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Introducing collaboration into a competitive market: a perfect storm of NHS “bundling”?
Andy Burnham MP, Shadow Secretary of State for Health, announced at the Labour Party Annual Conference 2012, on 3 April 2012:
However how to bring about a collaborative NHS is a formidable ask from a NHS which has just become geared up to private competition. To give an example, “bundles” in the NHS have been used, particularly by the Liberal Democrats and a beleaguered Earl Howe, to argue a case for ‘integrated care’ which has a whole plethora of meanings to healthcare experts. “Pure bundling” refers to a situation where products A and B can only be purchased together. This is the case, for example, when buying a business class ticket on the Eurostar, which includes a meal. Transport and meal can only be purchased together. “Mixed bundling” is where A and B can be purchased separately but purchasing them together is cheaper (there can be more than two products). This is what the Commission also refers to as “commercial tying”.
Allegations of anti-competitive bundling were significant parts of the antitrust cases against Microsoft in the United States and the European Union. Article 102 TFEU and s. 18 Competition Act provide a list of example behaviours that can constitute an abuse for these purposes and they are almost identical. The precise problem is making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the contracts. For example, on 24 March 2004 Microsoft decision (IP/04/382), the Commission found that the bundling of Windows Media Player as a compulsory product to take (for free) when customers bought Windows 98 or Windows XP was an abuse of a dominant position. The reasoning was based on the fact that suppliers of competing products to Windows Media Player were being pushed out of the market. In addition to a large fine, the Commission ordered Microsoft to make the operating systems available without Windows Media Player within 90 days.
“Bundling” is a key aspect of “A fair playing field for the benefit of NHS patients” published by Monitor in February 2013.
According to Monitor,
“Commissioning a range of services from a single provider through “one block contract” contract will sometimes be the best way to secure efficient, effective and coordinated care. In such cases, commissioners must be able to determine the appropriate price for the bundled set of services. In other circumstances, bundling may exclude smaller providers who are well placed to provide one element of the service bundle.
Getting bundling decisions right is critical to delivering integrated care to patients. Our evidence suggests that the current NHS pricing system may be a barrier to make the best bundling decisions, particularly in relation to community and mental health services. Improving the pricing system entails developing standardised currencies (descriptions of what is being purchased for a given price) and better data on providers’ costs.”
In an excellent document called “The Health and Social Care Bill: Where next?” from the Nuffield Trust in May 2011, this tension between collaboration and competition had been revisited.
The authors wrote then,
“Ideally [they] should build on the Vertical Agreements Block Exemption provisions in EU competition law within Article 101 (which covers restrictive agreements) that applies to agreements entered into by two or more organisations operating at different levels along the production chain. Almost all such agreements are exempted provided that the market share of the parties is less than 30 per cent. The rules should also build on the experience of US regulators in proactively establishing examples of permitted models of competition and collaboration in so-called ‘safe harbours’, especially if the market share was greater than 30 per cent.”
This has led lawyers and philosophers to consider how we might be able to ‘collaborate in a competitive market’. David Boaz concludes that ‘collaboration is as much part of capitalism as competition.” As for the immediate problem of how bundling might be promoted in the implementation of the Health and Social Care Act, Earl Howe on 24 April 2013 seemed to appreciate that “unbundling” might lead to fragmentation, providing that,
“It is interesting that some stakeholders have raised concerns about unbundling leading to fragmentation, while others are concerned about the effects of bundling too many services together. In practice, it is for clinically led commissioners to take decisions on whether or not services should be bundled in the best interests of patients. That is their job, and these regulations do nothing to require them to bundle or unbundle, as I have said.”
But the guidance from Earl Howe and Monitor has not been that forthcoming about how integrated services through mechanisms such as bundling can be introduced so as to not offend EU competition law, given that the primary effect of the introduction of the Health and Social Care Act will be, as widely warned against, to introduce a fragmented privatised market into NHS services.
An academic guide to the regulation of Monitor, the NHS sector regulator, itself
This is not a legal opinion, but just a brief summary of some of the practicalities and law about complaining about Monitor, the NHS sector regulator, through various channels.
