OFT closed case: Award of management contract to provide private in-patient bone marrow transplants and sarcoma cancer treatments at University College London Hospitals NHS Foundation Trust to HCA International Limited
Affected market: Private healthcare
The OFT’s decision on reference under section 22 given on 12 October 2006. Full text of decision published 19 October 2006.
The transaction concerns agreements and arrangements entered into between University College London Hospital Trust (UCLH) and HCA International Limited (HCA) (the Agreement). The completion date of this transaction is 30 June 2006.
Under the Agreement, HCA has leased the 15th Floor of the UCLH building situated on Euston Road, London (the premises) for an initial period of five years for the purpose of the creation, administration and management by HCA of a new 24 bed private patient unit (PPU). The PPU will provide haemato-oncology, sarcoma treatment, radiotherapy, chemotherapy and surgery inpatient, day care and outpatient services to private patients (the relevant treatments).
The Agreement also provides HCA with the right to access and use of some equipment and facilities owned by UCLH as well as the provision by UCLH of certain other support services. The equipment is a Linear Accelerator and a MRI scanner, neither of which is in working order. The facilities include a CT scanner room, a bunker where UCLH’s Linear Accelerator will be placed, and another bunker to house an additional Linear Accelerator owned by HCA.
In addition, UCLH has given an undertaking not to provide the relevant treatments to private patients during the period of the Agreement.
The OFT was contacted by several third parties who contended that the transaction qualified for investigation under section 22 of the Enterprise Act 2002 (the Act).
Third parties argued that it is or may be the case that the Agreement gave rise to a relevant merger situation. They argued that the combination of the assets, employees and rights passing as part of the transaction constituted an enterprise for the purposes of sections 129(1) and 23(1) of the Act and that, therefore, there were enterprises ceasing to be distinct. Third parties also contended that the share of supply test would be met.
The OFT has considered the representations and evidence put to it by third parties and the information and evidence put to it by HCA. The OFT has also considered previous relevant reports and decisions by both the Competition Commission (or Monopolies and Mergers Commission (MMC) as it was previously known) and the OFT in particular: MMC report AAH Holdings plc/ Medicopharma NV, Cm 1950 (May 1992); MMC report Stagecoach Holdings plc/Lancaster City Transport Ltd, Cm 2423 (December 1993); OFT advice on the acquisition by W L Duffield & Sons Limited of the ruminant animal feed business of Bury Nutrition part of ABNA Limited (December 2002); and Decision by the OFT on the completed arrangements between Unum Limited and Swiss Life (UK) plc (March 2004).
It is clear from these previous decisions and reports that when considering whether enterprises cease to be distinct it is necessary to consider the commercial realities of the overall arrangements rather than the form of those arrangements. In the previous cases mentioned above, it has been the combination of physical assets together with other factors enabling the previous business activity to be continued with little, if any, interruption that has led to the conclusion that enterprises have ceased to be distinct. The OFT’s Substantive Assessment Guidance provides that ‘…an enterprise may comprise any number of components, most commonly including the assets and records needed to carry on the business, together with the benefit of existing contracts and/or goodwill…’ (paragraph 2.8).
On the basis of the information available to it, the OFT believes that the transaction described above does not give rise to a relevant merger situation for the purposes of the Act since it is not the case that two or more enterprises have ceased to be distinct for the purposes of section 23(1) of the Act.
The reasons for reaching this belief are:
- The Agreement concerns the commercial leasing by UCHL to HCA of the premises, which are currently vacant (except for very limited outpatients visits) for an initial period of 5 years for use as a PPU
- HCA will be entitled to access and use of a Linear Accelerator and a MRI scanner for an initial period of 5 years. However, this equipment is not in working order and no title to this equipment, which will continue to be owned by UCLH, will pass to HCA
- UCLH has agreed to provide HCA with the use of certain facilities but which will not be transferred to HCA (including two bunkers and a scanner room) and support services relating to the operation and administration of the PPU (such as pathology, facilities management, IT and telecommunication services) as set out in Service Level Agreements between HCA and UCLH for an initial period of 5 years
- while UCLH will provide, on secondment, some support staff to the PPU no employees have been or will be transferred to HCA. These support staff will remain employees of UCLH and no medical staff will be transferred to HCA
- no goodwill, customer details or other business assets have been or will be transferred to HCA, and,
- no liabilities have been or will be transferred.
Therefore, there is no current business activity being carried on in the premises being transferred to HCA; no physical assets are passing; no UCLH employees are being transferred to HCA; and no customer details or contracts are passing.
Two third parties argued that because UCLH had provided the relevant treatments to private patients in the past - and has given an undertaking not to do so during the period of the Agreement - then it may be the case that a business activity has been transferred to HCA. UCLH has confirmed that it ceased providing the relevant treatments at the Middlesex Hospital (see [note 1]) over a year ago. The site where the PPU will be located is currently vacant. UCHL has also confirmed that whilst it has provided some of the relevant treatments on an occasional basis using equipment, facilities and staff at the NHS part of its new building at Euston Road, London, none of the equipment, facilities and staff in question will be transferred to HCA. Consequently, this does not alter the conclusion that no business activity is being transferred to HCA.
The OFT does not, therefore, believe that it is or may be the case that a relevant merger situation has been created.
1. Middlesex Hospital closed down over a year ago and the site has recently been sold for property development.