Competition – speech

NHS trusts mergers: where have we got to?

Opening remarks given by CMA Chairman David Currie at a discussion dinner with Monitor, organised by Public Policy Projects.

Thank you for inviting us to this event. Andrea Coscelli and I are pleased to be here together with colleagues from Monitor to discuss with you how the merger regime in the health service is working and how we can make it work better. I greatly look forward to the contributions from this very high level and experienced audience. Andrea, who is the Competition and Markets Authority’s (CMA) executive board member with executive responsibility, Sheldon Mills, Senior Director of Mergers, and Kate Collyer, one of our economic directors with extensive experience in healthcare economics, are here tonight and will be listening to what you have to say and may help to answer any questions you may later pose.

Let me start with some high level context. First, what lies at the heart of the merger and competition regime that the CMA is responsible for are the interests of patients – in the wider economy, the interests of consumers. There is therefore no fundamental reason for conflict between our decisions and those of health professionals seeking the best means of serving the interests of patients.

Second, given the financial pressures on the NHS and the pressures of rising demand coming from demographic factors and advances in medicine, it is quite clear that the NHS needs to restructure in a variety of ways. The desirable restructuring is, of course, complex as you know better than me, with a 2-way movement of some functions into more specialised units and some functions, such as palliative care, closer to the community. But clearly mergers are an important part of this reshaping.

Third, our experience of mergers across all sectors (and we and our predecessor competition authorities have long experience – over some 5 decades – of reviewing mergers) is that while mergers can deliver benefits to consumers a large number do not. That conclusion is supported by a large body of academic research. Some mergers are driven by short-term factors, some by the egos of chief executives. For whatever reason – poor strategic insight, weak implementation – many mergers fail. So the UK merger regime has evolved as it has done to provide consistent and predictable analysis, process and tests with the aim of preventing undesirable mergers that are detrimental in reducing choice without sufficiently evidenced countervailing benefits to end-users, but allowing mergers that are beneficial. And, of course, having overseen the merger of the Office of Fair Trading and the Competition Commission into the CMA, and before that the merger of 5 organisations into Ofcom, I am well aware of the improvements and efficiencies that mergers in the public sector can deliver.

The desirable properties of a well-functioning merger review process are for it to be objective, evidence-based, transparent, consistent, predictable and overseen by the courts, all features of the current system. Most of these properties are under our control, but if we are to be evidence-based we need evidence, and that evidence must come principally from the sector in question.

Experience of the merger regime in health is much more recent, but the case for it is the same – that there should be a rigorous process to show the benefits to patients of mergers. The predecessor organisations to the CMA had previously reviewed mergers between private hospitals and in the healthcare sector generally. The competition authorities have only reviewed NHS mergers from January 2012. Prior to this, the Cooperation and Competition Panel reviewed mergers between NHS providers under the Cooperation and Competition Rules and advising the Secretary of State for Health. Andrea will say more about the past record. I would just note that since the Health and Social Care Act 2012 was implemented, the CMA and its predecessor organisations have reviewed 4 mergers, one of which (Bournemouth/Poole) was blocked because evidence of patient benefit to offset the reduction in patient choice was not forthcoming. It is very early days and a small sample, so it will be interesting and important to see where the run-rate settles.

We are learning how best to operate the regime and we must continue to learn and improve. Thus we are working closely with Monitor. We published a joint statement in October 2013 which set out our commitment to the sector and how it should operate, explaining that patient interests are at the heart of this process. We also have the joint practical guide we are currently consulting on. Monitor wrote to trusts on its plans for helping trusts explore the competition implications of mergers from the outset of merger proposals. The CMA is consulting on guidance, drafted with considerable input from Monitor, which will help providers understand the process. And we are engaging with the sector, for example through informal advice and several public events (including tonight) where we explain how the regime might apply to mergers. At times, this has resulted in mergers not going through the merger control regime (such as the proposal in Devon). Publishing our guidance is the latest of these efforts and we are keen to hear your views, concerns and thoughts. This feedback will be key in making the merger regime usable and manageable.

We with Monitor have a clear responsibility to make the regime as smooth, efficient and comprehensible as possible, so as to minimise the burden that it might otherwise represent. We also need to communicate it as clearly and widely as possible. There is an equal responsibility on the part of you and your colleagues to understand the arrangements, to deliver what it requires, and do your part to make it work well. And also to communicate it effectively and accurately to others in the sector, so that there is not a chilling effect based on misunderstanding. We are keen to have an effective dialogue, of which tonight is just a start, as to how we make the regime work better.

So I return to my opening. Ultimately the competition and markets regime, as applied in your sector, places at its heart the interests of patients, something we all subscribe to. The tests that it applies work to ensure the primacy of this objective, and provide a helpful and necessary discipline on decision-making. We all need to work to make the system work well, for the benefit of patients and the long run health of the NHS. Thank you.