Guidance

Choice and competition: hypothetical scenarios for NHS healthcare providers

Published 12 September 2014

Applies to England

1. Introduction to choice and competition issues

These hypothetical examples complement the guidance Monitor has published on ‘The application of the Competition Act 1998 in the healthcare sector’ and ‘Choice and competition: guidance for providers of NHS-funded services’.

Each looks at the effect of an agreement or conduct on patients and what Monitor’s analysis would be under the provider licence and competition law. In these examples, the term ‘competition law’ refers to Chapters I and II of the Competition Act 1998 and Articles 101 and 102 of the Treaty on the Functioning of the European Union.

These examples do not address all the potential issues a provider might face but they do give examples of the types of conduct that can breach the competition condition of the provider licence and competition law. The examples also set out an example of how the competition condition of the NHS provider licence and competition law may apply to an integrated care model.

Please note:

These examples are illustrations and not a statement of the law: they are designed to help providers ensure that their conduct does not have a negative effect on patients. Monitor may adapt or build on them as its experience grows or as the sector requests further support.

2. Market sharing

Market sharing involves providers agreeing not to compete with one another for particular services, areas and/or patients. For example, they might agree to allocate among themselves:

• certain groups of patients to whom they will offer services (see scenario 1)
• particular services they will or will not offer
• geographical locations where they will or will not offer services (see scenario 2)
• commissioners to whom each will or will not offer its services

Another example would be if they agree not to provide services under certain circumstances – for example, they may agree not to provide the same service as each other or not to solicit or provide services to each other’s patients.

2.1 Scenario 1: Market sharing by area

You are the manager of a self-referral physiotherapy assessment and treatment centre. You agree with managers of other self-referral physiotherapy centres in your city that each centre is assigned an area, defined by postcode, from which it will accept and treat patients. If a new patient comes to the ‘wrong’ clinic, they will be referred to the designated clinic for their postcode.

2.2 Scenario 2: Market sharing by procedure

You are a chief executive officer of a trust. You agree with the chief executive officer of another trust in your region to concentrate on different procedures: orthopaedic surgeons at your trust will carry out hip orthopaedic procedures and orthopaedic surgeons at the other trust will carry out orthopaedic knee procedures. You also agree to refer patients requiring these respective procedures to each other.

You have not sub-contracted with each other to provide these services. Before the agreement, you were the only hospitals in the region that provided hip and knee surgery.

You are now the only hospitals in the region offering hip surgery and knee surgery, respectively. It is unlikely that patients served by your hospitals would be willing to travel to other hospitals outside the region for treatment.

2.3 Effects on patients

In scenarios 1 and 2, the agreements between the providers could have negative effects on patients. They dampen the providers’ incentives to strive to attract patients or get a contract awarded by a commissioner, for example by investing in high quality, value for money services and seeking to improve the patient experience and/or clinical outcomes.

The agreements also limit patient choice; for example, in the case of the physiotherapy treatment centres, the agreement to allocate patients according to postcode means they are unable to choose their preferred centre. In the case of the orthopaedic surgery agreement, there is only 1 hospital for knee surgery and 1 hospital for hip surgery left in the region.

In some circumstances, it is possible that the agreements may generate benefits for patients, for example by improving equality of access for patients in densely populated areas or by providing better opportunities for sub-specialisation through an increased volume of patients.

2.4 Possible benefits

To argue that the agreements have benefits, providers would need to show:

• the nature of the benefit
• the link between the agreement and the benefit
• the likelihood and magnitude of the benefit
• how and when the benefit would be achieved
• that the same benefits could not have been achieved without restricting choice and competition; for example, by the providers acting independently
• that the benefit would be passed on to patients
• that the agreement does not eliminate competition in a substantial part of the services concerned

2.5 Conduct that is unlikely to raise concerns

It is important to emphasise that the competition licence condition and competition law do not stop providers deciding independently, without consulting other providers, to withdraw from particular services or concentrate on particular services. Similarly, a decision by a trust to sub-contract services to other trusts would not in itself be expected to raise concerns, particularly if patients still have a choice of hospital.

Justifications for sub-contracting might include that it offers a more cost-effective solution than the provider investing in increased capacity, or that the sub-contractor offers a better quality of service than is achievable in-house.

However, sub-contracting arrangements could have negative effects for patients and taxpayers if they reduce incentives to invest in high quality services that represent good value for money; for example if the sub-contract prevents the sub-contractor from competing with the trust because of a non-compete clause or an unnecessarily long-term contract.

In such a situation, Monitor would need a detailed assessment of the likely effects of the agreement.

