Health sector under ACCC scrutiny

Earlier this year, the ACCC announced that its enforcement teams would be honing in on anti-competitive conduct in the health sector as a key enforcement priority for 2017. That focus on the sector is now apparent. On 1 May 2017, the ACCC issued proceedings against Ramsay Health Care Australia Pty Limited (Ramsay), Australia’s largest private hospital operator, in what could be one of the last cases prosecuted under the existing ‘Misuse of Market Power’ laws.

Ramsay’s (alleged) conduct

Ramsay operates Baringa Hospital, the only private hospital and day surgery in the Coffs Harbour area (one of about 70 hospitals and day surgeries owned by Ramsay nationwide). Local specialists use facilities at Baringa Hospital to perform surgical procedures on private patients.

The ACCC alleges that, upon discovering that a group of surgeons proposed to open a competing private day surgery clinic in Coffs Harbour, senior Ramsay executives met individually with the surgeons and threatened to substantially reduce or withdraw each surgeon’s access to operating theatre time at Baringa Hospital if that surgeon proceeded with involvement in the proposed day surgery. According to the ACCC, the surgeons felt these threats were credible and consequently abandoned their plans to set up the new day surgery in competition with Baringa Hospital.

The ACCC contends that Ramsey’s conduct contravenes provisions in the Competition and Consumer Act 2010 prohibiting ‘Misuse of Market Power’.

Misuse of Market Power

As the law currently stands, in assessing whether there has been a misuse of market power, the court will need to consider:

  • whether Ramsey has substantial market power, at least in the narrow market for private day surgeries in the geographic region of Coffs Harbour;
  • whether it took advantage of that power; and
  • whether it used that power for an illegal purpose such as to deter a person from engaging in competitive conduct in the market or to prevent a competitor from entering the market.

The ACCC may feel it has a strong case in this instance. However historically, misuse of market power has been extremely difficult to prove. The requirement that a business must have taken advantage of its market power means that a business with substantial market power will not fall foul of the law if the offending behaviour could also have been undertaken by a business without market power. This is despite the fact that the impact on competition will invariably be much greater when it is a dominant player that is engaging in the conduct. The requirement to show an illegal purpose can also be difficult to satisfy, particularly in situations where there is more than one explanation for the conduct.

Because of these difficulties, and as part of broader competition law reforms recommended by the ‘Harper Review’ in 2015, the Federal Government has introduced a Misuse of Market Power Bill, which was passed by the House of Representatives on 28 March 2017 and which is now awaiting passage through the Senate. Under this Bill, the ‘take advantage’ requirement is removed and the current ‘illegal purpose’ test is replaced with a test of whether the conduct has the ‘purpose, effect or likely effect of substantially lessening competition’. If passed, this will be a much lower bar to satisfy.

It’s important to note that this area of law isn’t just relevant to the biggest and wealthiest of organisations. Market power is essentially the ability of a business to insulate itself from competition and even relatively small players may possess this ability. In assessing whether a business has substantial market power, the Courts and the ACCC look at questions such as:

  • whether there are other products or services available which are sufficiently close substitutes for those offered by the business (i.e. the ‘product market’);
  • whether other businesses are located sufficiently nearby to compete effectively (i.e. the ‘geographic market’); and
  • how difficult it is for competitors to enter the market.

In many rural and remote communities in Australia, health care providers are highly insulated from competition, with long distances between competitors, minimal product substitutability (unless locals are willing to seek medical advice from the local veterinarian!) and small populations, making it difficult to sustain new entrants to the market.

If the new ‘misuse of market power’ laws are passed, such market players will need to carefully consider what impact their conduct will have on competition in a relevant market, even where they have a legitimate business reason for engaging in the conduct and even if they could have engaged in the conduct without possessing substantial market power.

Other potential competition law issues in the health sector

The proceeding against Ramsay is unlikely to be the ACCC’s only enforcement action in the health sector in the near future. Other potentially anti-competitive practices in the sector which are on the ACCC’s radar (and which do not require that the party in question possess substantial market power) include:

  • exclusive dealing – e.g. exclusivity provisions in hospital by-laws, preventing surgeons from operating elsewhere as a condition of their accreditation to operate at the hospital;
  • third line forcing – e.g. agreeing to treat a patient on the condition that they acquire specialist services from a particular specialist;
  • collective boycotts – e.g. allowing competing specialists to threaten boycotts at hospitals to prevent other specialists from being credentialed there;
  • price fixing – e.g. specialists and other independent medical professionals (operating as separate legal entities) making agreements with each other on patient fees or jointly negotiating with suppliers, health funds or landlords (unless they have gained authorisation from the ACCC to do so); and
  • unconscionable conduct – e.g. hospitals using their superior bargaining position to subject other smaller parties to harsh or oppressive conditions.

Conclusion

Given the ACCC’s focus on the health sector and impending changes to competition laws which will make contravention easier to establish, health care providers would be well advised to run a ‘health check’ on their own competition law compliance processes.

If you have any queries or would like further information regarding this article, please contact:

Simon McDonald
Partner
M: 0402 843 198
E: smcdonald@pageseager.com.au

Kimberley Lloyd
Special Counsel
M: 0414 341 471
E: klloyd@pageseager.com.au

Published: 16 May 2017

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