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Anticipated acquisition by Aintree University
Hospital Foundation Trust of Royal Liverpool and
Broadgreen University Hospitals NHS Trust
Decision on relevant merger situation and
substantial lessening of competition
SUMMARY ................................................................................................................. 1
Background ........................................................................................................... 1
Competitive Assessment ...................................................................................... 2
ASSESSMENT ........................................................................................................... 4
Parties ................................................................................................................... 4
Transaction ........................................................................................................... 4
Jurisdiction ............................................................................................................ 5
Background ........................................................................................................... 5
Frame of reference ............................................................................................. 17
Competitive assessment ..................................................................................... 19
Third party views ................................................................................................. 25
Decision .............................................................................................................. 25
Aintree University Hospital Foundation Trust (AUHFT
and Broadgreen University Hospitals NHS Trust (RLBUHT
) plan to merge to
form a single NHS Foundation Trust (the Merger
). AUHFT and RLBUHT are
together referred to as the Parties
. The Parties notified the Merger to the
CMA on 22 March 2019.
The Competition and Markets Authority (CMA
) believes that it is or may be
the case that the Parties will cease to be distinct as a result of the Merger;
and that the turnover test is met. Accordingly, arrangements are in progress
or in contemplation which, if carried into effect, will result in the creation of a
relevant merger situation.1
The Parties are university teaching hospitals which provide general NHS
hospital services predominately to the city of Liverpool and the north Mersey
area, and specialised services regionally to Merseyside, Cheshire, North
Wales and the Isle of Man. The Parties are located near to each other and
overlap in the provision of NHS elective services, NHS specialised and
community services, NHS non-elective services and private patient services.
In any merger control investigation, the CMA will assess the extent and nature
of current (or pre-merger) competition. The current status of public policy
choices about the role of competition within the provision of healthcare
services is therefore a particularly relevant factor in the review of NHS
In its recent merger investigations between NHS hospitals in Manchester,
Birmingham and Derby/Burton,2 the CMA found that NHS providers were
facing significant growth in demand for services, financial pressures, capacity
constraints and greater levels of regulatory oversight. In these recent cases,
the CMA also found that, although the relevant NHS service providers still
competed for patients to some extent, competition between them was more
limited than had previously been the case due to an increasingly more
collaborative approach across the NHS in response to these constraints. In
particular, the NHS Long Term Plan, the Five Year Forward View, local
Sustainability and Transformation Partnerships (STPs
) and the introduction of
control totals have all dampened the role of competition for patients between
NHS providers and placed far greater emphasis on collaboration and
integration across providers within the Local Health Economy (LHE
1 As set out in the merger notice, under section 56AA of the National Health Service Act 2006, upon the grant of
application being made by NHS Improvement al the property and liabilities of RLBUHT are transferred to AUHFT
and RLBUHT wil be dissolved and its establishment order revoked. Fol owing the Merger, AUHFT wil continue
as an NHS Foundation Trust and AUHFT and RLBUHT wil cease to be distinct from each other.
2 University Hospitals Birmingham/Heart of England: University Hospitals Birmingham/Heart of England
August 2017), (hereafter UHB/HEFT Decision). Derby/Burton: Derby Teaching Hospitals/Burton Hospitals
Bournemouth/Poole: Royal Bournemouth and Christchurch Hospitals NHS Foundation Trust/Poole Hospital NHS
(2013). For Manchester, see Report on the anticipated merger between Central Manchester
University Hospitals and University Hospital of South Manchester of 1 August 2017 (hereafter CMFT/UHSM
Report): Central Manchester University Hospitals/University Hospital of South Manchester
The evidence in this case shows that the continuation of the direction of
national policies combined with local factors has substantially reduced the role
of competition in organising the provision of NHS services in the Liverpool and
north Mersey area.
In assessing the potential impact of the Merger on competition in the provision
of healthcare services, the CMA found each specialty to constitute a separate
product frame of reference and, within each specialty, treated elective and
non-elective services, as well as outpatient and inpatient (including day case)
activities as separate frames of reference. The CMA distinguished between
the provision of community services and services which are provided in
hospital settings. The CMA also distinguished between private services and
NHS services,3 and assessed the Merger on the basis of its impact on
competition both ‘in’ and ‘for’ the market.
With regard to elective services,4 the CMA has previously considered that
NHS policies limit the role of competition,5 and these policies have developed
over time such that the role of competition in the provision of elective services
is limited at best, being replaced by increased collaboration between NHS
service providers. The CMA took into account that for the past two years the
Parties have been paid to provide elective services solely under a block
contract system and have not been reimbursed under the Payment by Results
) system. The CMA has found that this has very substantially reduced
their incentive to compete for patients. The CMA also took into account
capacity and regulatory constraints, and the existence of other providers in
The CMA did not identify competition concerns with regard to the provision of
private patient services, non-elective services, specialised services or
community services. In each case there was either no overlap, limited scope
for patients to choose which hospital to attend, or a sufficient number of
alternative healthcare providers in the area.
10. The CMA therefore believes that the Merger will not give rise to a realistic
prospect of a substantial lessening of competition (SLC
11. The Merger will therefore not be referred
under section 33(1) of the
Enterprise Act 2002 (the Act
3 Within private services, each specialty constitutes a separate market and within each specialty, markets can be
defined along inpatient and outpatient lines (as with NHS services).
4 Such services are typical y planned or scheduled in advance and usual y require a referral from a GP or other
primary care provider.
decision 2018: Derby Teaching Hospitals/Burton Hospitals.
12. AUHFT manages Aintree Hospital in North Fazakerley, Liverpool. It provides
a full range of general hospital services to the local population of 330,000
people, covering the northern part of Liverpool and North Merseyside.
