The creation of local hospital networks subject to merger control

The Belgian Competition Authority published on 22 July 2020 its position on the application of merger control to local hospital networks.

This document addresses questions from the hospital sector concerning the interaction between competition law and the law of 28 February 2019 amending the coordinated law of 10 July 2008 on hospitals and other healthcare establishments with regard to clinical networking between hospitals, and its effective implementation.

These questions, which are quite legitimate, relate to the objective of the law of 28 February 2019: in particular, the organisation by several hospitals of the provision of regional care in the network’s territory. Beyond that, the questions also relate to transposing concepts of competition law to the specific hospital sector. As such, we will retain in particular, to illustrate the complexity of the law applied to hospitals, that the concept of “merger” within the meaning of the regulations on hospitals, which was already distinct from the concept of “merger”, known in company law, is added today, according to the analysis of the Competition Authority, the concept of “de facto merger” within the meaning of competition law. The hospital lawyer could lose his Latin….

In its document of 22 July 2020, the Belgian Competition Authority reiterates its competence to examine mergers of a certain size and collaborations between hospitals with regard to competition law.

Indeed, hospitals are subject to these constraints because they constitute companies within the meaning of competition law insofar as they offer services for remuneration borne by patients or their insurance.

After an informal investigation and examination of the law of 28 February 2019, the Authority considers that the establishment of a hospital network can lead to a lasting change in control, in particular with regard to the establishment and operation of local hospital networks which imply the exercise of a decisive influence on the strategic decisions of the various individual hospitals which are part of them. This change in control concerns at least the local care missions, which represent the majority of the care missions of each hospital and probably also the supra-regional care missions (except for solid evidence demonstrating the independence of hospitals for the provision of supra-regional care missions).

The analysis of the extent of the merger and therefore the extent of the Authority's control must be carried out on a case-by-case basis on the basis of all the facts and circumstances specific to each situation and in particular depending on the status of each network.

Different forms of merger can be considered:

  • the acquisition of exclusive control if one of the members of the network can exercise decisive influence over it and in particular through the holding of the majority of voting rights;
  • the existence of joint control due to a veto right over the strategic decisions of the network;
  • the creation of a de facto merger between hospitals when the network allows the establishment of joint economic management so that the hospitals in the network actually constitute a single economic entity.

Following its informal investigation, the Authority concluded that the aforementioned law of 28 February 2019 did not exclude applying the rules applicable to merger control to the creation of local hospital networks.

Particular attention must therefore be paid by each network with regard to establishment and operation.

The Authority is competent to examine, before their implementation, mergers that meet the following turnover thresholds:

  • merged companies in Belgium with a turnover of more than EUR 100 million; and
  • at least two of the companies each having a turnover of at least EUR 40 million in Belgium.

Note that notifying the Authority must take place before the implementation of the merger project and the project cannot be implemented before it is declared admissible. In the event of a breach of this obligation to notify or suspend the proposed merger during the procedure, the Belgian Competition Authority may impose fines of up to 10% of the total turnover of the companies concerned and penalties amounting to 5% of their average daily total turnover. Although rare, such sanctions have been imposed in the past.

Therefore, this obligation cannot be ignored by hospitals in the context of their current discussions because the formal notification procedure lasts, in the best cases, from three to five weeks depending on the “market shares” of the concerned undertakings – a term viewed as heresy in the healthcare sector – and must be preceded by informal exchanges with the Authority, and it could take a few weeks to several months to prepare the case. These deadlines may be extended if there is a risk that competition will be significantly affected as the notifying parties must propose structural (disposal of subsidiaries, assets, etc.) and/or behavioural commitments (modification of contractual conditions, functional separation, etc.).

Regarding the timing of the notification when creating a hospital network, the Authority specified in its document of 22 July 2020 that the merger does not take place at the time of the decision to create the local hospital network because all the network’s operating methods relevant for its analysis, namely the statutes, the members of the management body and the decision rules within the management body, are not necessarily established. However, the merger should be carried out at the latest before the entry into force of the agreement concluded between the hospitals if this agreement is sufficiently precise concerning the functioning of the network, its statutes, the members of the management body and the decision rules within the management body.

On the other hand, the recognition of the network by the competent entity and the absence of a royal decree concerning the implementation of the networks are not relevant elements in determining the precise timing of the merger.

In conclusion, there should be a case-by-case analysis of each network to determine a notification obligation based on the overall and individual turnover of the hospitals that are members of the network, to determine whether or not there is a merger (namely, a lasting change in control over the concerned entities) and to qualify the nature of this control. Given the budgets of the concerned hospitals, it is likely that the Authority will have to examine many cases for the creation of networks in the months to come.

With regard to the criteria for the compatibility of a proposed merger, it is important to note that the Authority may refuse a proposed merger if it is likely to undermine effective competition in the market, particularly in view of the structure of all the markets in question, and undermine actual or potential competition from undertakings located on Belgian territory, especially if a dominant position is created (when the created entity has more than 40% of the relevant market). As stated above, the concerned undertakings may submit commitments during the procedure to allay the fears of the Authority in this regard.

In this case, the hospitals are active in a local geographic market. We could therefore question the consistency of the objectives of the law of 28 February 2019 and the rules on the admissibility of mergers. In this regard, the Authority seeks to reassure the players in the sector. Indeed, while it will take into account in its competitive analysis the degree of effective competition between hospitals, competition law also takes into account objectives of general interest such as public health or public order. The fact that the creation of local hospital networks is imposed by the legislator means that the constraints relating to merger control cannot be avoided, in particular given the degree of leeway hospitals have to decide with whom they will create the local hospital network and concerning the form of collaboration and the level of integration within this network.

Annabelle Lepièce, Partner, Brussels
Bruno Fonteyn, Senior Associate, Brussels