Completed acquisition by General Healthcare Group of assets of Nuffield Hospitals

Affected market: Private medical services

No. ME/3468/08

Please note that the full text of the decision can be downloaded by using the link on the right. What follows are extracts regarding the parties, the transaction, jurisdiction, third party views, assessment and decision.

The OFT's decision on reference under section 22(1) given on 1 May 2008. Full text of decision published 16 May 2008.

Please note that square brackets indicate figures or text which has been deleted or replaced at the request of the parties for reasons of commercial confidentiality.

PARTIES

General Healthcare Group (GHG) is a provider of independent healthcare services in the UK. GHG operates two primary businesses: BMI Healthcare Limited (BMI), which operates 48 acute care private hospitals, and Netcare Healthcare (UK) Limited, which provides specialised clinical services to patients under contract to the NHS.

Nuffield Hospitals (Nuffield) is a not-for-profit organisation, which prior to the transaction owned and operated 40 acute care private hospitals.

TRANSACTION

GHG originally acquired a package of nine hospitals (the Purchased Hospitals) from Nuffield's estate of 40 private hospitals, comprising:

• Nuffield Hospital Birmingham
• Nuffield Hospital Bury St Edmunds
• Nuffield Hospital Gerrards Cross
• Nuffield Hospital Harrogate
• Nuffield Hospital Huddersfield
• Nuffield Hospital Lancaster
• Nuffield Hospital Lincoln
• Nuffield Hospital North London (Enfield), and
• Nuffield Hospital Nottingham.

Nuffield offered the Purchased Hospitals as a package. GHG has said it believed that these Nuffield hospitals were selected for sale because there were alternative Nuffield hospitals in each area, although not necessarily in the catchment area. This meant that Nuffield considered that it would still be in a position to offer a national network after the sale.

GHG undertook its own competition analysis of the nine hospitals and concluded that the acquisition of two Nuffield Hospitals, Gerrards Cross and Nottingham, would likely give rise to a substantial lessening of competition. GHG has therefore sought to remedy this loss of competition (on a fix it first basis) by selling Nuffield Hospital Gerrards Cross to Spire Healthcare Limited (Spire) and Nuffield Hospital Nottingham to Ramsay Health Care UK (Ramsay).

The OFT's initial investigation covered the acquisition by GHG of all nine Purchased Hospitals. [see note 1]  The OFT's starting point is therefore that its decision will be expected cover the full set of assets acquired by GHG from Nuffield. To the extent that remedies are required to resolve competition concerns arising in certain local areas, the Enterprise Act 2002 (the Act) provides for these to be given by means of undertakings in lieu of reference.

In this case, GHG entered into agreements to on-sell Nuffield Hospitals Gerrards Cross and Nottingham to third party purchasers. During the course of its investigation, the OFT considered the competitive impact of these on-sales. In particular, it has been satisfied that each on-sale comprehensively remedies the substantial lessening of competition that would have otherwise have resulted from the GHG/Nuffield transaction and that the acquisition by the relevant third party does not itself raise competition concerns. Given that the OFT was satisfied that the on-sale transactions were to suitable purchasers, where appropriate, it gave consent under the initial undertakings provided by GHG for the relevant Nuffield hospital to be divested. [see note 2]

To the extent that any fix-it-first remedies proposed by the acquiring party remain provisional at the time of the OFT's decision, the OFT will require that such remedies are enshrined by means of undertakings in lieu. In this case, however, both on-sale transactions had completed by the time of the OFT's decision on reference. As a result, the OFT's decision covers the seven Purchased Hospitals of which GHG retained ownership at the date of its decision.

The original transaction was completed on 1 February 2008, the administrative deadline for a decision is 1 May, and the statutory deadline expires on 31 May 2008.

JURISDICTION

As a result of this transaction, GHG and the seven retained Purchased Hospitals have ceased to be distinct. The parties overlap in the supply of private medical services through the operation of private acute care hospitals in the UK. By beds, the merger creates a combined share of 28.3 per cent (increment 4.2 per cent) if all nine of the Purchased Hospitals are included; or a combined share of 27.7 per cent (increment 2.6 per cent) in respect of the seven retained hospitals; therefore the share of supply test in section 23 of the Act is met. The OFT therefore believes that it is or may be the case that a relevant merger situation has been created.

THIRD PARTY COMMENTS

Three PMI providers all raised concerns that the acquisition would strengthen GHG's ability to negotiate nationally on price by increasing the number of areas where they operate a solus hospital. Two smaller PMI providers both stated that they had no concerns, but did not wish to answer any further questions.

Two PMI providers raised concerns about GHG changing prices at the Purchased Hospitals, aligning them with those charged at GHG hospitals. Nuffield has remained active in the market after the merger, and consequently was not in a position to reveal to GHG its pricing arrangements. Therefore, as the Purchased Hospitals were sold with out any pricing arrangements in place, GHG stated that it was necessary to introduce GHG's own pricing arrangements. [see note 3]

Only one competitor made a full response to our enquiries and had no concerns regarding the acquisition as it considered that the largest PMI providers had the negotiating power in the market. Other competitors stated that the transaction raised no concerns.

ASSESSMENT

GHG and the Purchased Hospitals overlap in the supply of private medical services.

The merger originally resulted in the acquisition of a package of nine private hospitals by GHG, of which two [see note 4] have been identified by GHG as likely creating a substantial lessening of competition in a local market and have been subsequently on-sold to Spire and Ramsay. Given that, in both cases, the on-sale transactions have completed at the time of the OFT's decision, the OFT's decision relates to GHG's retained acquisition of seven Nuffield hospitals.

The acquisition of the seven retained Nuffield hospitals does not significantly lower the intensity of competition at the national level: Nuffield will continue to operate 31 hospitals after the transaction and GHG has stated that the rationale for the selection of the hospitals to be sold was to ensure that Nuffield could remain a national player. There remain four competing national PMS providers and the OFT considers that the low increment ([< three per cent]) to GHG's national share does not give rise to any competition concerns at the national level.

The effect of the transaction on the nine local markets where GHG originally acquired a Nuffield hospital has also been considered. As a result of the analysis outlined above, it has been concluded that only in respect of the two local markets around the Gerrards Cross and Nottingham Nuffield would the acquisition have given rise to a substantial lessening of competition. In Nottingham, this has been remedied by the on-sale of the Nottingham Nuffield, which has restored the pre merger competitive landscape. With regard to the Gerrards Cross area, the on-sale of the Gerrards Cross Nuffield has also restored pre merger competitive levels. For the reasons discussed in detail above, the OFT considers that in none of the remaining seven local markets does the acquisition give rise to a realistic prospect of a substantial lessening of competition.

The OFT has also considered carefully the complaints raised by third parties about the effect of local market strength impacting on GHG's negotiating strength. Based on the available evidence, the OFT has concluded that the addition of these seven hospitals to the GHG network will not have a material adverse effect on the negotiating power of the PMI providers.

Consequently, the OFT does not believe that it is or may be the case that the merger between GHG and the seven retained Nuffield hospitals has resulted or may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.

DECISION

This merger will therefore not be referred to the Competition Commission under section 22(1) of the Act.

NOTES

1. For this reason, the discussion in this decision covers all nine Purchased Hospitals.

2. This does not, in any event, prejudice the OFT's ability to review a qualifying on-sale transaction as a separate merger situation.

3. That these prices were higher than Nuffield's is not merger specific; we understand that the fact that GHG's prices are higher is due, in part, to the non charitable status of its hospitals in contrast to those of Nuffield.

4. Nuffields Gerrards Cross and Nottingham.

Back to top