3. Price fixing

Price fixing is where providers agree not to compete on price or agree on aspects relating to price. Agreements to fix prices might involve:

• colluding on the price itself or the components of price
• setting a minimum price below which prices are not to be reduced
• establishing the amount by which prices are to be increased
• establishing a range outside which prices are not to move
• indirectly affecting the price to be charged (for example, agreeing the discounts to be granted, payments for additional services, and/or credit terms)

The ability to fix prices will be affected by the way in which prices are set in the NHS. The provision of NHS-funded healthcare services is free to the patient and the prices of NHS healthcare services are paid by commissioners.

Currently, for many services, the commissioners pay a uniform national tariff for each procedure. For services reimbursed at the national tariff, there is little scope for providers to fix prices between themselves.

For other services, where the price paid by commissioners is determined through negotiation or competitive tender, for example, there is likely to be greater scope for trusts to fix prices (see scenario 3).

3.1 Scenario 3: Price fixing

You are a senior manager of a community services provider and are about to begin negotiations with your clinical commissioning group (CCG) over the price of a service which is not covered by the national tariff. You learn that another provider of the same service in your region is also negotiating with the CCG about the price of this service. You meet with a senior manager from that provider to discuss your respective negotiation strategies and agree that you will not go below a certain price level in your negotiations with the CCG.

3.2 Effects on patients

This sort of agreement could have adverse effects because commissioners may have to pay more for services than they would if the providers negotiated their prices independently. This reduces the funds available for commissioners to purchase other services.

In this scenario, Monitor would ordinarily expect providers to come to an independent view, without consulting each other, on the pricing terms they are willing to accept. By agreeing to a minimum price level, the providers reduce the scope for proper negotiations with the commissioner. This could result in higher local prices.

3.3 Possible benefits

It is difficult to see how benefits to patients and taxpayers would result from such an agreement but if providers wished to argue that the agreement has benefits, they would need to show:

• the nature of the benefit *the link between the agreement and the benefit
• the likelihood and magnitude of the benefit
• how and when the benefit would be achieved
• that the same benefits could not have been achieved without restricting choice and competition; for example, by the providers acting independently
• that the benefit would be passed on to patients
• that the agreement does not eliminate competition in respect of a substantial part of the services concerned

4. Bid rigging

When providers agree among themselves on their responses to invitations to tender, this is known as ‘bid rigging’. The tendering system is designed to allow the procurement of high quality services that represent good value for money. An essential feature of the system is that prospective providers prepare and submit their bids independently. By discussing and agreeing their responses to invitations to tender, providers reduce incentives to submit their best bid.

The collaboration could be in relation to pricing and/or quality aspects of a tender or through selective participation in tenders (see scenario 4). For example, prospective bidders might agree to:

• discuss how they will respond to pricing or quality criteria set out in an invitation to tender
• notify intended quotes to each other, either individually or through a central contact, and then decide which quotes will be eliminated
• allocate tenders to individual providers according to geography or service specialisation, in which case providers agree not to bid for tenders in certain areas or services
• take it in turns to win tenders, so that providers intentionally offer low value for money in bids unless it is their turn to win the tender (eg by offering higher prices, lower quality of service or a narrower range of services for a similar price)

Providers partnering for tenders would not ordinarily be expected to raise competition concerns when a provider is unable to bid in a tender independently or can only meet the tender specifications by bidding jointly with other providers.

4.1 Scenario 4: Selective participation in tenders

You are the finance director of trust X. Commissioners from your region and neighbouring regions are planning to tender for various healthcare services over the next 2 years. You agree with the finance directors of trusts Y and Z in neighbouring regions B and C not to bid for tenders outside your current region: you will only bid for tenders in region A, Y will only bid for the tenders in region B, and Z for tenders in region C.

4.2 Effects on patients

Agreeing not to bid for tenders in each other’s regions could have a negative effect on patients because commissioners will have fewer providers to choose from, and may not be able to choose the most capable provider providing the best value for money. The trusts have a reduced incentive to develop the most attractive offer (the best quality service for the best value for money) to maximise their chances of winning the tender.

4.3 Possible benefits

To argue that the agreement has benefits, trusts would need to show:

• the nature of the benefit
• the link between the agreement and the benefit
• the likelihood and magnitude of the benefit
• how and when the benefit would be achieved
• that the same benefits could not have been achieved without restricting choice and competition; for example, by the trusts acting independently
• that the benefit would be passed on to patients and
• that the agreement does not eliminate competition in respect of a substantial part of the services concerned

4.4 Conduct that is unlikely to raise concerns

The competition licence condition and competition law do not stop trusts deciding independently, without consulting with other trusts, that they cannot or do not wish to tender for services whether within or outside their own region. This might be because they cannot independently meet tender specifications.

Partnerships may be necessary for trusts, for example, where a commissioner (or commissioners) chooses to tender multiple services in a care pathway together (rather than tendering services along the pathway separately) or across areas. Partnerships may also be needed to meet tender specifications in relation to research grants.

Partnering for tenders will generally only raise competition issues where the partners could have met the tender specification separately.

