OFT closed case: Completed acquisition by the BUPA Group of the Cromwell Hospital
Completed acquisition by the BUPA Group of the Cromwell Hospital
Affected market: Private hospital services
The OFT's decision on reference under section 22(1) given on 24 June 2008. Full text of decision published 30 June 2008.
The BUPA Group (BUPA) is the UK's leading provider of private health care insurance and health care services. BUPA, as a provider of private medical insurance (PMI), is a customer of the Cromwell Hospital (the Cromwell). BUPA itself does not provide private medical services.
The Cromwell is a 128 bed London hospital providing private medical services (PMS). The Cromwell provides PMS to insured, uninsured (self pay), and embassy sponsored patients.
On the basis of the information available to it, and for the reasons explained below, the OFT has decided that the completed acquisition of the Cromwell Hospital by BUPA does not qualify for investigation under the mergers provisions of the Enterprise Act 2002 (the Act).
The UK turnover of the Cromwell for its previous business year is less than £70 million; the turnover test in section 23(1)(b) of the Act is therefore not met.
There is no direct horizontal overlap between the activities of BUPA, a PMI provider, and the Cromwell, a provider of PMS. [see note 1] The relationship between the parties is vertical only in nature. However, some third parties argued that the share of supply test in section 23(2) of the Act might nevertheless be met.
First, third parties contended that the share of supply test might be met if, for example, certain treatment networks, which BUPA is establishing as a PMI provider, were considered. It was suggested that since BUPA was such a significant customer of hospitals included in such networks then it may have some level of 'control' of those hospitals for the purposes of the Act. Where the treatments offered by hospitals in such networks overlapped with those offered by the Cromwell then, it was contended, the combined share of supply may exceed 25 per cent for the specific treatments. While BUPA may be a significant customer of these network hospitals, the OFT does not believe that the inclusion of a PMS hospital within a PMI provider's network is sufficient in itself to give rise to a finding of material influence. The OFT notes that the Cromwell is used by multiple other PMI providers, as such the OFT believes that, in this case, such contractual links alone are insufficient to confer on BUPA the ability materially to influence the policy of such hospitals. Moreover, while BUPA may procure the supply of certain treatments by such network hospitals, the Cromwell does not procure such treatments (although it may supply them); therefore there can be no overlap.
Second and alternatively, third parties submitted that the share of supply test would be met on the basis that BUPA controls over 25 per cent of 'private healthcare spend in London' and that this existing share would be increased as a result of the acquisition of the Cromwell. As mentioned above, the healthcare spend obtained by BUPA is as a PMI provider whereas the spend obtained by the Cromwell is as a PMS provider and would include spend on such services made by BUPA itself. The parties, therefore, operate at different levels of the supply chain and the OFT does not believe it would be appropriate, in this case, to treat the products and/or services supplied by each of BUPA and the Cromwell prior to the merger as being of a similar description.
Therefore, since neither the UK turnover test nor the share of supply test in section 23 of the Act is met, the OFT has concluded that a relevant merger situation has not been created.
- BUPA acquired Clinovia, a provider of healthcare and related services in the home in December 2006. In the OFT's decision of 9 May 2007, the OFT concluded that while there may be some limited overlap at the margins between PMS provision and homecare, they should more properly be regarded as neighbouring or related services in separate candidate product markets.