Is the NHS subject to competition law?

nhs logoLiam Goulding, University of Lancaster

The coalition government’s plans for the future of healthcare in England, through the Health and Social Care Act 2012 (HSCA), herald fundamental changes to the NHS. By experimenting with a greater role for competition it is unclear to what extent EU competition law is applicable to the NHS. In the application of the competition prohibitions, in Arts 101 and 102 TFEU, two concepts – ‘undertaking’ and ‘solidarity’ – become crucial. Unfortunately, despite the centrality of the ideas, neither is defined in the Treaty, leaving the Court of Justice of the European Union (CJEU) to develop and establish their content.

The CJEU in Höfner Case C-41/90 defines an undertaking as:

‘every entity engaged in an economic activity, regardless of the legal status of the entity and the way in which it is financed’.

This allows for a broad interpretation of the concept of undertaking, as any entity exercising an economic activity must be considered to be an undertaking.

The CJEU excludes certain activities from the concept of economic activity on the basis of ‘solidarity’. Entities carrying out a social rather than an economic activity, based on the principle of solidarity and not for profit, are not considered to fall into the term undertaking and, therefore, are not subject to competition law. However, difficulty arises in the case of the NHS as while it carries out social activities, it also acts in competition with other entities. In practice the distinction is not always likely to be clear and it becomes questionable to what degree competition law is applicable. In order to answer this question it is important to make a distinction between service purchasers and service providers, as the NHS can no longer, in effect, be seen as a unified service but as a service made up of constituent parts.

In assessing the service purchaser aspect of the NHS, it was initially decided in BetterCare [2002] CAT 7 that the contracting out of activities by an NHS purchaser to independent providers was in principle to be regarded as an economic activity making the NHS purchaser an undertaking for the purposes of competition law. The CAT in BetterCare took a robust view that buying was as much part of a commercial transaction as selling, but the CJEU in FENIN Case C-205/03  took a different view of economic activity; to be an ‘undertaking’ the body had to be involved in selling-on the goods or services it purchased. The CJEU confirmed that as long as the supply of the final services was not an economic activity, purchasing goods and services necessary to supply that service was not an economic activity either.

When determining whether service purchasers within the NHS would fall under the social solidarity principle, the case of Poucet and Pistre Case C-159, 160/91 is important. The CJEU referred to the fact that contributions paid by active workers served to finance the pensions of retired workers’ and therefore contained a central distributive element. As such, the activities of the schemes were not ‘economic’ and so did not fall within the scope of the competition rules, as it was intended to provide cover for all persons, regardless of their financial status. This is in contrast to the schemes in the cases of FFSA Case C-244/94 and Albany Case C-67/96 in which the CJEU held that such schemes operated in accordance with the principle of capitalisation, and the benefits to which it conferred entitlement depended solely on the amount of contributions paid by the recipients. It followed therefore that both systems were engaged in economic activity and subject to competition law.

The strongest precedent is set at European level and, on the basis of the CJEU’s decision in FENIN, it can be assumed that purchasing activity carried out for social purposes is generally not subject to competition law. As such, as NHS purchasers purchase goods, not for the purpose of offering goods and services as part of an economic activity, but in order to use them in a social nature, they do not act as undertakings for the purposes of competition law. A prime example of this is the devolving of purchasing services to general practice (GP) commissioners, based in commissioning ‘consortia’. They would fall under the social solidarity principle in the case of Poucet and Pistre as they provide cover for all persons, regardless of their financial status, rather than the organisations in FFSA and Albany, who worked on the basis of capitalisation thereby carrying out an economic activity.

With regards to the application of competition law to service providers in the NHS the position is more complex. As the nature of the activities carried out by service providers in the NHS develops, changing so as to bring about more competition between the NHS and private providers, all must ensure that they are compliant with the competition law provisions. In the case of AOK Cases C-264, 306, 354, 355/01 it was held that as the relevant sickness funds were not in competition with each other or with private institutions and were thus not engaged in economic activity, falling outside of the competition law provisions. The CJEU held that a limited amount of competition did not automatically call for an application of competition law, due to the fact that the social functions of the sickness funds were predominant. However, in providing for choice and competition between providers, whether they are public or private, it means that NHS providers are engaged in economic activity. The argument brought forward by the coalition government that as competition within the NHS is based on quality rather than on price that this will limit the applicability of competition law, is irrelevant. All that matters is the existence of competition itself, not the form that it takes.  As such, as service providers within the NHS are in competition with other providers, carrying out economic activities, they fall within the definition given in Höfner. They do not fall within the solidarity principle contained in Poucet and Pistre, but fall within the cases of FFSA and Albany, as they carry out activities of an economic rather than a social nature and so will be deemed to be undertakings.

That being said, to conclude that the HSCA brings competition law into the NHS requires an assumption that it currently does not apply. It is likely that, even as matters stand, and in view of the 2012 Act, competition law already applied to NHS service providers. The NHS has already developed a structure whereby it is more likely than not, that NHS providers are undertakings for the purposes of competition law. The Labour government argued that if it was going to create a truly patient-led NHS, then private providers had to be able to contribute too. In doing this, the Labour government under the ‘any qualified provider’ provision, where profit-making companies were able to provide NHS care, made such activities economic in nature and thereby took them outside the solidarity principle. The reforms brought about by the HSCA merely serve to reinforce the proposition that service providers will fall under competition law.

A recent debate surrounding the coalition government’s use of competition in the NHS amounted following the publication of the, now former, National Health Service (Procurement, Patient Choice and Competition) Regulations 2013 (SI 2013/257). The extent to which competition should be applied to the NHS has been at the heart of fierce debates in the passage of the HSCA, and these Regulations, it was argued, would in effect require all NHS services to enter into competitive tendering. Due to mounting criticism, the Regulations where withdrawn and key parts rewritten to remove any doubt. The National Health Service (Procurement, Patient Choice and Competition) (No.2) Regulations 2013 (SI 2013/500) revoked the previous Regulations. Whilst some would see the amended Regulations as a victory, in the real world the amendments just make clearer what the coalition government has said all along. The Regulations simply reinforce the movement that has occurred over the past twenty years, in that successive UK governments have sought to provide for a greater diversity of providers, both public and private, which can carry out NHS services in competition with each other.

In summary, an examination of the case law, as well as the policies brought about by the previous Labour government and the introduction of the HSCA by the coalition government, demonstrate that service purchasers are not subject to the rules of competition law. Where a body entrusted with the management of statutory health provision pursues an exclusively social objective it does not engage in an economic activity and is therefore not considered to be an undertaking. The opposite stands with regards to service providers. As a result of both the Labour and coalition government’s reforms, service providers will be carrying out activities of an economic nature, in which such a provision of goods or services allows for the potential to make profit, thereby making them an undertaking for the purposes of competition law and falling outside of the solidarity principle.

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