Additionally, AUHFT provides specialised services to a broader catchment
area of around 2 million people covering Cheshire, Merseyside, North Wales
and the Isle of Man. The income of AUHFT in the financial year 2017/18 was
£351 million, generated entirely in the UK.6 In the financial year 2017/18,
AUHFT reported a deficit of £26.9 million.
13. RLBUHT manages two sites: (i) the Royal Liverpool University Hospital and
the Liverpool University Dental Hospital, which are co-located in the city
centre next to the University, and (ii) the Broadgreen Hospital in a suburb to
the east of the city. RLBUHT provides general acute hospital services to
around 750,000 people in total and specialised services to a broader
catchment area of around 2 million people covering Cheshire, Merseyside,
North Wales and the Isle of Man. The income of RLBUHT in the financial year
2017/18 was £515 million, generated entirely in the UK.7 In the financial year
2017/18, RLBUHT reported a deficit of £39.2 million.
14. The Merger will be structured as an acquisition by AUHFT of RLBUHT under
sections 56A and 56AA of the National Health Service (NHS) Act 2006, but it
is being treated by the Parties as a merger of equal partners, rather than as
an acquisition. The key terms of the Merger will be set out in a Transaction
Agreement pursuant to which RLBUHT will be dissolved and its establishment
order revoked; all of the property and liabilities of RLBUHT will be transferred
to AUHFT; and RLBUHT employees will transfer to AUHFT. Following the
Merger, AUHFT will continue as an NHS Foundation Trust (FT
15. As with other NHS mergers, there is no consideration associated with this
6 In the financial year 2018/19 AUHFT’s income was £340 milion.
7 In the financial year 2018/19 RLBUHT’s income was £497 mil ion.
16. Each of AUHFT and RLBUHT is an enterprise and these enterprises will
cease to be distinct as a result of the Merger.8
17. The UK turnover of RLBUHT exceeds £70 million, so the turnover test in
section 23(1)(b) of the Act is satisfied.
18. The CMA therefore believes that it is or may be the case that arrangements
are in progress or in contemplation which, if carried into effect, will result in
the creation of a relevant merger situation.
19. The initial period for consideration of the Merger under section 34ZA(3) of the
Act started on 1 July 2019 and the statutory 40 working day deadline for a
decision is therefore 23 August 2019.
20. This section provides, first, a brief overview of the policy and regulatory
background relevant to the Merger, and to the role of competition in the NHS
generally; and second, an overview of the local health economy in which the
Parties are active. The implications of these factors for the Merger are
considered in the competitive assessment section.
Regulation and competition in the NHS sector
21. The Health and Social Care Act 2012 (the HSCA
) strengthened the incentives
for NHS providers to compete for patient referrals by maintaining and
improving the quality of patient care, with a view to making the NHS more
responsive, efficient and accountable.9
22. This section provides a brief overview of the policy and regulatory bodies
related to the Merger.
8 Section 79 (1) and (3) of the Health and Social Care Act (HSCA) 2012 state that where the activities of one or
more NHS foundation trusts and the activities of one or more businesses cease to be distinct, this is to be treated
as being a case in which two or more enterprises cease to be distinct enterprises for the purposes of Part 3 of the
Act. AUHFT is an NHS foundation trust.
9 The HSCA also established that mergers involving NHS foundation trusts were caught by the Enterprise Act
2002 and gave the CMA (and Monitor) the power to enforce the Enterprise Act 2002.
23. The Department of Health is responsible for the NHS, public health and social
care in England. It develops policy, introduces legislation and allocates
funding from HM Treasury to the NHS.
24. Clinical Commissioning Groups (CCGs
) are clinically-led bodies responsible
for the planning and commissioning of healthcare services for their local area.
CCGs commission most secondary care services (ie medical services
provided by specialists or consultants in a field of medicine, whether in a
hospital or community setting).
25. NHS England (NHSE
) is responsible for setting the direction of the NHS and
improving care. It is also the commissioner of primary healthcare services (ie
medical services provided by general practitioners (GPs
), dental practices,
community pharmacies and high street optometrists) and specialised tertiary
healthcare services (ie services provided in more specialised medical
centres), and is responsible for overseeing the operation of CCGs.
26. NHS Improvement (NHSI
) authorises and regulates NHS FTs, sets prices for
NHS services (the National Tariff) and supports commissioners. NHSI also
oversees NHS trusts in England, and assists and supports NHS trusts to
ensure continuous improvement in quality and the financial sustainability of
NHS services. On 1 April 2019 NHSE and NHSI came together to act as a
single organisation. [Please see End Note 1]
27. The Care Quality Commission (CQC
) is an independent regulator of
standards in health and adult care. It monitors services to make sure that they
are safe, effective, caring, responsive to patient needs and that providers are
well led. It carries out unannounced inspections and gives ratings of acute
28. In its competitive assessment of the Merger, the CMA has taken into account
how each of these bodies provide safeguards on hospital quality.
How competition works between NHS hospitals
29. There are two models of competition in the provision of NHS healthcare
services.10 These are competition for
the market to attract contracts to provide
services to patients, and competition in
the market to attract patients.
30. Although, in the main, providers are free to decide which clinical services they
will offer (including how much of their capacity to devote to each clinical area
10 CMA guidance on the review of NHS mergers (CMA29), paragraph 6.5 at Review of NHS mergers: CMA29 -
and the degree of specialisation that they offer), competition for the market
occurs as commissioners often use tenders to select providers11 that are best
placed to offer certain services to patients. Providers therefore have an
incentive to maintain their reputation for quality and value in order to
demonstrate their credibility and to maximise their chance of winning a
contract. These are often services with no or little patient choice and may be
elective or non-elective treatments.