The functions of Monitor itself
A summary of the new role of Monitor is : http://www.monitor-nhsft.gov.uk/sites/all/modules/fckeditor/plugins/ktbrowser/_openTKFile.php?id=6211
It is a public body, with derived powers from statute: licensing NHS FTs, enforcing fair competition, intervening in failing trusts, promoting equality in healthcare, promoting quality and economic efficiency, prevention and treatment of illness and disease, promoting public health (see s. 62 of Health and Social Care Act) Monitor is described in full s.61-71 in the now famous Part 3 of the Health and Social Care Act (2012). Crucially, under s.71 the Secretary of State has powers to intervene if the failing is “significant” though this is not defined fully by case law yet.
Pivotal in the new Health and Social Care Act is Monitor, which has a number of duties enshrined in law. The history of the development of Monitor’s functions is well described elsewhere, for example here by Dr Anna Dixon of the King’s Fund.
How to complain about Monitor – two routes being Monitor itself, and the Parliamentary Healthcare Ombudsman
The Parliamentary Healthcare ombudsman website http://www.ombudsman.org.uk/make-a-complaint/how-to-complain gives useful advice on how to complain about health regulatory bodies including Monitor. Monitor itself produces guidance as how to pursue a complaint about Monitor itself here. It would be normal to pursue a complaint through Monitor’s internal channels first for complaints about NHS Trusts or Monitor.
Judicial review – this is supposed to be a remedy of last resort after internal review processes, appeals, etc.
You are supposed to consider alternative dispute resolution mechanisms (e.g. negotiation, Ombudsman, independent consultation, mediation) (these are outlined in the pre-action protocol). If you haven’t attempted these, you are likely to have to explain why to the Courts in any application of judicial review. It appears that you may be able can take an action against Monitor, irrespective of the healthcare ombudsman or going through Monitor channels, through judicial review, if there are appropriate grounds.
The website http://www.publiclawproject.org.uk is a very good introduction to how to take an action for judicial review against a public body. Unfortunately, due to the shake-up of legal aid etc. and the changes in the Legal Services Commission, this project does not exist for the timebeing. To have benefitted from their help, you would have need to have been approached by a solicitor in person, law centre, or ‘other interested body’.
Some very useful resources are given on a page entitled “information leaflets” – http://www.publiclawproject.org.uk/AdviceGeneral.html Resources include:
- How can public law help me?
- What is judicial review?
- Short guide to grounds for judicial review
- Short guide to judicial review procedure (Civil Procedure Rules 54 and practice direction)
- Remedies in judicial review
- Complaint procedures for particular public bodies
- How to make a complaint to the Ombudsman
DISCLAIMER:
I hope you find this information useful. It is not meant to be legal advice, and is simply an academic summary. This website does not take any responsibility for the accuracy of information therein. However, we would be grateful for any opinions.
Ed Miliband's #Lab12 conference speech: a need to define the markets and community
I am looking forward to Conference, this time in Manchester (like it was in 2010). I know Manchester Central Hall very well from previous meetings there of the Fabian Society, and again I am hoping to go to all of LabourLeft’s events and some of the events of the Fabian Society predominantly.
I am not sure what to expect of the ‘Fringe’ this time – no doubt it will feature some regular talking-points such as whether we should renationalise the railways or the NHS, whether the left-or-right debate still serves any function in modern politics, and what Ed Miliband really meant in his conference speech. I feel it would be less helpful for Ed Miliband to set out details of policy, which can wait for the outcome of our policy review, but it would be very helpful for him to establish what sort of society he is striving for and why.
I think ‘top of the list’ must be a need to define the relative importance of the markets. Coincidentally in timing, Stephanie Flanders is mid-way through a series on the BBC called ‘Masters of Money’, and so far the analysis has centred around a comparison of those titans John Maynard Keynes and Frederick Hayek. Unfortunately, our view of the markets is as relevant now as it was in the run-up of the Great Depression in the autumn of 1929, and Ed Balls is or was aware of that. There has always been a notion of the ‘free market’ as liberalising people, ‘unchaining workers’, and this idea had been bastardised by Margaret Thatcher. The language of liberalisation is still seen in the supporting documents for Monitor, the new sector-specific regulatory body of the NHS. However, there are inherent problems with this approach, taken by Dr David Bennett from Monitor, from the Tony Blair ‘stable’ from the perspective of an advocate of a free market. A true market advocate would simply let private entities fail (this in fact has been the criticism of the global response to the financial crisis, describing the Keynesian stimulus of adding more credit to credit as being akin to pouring petrol on the fire); however, part of Monitor’s functions is to bail out failing trusts, in as much European law allows it (it is unlawful for the State to provide state-subsidies in such a way that competition in a private market is distorted.) The other problem of this approach is that it is an approach which most favours accounting technocrats; rather than looking at value in pricing in a sophisticated behavioural economics fashion, the discussion is heavily based in number-crunching and methods such as activity-based costing.
