The Corona pandemic is impacting the healthcare sector, both in the Netherlands and abroad. It may be reason for healthcare providers to work together more closely or even to merge. Although the legislative proposal to tighten the healthcare merger review has been shelved for the time being, merger control by the Netherlands Authority for Consumers and Markets (“ACM”) has certainly not come to a halt. ACM is now also targeting “killer acquisitions” in the healthcare and pharmaceutical sectors. All the developments in the NZa healthcare merger review are also addressed in this blog, as well as the lessons learned from the insolvency of MC Slotervaart and the MC IJsselmeer hospitals.
Closer supervision of healthcare mergers
The developments in merger review are in full swing. In its 2020 annual report, ACM reported that it assessed many healthcare merger notifications also in 2020, albeit fewer than in 2019. As we wrote last year already, ACM is intensifying its merger control in the healthcare sector. In addition to reviewing healthcare concentrations, ACM also thoroughly investigated healthcare markets in 2020.
- ACM commissioned a study into capacity issues at hospitals. Because it believes that staff shortages are a serious problem for hospitals, ACM will pay more attention in reviewing hospital mergers to the capacity of surrounding hospitals. There is no reason to assume that ACM will not do the same with regard to mergers in other parts of the healthcare sector, since there are staff shortages there too.
- With regard to elderly healthcare mergers, ACM announced in its 2020 agenda that it would be conducting an empirical study of the market for nursing home care. ACM reported: “By means of an empirical study based on existing data, ACM wishes to gain a better understanding of the relationship between freedom of choice and the quality, accessibility and affordability of nursing home care. The empirical study will include interviews with stakeholders. Reasons for the research are the increase in the number of concentration notifications and the developments that the sector is facing, including developments on the job market.” This study has not yet been completed. It is expected to be published before the summer of 2021.
ACM has furthermore placed the “effects of the CPVID-19 crisis” on its 2021 agenda. This year, ACM will pay special attention to “concrete plans for far-reaching forms of cooperation in the healthcare sector” and will also publish a number of good practices for that purpose. Be that as it may, it will be interesting to see what the empirical study and good practices will mean for the legal position of merging parties and how ACM will act in future mergers and joint ventures in healthcare for the elderly.
Bill on transfer of care-specific merger review from NZa to ACM declared controversial
In 2016, the Bill on the Positioning of the NZa’s Tasks was sent to the Lower House. One of the objectives of the bill is to transfer care-specific merger control and the Significant Market Power (“SMP”) instrument from the Netherlands Healthcare Authority (“NZa”) to ACM. This bill has been on the table for more than five years now. More information on this transfer and on the envisaged new turnover caps can be found here and here. The bill was declared controversial after the fall of the Rutte III government. Since the formation of a new cabinet is not proceeding very smoothly, there is no chance that the transfer of tasks from the NZa to the ACM will take place in 2021.
Bill tightening healthcare merger review also declared controversial
In February 2020, outgoing Minister De Jonge of Health, Welfare and Sport made a drastic proposal to tighten the current healthcare merger review. As we previously wrote, this bill is unnecessary and inconsistent with the fundamental right of freedom of enterprise, as well as being counterproductive; see here. The bill proposes that healthcare providers that allegedly have SMP or that are subject to a measure imposed by the IGJ (Inspectorate for Health and Youth Care) are not allowed to merge. Professor Marco Varkevisser has cast doubt on the usefulness of the SMP instrument in practice. This means that the bill, which assumes the existence of SMP on the part of a healthcare provider, does not assume the deployment of a useful instrument. Be that as it may, the Minister wishes to use a statutory basis from the 2016 Bill on the Positioning of the NZa’s Tasks to tighten the healthcare merger review as described above. But that is possible only if that bill is first approved by parliament. Since the bill has been declared controversial and it will be some time before a government is formed, a tightening of the healthcare merger review is not imminent.
NZa merger review with too low a threshold to remain in place in 2021
As explained above, parliamentary approval of the bill by means of which, among other things, the transfer of the care-specific merger test from the NZa to ACM is to be organised has been five years in the making. Now that this bill has been declared controversial and the new government has not yet been formed, the very low thresholds for prior notification of transactions to the NZa will remain in place in 2012. Briefly stated, these thresholds mean that concentrations within the meaning of the Competition Act, involving one healthcare provider that has 50 people providing care, must be notified to the NZa in advance. This very low, one-sided threshold has been widely criticised by various parties (see here, here and here) and the preliminary advice also states that the current care-specific NZa merger review adds little value. Moreover, Professor Varkevisser rightly refers in the preliminary advice to the enormous administrative burden on the NZa resulting from the very low thresholds of the current NZa merger review. The same burden can be seen at healthcare providers. In sum, the transfer of the care-specific merger test from the NZa to the ACM (and the introduction of turnover thresholds instead of a threshold value measured in terms of the number of persons) will not be taking place in 2021. The essence of the problem is that the transfer and introduction of turnover thresholds forms part of a complex legislative process that (see also above) has already taken more than five years. This means that, also in 2021, concentrations within the meaning of the Competition Act involving one single healthcare provider that has 50 people providing care must be notified to the NZa.