31. NHS providers in England receive income by attracting patients for elective
treatments and maternity services.12 Historically, providers were paid at
uniform nationally-mandated prices (the National Tariff) for every consultation
or treatment made (in most services), based on PbR rules. The PbR payment
model has therefore given providers incentives to improve quality to attract
patient referrals from GPs.13 Patient choice and the introduction of incentives
for NHS providers to compete for patients have been the reasons why the
CMA has had a role in reviewing NHS mergers.14
32. However, as discussed in more detail below, current market conditions and
recent policy development have significantly limited the Parties’ incentives to
compete for elective patients. These policy developments are expected to
further decrease the role of competition in the NHS (and, in turn, the CMA’s
role in the review of NHS mergers) going forward.
Current policies in the NHS
33.  NHSI told the CMA that the changes in policy and payments regime
increasingly promote collaboration and diminish the role of competition to
such an extent that it is unlikely that NHS mergers could result in an SLC. An
overview of NHSI’s views is provided below.
34. Since the introduction of the HSCA in 2012, the challenges facing the NHS
have increased significantly. The increase in demand for NHS services – most
notably resulting from an ageing population and increases in long term
conditions – have put financial and operational pressure on the healthcare
system. In response to these challenges, NHSI and NHSE have introduced
new policies, which have shifted the focus towards encouraging performance
11 In this decision the terms ‘provider’ and ‘trust’ are used interchangeably.
12 NHS providers have to be accredited under the ‘Any Qualified Provider’ system
decision 2018, paragraph 38: Derby Teaching Hospitals/Burton Hospitals.
14 CMA guidance on the review of NHS mergers (CMA29), paragraph 1.3 at Review of NHS mergers: CMA29 -
improvements by promoting greater collaboration and away from competition.
[Please see End Note 2]
35. In October 2014, NHSE published the Five Year Forward View,15 which set
out vision for greater integration of services and cooperation between
providers. Although the Five Year Forward View did not set out exactly how
these changes should happen, it suggested some steps that could be taken to
support new ways of working, for example, allowing CCGs to move away from
the activity-based payments envisaged by the PbR reimbursement regime.
NHSI told the CMA that the Five Year Forward View received widespread
support from the healthcare sector and the government, suggesting that the
system designed by the HSCA was not working and not suited to meeting the
NHS’s challenges. NHSI noted that ‘there was no reference to competition in
the Forward View. The Forward View shifted the focus of improving NHS
services from incentives which facilitated competition to a future of increased
collaboration and integration
36. STPs were announced in December 2015 as the next step for implementing
the Five Year Forward View. STPs are made up of local commissioners, GPs
and NHS providers and present an opportunity for the commissioners and
providers to make decisions about local care together.
37. In January 2019, NHSE and NHSI published the NHS Long Term Plan (LTP
which sets out a comprehensive vision for moving the NHS to a new model of
service delivery based on even greater collaboration and integration between
health care providers than set out in the Five Year Forward View. This
includes introducing new local health system partnerships called Integrated
Care Systems (ICSs
) and changes to payment mechanisms and licensing.
38. The LTP announced that the STPs will be developed into ICSs by April 2021.
Like STPs, the intention is for ICSs to combine providers and commissioners
into an LHE with shared goals and shared decision making. ICSs will be
supported by more regulatory and contractual mechanisms – they will be
codified through contracts between partner organisations which should
redefine their relationships and incentives. While the exact details of how the
ICSs will work are still being finalised, NHSI told the CMA that key features
are likely to include the following:
each ICS will typically have a single CCG, which is expected to cover a
larger area than the footprints of the current CCGs. There will be a single
set of commissioning decisions for local health systems;
15 NHS Five Year Forward View (2014)
providers are likely to be bound into ICSs through potential new licence
conditions (subject to consultation) requiring them to take responsibility for
wider objectives in relation to the use of NHS resources and population
health and longer-term contracts that include clear requirements to
collaborate in support of system objectives;
ICSs will implement local contracts to enable collaboration, which could
include contracts which give a lead provider responsibility for integration
of services for population;
ICSs will agree system-wide objectives with NHSE and NHSI and be
accountable for their delivery; and
primary care networks will be members of ICSs, helping set the strategy
of a local area – this will enhance links between primary and secondary
providers. [Please see End Notes 3, 4 and 5]
39. How the LTP ambition and ICSs for the Liverpool area are envisaged to be
developed are outlined below where the CMA discusses the One Liverpool
40. NHSI told the CMA that competition is no longer an effective force for
performance improvement, both generally and in this particular LHE: ‘[
competition is not a suitable organising principle for NHS acute services and
is unlikely to incentivise quality improvements. Instead, these key
stakeholders have decided that organising the NHS around collaborative local
systems is the most suitable way to improve quality for patients
] we now
think that competition has reduced considerably since the introduction of the
Act and is to a large extent no longer an operative force for performance
improvement within the NHS’
41. NHSI told the CMA that ‘it is important to think of
[the LTP] as the effective
policy for how the structures and rules of the NHS will develop. We therefore
think that the LTP should be the primary policy document for assessing the
role of competition in the NHS
42. The CMA understands from NHSI that STPs and ICSs will change the
relationship between the NHS organisations in each local health area. After a
period where key policies in place were to promote competition between
trusts, the introduction of STPs and ICSs indicates a shift away from the
HSCA; these changes have removed the expectation that the trusts should
operate focusing on their own interests only and created an expectation that
the trusts should make decisions in a local system through collaboration and
partnership with commissioners and providers, balancing the needs of
different organisations to benefit patients. Additionally, these changes also
envisage increasing links between the provision of secondary and primary
care systems. Funding will also be made available to systems to deliver the
visions of the LTP. Therefore, NHSI states: ‘By 2021, all providers and
commissioners are expected to contract through ICSs. The intention is that
they will facilitate a collaborative approach that will drive improvements to
patient care. An intentional consequence of this is that providers and
purchasers no longer act in the manner required for competition to provide
effective incentives for performance improvement’
. [Please see End Note 6]
43. This means that providers and purchasers are no longer expected to contract
with each other through a simply transactional relationship, per the HSCA.