Prof. Michael Sandel is a political philosopher who has been lecturing on the seminal ‘Justice’ course at Harvard. In the Reith Lectures 2009, Sandel gave his final lecture on “A new politics of the common good”. The governing philosophy for the last three decades both here and the US has been an era of ‘market triumphalism’, but both the UK and US have had difficult in reaching at a new consensus of what government should do. Sandel proposes ‘market mitigating governance’ at the first port of call where governments correct market failures through policy. You can easily apply this, for example, in measures to ‘correct’ excessive profits but poor value for shareholders and directors of privatised utilities companies. In fact, Miliband has latterly proposed a mechanism which could possibly do this, called “predistribution”.
Sandel, however, admits that these rather technocratic approaches fail to ‘capture value’ of what is really going on. For example, the Philip Morris study in the former Czech republic shows that smokers die early, pay lots of taxes, and do not need a pension, and therefore are of great benefit in a purely cost-benefit analysis. This caution could easily be applied to the newly privatised framework of the Health and Social Care Act, where public services have become commodified and monetised, in maximising consumer welfare. Sandel’s main objection is that such approaches do not lead to democratisation of services for the “public good”, and more ambitious goal of civil virtue through redistributive justice may be more welcome. The public appetite for this might be greater than we first suspect, in that the famous UK MP expenses scandal has led to a growing bitterness and resentment of voters towards their ‘political class’, and indeed the public are generally sick of examples of alleged corporate misfeasance in journalism through exposure in the Leveson Inquiry.
A better approach would therefore for people in society to be included and engaged in decisions about their society, with a general belief of solidarity and citizenship. Of course, a dichotomy between markets and society would be a false dichotomy, and this is appreciated by Prof. Michael Porter in his seminal article called ‘Strategy and Society‘ for the Harvard Business Review. This thesis is more than familiar to Ed Miliband, who first described his thesis of ‘responsible capitalism’, a political version of corporate social responsibility, where all businesses contribute value to the rest of society. And yet this is entirely consistent with Ed Miliband’s concept of the UK economy as not being factional but being unitary. In such a framework, everyone contributes to the economy, not just the ‘wealth creators’ as bankers, but also less well paid people in the public sector doing extremely valuable jobs, such as nursing or teaching, who do need employment rights protection of the Unions.
In Sandel’s framework, we are less ‘consumers’ and more ‘citizens’. And this is a very practical problem. Consider for example excessive pay of some CEOs. It can be easy to criticise whether such salaries are justified, in other words the extent to which they are representative of a contribution to society, whether we should just allow the market to find an equilibrium for what people are willing to pay for, or the extent to which these people have ‘worked to get where they are’. Politicians find it difficult to talk about inequality or redistribution, but you will never find that people with very incomes bringing up of their own accord topics of the ‘politics of envy’. Redistribution or social justice has become a taboo subject, but it may be necessary to revisit this if excessive pay can be tackled in the tax system. Whilst ‘punishment’ engenders a notion of a personal hate campaign, which is clearly undesirable, it may be ‘good policy’ that intervention against truly excessive salaries not only deters a trend of unreasonable undeserving salaries, but also encourages a marketplace where an appropriate salary can (for want of a better word) “incentivise” employees and workers appropriately.
As for the idea that people with excessive salaries will leave the country, it is worth noting that these people are often employed by multinational companies who can easily find replacements; therefore there will always be a corpus of such people contributing such taxes, even if a proportion of them emigrate (the point is that people who emigrate will be replaced.) Whilst aspiration has traditionally been a New Labour or Thatcherite policy plank, Ed Miliband latterly has cited aspiration as a reasonable goal of policy. I think that this is entirely consistent with aspiration that acknowledges an ‘equality of opportunity’. Dr Tim Soutphommasane, a lecturer at Monash University, is also a political philosopher whose writings are clearly relevant here. Soutphommasane’s warning is probably more poignant here in the UK with a cabinet stuffed full of millionaires than it is in his home country, but he recently writes, “It is the mark of a good society that careers be open to all talents. Individuals should be able to transcend the position of their birth or upbringing through ability and effort. By the same token, the state shouldn’t reward those who have the fortune of being born into good circumstance.”