Recent developments in healthcare merger review by ACM, NZa and European Commission
While the care-specific merger review will remain with the NZa for the time being, the NZa will have to deal with a recent ruling by the Dutch Trade and Industry Appeals Tribunal (“CBb”). The NZa care-specific merger review is a procedural review. The NZa checks whether the merging parties have sufficiently involved all the relevant stakeholders in the proposed merger. The CBb ruled that, when assessing a merger of LeekerweideGroep and Wilgaerden (now Wilgaerden-LeekerweideGroep), the NZa should also have assessed whether a family association had been sufficiently involved in the merger proposal. According to the CBb, that was not the case. The NZa must therefore take a new decision on this merger. The question is how that will affect the merger, which has already taken place. Be that as it may, the CBb ruling demonstrates that healthcare providers must be careful to involve all the relevant stakeholders in a merger, acquisition or joint venture in a timely manner. According to the CBb, these stakeholders constitute (third-party) stakeholders in the NZa decision in certain circumstances. If they disagree with an NZa decision, they may therefore file an objection or appeal. That will delay the merger or acquisition process, which can be prevented by involving all the relevant stakeholders in the plans for a merger, acquisition or joint venture in good time.
ACM will continue its intensified merger reviews in 2021. ACM reported that it would have to thoroughly investigate the proposed merger between Erasmus MC and IJsselland Hospital. On 1 April 2021, ACM ruled that the merger could not be given the go-ahead in the first phase, being the notification phase. An additional investigation in the second phase (the licensing phase) will therefore be required. It is remarkable that ACM is now handling several second-phase cases also outside the healthcare sector. ACM chairman Martijn Snoep explains this development in this interview. The COVID-19 pandemic obviously has repercussions on merging healthcare institutions. With regard to joint ventures in and outside the healthcare sector, Martijn Snoep reported that ACM was enforcing the competition rules less strictly: “These are special circumstances that call for special solutions.” ACM’s merger control regime is of course fully functional during the COVID-19 crisis. It is a favourable development that ACM is taking the impact of COVID-19 on healthcare institutions into account, for instance when implementing remedies.
ACM furthermore recently supported a French request to have the pharma concentration between Illumina and GRAIL reviewed by the European Commission (the “Commission”). The acquisition could not be reviewed, because GRAIL, as a start-up, did not meet the turnover thresholds. Preliminary relief proceedings instituted by Illumina and GRAIL to counteract this Dutch support for the referral request were unsuccessful. On 20 April 2021, the Commission accepted the French referral request under Article 22 of the Merger Regulation. In the eyes of the competition authorities, the merger will remove a small start-up (GRAIL) from the market and is a potential killer acquisition. ACM asked the Commission to pay attention to the effects of the acquisition on innovation and competition in the pharmaceutical industry, among other things.
Prevention of chaotic insolvencies: Slotervaart hospital lessons learned
Although ACM allows health insurers to join forces during the COVID-19 pandemic to offer financial support to healthcare providers in the form of continuity contributions (see also this blog), insolvencies in healthcare can never be ruled out. The Dutch Safety Board (“OVV”) found that the importance of patient safety is insufficiently guaranteed in the event of insolvency.
According to the OVV, the NZa adopted a “cautious” approach, while the NZa supervises the duty of care within the meaning of Article 11 of the Healthcare Insurance Act that healthcare insurers must meet. The IGJ and NZa, on the other hand, believe that the prevention of uncontrolled insolvencies is dependent on the position taken by hospital administrators and healthcare insurers. If they wait too long before informing the regulators, uncontrolled insolvencies are still possible. In a study into the financial position of hospitals, the NZa furthermore noted that healthcare insurers and hospitals faced with difficulties must jointly guarantee a sustainable supply of care services. The NZa has stated that it will continue to discuss with healthcare insurers the measures they are taking to that end. On 20 October 2020, the NZa furthermore published a document titled The Duty of Care: Guidelines for Healthcare Insurers, in which the NZa states how it expects healthcare insurers to meet their duty of care. In that document the NZa focuses on the themes of waiting times, discontinuity of healthcare, complex cases, a future-proof healthcare landscape, and catastrophes. But the duty of care remains an open standard that is assessed only on the basis of results.
Following the reports on the insolvency of the Slotervaart hospital, the Ministry of Health, Welfare and Sport (“the “Ministry”) is taking a number of steps aimed at improved management of insolvencies in the healthcare sector in the future. The measures taken earlier (including an Early Warning System and the possibility of financial support by the Ministry) will be expanded, for instance. The Ministry furthermore wishes further agreements to be made on the introduction of a collective arrangement. A short-term preferential loan must ensure that the necessary care remains available during an insolvency. Disputes between healthcare insurers and hospitals regarding the settlement must be settled within a month. In the event of conflicts, the parties are encouraged to apply to the Independent Authority for the Settlement of Disputes relating to Healthcare Contracts. Little use has been made of that authority so far. All in all, the concrete statutory implementation of the proposed amendments by the Ministry has been a long time coming. According to the IGJ and the NZa, the risk of a chaotic insolvency is still real.