Rather, these reforms require them to develop strategies for the local health
economy and to create payment mechanisms to allow the realisations of such
strategies. NHSI told the CMA that this may affect the scope for competition
between the trusts in the following ways:
if providers internalise the budgetary impact of any revenue increases on
care purchasers, this is likely to dampen the providers’ incentives to
generate additional patient activity via performance improvement
(although they may continue to do so via other mechanisms); and
the future contractual mechanism in which neighbouring providers are
expected to work together to develop strategy and achieve improvements
in care quality may reduce the scope and incentive for providers to
increase their market share at the expense of their neighbours.
44. NHSI told the CMA that ‘our view is that the Forward View, STP and LTP
reforms promote collaboration and diminish competition to such a degree that
we think it is unlikely any hospital mergers should result in a significant
lessening of competition’
45. The CMA notes that similar sentiments about the trajectory of policy changes
and the role of competition in the NHS were expressed by the House of
Commons Health and Social Care Committee. For example, it recently
reported that ‘the current legislation was designed to encourage choice and
competition in the NHS, rather than collaboration. Since the NHS Five Year
Forward View, the NHS has had to use workarounds to overcome barriers
posed by the legislation’
16 ‘NHS Long-Term Plan: legislative proposals’, Fifteenth report of session 2017-19, 24 June 2019.
Other impacts on Trusts’ decision-making
46. The changes in the institutional environment discussed above have been
accompanied by a series of other changes to policy and incentives, which
have changed the decision-making process of the NHS providers and, in turn,
reduced their ability to respond to market incentives. This has had the
greatest effect on FTs (such as AUHFT).
47. Since 2013, a series of measures have been introduced which have
significantly affected the landscape in which FTs operate and has weakened
their incentives to compete for market share:
The Trust Development Authority (TDA
) and Monitor merged in June
2015 (creating NHSI), which reduced the difference in the regulatory
environment facing ordinary NHS trusts and NHS FTs, which has led to
the implementation of the Single Oversight Framework (SOF
). The SOF
was established in 2016 for measuring and managing the performance of
NHS providers, making no distinction between ordinary trusts and FTs,
meaning that both types of trusts were assessed in the same way. The
SOF is part of a regulatory shift towards a centrally-led performance
management and improvement support, rather than encouraging
providers to respond individually to economic incentives. [Please see End
Since financial year 2017/18, as NHS provider deficits became pervasive,
system ‘control totals’ (ie provider revenue) have been agreed between
NHS providers and NHSI. In late-2018, it was announced that the NHS
would move away from imposing control totals at the provider level, to
imposing them at the local health system (ie STP/ICS) level. NHSI told the
CMA that this change moves the NHS further away from the approach of
viewing NHS providers as individual market actors, towards a future in
which financial planning and decision-making is undertaken at local health
system level. The CMA believes that this policy development has reduced
provider incentives to compete (especially since an important element of
the FT framework was that FTs could invest any surplus revenue into the
NHSE and NHSI came together to act as a single organisation in April
2019. NHSI told the CMA that, while previously commissioners and
providers were regulated separately, the new regulatory framework has
been established to support the introduction of a collaborative system.
48. In addition, in order to support the implementation of the LTP, NHSE and
NHSI have proposed a number of changes to primary legislation which are
intended to accelerate the move away from a competitive market dynamic
towards a more collaborative dynamic, including:
removing mergers involving NHS FTs from the scope of the Enterprise
Act 2002, thus removing the CMA’s jurisdiction to review NHS mergers;
removing the concurrent powers of NHSI to enforce competition law;
giving NHSE and NHSI the power to direct NHS FTs to merge;
a requirement for FTs to seek NHSI’s approval to borrow capital for
investment purposes; and
permitting NHS providers and commissioners to form joint committees
with decision-making powers. [Please see End Note 8]
49. Although these changes and the timing for any changes are uncertain, they
clearly continue the trajectory of NHS policy that moves away from each trust
acting independently and toward a system of greater collaboration and
integration of healthcare providers within a local health economy. [Please see
End Note 9]
Use of block contracts by local commissioners
50. NHSI told the CMA that the changes in the payment regime have further
reduced incentives for competition between trusts. This has been done
primarily through reforms in the Five Year Forward View, STPs and the LTP,
which have reduced the link between activity and payments, focusing instead
on payments to develop integrated care and more suitable care for patients.
In this context, NHSI told the CMA that: [Please see End Note 10]
The shift away from activity-based funding (which is the basis of the PbR
system and which has provided much of the rationale for the CMA’s
involvement in NHS mergers) began with the Five Year Forward view,
which called for greater flexibility in payment mechanisms, including the
use of non-activity-based contracts (including block contracts). By
breaking, at least (in the CMA’s view) for the purposes of substantive
competition assessment the link between activity and revenue these
changes have substantially decreased the incentives for hospital trusts to
compete for patient referrals from GPs. [Please see End Note 11]
While the size of block payments is sometimes determined by historical
activity levels, leaving some incentives for performance improvement, and
a system of block contracts could accommodate some incentives to
compete, if selective contracting were present, any competitive incentives
link to page 7 link to page 12
would only exist where the block payment exceeds the cost of service
provision, which has mostly not been the case in recent years. These
fiscal constraints have led to a situation in which the ability to retain and
reinvest surpluses no longer gives rise to meaningful competitive
incentives, as for most providers there is no surplus to reinvest.
