Report (5th Day)

Part of Health and Social Care Bill – in the House of Lords at 4:00 pm on 6th March 2012.

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Photo of Lord Clement-Jones Lord Clement-Jones Liberal Democrat 4:00 pm, 6th March 2012

My Lords, I beg to move Amendment 163BZZB. I am delighted at the response of the noble Baroness, Lady Thornton. Clearly she recognises good drafting when she sees it. I hope she accepts the arguments, in substance, as I put them forward in my speech.

In common with many other Members of this House on all Benches, I expressed a number of concerns about the risk of market competition becoming greatly more prevalent within the health service as a result of the current provisions of the Bill, despite some concessions offered and partly because the Bill failed to fully reflect the intentions of the Future Forum. Our fear was that the Bill contained a number of measures that could increase competition within the NHS at the expense of collaboration and integration.

We were explicit that we are not against competition in the NHS but it must be applied where it is appropriate to do so in the interests of patients. It is not appropriate in all circumstances. Patient and public benefit can often be secured in other ways; for example, integration of services and co-operation between providers, or a mixture of these with competition, are often preferable alternatives.

EU and UK competition law has had some application within the health service for some years now, largely as a result of Labour's reforms in the 2006 Act, and we should remember that. However, we do not want to see competition law applied universally across the health service so that our health service commissioners and providers are required to operate an entirely market-based NHS without being able to choose where the market and competition should apply and where they should not.

The objective of the Bill and Ministers during its passage must be to put beyond doubt the protection of the NHS from competition as an end in itself where this does not serve the interests of patients. The tests summarised from OFT guidance for whether EU competition law applies to the provision of healthcare for the purposes of the NHS falls into three stages. First, is the provider an "undertaking"? This depends on whether it carries out an "economic activity". This status may fluctuate over time and apply to some activities and not others of the same provider. Offering or supplying goods or services in a given market is the characteristic feature of an economic activity.

Even if economic, is the activity wholly social in nature rather than commercial? Compulsory healthcare and insurance schemes have been held to be wholly social. The OFT emphasises that this depends on the facts of each case. Even if the provider is an undertaking and the economic activity is not wholly social, is this in relation to services of general economic interest? This is where both Amendment 177, which I am currently speaking to as well as Amendment 178, come in, in addition to Amendment 163BZZA.

SGEIs are protected from some aspects of competition law. Member states are free to designate services as SGEIs and the Commission will challenge such decisions only if it thinks that the member state is in error. In the view of these Benches, the risk of a number of elements of the Bill being taken together increases the likelihood of NHS services being found by English and EU courts to fall within the scope of UK and EU competition law. These include the fact that the Competition Commission is deployed in reviewing the development of competition in the NHS in the provision of healthcare, and the exercise by Monitor of its functions in relation to the provision of healthcare services.

Secondly, the potential deregulation of foundation trusts from 1 April 2016 under Clauses 111 to 114 means that Monitor will no longer from that date have the power to appoint and dismiss foundation trust directors unless the Secretary of State decides otherwise. On oversight of foundation trust mergers by the OFT, we were concerned that ordinary competition rules as a result of the application of Part 3 of the Enterprise Act by virtue of Clause 77 would be applied. Originally, the PPI cap for foundation hospitals was lifted under Clauses 163 and 164, opening the way for the majority of income for some foundation trusts to derive from private patients, which could have led to a loss of status as an organisation promoting social solidarity. This has now been restricted to a maximum of half the revenue of an FT, which helps to mitigate that risk. There are still issues surrounding transparency and authorisation by a foundation trust's council of governors or Monitor which remain to be resolved with later amendments.

We are also concerned that even after the changes made following the Future Forum report, Monitor's powers were not properly balanced so that they could ensure integration as well as prevent anti-competitive behaviour. The Government have now tabled Amendment 193 to Monitor's powers under Clause 97 so that it can set and enforce licence conditions for the purposes of enabling integration and co-operation in line with the principles and rules for co-operation and competition, which we will debate later. In putting down amendments, we have no hostility to competition as such, merely a desire to make use of the opportunities that the TFEU and European competition law offer member states to avoid the NHS being treated like a utility, such as gas and electricity.

Under the EU treaties, Article 106 of the Treaty on the Functioning of the European Union states:

"Undertakings entrusted with the operation of services of general economic interest ... shall be subject to the rules contained in this Treaty, in particular to the rules on competition, insofar as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them".