By that virtue, the political philosophies of Sandel and Soutphommasane present Miliband with a serious problem. How can Ed Miliband realistically frame a policy for government which consolidates the relative positioning of the markets and the community? I think Ed Miliband’s best bet is to frame the question is to think what sort of society do we want to live in which brings greatest civic virtue and citizenship of all members? As it happens, the consumer clearly has not benefits as recipients of the privatised utility industries, but Ed Miliband has indeed challenging decisions to take about the future; for example one mechanism might be to bring some services under state control. There is much political appetite for repealing the Health and Social Care Act, which indeed nobody voted for as such. The last year or so has seen Conservative polticians and their management consultant friends engaged in a retrospective ‘policy-based evidence’ to justify their marketisation of the NHS, but the NHS could be just the trojan horse that Ed Miliband needs to bring the political pendulum back away from the totally unfettered market. It’s a tough balancing act, as he will be keen not to present the State as too bulky or interventionist, but likewise, if he can pull off a discourse about why ‘looking after each other’, i.e. solidarity, say for example in protecting the health and welfare of disabled citizens in society as well as further ‘individual choices’, Ed Miliband will have pulled off a remarkable political contribution.
Ed Miliband's #Lab12 conference speech: a need to define the markets and community
I am looking forward to Conference, this time in Manchester (like it was in 2010). I know Manchester Central Hall very well from previous meetings there of the Fabian Society, and again I am hoping to go to all of LabourLeft’s events and some of the events of the Fabian Society predominantly.
I am not sure what to expect of the ‘Fringe’ this time – no doubt it will feature some regular talking-points such as whether we should renationalise the railways or the NHS, whether the left-or-right debate still serves any function in modern politics, and what Ed Miliband really meant in his conference speech. I feel it would be less helpful for Ed Miliband to set out details of policy, which can wait for the outcome of our policy review, but it would be very helpful for him to establish what sort of society he is striving for and why.
I think ‘top of the list’ must be a need to define the relative importance of the markets. Coincidentally in timing, Stephanie Flanders is mid-way through a series on the BBC called ‘Masters of Money’, and so far the analysis has centred around a comparison of those titans John Maynard Keynes and Frederick Hayek. Unfortunately, our view of the markets is as relevant now as it was in the run-up of the Great Depression in the autumn of 1929, and Ed Balls is or was aware of that. There has always been a notion of the ‘free market’ as liberalising people, ‘unchaining workers’, and this idea had been bastardised by Margaret Thatcher. The language of liberalisation is still seen in the supporting documents for Monitor, the new sector-specific regulatory body of the NHS. However, there are inherent problems with this approach, taken by Dr David Bennett from Monitor, from the Tony Blair ‘stable’ from the perspective of an advocate of a free market. A true true market advocate would simply let private entities fail (this in fact has been the criticism of the global response to the financial crisis, describing the Keynesian stimulus of adding more credit to credit as being akin to pouring petrol on the fire); however, part of Monitor’s functions is to bail out failing trusts, in as much European law allows it (it is unlawful for the State to provide state-subsidies in such a way that competition in a private market is distorted.) The other problem of this approach is that it is an approach which most favours accounting technocrats; rather than looking at value in pricing in a sophisticated behavioural economics fashion, the discussion is heavily based in number-crunching and methods such as activity-based costing.