The LTP signals that the move away from activity-based reimbursement is
likely to accelerate over the coming years. The LTP does not refer to
payment mechanisms in terms of incentivising competition and proposes
to ‘move to a blended payment model
’,17 creating shared incentives for
providers and commissioners to work together to reduce avoidable
admissions and to ‘minimise transactional burdens and friction and
provide space to transform services
While many services are still paid on an activity basis, NHSI expects that
blended payments will become widespread going forward. This will further
reduce the trusts’ ability to unilaterally expand their capacity, as strategic
decisions, such as capacity changes, are likely to be made through ICSs.
51. NHSI told the CMA that, in addition to the policy changes discussed above at
severe capacity constraints currently faced by trusts
throughout England, including the Parties, further limit their abilities to
respond to competitive incentives.
52. For competition to provide effective incentives to compete on quality,
providers must have an incentive to increase their market share and have the
capacity to accommodate the additional patients. NHSI told the CMA that
capacity constraints have long been a characteristic of the NHS elective
care.18 While, in general, capacity constraints do not necessarily preclude
increases in production,19 the capacity constraints experienced by NHS trusts
in recent years make it increasingly difficult for them to identify additional
efficiency improvements that can be undertaken in order to accommodate
increases in activity.20
53. In addition, the sector has seen substantial shortages in the supply of doctors
and nurses, which constitutes another constraint on the providers’ capacity to
17 Ie partway between block funding and activity-base funding.
18 Capacity constraints are typical y measured by waiting times or by bed occupancy rates.
19 For instance, production may be increased even where capacity constraints exist where providers are able to
undertake efficiency improvements.
20 Capacity utilisation has increased, and operational performance has deteriorated on every available metric
since 2015. NHSI told the CMA that the increased utilisation of non-elective services by the ageing population is
likely to be a contributing factor for this trend.
accommodate additional patients that may result from quality improvements,
hence further limiting the scope for competition.
Competition in the Liverpool and north Mersey area
54. Both Parties are university teaching hospitals which provide general hospital
services to the city of Liverpool and the north Mersey area, and specialised
services regionally to Merseyside, Cheshire, North Wales and the Isle of
55. The main commissioner of acute care provided at AUHFT is NHS South
Sefton CCG, but services are also commissioned by a number of other CCGs
and a significant proportion of its income derives from NHS Liverpool CCG.
NHSE also commissions specialised services, health and justice services,
public health and secondary care dental from AUHFT.
56. The main commissioner of acute care provided at RLBUHT is NHS Liverpool
CCG, but services are also commissioned from a number of other CCGs.
NHSE also commissions specialised services, armed-forces services, public
health and secondary care dental services from RLBUHT.
57. A number of other providers of NHS and private patient services exist in the
areas where the Parties operate, notably (for NHS services) Southport and
Ormskirk Hospital NHS Trust, St Helens and Knowsley Hospital Services
NHS Trust and Liverpool Heart and Chest Hospital NHS Foundation Trust;
and (for private services) Spire Liverpool Hospital, Spire Murrayfield Hospital
in Wirral, Fairfield Independent Hospital in St. Helens, Nuffield Health Hospital
in Chester, BMI the Beaumont Hospital in Bolton and the Christie Private Care
in Manchester as well as other NHS trusts.
58. The Parties submit that Liverpool is characterised by poor health outcomes
and is among the areas with the highest rates of social deprivation and health
inequality in England. According to the NHS Liverpool CCG, 30% of
Liverpool’s population lives with at least one long term condition, which
presents the LHE with a significant challenge in providing the local population
with the right health and care services.
The One Liverpool initiative and local partnerships
59. In addition to the general submissions described above relating to the
decreasing role of competition between the NHS trusts and the effects these
changes have on the merging Trusts’ incentives to compete, the merging
Trusts submitted that the ‘One Liverpool’ initiative, a local plan to implement
national policies to work towards greater collaboration between trusts, has
also been put in place. This initiative aims to establish a more integrated
health and social care system in order to address increasing financial
pressures and clinical sustainability challenges faced by the trusts in the
60. The Parties submitted that the current service configuration where two
similarly-sized acute trusts co-exists within a city of the size of Liverpool leads
to a significant duplication of services across the Parties and does not meet
the strategic vision described in ‘One Liverpool’, and said that, in particular,
the fragmentation of services creates additional challenges associated with
the delivery of high-quality patient care.
61. In addition, both Parties belong to the north Mersey Local Delivery System
) – a component of Cheshire and Merseyside STP. The STP plans for 35
acute specialties to be reconfigured across AUHFT, RLBUHT and the
Liverpool Heart and Chest Hospital to establish single service, system-wide
services. This provides a good indication of the level of integration and
collaboration between providers in the local area.
The Parties’ submission on the role of competition in their activities
62. The Parties submitted that competition is no longer the key driver of quality in
Liverpool, because financial and other pressures have led to a number of
changes in the regulatory landscape. The Parties stated that these changes
overall have led to collaboration being considered the key driver of quality
improvements in the NHS and have substantially diminished the ability and
incentives for competition between NHS trusts and, in particular, the Parties.
They said that incentives for the Parties to compete have been dulled by the
The introduction of the Cheshire and Merseyside STP, aimed at enabling
decision-making based on clear clinical strategies and demand across the
entire system in the interests of the LHE, which has led to pathways and
services in the LHE being planned at the STP-level in order to minimise
costs and foster effective care across the healthcare system, which, in
turn, has limited individual trusts’ ability to make independent decisions in
relation to the services they provide.
