Brexit’s impact on the regulation of NHS procurement and competition, as foreshadowed in HSJ last Friday, is likely to be limited. At the risk of unnecessarily adding to the volume of Brexit-related discussions, this blog post looks in further detail at the likely impact on procurement, merger control, state aid and prohibitions on anticompetitive behaviour in the NHS.

In summary, there will be no practical change to the existing arrangements if the UK swaps EU membership for membership of EFTA (the club for Norway, Iceland and Switzerland) and the European Economic Area. EFTA’s procurement and competition rules basically mirror those of the EU.

Even without EFTA/EEA membership, Brexit will – in and of itself – have a limited impact on NHS procurement and competition regulation. In procurement, newly negotiated trade agreements with other countries, including those in Europe, and domestic concerns about ensuring value for money in public purchasing, can be expected to result in a public sector procurement rules for the UK that are similar to those that currently exist.

Withdrawing from the EU does, however, make it a little easier to lift the current prohibition on anticompetitive behaviour by NHS providers and commissioners (if policymakers decided that this was desirable). Currently, there is some uncertainty as to whether NHS organisations would be caught by EU-level prohibitions on anticompetitive behaviour if UK-level prohibitions were removed. This is no longer the case if the UK is no longer bound by EU-level rules.

Finally, as EU merger control and state aid rules have limited impact on the NHS, withdrawal from the EU will have limited consequences in these two areas.

Procurement

NHS procurement is governed by both the Public Contracts regulations, and the Procurement, Patient Choice and Competition regulations. This latter set of regulations (also known as the s.75 regulations) were put in place under the Health & Social Care Act.

The Public Contracts regulations transpose EU public procurement directives into UK law. (The most recent Public Contracts regulations 2015 implement the EU’s Public Sector Procurement Directive (2014/24/EU)).

EU procurement regulation, “by guaranteeing transparent and non-discriminatory procedures”, seeks to “ensure that economic operators from across the Single Market benefit fully from the basic freedoms in competing for public contracts”. The importance of transparent, non-discriminatory public procurement procedures to the single market is underlined by the fact that public authorities spend around 18% of GDP annually on supplies, works and services.

As set out above, even if the UK withdraws from the EU, and does not join EFTA, future international trade agreements negotiated by the UK are likely to impose obligations on UK public procurement given the size of public purchasing as a proportion of the economy. Moreover, even without trade-related obligations, it is questionable whether it would be a good idea to pursue a public procurement strategy that was not based on securing the best possible value for money for taxpayers through transparent, non-discriminatory purchasing.

The procurement-related requirements of the Procurement, Public Choice and Competition regulations, in large part, mirror the requirements of the Public Contracts regulations. As set out in the Explanatory Memorandum to these regulations, the purpose of this duplication is – at least in part – to allow disputes to be resolved by way of complaint to Monitor (now NHS Improvement), rather than through court action.

The UK Government is able to rescind or change these regulations, with or without Brexit. The desirability of this, in large part, rests on whether it is considered a good idea to provide the NHS with an alternative to the courts for resolving procurement-related disputes.

Competition

NHS competition rules have three main components: (i) the prohibition on anticompetitive behaviour; (ii) merger control; and (iii) the prohibition on illegal state aid.

Anti-competitive behaviour

Anti-competitive behaviour by ‘undertakings’ is prohibited under the Treaty on the Functioning of the European Union (TFEU) as well as by the Competition Act 1998. Both prohibit ‘undertakings’ from entering into anticompetitive agreements and abusing a dominant position. The TFEU prohibitions can be applied directly to UK businesses (and other entities subject to these prohibitions) by both the European Commission (through its Competition Directorate) and the Competition & Markets Authority (CMA).

Monitor (i.e. NHS Improvement) has concurrent powers with the CMA to enforce the Competition Act in the health sector. Anticompetitive behaviour by providers of NHS services is also prohibited under the terms of the provider licenses issued by Monitor, and anticompetitive behaviour by commissioners is prohibited under the Procurement, Patient Choice and Competition regulations.

Withdrawing from the EU (and thus the TFEU) still leaves the Competition Act in place, as well as Monitor’s provider licenses and the Procurement, Patient Choice and Competition regulations, each of which continue to prohibit anticompetitive behaviour by NHS providers and commissioners.

That said, it becomes easier to withdraw or modify these arrangements if the UK is no longer part of the EU, and wishes for policy reasons to remove the prohibition on anticompetitive behaviour from NHS organisations. This is because there would be greater freedom for UK competition law to diverge from its EU counterpart. For example, it would be possible to legislate to ensure that NHS organisations were not defined as ‘undertakings’ for the purposes of the Competition Act, while also rescinding the relevant parts of Monitor’s provider licenses and the Procurement, Patient Choice and Competition regulations.

Of course, if it remains policy to use market-based mechanisms and incentives in the NHS to encourage the provision of high quality services, then removing the prohibition on anticompetitive behaviour (just because EU withdrawal had made this easier) would make little sense.

Merger control

NHS mergers involving Foundation Trusts are regulated by the CMA, while mergers between NHS Trusts are reviewed by Monitor, which then provides advices on competition issues to the Trust Development Authority (a process now internalised within NHS Improvement).

EU-level merger control has not been an issue in NHS mergers to date as it only applies to very large transactions or those that involve operations in multiple European countries. As a result, leaving the EU will not, of itself, affect the regulation of NHS mergers.

State aid

EU rules on state aid, in essence, prohibit the provision of government assistance to one or more organisations that gives them an advantage over other organisations providing the same service. There are, however, limits on the applicability of this prohibition to healthcare services.

To date, the Government has not found the prohibition on illegal state aid a barrier to bailing out to NHS providers that are in deficit or to providing other selective allocations of money to NHS organisations (e.g. winter pressures money).

As a result, it is not clear that the removal of the state aid prohibition will have a significant impact on how NHS services, and providers of those services, are financed (other than removing the need for policy makers to make sure that their financing initiatives are state aid compliant).