Prof. Michael Sandel is a political philosopher who has been lecturing on the seminal ‘Justice’ course at Harvard. In the Reith Lectures 2009, Sandel gave his final lecture on “A new politics of the common good”. The governing philosophy for the last three decades both here and the US has been an era of ‘market triumphalism’, but both the UK and US have had difficult in reaching at a new consensus of what government should do. Sandel proposes ‘market mitigating governance’ at the first port of call where governments correct market failures through policy. You can easily apply this, for example, in measures to ‘correct’ excessive profits but poor value for shareholders and directors of privatised utilities companies. In fact, Miliband has latterly proposed a mechanism which could possibly do this, called “predistribution”. Predistribution, if called by any other name, is quite a nice but radical idea. It offers a practical solution for tackling poverty – for example a policy which restricts the amount of profits which a shareholder of a utilities (sic) company is allowed to make (some of this revenue could be ploughed back into returner better value for the customer), or effecting the national minimum living wage (the idea being that people who are being paid a decent living wage are in a position to invest for their futures more easily, and be giving an ability to further their own career.) This is potentially a policy which could be attractive to Unions, as indeed Prof. Jacob Hacker from Yale himself envisaged.
Sandel, however, admits that these rather technocratic approaches fail to ‘capture value’ of what is really going on. For example, the Philip Morris study in the former Czech republic shows that smokers die early, pay lots of taxes, and do not need a pension, and therefore are of great benefit in a purely cost-benefit analysis. This caution could easily be applied to the newly privatised framework of the Health and Social Care Act, where public services have become commodified and monetised, in maximising consumer welfare. Sandel’s main objection is that such approaches do not lead to democratisation of services for the “public good”, and more ambitious goal of civil virtue through redistributive justice may be more welcome. The public appetite for this might be greater than we first suspect, in that the famous UK MP expenses scandal has led to a growing bitterness and resentment of voters towards their ‘political class’, and indeed the public are generally sick of examples of alleged corporate misfeasance in journalism through exposure in the Leveson Inquiry.
A better approach would therefore for people in society to be included and engaged in decisions about their society, with a general belief of solidarity and citizenship. Of course, a dichotomy between markets and society would be a false dichotomy, and this is appreciated by Prof. Michael Porter in his seminal article called ‘Strategy and Society‘ for the Harvard Business Review. This thesis is more than familiar to Ed Miliband, who first described his thesis of ‘responsible capitalism’, a political version of corporate social responsibility, where all businesses contribute value to the rest of society. And yet this is entirely consistent with Ed Miliband’s concept of the UK economy as not being factional but being unitary. In such a framework, everyone contributes to the economy, not just the ‘wealth creators’ as bankers, but also less well paid people in the public sector doing extremely valuable jobs, such as nursing or teaching, who do need employment rights protection of the Unions.
In Sandel’s framework, we are less ‘consumers’ and more ‘citizens’. And this is a very practical problem. Consider for example excessive pay of some CEOs. It can be easy to criticise whether such salaries are justified, in other words the extent to which they are representative of a contribution to society, whether we should just allow the market to find an equilibrium for what people are willing to pay for, or the extent to which these people have ‘worked to get where they are’. Politicians find it difficult to talk about inequality or redistribution, but you will never find that people with very incomes bringing up of their own accord topics of the ‘politics of envy’. Redistribution or social justice has become a taboo subject, but it may be necessary to revisit this if excessive pay can be tackled in the tax system. Whilst ‘punishment’ engenders a notion of a personal hate campaign, which is clearly undesirable, it may be ‘good policy’ that intervention against truly excessive salaries not only deters a trend of unreasonable undeserving salaries, but also encourages a marketplace where an appropriate salary can (for want of a better word) “incentivise” employees and workers appropriately.
As for the idea that people with excessive salaries will leave the country, it is worth noting that these people are often employed by multinational companies who can easily find replacements; therefore there will always be a corpus of such people contributing such taxes, even if a proportion of them emigrate (the point is that people who emigrate will be replaced.) Whilst aspiration has traditionally been a New Labour or Thatcherite policy plank, Ed Miliband latterly has cited aspiration as a reasonable goal of policy. I think that this is entirely consistent with aspiration that acknowledges an ‘equality of opportunity’. Dr Tim Soutphommasane, a lecturer at Monash University, is also a political philosopher whose writings are clearly relevant here. Soutphommasane’s warning is probably more poignant here in the UK with a cabinet stuffed full of millionaires than it is in his home country, but he recently writes, “It is the mark of a good society that careers be open to all talents. Individuals should be able to transcend the position of their birth or upbringing through ability and effort. By the same token, the state shouldn’t reward those who have the fortune of being born into good circumstance.”