The introduction of the SOF in 2016 to assess hospitals in terms of their
quality, finance, operational performance, leadership and improvement
capability and strategic change. The SOF segments providers on a scale
of 1 to 4, with 1 being the best and 4 being the worst. Each segment is
associated with a different degree of decision-making autonomy granted
to providers. In February 2019, nearly half (ie 70 out of 148 acute
providers) of providers were in segments 3 or 4 which implies limited
sovereign decision-making ability, and, in turn, less scope to compete for
patients through taking independent strategic initiatives.
With respect to the Parties, RLBUHT is currently assigned to segment 3
and, as a result, is currently subject to mandated interventions by NHSI
regarding finance, use of resources and operational performance. AUHFT
is currently assigned to segment 2 and has been offered targeted support
from NHSI relating to finance, use of resources and operational
performance, which it has accepted. The Parties submit that, given the
NHSI’s focus on collaborative service delivery, this further limits their
ability to make decisions in their own self-interest.
The use of block contracts as a means of payments to the Parties. Both
Parties operate under the Acting as One block contract framework,21
whereby payment and service provision are agreed across a number of
CCGs and providers. As with other block contracts, the payments to
providers operating under the Acting as One framework are largely fixed
regardless of patient volumes, thus greatly limiting their incentives to
attract additional patients from other providers.
63. The Parties submitted that, because of the facts set out above, any reduction
in competition as a result of the Merger will be very limited and therefore ‘a
higher threshold should be applied by the CMA compared to previous
mergers of NHS organisations
64. The CMA assesses a merger’s impact relative to the situation that would
prevail absent the merger (ie the counterfactual).
65. For anticipated mergers the CMA generally adopts the prevailing conditions of
competition as the counterfactual against which to assess the impact of the
merger. However, the CMA will assess the merger against an alternative
counterfactual where, based on the evidence available to it, it believes that, in
the absence of the merger, the prospect of these conditions continuing is not
21 Paragraphs 9.21 and 9.22 of the merger notice: ‘Under the Acting as One agreement (like other block contract
arrangements in the NHS), neither AUHFT nor RLBUHT has an incentive to take on additional patients, at the
margin. […] Providers operating under this contract (or other block contracts) where the amount paid to the
provider is fixed regardless of patient volumes wil have a lesser incentive to attract patient referrals than those
providers operating under a PbR arrangement, where an activity-based tariff is applied’
22 Paragraph 8.4 of the Accompanying submission to the merger notice.
realistic, or there is a realistic prospect of a counterfactual that is more
competitive than these conditions.23
66. The Parties submitted that it may be appropriate for the CMA, in its Phase 1
review, to use the existing level of competition as the benchmark against
which to assess whether the realistic prospect of an SLC test has been met in
one or more routine elective care specialties. The Parties also submitted that, [
changes to clinical services that involve increased collaboration would be
likely, given commissioner and NHSI support.
67. For the purposes of its assessment of the Merger, the CMA adopted the
prevailing conditions of competition as the relevant counterfactual. However,
in line with previous decisions, the CMA has taken into account the financial
and clinical difficulties24 faced by the Parties in its competitive assessment.
Frame of reference
68. Market definition provides a framework for assessing the competitive effects
of a merger and involves an element of judgement. The boundaries of the
market do not determine the outcome of the analysis of the competitive
effects of the merger, as it is recognised that there can be constraints on
merging parties from outside the relevant market, segmentation within the
relevant market, or other ways in which some constraints are more important
than others. The CMA will take these factors into account in its competitive
69. In line with past decisional practice, the CMA has adopted the following
approach for determining the relevant product frames of reference for its
assessment of the Merger:
Each specialty is considered a separate frame of reference and within
24 The Parties submitted that [
25 Merger Assessment Guidelines,
26 These delineations are applicable to both NHS and private patient services.
(i) the provision of elective services27 is a separate frame of reference
from the provision of non-elective services;28
(ii) within elective services, the provision of specialised services29 as a
separate frame of reference; and
(iii) within each of elective services and non-elective services, the
provision of outpatient (OP
) services is a separate frame of reference
from the provision of inpatient (IP
) services (the latter including day-
the provision of community services31 is a separate frame of reference
from services which are provided in hospital settings, although there may
be an asymmetric constraint from hospital-based to community-based
the provision of private patient services32 is a separate frame of reference
from services provided through the NHS.
70. In line with previous decisions, the CMA has adopted the following
(a) For elective services:
the CMA considers that the geographic frame of
reference is informed by GP patient referral information which indicates
that the Parties face their most relevant competitive constraints in the
Liverpool and north Mersey area; and
(b) For non-elective services:
the CMA considers that the geographic frame
of reference is informed by the willingness of patients to travel for
27 Planned specialist medical care usualy folowing referral from a primary or community health professional such
as a GP. Maternity and some paediatric services are also typical y included in this category, however since
neither of the Parties provide maternity or paediatric services, the CMA has not considered the provision of these
28 Services that are not scheduled, arising when admission is unpredictable because of clinical need (eg fol owing
an A&E attendance). Consistent with previous decisions, the CMA wil not further consider non-elective services.
29 Services in respect of rare, cost-intensive, or complex conditions as specified in NHSE’s ‘Manual of Prescribed
30 Some previous decisions have treated DC as a separate frame of reference, but based on discussions with
NHSI, the CMA has combined them with IP in this decision. The facilities and staff required to deliver both are
similar, and most DC treatments are also provided with an overnight stay, ie as IP treatments, at particular times
or by particular providers.
31 Services provided by care professionals in the community such as health visiting, district nursing, health
promotion drop-in sessions, residential care home visits, school nursing activities and community dentistry.
32 Care not funded by the NHS and instead paid for by patients or their insurers.
consultation or treatment, taking into account travel distance and travel
(c) For specialised and community services:
the CMA considers that the
geographic frame of reference is informed by the geographic scope of
relevant contracts and previous bidding contracts.
