Object reference not set to an instance of an object.
Publications

Competition and health services

02 March 2012

Liaising with your practice group colleagues and your peers is fundamental to ensuring New Zealanders receive excellent healthcare.  But being a health professional providing important and indispensible services does not immunise you from the law governing competition in business.

The number of investigations into healthcare professionals around the world, including New Zealand, illustrates the importance regulatory authorities place on competition in healthcare service provision.  

What does the law say?

New Zealand’s competition law is found in the Commerce Act.   Key areas for medical professionals to be aware of are that price-fixing and market sharing arrangements between competitors are unlawful – as are any contracts, arrangements or understandings that have the purpose, effect or likely effect of substantially lessening competition.  

Examples of what might be unlawful include:

  • GPs within a practice group agreeing with each other about how much they will charge their patients or whether to charge a patient service fee or prescription fee
  • medical professionals in the same speciality collectively negotiating with medical insurers, ACC or hospitals without authorisation from the Commerce Commission
  • private hospitals (with different owners) agreeing with each other what they will pay surgeons for certain medical procedures, and
  • medical professionals within the same speciality sharing information about their cost and pricing structures.

Members of medical colleges, societies or associations can be held liable for breaches of the Commerce Act by those organisations even if this has occurred without the individual’s knowledge or involvement.  While it is recognised that these bodies provide useful fora to discuss industry-wide issues, they must operate with proper safeguards to avoid falling foul of the Commerce Act.

In some circumstances, arrangements which might otherwise be unlawful can be structured so that they are permissible.   For instance, businesses can be structured so that the medical professionals working within them are not considered to be competitors; or ‘authorisation’ for some arrangements might be available from the Commerce Commission.

Competition laws are similar around the world.  There are numerous examples of healthcare professionals being caught up in investigations and prosecutions.  Here are a few.

GPs

  • The Australian Competition and Consumer Commission (ACCC) investigated a group of five doctors operating the only general medical clinic on Kangaroo Island in South Australia after each doctor sent an identical letter to the Kangaroo Island hospital administration stating that they would no longer provide after-hours services at the current fee and enclosing an interim contract for negotiations.  Although the doctors never withdrew their services, the ACCC had serious concerns about their action and required them to give formal undertakings that they would not engage in this type of conduct in future. (2010)
  • The Irish Medical Organisation (IMO) was charged by the Irish Competition Authority with distorting competition after recommending to GPs the fees they should charge life insurance companies for certain medical information and advising them to withhold the information unless the recommended fee was paid.  The matter was settled out of Court with the IMO agreeing not to instruct, recommend or express an opinion on fees or to encourage its members to withhold their services from life insurance companies. (2007)
  • The Dutch National Association of General Practitioners and two of its officials have been fined in relation to a policy which permitted a GP to set up a practice in a given area only if the established GPs in that area agreed. (2011)

Pathologists

  • The New Zealand High Court imposed penalties on two pathology companies after they admitted being parties to what was in effect a moratorium on competing against each other for community pathology services.  The moratorium had been agreed in the context of a possible merger which never materialised. (2010)

Radiologists

  • The New Zealand Commerce Commission investigated a costing and pricing model produced by the Royal Australia and New Zealand College of Radiologists and found no evidence of actual price-fixing other than, potentially, to ACC.  But the Commission said that, had the members reached an understanding to adopt the model, this might have amounted to price-fixing. (2004)

Physiotherapists

  • The New Zealand Society of Physiotherapists came to the Commerce Commission’s attention when it wrote to an individual practice regarding the practice’s decision not to charge a co-payment for physiotherapy services.  The Commission said the Society would have been investigated for price-fixing had there been any evidence that the Society’s Executive Director planned to follow up the letter. (2010)

Ambulance services

  • Two companies providing air ambulance evacuation services inadvertently price-fixed during negotiations for a sub-contract.  The Commerce Commission explained that, while some pricing information can legitimately be exchanged in a sub-contracting relationship, the two companies remained competitors and must not disclose or agree on prices they intend to offer the final consumer. (2010)
  • The Secretariat of Economic Law and the Public Ministry of Rio de Janeiro obtained warrants to search the offices of three companies, and the homes of three former government health officials, who are suspected of bid-rigging in the public tender for the maintenance of ambulances.  Documents, computers and media collected during the raids will undergo forensic analysis. (2010)

Other medical associations

  • The President of the Polish Office of Competition and Consumer Protection imposed a penalty on the Polish Chamber of Physicians and Dentists after concluding that a Chamber regulation prohibiting doctors from prescribing certain homeopathic products reduced consumer access to those products.  (2011)
  • The Singapore Ministry of Trade and Industry banned the Singapore Medical Association (SMA) from publishing fee guidelines on the grounds that this might breach competition laws.  The SMA sought to have the guidelines exempted from the Competition Act arguing that they increased price transparency and prevented patients being overcharged.  The exemption was declined. (2010)

What are the consequences of getting it wrong?

Individuals found to have breached the Commerce Act can be liable for penalties of up to $500,000 (and for companies, the greater of $10 million or three times the commercial gain resulting from the breach or 10% of the turnover of the company and its subsidiaries).   Individuals can also be prohibited from being involved in the management of a company for up to five years.

But there are changes in the wind.  There is a proposal (currently at the Select Committee stage) to amend the Commerce Act so that hard core “cartel conduct” will be “criminalised”.  This means that competitors (such as medical professionals practising in the same locality or same medical field) who are party to arrangements or understandings involving price-fixing, output restrictions, market allocation, or bid-rigging could find themselves going to jail (for up to seven years) - and tainting themselves with a criminal record, with all the consequences which flow from that.1

Not all cartel conduct will turn up the ‘go to jail’ card.   The policy makers are aware of the potential for legitimate pro-competitive collaboration to be caught and have proposed a series of specific exceptions for vertical supply arrangements, joint buying and promotion, and “collaborative activity”.

The “collaborative activity” exception is a new concept.   Essentially it will apply where the cartel provision (price-fixing, output restriction, market allocation or bid-rigging): 

  • forms part of a business arrangement that does not have the dominant purpose of lessening competition, and
  • is “reasonably necessary” for the purpose of that arrangement. 

Because there is an element of judgement here, to address any uncertainty about whether the collaborative activity exception will apply, the proposed new law offers a safety net in the form of an optional pre-clearance mechanism through the Commerce Commission.  

Risk minimisation

Clearly the price for breaching the Commerce Act can be high.   Local and international activity by competition authorities indicates that the health sector is not immune from investigation and prosecution.  So what can health professionals do to mitigate their risks?

  • Identify all relationships with competitors.
  • Assess those relationships for Commerce Act compliance (seeking professional advice if there is any doubt).
  • Review policies around interactions with competitors.
  • If you are a member of a medical association, ensure that association understands how the Commerce Act applies to it and to its members.

Footnote

  1. If the proposed criminalisation provisions are passed into law, there will be a two year window before they come into effect. 

Lindsey Jones is a partner and Colin Fife a solicitor at Chapman Tripp, both specialising in competition law.