By that virtue, the political philosophies of Sandel and Soutphommasane present Miliband with a serious problem. How can Ed Miliband realistically frame a policy for government which consolidates the relative positioning of the markets and the community? I think Ed Miliband’s best bet is to frame the question is to think what sort of society do we want to live in which brings greatest civic virtue and citizenship of all members? As it happens, the consumer clearly has not benefits as recipients of the privatised utility industries, but Ed Miliband has indeed challenging decisions to take about the future; for example one mechanism might be to bring some services under state control. There is much political appetite for repealing the Health and Social Care Act, which indeed nobody voted for as such. The last year or so has seen Conservative polticians and their management consultant friends engaged in a retrospective ‘policy-based evidence’ to justify their marketisation of the NHS, but the NHS could be just the trojan horse that Ed Miliband needs to bring the political pendulum back away from the totally unfettered market. It’s a tough balancing act, as he will be keen not to present the State as too bulky or interventionist, but likewise, if he can pull off a discourse about why ‘looking after each other’, i.e. solidarity, say for example in protecting the health and welfare of disabled citizens in society as well as further ‘individual choices’, Ed Miliband will have pulled off a remarkable political contribution.
Monitor has much work to do to produce a cogent analysis of pricing in healthcare
Monitor is in its infancy, but, pardon the pun, I would like to describe an example of childbirth to explain the mountain of problems that the new privatised NHS is yet to experience. Consider this a steep learning-curve that not many of us voted for at the last election.
“The new NHS provider licence: consultation document” was issued by Monitor on 31 July 2012 with a deadline for responses determined as 23 October 2012. According to section 5.1 of this Document on pricing,
“One of Monitor’s new functions will be to set prices for health care services funded by the NHS.Accurate pricing is essential to ensure that providers are paid appropriately for services they provide to patients. Accurate pricing information helps GPs, commissioners and providers to plan and budget for health care services to meet people’s needs. Pricing can also be used to encourage providers to improve the quality of services for patients, and to increase the efficiency with which services are provided. If providers are not properly reimbursed, this can reduce the quality and efficiency of care they offer and may, in some circumstances, threaten the sustainability of their services.”
Pricing is pivotal in markets, and will obviously therefore be expected to the subject of considerable scrutiny by competition regulatory authorities. In future, Monitor will be responsible, in partnership with the NHS Commissioning Board, for setting prices for NHS services.Indeed, according to a statement produced on 20 June 2012,
“The Health and Social Care Act 2012 makes changes to the way health care is regulated in order to strengthen the way patients’ interests are promoted and protected. Monitor’s role will change significantly as we take on a number of new responsibilities. We will become the sector regulator for health care, which means that we will regulate all providers of NHS-funded services in England, except those that are exempt under secondary legislation.”
Take for example the cost to the taxpayer of a provider delivering a baby – not the antenatal or postnatal packages, but the cost of the actual labour and peri-partum process (“the package”). Like any other “product” in the market, a supplier will have to price its product carefully, to ensure that it offers a competitive price, but especially to ensure it does not price itself out of the market by being too costly. The price of “the package” might be determined through a number of different ways.
- Premium pricing (also called prestige pricing) is the strategy of consistently pricing at, or near, the high end of the possible price range to help attract status-conscious consumers. People might buy a premium priced product because they believe the high price is an indication of good quality.
- Cost-plus pricing is the simplest pricing method. The firm calculates the cost of producing the product and adds on a percentage (profit) to that price to give the selling price. This method although simple has two flaws; it takes no account of demand and there is no way of determining if potential customers will purchase the product at the calculated price. You only need to consider the complexity of doing the calculation for the package”, e.g. will the provider use cheap epipdural needs for the anaesthesia, will a foundation year doctor (who is cheaper) perform most of the medicine compared to a specialist registrar (who is more expensive, but more experienced, especially in dealing with medical emergencies).
- Value-based pricing – a price based on the value the product has for the customer and not on its costs of production or any other factor.. The relevant issue is how much would you be prepared to have provider A deliver your baby? This is a subjective issue, not easy to predict.
The problem with premium pricing is that providers can collude lawfully to set their prices as high as possible between them. Price fixing is illegal under Article 101 TFEU of the European Union:
Article 101
(ex Article 81 TEC)
1. The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which:
(a) directly or indirectly fix purchase or selling prices or any other trading conditions;
(b) limit or control production, markets, technical development, or investment;
(c) share markets or sources of supply;
(d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
(e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.
