 95, 97, 237 self-regulation  54, 63–64, 91 sellers  29–31, 33 services  29–34, 47–49, 61–64, 98–100, 142, 144–47, 191–201, 203–18 elective  154, 156, 175–78, 209, 211–14, 217–19, 230, 233 emergency  211, 214 essential  192 health insurance  182, 247–51, 253 high quality  vii, 119, 192, 196, 199 higher quality  94, 221–22, 227–28 medical x, 28, 39, 45, 53, 57, 73, 92 NHS xviii, 26, 145, 149–50, 188–93, 198–200, 227–28, 241–42 non-elective  156, 175, 177, 211–15, 229, 233, 241, 244 outpatient  208, 217 professional  63–64, 70, 84, 179 public  vii, ix, 65, 83, 160, 193 specialised  191, 215, 217–19, 226 teeth whitening  67–68, 74–75, 90, 94

sex  7, 15–16, 177 sexual orientation  145 Sherman Act xii, 59–60, 62, 65, 70–74, 79, 81, 88–90 simple information  36, 93 SLC (substantial lessening of competition)  229–30, 241 assessment of countervailing factors  220 assessment of relevant customer benefits  220–26 competition for the market  217–19 competition on the market  210–17 identification of relevant market  208–10 quality concerns in assessment  203–26 social contract  38 social determinants of health  12, 155 social hierarchy  9–10, 15 social objectives  xii, xv, 138–39, 159, 235 social protection  139, 161, 183 solidarity xiv, 140–41, 160–62, 182, 237–38 South Carolina  65–67 special values xiv, 57, 244, 249 specialised services  191, 215, 217–19, 226 specialists  19, 117, 124 specialties  73, 208–9, 216–17, 223 sports integrity  164, 179 St Luke’s case  111, 125–27, 129, 134–35 stability, financial  51, 156–57, 161, 175, 227–28, 232–33, 241, 244 standardization  21, 40, 48, 129 standards  28, 38, 52–53, 142, 148, 151–52, 233, 239 minimum  89, 198, 235 professional  52, 76 quality  31, 140, 148, 152, 195, 197, 206, 213 scientific  95, 142 state action defence  68–69 doctrine  64–69, 74, 90, 93 Stichting Baksteen  165 substantial lessening of competition, see SLC suppliers vii, 29, 218, 229 Supreme Court  59–60, 65, 68–71, 73, 78, 81, 83–88, 242–43 surgeons  39–41, 51, 54 high-quality  21, 46 surgery cardiac  102, 122, 149 complex high risk  21, 46 elective  39, 213 emergency  223–24

Index  269

tariffs  26, 149, 194, 196–97, 206, 211, 214 marginal rate  211, 229 taxpayers  145, 156 teaching hospitals  122–24 technical efficiency  6, 166 technology  1, 6, 19, 117, 119, 125, 246, 250 teeth whitening services  67–68, 74–75, 90, 94 Teladoc  65, 69, 77–78, 91, 94, 243 telemedicine  69, 77–79, 91, 243 Tenet  115–17, 119 Tenn, Steven  113 Texas Medical Board  69, 77, 91, 243 TFEU (Treaty on the Functioning of the European Union) xii, 48–49, 163–64, 166–70, 172, 174–81, 183–84, 238–40 assessment of healthcare qualityon the basisi of Art 101(1)  158–64 Court approach to Art 101(3)  173–74 quality considerations under Art 101(3)  165–79 restricted approach re Art  101 162–64 restrictive interpretation of term undertaking  158–62 third party payers  30, 102 timelessness  5, 10, 112 timeliness  10, 22 transactions  118–19, 121–22, 126, 132, 134–35, 231, 233–34, 246–48 transparency viii, 27, 83, 92, 192, 231–32, 237, 242 transport costs  28, 45–46 travelling time  210, 230–31, 241 treatment  4, 6–8, 13, 15, 36, 41, 91–93, 103–5 dental  71–73 medical  15, 20, 52–53, 62, 88, 93, 100, 102 options  30–31, 37 Treaty on the Functioning of the European Union, see TFEU trust  31–32, 54, 61–62, 93, 96, 152, 193, 196 notion of  xiii, 31, 54, 61, 93 public  54 Trust Special Administration, see TSA regime truthfulness  8, 83 TSA (Trust Special Administration) regime  193, 196, 198, 200, 204

United Kingdom Choose and Book  149, 153–54 Conservative governments  146, 189 Enterprise Act  xviii, 56, 188, 194, 198–99, 225, 231, 241 Health and Care Act 2022  56 HSCA (Health and Social Care Act), see HSCA Labour governments  44, 147, 150, 152, 154–55, 157, 189, 191 National Health Service and Community Care Act  146–47, 189 NHS, see NHS Principles and Rules for Cooperation and Competition  149–50, 190 United States  xi–xii, xv, xvii–xviii, 1, 57, 101–2, 241–46, 250–51 antitrust approach  xi, 235 antitrust enforcers  86, 89–94, 96–97, 101, 134, 136–38, 235–37, 243 antitrust enforcers and balancing of quality perspectives  86–97 antitrust enforcers and healthcare quality  64–85 Clayton Act  126–29, 236, 242 courts xvii, 86, 89–90, 94–95, 116–17, 130–31, 235–37, 242–43 and healthcare quality  64–85 courts and balancing of quality perspectives  86–97 Department of Justice (DoJ)  xii, 78, 105, 246, 250–51 FTC (Federal Trade Commission)  65–68, 71–79, 83–86, 89–91, 94–97, 113–25, 127–37, 235–36 health system  2, 98, 131, 136, 253 HIPAA (Health Insurance Portability and Accountability Act)  251–52 Medicaid  65, 101–2, 118, 125–26 Medicare  101, 118, 125 North Carolina  65, 67–68, 74–75, 90, 94 quality in analysis of hospital mergers  110–30 Sherman Act  xii, 59–60, 62, 65, 70–74, 79, 81, 88–90 Supreme Court  59–60, 65, 68–71, 73, 78, 81, 83–88, 242–43 unqualified providers  67, 75, 94

undertakings xiv–xv, 132, 163, 168, 173, 180, 182, 191 restrictive interpretation  158–62

value of choice  34, 153, 229 values  1, 3–4, 101, 111–12, 114, 130–31, 145, 239

non-elective  155, 175, 182

270  Index common  32, 139–41 economic  93, 172, 177–78, 238–39 market  26, 29, 38–40 special xiv, 57, 244, 249 verification  82, 108 vertical agreements  48 vulnerable populations  22, 126, 142–43, 246, 252

welfare  ix, xi, 34, 37, 42, 53, 55, 74 consumer xviii, 138, 177, 185, 187, 234 WHO (World Health Organization)  2, 4–5, 96, 146 Wilk  79, 87–89, 91 Wouters  163–64, 179, 239 x-rays  71–73