5. Other types of anti-competitive agreements

Agreements between providers that prevent or hinder other providers from competing effectively could be anti-competitive. They may marginalise a competitor or completely stop the competitor from providing the service.

Anti-competitive agreements can enable a group of providers in a strong market position to preserve that position by deterring expansion or making it harder for other providers to enter the market.

These kinds of anti-competitive agreements might take a variety of forms. For example, a group of providers might be able to:

• deny competitors access to necessary inputs (eg adequate supplies of input or outsourced services or sufficient volumes of patient referrals, see scenario 5)
• exchange information that places competitors who do not take part in the exchange at a significant competitive disadvantage
• limit competitors’ ability to participate in tenders (eg sub-contracting agreements might prevent the sub-contractor from bidding for future contracts with commissioners)
• reach agreements with commissioners that enable them to influence strategic aspects of tenders such as service specifications, bundling of services and timing)

5.1 Scenario 5: Agreement preventing referrals

You are a dermatology consultant. You and the manager of a community-based provider agree to establish a direct booking referral protocol. You agree that the community-based provider will refer all patients requiring hospital-based secondary dermatological care to you. Dermatology consultants at other trusts in the region are not party to the agreement.

5.2 Effects on patients

The agreement between the consultant and the community-based provider results in them preventing referrals to the other hospital-based secondary care dermatology providers in the region. This removes patient choice and hinders other providers’ ability to attract patients.

As a result of the agreement the consultant’s hospital would also face less competition from other hospital-based secondary care providers. This could mean that it has a reduced incentive to invest in high quality services which represent good value for money to attract patients and get a contract awarded by a commissioner.

5.3 Possible benefits

It is possible that the agreement is motivated by a desire to advance the interests of patients or protect the local health economy. The consultant and the community-based provider might, for example, expect the agreement to generate benefits for patients and taxpayers because it allows the consultant’s hospital to consolidate volumes and improve clinical efficiency.

To argue that the agreement has benefits, the consultant and community-based provider would need to show:

• the nature of the benefit
• the link between the agreement and the benefit
• the likelihood and magnitude of the benefit
• how and when the benefit would be achieved
• that the same benefits could not have been achieved without restricting choice and competition; for example, by the consultant’s hospital deciding independently to invest in its secondary care services to attract more patients requiring hospital-based secondary care
• that the benefit would be passed on to patients and
• that the agreement does not eliminate competition in a substantial part of the services concerned

5.4 Conduct that is unlikely to raise concerns

If a competing hospital decides to stop providing certain services because of the superior services being provided by another hospital this is unlikely to raise concerns. In this example what is of concern is that patients are not being given a choice of provider and other providers of hospital-based secondary dermatological care are being denied the opportunity to treat patients.

6. Abuse of dominance

There are 2 tests common to assessing abuse of dominance:

• whether a provider is dominant
• if it is, whether it is abusing that dominant position

Abusive conduct generally falls into one or both of the following categories:

• conduct that exploits customers or suppliers (for example, excessively high prices)
• conduct that amounts to exclusionary behaviour, because it removes or weakens competition from existing competitors, or establishes or strengthens entry barriers, thereby removing or weakening potential competition

6.1 Scenario 6: Abuse of dominance

You are a manager at Hospital A, which is the major hospital in a local area. You agree to provide ultrasound diagnostic services (UDS) for a consortium of GP surgeries in the local area, provided that the surgeries refer at least 85% of all their patients requiring UDS to you. Hospital A is one of 5 providers of UDS in the area. It currently provides the majority of UDS in the area and benefits from an established reputation. Other local providers are relatively small and community based.

6.2 Effects on patients

Your arrangement with the GP consortium requires the consortium to purchase most of its UDS requirements from your hospital and limits its ability to purchase these services from other providers. This is sometimes known as an ‘exclusive purchasing obligation’.

The arrangement limits choice for patients who would prefer to use providers located closer to them. It may also limit the options available to patients in the longer run, if, as a result, other providers leave the local area or have reduced incentives to introduce new services or enhance their existing services.

The arrangement might also deter or prevent other suitably qualified providers from starting to provide UDS in the area. Even if Hospital A does not invest in improving service quality to attract patients (eg in reducing waiting time for appointments and investing in the latest ultrasound technology), it will continue to receive referrals.

