On 31 January 2019, economists at the UK Competition and Markets Authority and London School of Economics published a new working paper on the effect of mergers between NHS hospitals on patient harm, stating that “a hypothetical merger to monopoly would, on average, be associated with a significant increase in harm rates”.  These findings have been published amidst several recent NHS hospital merger clearances by the UK competition watchdog, the Competition and Markets Authority (CMA), which we reviewed this blog last year.

At first glance, the effect of competition within the NHS hospital market may appear reduced given certain sector-specific factors such as the fact that it is a heavily regulated sector, it is a public not-for-profit system and capacity constraints prevent hospitals from accepting additional patients (the “customers”, from a competition law standpoint).  However, competition has been in place within the NHS hospital market, and even more so since the two reforms in 2003 and 2006 provided patients with greater choice and introduced NHS funding for care in private Independent Sector Treatment Centres (ISTCs). NHS hospital mergers have therefore gained considerable scrutiny from the CMA and, since 2010, all hospital mergers (bar one) were allowed either because the CMA concluded that there was no risk of a substantial lessening of competition (SLC) or on the basis that relevant customer benefits (RCBs) outweighed any harm arising.

This paper, although not representative of the CMA’s views, argues that “a hypothetical future merger between two geographically proximate hospitals would, on average and assuming no offsetting clinical benefits are unlocked by the merger, result in a 41% increase in harm rates”,  and “an average hypothetical merger would result in extra direct costs of £2.5 million annually to the NHS, in the absence of compensating patient benefits”.  To do so, the economists have used a new hospital quality measure to describe harm.  Patient harm is recorded if admitted patients experience falls, blood clots, pressure ulcers and urinary tract infections.  Until now, studies had mainly focused on mortality and readmission rates. The study uses data between 2013 and 2015, a few years following the reforms which increased the role of competition in healthcare quality, over eight specialties (rather than within NHS hospitals through time).

In recent years, the CMA had shown a willingness to accept efficiencies arguments in hospital merger reviews in an attempt not to obstruct efforts to improve NHS patient care.  Numerous RCBs, such as improved waiting times for diagnosis and treatment, improved culture and staff morale, reduced mortality in vascular surgery and reduced length of stay for patients suffering a fractured neck of femur were accepted by the CMA in its recent clearance decisions (on 15 March 2018, 1 August 2017 and 30 August 2017).  However, this paper may weigh on its review of future NHS hospital mergers as the economists state that these mergers were cleared “despite most cases involving reductions in the number of alternative hospital trusts from three to two, or from two to one, in a context of generally low demand elasticity and high barriers to entry: factors which would generally give cause for concern.”

The efficiencies/customer benefits arguments may still save a NHS hospital merger as this study assumes that “no offsetting clinical benefits are unlocked by the merger”.  Under section 30 of the Enterprise Act 2002, a RCB need not arise in the same market(s) in which the SLC has occurred, but must outweigh the SLC.  NHS hospitals must therefore be prepared to present well-evidenced efficiencies/customer benefits arguments which will outweigh the SLC (and, according to this study, the increase of certain patient harms and costs which arise as a result of the SLC) especially when very few competitors were to remain post-merger.