Member states have certain discretion as to which services are services of general economic interest. By ensuring healthcare services for the purposes of the NHS are services of general economic interest and that the "task" of co-operation between services is "assigned" to the healthcare providers, it should be possible to provide some protection from less desirable aspects of competition law.

An EU summary of legislation on this issue states:

"Services of general economic interest (SGEIs) are different from ordinary services in that public authorities consider that they need to be provided even where the market is not sufficiently profitable for the supply of such services. The concept of services of general interest is based on the concern to ensure that a quality service is provided at an affordable price everywhere for everyone. Services of general interest contribute to achieving the objectives of solidarity and equality of treatment underlying the European model of society".

The objective must therefore be to ensure that providers for the purposes of the NHS that fall into the category of economic activity from time to time will have the necessary protection. By categorising health services as a whole as SGEIs, where services fall into the economic activity category the protections available against the application of competition law can be brought into play. Our amendments would designate healthcare provided for the purposes of the NHS as a service of general economic interest.

It must be right to clarify the treatment of health services when it is available and recognised explicitly in EU guidance. To benefit from the SGEI exclusion it will be necessary to show that performance of the tasks assigned to the undertakings entrusted with the operation of SGEI is being obstructed by the rules of competition. The best example to illustrate why it is important to recognise healthcare for the purposes of the NHS as a market that merits this status is obesity, which affects deprived communities disproportionately. A pure market approach would lead to providers, for instance, offering gastric band surgery, which would be more profitable than undertaking health campaigns to tackle prevention.

Co-operation between healthcare providers, however, may be the best way to achieve good patient outcomes. For example, PACE, the post-acute care and enablement programme, involves collaboration between providers proactively to seek out medically stable in-patients and to treat them at home with interventions which would normally require them to remain in hospital, such as intravenous wound care. This type of service involves integration and a co-operative culture to innovative integration in the first place. Beneficial co-operation must not be prevented by competition law and must be actively encouraged.

When a court approaches the question of whether an activity carried out by one of the new bodies under the proposed health regime falls within the scope of the competition regime, purchasing activity is characterised by the services for which the purchased products are used, and the court will then examine whether the offering of relevant services should be regarded as economic. However, the court will also have regard to the objectives that the relevant body is required to pursue; and the greater extent to which the domestic regime makes it clear that the activities should be carried out by reference to public policy objectives rather than in line with free market incentives, the less likely it is that the court will find the activity to be economic activity governed by the competition rules. So the way we have proposed to do this both in our amendment and in Amendment 178 is to expand upon existing duties on co-operation within the NHS in the 2006 Act and make use of the licensing regime which Monitor will operate under the Bill to impose co-operation for the purposes of integration of services.

Other approaches may of course be valid-for instance, under the general competition rules in Article 101 of the TFEU and in the UK's Competition Act 1998. An agreement that restricts competition may be capable of being exempted. Clear statements in the Bill or during the passage of the Bill need to be made of the Government's view that improvements to patient care fall to be taken into account within the context of Section 9. Lawyers would then be able to refer to the Bill or to Hansard when arguing for such an interpretation as and when the issue crops up in later cases, especially if the burden of proof falls on the party trying to demonstrate that the agreement is necessary to produce the countervailing benefits. In addition, under Section 6 of the Competition Act, the OFT or Monitor may recommend that the Secretary of State makes a block exemption order specifying that a certain category of agreements falls outside the scope of Section 2 of the Competition Act.

There are many ways of resolving the competition issues under this Bill and I am sure that there is much common ground on this legal analysis. This means that much of the difference between us relates not so much to the law but to the degree of risk prevailing in its application. It is also true that the impact of competition law is likely to be determined to a considerable extent not necessarily by decisions by the competition authorities in individual cases, but in the advice provided by lawyers to their clients operating in the health sector. There is clearly a risk that lawyers and the companies involved will take a conservative approach and avoid potentially beneficial co-operation because of the perceived risk that it might be contrary to the competition rules. So another way to minimise this is for Monitor to issue sector-specific guidance on the likely impact of the competition rules on specific types of health sector agreements.

I believe that these are constructive suggestions so that the unwanted application of competition law can be avoided. It is now up to the Government to recognise the risk and act accordingly. I beg to move.