6.3 Monitor’s analysis

Monitor would first investigate whether the purchasing obligation could lead to reduced incentives to invest in high quality services for good value for money. Monitor would expect to examine several factors including:

• the ease with which other providers are otherwise able to introduce new services and/or begin to supply services in the area without the exclusive purchasing obligation (eg due to regulatory restrictions, commissioning arrangements, the presence of scale economies or limitations in capacity). If the characteristics of the local area mean that other providers are prevented from offering alternative options to patients anyway, the conduct is less likely to lead to costs to patients and taxpayers (though if that were the case it would suggest that the agreement was unnecessary to retain the referrals that it seeks to protect)
• the extent to which other providers rely on referrals from the consortium
• the duration of the arrangement: the longer it lasts, the more likely it is to affect competition
• whether there is evidence of other providers ceasing to provide the services or being deterred from entering and/or expanding in the area as a result of the exclusive purchasing obligation. For instance, a neighbouring hospital or existing independent provider may have tried to approach the GP consortium with an offer to supply UDS, but have been unsuccessful because of the consortium’s obligation to Hospital A

In applying the competition condition of the provider licence, Monitor would seek to understand any benefits of the conduct and would look to Hospital A for evidence of such benefits. Monitor would then assess whether the benefits directly arising from the purchasing obligation are likely to outweigh any costs to patients and taxpayers. In making such an assessment, Monitor would also assess whether the purchasing obligation is necessary to generate the benefits. In particular, Monitor would consider whether the benefits could be achieved by means that are less restrictive on choice and competition.

Monitor could not take account of such benefits under competition law. However, where there is an objective justification for the conduct, it may not be regarded as an abuse of dominance, even if it restricts competition. For instance, you and Hospital A might argue that a minimum volume of referrals is needed to justify substantial investment in additional capacity or new technology to improve service quality for patients.

7. Integrated care

Care and support is integrated when it is person-centred and co-ordinated. Integrated care can be provided across different levels of care (eg between primary and secondary care) or within a single level of care. It can also occur between health services, health-related services and social care services.

A perceived risk of breaching the rules relating to patient choice or competition is often cited as one of the barriers to implementing processes aimed at achieving integrated care. The example below highlights some characteristics of models of integrated care that are unlikely to fall foul of competition rules and others that are more likely to do so.

Integrated care does not require the different elements of care to be provided by a single organisation. It can be provided by multiple providers. Similarly, care provided by different clinical teams within a single organisation is not necessarily integrated care, if the care provided is poorly co-ordinated.

In some instances organisations can improve the integration of their care by improving the quality or management of care provision within their own organisation, without involving other providers. This is very unlikely to raise any concerns in relation to choice or competition.

There are many ways in which different providers can work together to provide integrated care including structural integration, such as alliances, joint ventures and multi-disciplinary teams, or simply improved communication between organisations. The example below looks at the types of integrated care that involve 2 or more providers working together to provide integrated care without structural integration.

7.1 Scenario 7: Integrated care

You are a clinician working with other clinicians in an area to develop a new model to provide integrated care for the treatment of frail elderly patients. Under the proposed model, clinicians providing hospital-based care, general practice, mental health, social care and community care (such as physiotherapy, dietician services, optometry, podiatry) will work together in multi-disciplinary teams to provide a seamless patient experience. All the providers across the region take part in the model, which includes IT tools for data sharing. The IT tool makes it possible for all providers, including GPs and acute providers, to access and analyse patient data and case history.

For the patient this means that all providers are aware of their conditions and do not need to ask for a medical history to be repeated each time they access care. It also means that the patient’s care can be better co-ordinated, for example by identifying the need for more frequent GP appointments to manage the conditions. In turn, sharing patient records between organisations motivates service providers to adhere to best practice in patient care, including the need for regular GP checks. The scheme aims to provide better and more seamless care to frail elderly patients.

7.2 Effects on patients

Information sharing is a common element of integrated care initiatives. Generally, IT tools that are limited to sharing information about the patient’s care more effectively and efficiently (eg outcome data or patient records) are unlikely to lead to competition concerns and are likely to create benefits for patients through a better experience of care.

However, depending on the information exchanged, information sharing can also restrict competition by facilitating the co-ordination of competitive behaviour, which may remove incentives to improve quality to attract patients. The likely effect of an information exchange needs to be analysed case by case. Whether or not it will restrict competition depends primarily on the characteristics of the information exchanged. Generally if it relates to parameters on which providers compete it is likely to be problematic. This might include information on current or future prices (where there is price competition), revenue and cost information, bidding plans, or strategic intentions.

7.3 Monitor’s analysis

Monitor would want to examine carefully whether the sharing of information was necessary to provide the particular model of integrated care. If it were not, providers would be required to stop sharing the information. If the particular model could not be provided without the sharing of information, Monitor would consider its benefits.

By preventing the sharing of information that would lead to organisations agreeing not to compete, the competition condition of the provider licence and competition law help to ensure that patients have access to high quality healthcare services.

Similarly, if providers decide how to allocate patient referrals among them, this eliminates competition outright. If a provider knows that its rivals will not try to attract referrals away from it, as long as it also does not try to attract referrals away from them, then all providers can invest less in improving quality to attract patients. The benefits to patients and taxpayers of improved quality and efficiency that would have resulted from competition are eliminated.