2. Any agreements or decisions prohibited pursuant to this Article shall be automatically void.
3. The provisions of paragraph 1 may, however, be declared inapplicable in the case of:
– any agreement or category of agreements between undertakings,
– any decision or category of decisions by associations of undertakings,
– any concerted practice or category of concerted practices,
which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not:
(a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives;
(b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.
It has been incredibly hard to prove price-fixing, but numerous examples exist.
For example, the Daily Mail recently reported price-fixing at the petrol pumps:
“Motorists are being ripped off by profiteering oil companies and speculators, MPs suggested yesterday.They demanded an inquiry into allegations of price-fixing at the pumps, and called for the Government to replace its planned fuel duty rise with a windfall tax on oil company profits.
And last year they reported on the price-fixing of milk:
“Supermarkets and dairy firms have been fined almost £50million over price rigging on milk and cheese that cost families £270million. The collusion put up the price of milk by 2p a litre – 1.2p a pint – and added 10p to the cost of a 500g block of cheese. The punishment was announced by the Office of Fair Trading, following an investigation triggered by whistle blowers at the Arla dairy company. First revealed by the OFT in 2007, the ‘Great Milk Robbery’ took place in 2002 and 2003. But only now has a fine of £49.51million been handed down.”
For Monitor, regulating this will be a mammoth task. Private health providers have much scope for setting between them the most profitable way of delivering the patient’s baby, and it is a great market to be in: the country will never be short of a need for providers of safe deliveries of babies. Whilst other metrics might be important to the clinician, such as mortality or morbidity (infection rates), it could be that private providers are distinguished most themselves by the least cost to a GP practice. Or, it could be that people are genuinely fickle about not caring about who picks up the tab, but the preferred private provider might provide “extra frills”, like en-suite TV with 80 channels.
The problematic issue is what happens if an unconventional problem comes out-of-the-blue. The mother might experience a rare type of headache, such as trigeminal autonomic neuralgia, and there is effectively no “patient choice” involved, save for the GP having to refer the patient to a specialist unit like Great Ormond Street Hospital. You will notice here that the quality of patient choice is nothing to do with the innovation of the private health provider, nor indeed how “competitive” the market of private providers of childbirth is: it is entirely to do with the skill of the clinician in making a rare diagnosis, and having the astuteness of having a specialist unit such as Great Ormond Street Hospital deal with it safely, whatever the cost. You must note that I give this example of TAN at GOSH completely at random, and any similarity to a real-life scenario is of course completely unintentional.
Monitor and the regulation of pricing in the NHS
Monitor is in its infancy, but, pardon the pun, I would like to describe an example of childbirth to explain the mountain of problems that the new privatised NHS is yet to experience. Consider this a steep learning-curve that not many of us voted for at the last election.
“The new NHS provider licence: consultation document” was issued by Monitor on 31 July 2012 with a deadline for responses determined as 23 October 2012. According to section 5.1 of this Document on pricing,
“One of Monitor’s new functions will be to set prices for health care services funded by the NHS.Accurate pricing is essential to ensure that providers are paid appropriately for services they provide to patients. Accurate pricing information helps GPs, commissioners and providers to plan and budget for health care services to meet people’s needs. Pricing can also be used to encourage providers to improve the quality of services for patients, and to increase the efficiency with which services are provided. If providers are not properly reimbursed, this can reduce the quality and efficiency of care they offer and may, in some circumstances, threaten the sustainability of their services.”
Pricing is pivotal in markets, and will obviously therefore be expected to the subject of considerable scrutiny by competition regulatory authorities. In future, Monitor will be responsible, in partnership with the NHS Commissioning Board, for setting prices for NHS services. Indeed, according to a statement produced on 20 June 2012,
“The Health and Social Care Act 2012 makes changes to the way health care is regulated in order to strengthen the way patients’ interests are promoted and protected. Monitor’s role will change significantly as we take on a number of new responsibilities. We will become the sector regulator for health care, which means that we will regulate all providers of NHS-funded services in England, except those that are exempt under secondary legislation.”