(d) For private healthcare services:
the CMA considers that the geographic
frame of reference is likely to be at least as large as for elective services.
In the Private Healthcare Market Investigation, the CMA found that the
average travel time for private hospital patients was just over 30
71. However, it has not been necessary to conclude on the exact geographic
frame of reference for any services provided by the Parties, since no
competition concerns would arise from the Merger with regard to these
services on any plausible basis.
Conclusion on frame of reference
72. For the reasons set out above, the CMA has considered the impact of the
Merger in Liverpool and the north Mersey area in each frame of reference,
taking into account the policy changes in the NHS which have diminished the
role of competition.
Horizontal unilateral effects
73. Horizontal unilateral effects may arise when one firm merges with a
competitor that previously provided a competitive constraint, allowing the
merged firm profitably to raise prices or to degrade quality on its own and
without needing to coordinate with its rivals.34 Horizontal unilateral effects are
more likely when the merging parties are close competitors.
74. Competition in the NHS takes place where patients have a choice between
NHS service providers, incentivising providers to improve quality. Mergers
between providers of NHS acute services may dampen this incentive if they
remove a significant alternative for patients, resulting in lower quality.35
33 Private Healthcare Market Investigation Final Report,
2 April 2014, footnote 52.
34 Merger Assessment Guidelines,
from paragraph 5.4.1.
35 CMA guidance on the review of NHS mergers (CMA29), paragraphs 1.5 and 6.48 at Review of NHS mergers:
CMA29 - GOV.UK.
Examples of clinical factors include infection rates, mortality rates, ratio of nurses or doctors
to patients, equipment, best practice. Examples of non-clinical factors include cleanliness and parking facilities.
The existing competitive landscape in the sector
75. In any merger control investigation, the CMA will assess the extent and nature
of current (or pre-merger) competition. The current status of public policy
choices about the role of competition within the provision of healthcare
services is therefore a particularly relevant factor in the review of NHS
76. The CMA recognises that the Parties are public service providers that operate
in a heavily regulated environment, with numerous safeguards overseen by
the CQC and NHSI, as well as the local CCGs. This regulation limits the
extent to which competition can affect the quality and range of healthcare
77. In recent decisions on NHS mergers, the CMA has found that current policies,
such as the introduction of the Five Year Forward View and the STPs, had
encouraged greater levels of collaboration and collective responsibility in the
provision of NHS services within LHEs. In these decisions, the CMA found
that these policy developments, combined with increased financial and
capacity constraints, had led to a reduced emphasis on competition and
concluded that regulation and available capacity might determine behaviour
more than competition, especially in the delivery of NHS elective services
(although the delivery of other services will also be affected). Nevertheless, in
these previous decisions the CMA ultimately considered that, notwithstanding
these developments, sufficient scope for competition remained to be worthy of
consideration for merger control purposes.
78. The evidence available in this case is that the continuation of the direction of
national policies combined with local factors (such as the use of block
contracts) has substantially reduced the effectiveness of competition as a
means of organising the provision of NHS services in the Liverpool area.
79. In light of the facts described above, the CMA believes that the role for
competition between NHS providers (including the Parties) is significantly
diminished. The consequences for the effects of the Merger are discussed
Competitive assessment by service type
80. Historically, competition in the NHS within England takes place where patients
have a choice between NHS service providers which aims to incentivise
providers to improve quality. Mergers between providers of NHS acute
link to page 7 link to page 12 link to page 14
services may dampen this incentive if they remove a significant alternative for
patients, resulting in lower quality.36
81. The CMA assessed the impact of the Merger in each frame of reference,
taking into account the policy changes in the NHS (explained in paragraphs 32
above) which have diminished the role of competition.
82. In assessing the impact of the Merger in elective services, the CMA took into
account the evidence on the role of competition in the wider NHS as
discussed above; the Parties’ internal documents; the views of CCGs in the
LHE; that all the Parties’ revenue for NHS elective services was from block
contracts; capacity constraints; and the presence of alternative providers for
patients in the Liverpool and north Mersey area.37
83. The CMA found that the Parties’ ordinary course internal documents (such as
the Parties’ board papers) generally support the position that collaboration,
rather than competition, is the primary driver of the Parties’ activities, and
found limited evidence to suggest that the Parties’ decision-making has been
influenced by each other’s activities.
84. The CMA has further considered the impact of the increased role of provider
collaboration and financial constraints faced by the Parties on their incentives
to compete. As part of this assessment, the CMA has also taken into account
the context of the LHE, including the challenges that the Parties face and the
approach taken by the CCGs and other NHS acute providers, as well as the
state of public health in Cheshire and Merseyside areas. These
considerations provide important background for understanding the much
reduced role of competition and for assessing the potential impact of the
85. The CMA considers that while historically the PbR payment model has given
NHS service providers incentives to improve quality to attract additional
patient referrals, recent developments described above indicate that the role
of competition has diminished further since the CMA’s previous investigations,
especially those pre-dating the Five Year Forward View.38 Competition is
36 CMA guidance on the review of NHS mergers (CMA29), paragraphs 1.5 and 6.48 at Review of NHS mergers:
CMA29 - GOV.UK.
Examples of clinical factors include infection rates, mortality rates, ratio of nurses or doctors
to patients, equipment, best practice. Examples of non-clinical factors include cleanliness and parking facilities.
37 See paragraph 58.
38 In particular, Bournemouth/Poole: Royal Bournemouth and Christchurch Hospitals NHS Foundation
Trust/Poole Hospital NHS Foundation Trust
(2013) and Manchester Hospitals
: Central Manchester University
Hospitals/University Hospital of South Manchester
link to page 13 link to page 13
therefore no longer is the key organising principle of the NHS as the 2012
reforms and the HSCA envisaged it to be.
