The CMA has taken an increasing interest in reviewing mergers in the health and care sector in recent years. In part, this has been a result of the CMA taking on responsibility for reviewing mergers between NHS hospitals. With the Government now considering whether this should continue, its worth having a look at recent trends in CMA merger reviews in the sector and how this might develop in the coming years.
The health and care sector includes both ‘care providers’ that supply care and treatment (e.g. hospitals, dentists, and pharmacies), and ‘care support providers’ that supply the specific products and services needed by care providers and for self-care (e.g. medical devices and consumables, health IT, clinical waste services, healthcare logistics, and consumer health products). Pharmaceuticals, while clearly also playing a critical role in care provision, have been left outside the scope of this note.
Over the past 15 years, CMA merger oversight in the health and care sector has been a story of two-parts:
- in care support, the CMA has reviewed close to 3 mergers per year over the entire period; but
- for care providers, the CMA’s involvement has ramped up from around one merger per year over 2004-08 to nearly 3.5 mergers per year over 2014-18.
The CMA’s increasing involvement in mergers between care providers has been driven, in part, by the extension of its remit to NHS hospital mergers. Eight mergers between NHS hospitals have been reviewed since 2013 and at least three more reviews are likely in the next 6-12 months. However, this does not account for all of the increase in CMA activity.
Moves towards consolidation in highly fragmented industry segments, such as dentistry, care homes and children’s services, have also triggered CMA investigations. Since 2014, the CMA has looked at mergers in mental health, children’s services, care homes, dentistry and pathology. Changes in industry regulation and workforce participation are likely to drive continued consolidation in many segments, and as a result, the increased CMA involvement that has been seen in recent years is unlikely to be a passing phase.
On top of this, there are several further care provider segments where the CMA is yet to review any transactions, but where similar underlying drivers for industry consolidation are also present. For example, Aldwych Partners has recently pointed to the potential for CMA involvement in veterinary care and GP services.
From a CMA merger review perspective, these transactions typically involve an assessment of their effect on competition in local markets. The presence of NHS and local authority purchasing of services, the use of framework contracts, and considerations about the extent to which public and private providers compete with one another are features of most merger reviews in these services.
The CMA has made adverse findings at Phase 1 in around one-third of the care provider mergers it has reviewed since 2004. About half have been cleared at Phase 1, however, following the offer of undertakings by the parties to the merger. Only one transaction has gone all the way through a Phase 2 review and been prohibited (the proposed merger between the Bournemouth and Poole NHS hospitals).
In care support, the CMA has reviewed around 40 transactions since 2004. About half have been mergers between suppliers of medical devices and consumables, with the remainder spread across consumer healthcare products, health insurance, health IT, clinical waste services and distribution/logistics.
Mergers between care support providers generally require analysis of national markets (conversely local markets are often considered in the context of care provider mergers). In many of these segments, NHS organisations are important customers, and this makes the competitive dynamics of purchasing frameworks an important consideration for many of these merger reviews. Purchasing frameworks often involve a two stage assessment: first, competition for admittance to the framework; and second, competition between providers admitted to the framework when organisations actually select the product that will be used.
Beyond this, a diverse range of issues can arise. Mergers in consumer health and care products, for example, have much in common with the assessment of mergers between food and drink suppliers, given the distribution of these products through the retail and pharmacy sector. The issues in Health IT mergers will often be very similar to those for other software products, and the issues in healthcare insurance mergers will be similar to those elsewhere in the insurance industry.
Of the 40 or so mergers in the care support sector reviewed since 2004, around 30 were cleared unconditionally in a first phase review by the CMA (or the OFT). Only two have been completely prohibited, both of which involved mergers in the clinical waste services sector. Among Medical devices and consumables, there have been four adverse decisions at Phase 1. Of these, one was cleared at Phase 1 on de minimis grounds, two were cleared unconditionally following a Phase 2 review, and the final transaction was conditionally cleared at Phase 2.