Take for example the cost to the taxpayer of a provider delivering a baby – not the antenatal or postnatal packages, but the cost of the actual labour and peri-partum process (“the package”). Like any other “product” in the market, a supplier will have to price its product carefully, to ensure that it offers a competitive price, but especially to ensure it does not price itself out of the market by being too costly. The price of “the package” might be determined through a number of different ways.
- Premium pricing (also called prestige pricing) is the strategy of consistently pricing at, or near, the high end of the possible price range to help attract status-conscious consumers. People might buy a premium priced product because they believe the high price is an indication of good quality.
- Cost-plus pricing is the simplest pricing method. The firm calculates the cost of producing the product and adds on a percentage (profit) to that price to give the selling price. This method although simple has two flaws; it takes no account of demand and there is no way of determining if potential customers will purchase the product at the calculated price. You only need to consider the complexity of doing the calculation for the package”, e.g. will the provider use cheap epipdural needs for the anaesthesia, will a foundation year doctor (who is cheaper) perform most of the medicine compared to a specialist registrar (who is more expensive, but more experienced, especially in dealing with medical emergencies).
- Value-based pricing – a price based on the value the product has for the customer and not on its costs of production or any other factor. The relevant issue is how much would you be prepared to have provider A deliver your baby? This is a subjective issue, not easy to predict.
The problem with premium pricing is that providers can collude lawfully to set their prices as high as possible between them. Price fixing is illegal under Article 101 TFEU of the European Union:
Article 101
(ex Article 81 TEC)
1. The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which:
(a) directly or indirectly fix purchase or selling prices or any other trading conditions;
(b) limit or control production, markets, technical development, or investment;
(c) share markets or sources of supply;
(d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
(e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.
2. Any agreements or decisions prohibited pursuant to this Article shall be automatically void.
3. The provisions of paragraph 1 may, however, be declared inapplicable in the case of:
– any agreement or category of agreements between undertakings,
– any decision or category of decisions by associations of undertakings,
– any concerted practice or category of concerted practices,
which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not:
(a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives;
(b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.
It has been incredibly hard to prove price-fixing, but numerous examples exist.
For example, the Daily Mail recently reported price-fixing at the petrol pumps:
“Motorists are being ripped off by profiteering oil companies and speculators, MPs suggested yesterday.They demanded an inquiry into allegations of price-fixing at the pumps, and called for the Government to replace its planned fuel duty rise with a windfall tax on oil company profits.
And last year they reported on the price-fixing of milk:
“Supermarkets and dairy firms have been fined almost £50million over price rigging on milk and cheese that cost families £270million. The collusion put up the price of milk by 2p a litre – 1.2p a pint – and added 10p to the cost of a 500g block of cheese. The punishment was announced by the Office of Fair Trading, following an investigation triggered by whistle blowers at the Arla dairy company. First revealed by the OFT in 2007, the ‘Great Milk Robbery’ took place in 2002 and 2003. But only now has a fine of £49.51million been handed down.”
For Monitor, regulating this will be a mammoth task. Private health providers have much scope for setting between them the most profitable way of delivering the patient’s baby, and it is a great market to be in: the country will never be short of a need for providers of safe deliveries of babies. Whilst other metrics might be important to the clinician, such as mortality or morbidity (infection rates), it could be that private providers are distinguished most themselves by the least cost to a GP practice. Or, it could be that people are genuinely fickle about not caring about who picks up the tab, but the preferred private provider might provide “extra frills”, like en-suite TV with 80 channels.
The problematic issue is what happens if an unconventional problem comes out-of-the-blue. The mother might experience a rare type of headache, such as trigeminal autonomic neuralgia (“TAN”), and there is effectively no “patient choice” involved, save for the GP having to refer the patient to a specialist unit like Great Ormond Street Hospital (“GOSH”). You will notice here that the quality of patient choice is nothing to do with the innovation of the private health provider (can a private provider suddenly make the five stages of labour turn into a more profitable six?), nor indeed how “competitive” the market of private providers of childbirth is (can we get down the speed of the first one from an average of 48 mins to 44 mins?). It is, however, entirely to do with the skill of the clinician in making a rare diagnosis, and having the astuteness of having a specialist unit such as Great Ormond Street Hospital deal with it safely, whatever the cost. You must note that I give this example of TAN at GOSH completely at random, and any similarity to a real-life scenario is of course completely unintentional.