The health sector needs to brace itself for a severe competitive shock, with the anticipated Health Services Bill expected to give Monitor the power to apply the Competition Act 1998 to the provision of health services and adult social care across England.

While the law itself will not actually change, giving Monitor the power to apply competition law along with the Office of Fair Trading will change the game – and change it radically.

The anticipated move signals a greatly increased and harsher emphasis on the application of competition law to deliver patient choice, innovation and service improvement, where the failure to recognise the risks could result in severe penal sanctions.

The current benign approach - with advice and a gentle telling-off from the Cooperation and Competition Panel - will be a thing of the past.

Cooperation may seem natural in the provision of health care, but under the Competition Act, cooperation between service providers is potentially very risky. It is important for NHS service providers to start considering the implications now and to be aware of the following dangers:

  • Agreements between undertakings, which may have the effect of restricting or distorting competition, will be prohibited and unenforceable (to the extent that they have that effect);
  • Any action by a health service provider, which may be characterised as “abuse of a dominant position in a market”, will be prohibited. 
  • Health service providers will be liable to substantial fines if they are found to have contravened either of these prohibitions. Fines under the Competition Act can be up to 10 per cent of annual turnover. The competition authorities have set high precedents for these fines, running into tens and hundreds of millions of pounds. No trust board would want to have to close a ward or unit, with the consequent impact on the provision of care, to pay a multi-million pound fine for price fixing.
  • Individuals adversely affected by breaches of the prohibitions in the Competition Act will have a private right of action in damages for losses suffered.
  • The cartel offence established in section 188 of the Enterprise Act 2000 could begin to be applied to health. This offence arises when an individual dishonestly agrees with one or more other persons to make or implement certain types of anti-competitive arrangement. It is punishable by imprisonment.
  • Litigation is likely. There is scope for argument over the meaning of “undertakings”, the definition of “markets” and whether there is an effect on trade. As fines for contravention of the Competition Act tend to be significant, these legal points will be worth taking. In addition, litigation may occur as a result of the private right of action.

So what are the practical steps health services providers should take to prepare for these changes?

Firstly, everybody, from the most senior to the front-line team will need to understand the new risks and staff must urgently be trained in competition law. The directors of two NHS foundation trusts meeting to discuss the use of IT in health service management, doctors employed by different trusts meeting to discuss best clinical practice, and former administrative colleagues now with different service providers meeting socially, must all be made aware of the risks of discussing prices and how these prices might move, however harmless the discussion may seem at the time. 

Everybody involved must be aware of the leniency regime, which is likely to be applied by Monitor and that if anything untoward has been discussed, the other party has an incentive to spill the beans.  They must also be aware of their potential personal liability.

Secondly, service providers need to establish a strong compliance function. The aim is to instil an appropriate culture of compliance and ensure that if all goes wrong, there is a demonstrable structure to encourage compliance. This can be relied on in mitigation.

Thirdly, managers need to consider how they will deal with service commissioners and other providers so that patients receive a seamless service. While the application of competition law will make this more difficult than in the past, it is not impossible to develop appropriate processes. It is an area where guidance from Monitor or from the OFT will be very helpful - guidance which will hopefully be developed in due course.

There is significant change on the horizon and the health sector needs to prepare for the potentially brutal reality ahead. Waiting until the Health Services Bill has become law to take action may be too late to avoid serious trouble. Now, is the time to review the implications at both a strategic and operational level, and put in place a framework which secures compliance.