86. Even if some scope for competition in a form of remaining PbR agreements
remains, the CMA considers that the proportion of activity governed by block
contracts has been increasing significantly over the past few years, at the
expense of PbR agreements, and this trend is expected to continue going
forward. In addition, the fiscal constraints faced by the majority of trusts
coupled with ongoing capacity and workforce shortages have led to a situation
in which the ability to retain and reinvest surpluses no longer provides
meaningful competitive incentives,39 and it is not believed that the situation
will change in the near future.
87. Both Parties earn the majority of their revenue from block contracts.40 In
2018/19, AUHFT received [
of its revenue from block contracts, and
. Importantly, all elective activity was remunerated through block
contracts at an agreed level, thereby dampening very substantially the trusts’
incentives to compete for additional patients.
88. The CMA notes that the views expressed by the Parties’ co-ordinating CCGs,
the NHS Liverpool and the NHS South Sefton CCGs, confirm the growing role
of collaboration between the trusts in the Cheshire and Merseyside STP. The
CCGs have also confirmed [
.41 They have also indicated that the main
driver of patient choice was not the quality, but location; and did not expect
the Merger to have any real effect on competition or choice, especially given
that the services will continue to be provided across both Parties’ sites.
89. The CMA considers that the One Liverpool initiative means that the extent of
competition that may have existed between the Parties in the past would have
been further diminished in the future.
90. As discussed at paragraphs 51
above, the NHS as a whole is facing
capacity constraints. The Parties submitted a number of specific examples of
capacity constraints due to a combination of increased volume of treatments
required, infrastructure issues and staffing shortages. While some of these
constraints may be transitory, the overall picture is consistent with a situation
where the Parties have limited ability to treat additional patients overall, which
would reduce any incentives to attract additional patient referrals. The CMA
notes that, due to the interconnected nature of resources to treat patients
39 For example, most trusts have neither the capacity/workforce to accommodate additional patient volumes nor
any surpluses to reinvest in order to improve the quality of services.
40 Block contracts are types of contracts where payments do not vary with fluctuations in the level of activity, but
instead pay a fixed sum of money. This is unlike the PbR reimbursement regime which paid a fixed a price per
treatment that exceeded the costs of production for most providers.
between elective and non-electives services, and to a lesser extent across
specialties, there are unlikely to be significantly different incentives in
individual elective specialties.
91. Based on the evidence described above, the CMA considers that competition
is not a key driver for making operational decisions in the Liverpool and north
Mersey area and, consistent with both national policy and local planning, is
unlikely to play a significant role in setting standards for elective services in
the foreseeable future. Therefore, the CMA considers that the Merger will not
affect the Parties’ incentives or behaviour in the provision of elective services.
Accordingly, the CMA considers that the Merger will not give rise to a realistic
prospect of an SLC in the supply of elective services.
92. In previous cases,42 the CMA found that there was no material competition
between providers in non-elective services. Most patients either attend via
ambulance or attend their nearest A&E department, meaning there is limited
active patient choice. The CMA has also not seen evidence that the quality of
non-elective services is a significant driver of any residual choice. In addition,
the CMA found that payments to trusts for non-elective services are subject to
a ‘marginal rate tariff’, under which providers who go beyond a baseline level
are paid at a marginal rate for each additional patient treated. This funding
formula dampens trusts’ incentives to go beyond their baseline level, meaning
that the Parties have less incentive to attract patients for non-elective services
than they do for elective servicers. The evidence available to the CMA is
consistent with the same finding in this case.
Private Patient services
93. The Parties overlap in a number of private patient specialities, however with
the exception of ophthalmology, private patient services account for only a
marginal part of the activity seen at the merging Trusts,43 and activity in
individual frames of reference is minimal.44 Accordingly, the CMA has limited
its analysis to the provision of private ophthalmology services only. The
42 University Hospitals Birmingham/Heart of England: University Hospitals Birmingham/Heart of England
Derby/Burton: Derby Teaching Hospitals/Burton Hospitals
(2018). Bournemouth/Poole: Royal Bournemouth and
Christchurch Hospitals NHS Foundation Trust/Poole Hospital NHS Foundation Trust
(2013) and Manchester
: Central Manchester University Hospitals/University Hospital of South Manchester
43 AUHFT’s total private patient income in 2017/18 was £1.6 mil ion, representing 0.46% of its total income during
that period. During the same period, RLBUHT’s income associated with the provision of private patient services
was £0.5 mil ion, representing 0.13% of its total income. The Parties submit that RLBUHT does not have
dedicated private patient facilities and as a result sees only limited number of private patients.
44 This applies to RLBUHT, which typical y sees less than six patients per specialty per annum.
evidence shows that other providers offer a greater volume of private
ophthalmology services and will continue to constrain the Parties post-
94. For the reasons set out above, the CMA considers that the Merger will not
give rise to a realistic prospect of an SLC in relation to the supply of non-
elective or private patient services.
95. For specialised services and community services, providers compete for
market, via tenders to obtain contracts with commissioners to provide such
services to patients. The CMA examined whether the Merger was likely to
remove an important alternative for commissioners.
96. While both Parties provide specialised services, there appears to be a lack of
overlap, and no evidence of competition between the Parties when bidding for
the provision of specialised services, and the evidence is consistent with the
interaction between the Parties being collaborative in nature. The Parties
provide different specialised services. The only areas of potential overlap
between the Parties are the provision of specialised orthopaedics (provided
as part of specialised trauma services at AUHFT and as part of specialised
surgical services at RLBUHT) and specialised cancer services (although the
Parties appear to focus on different sub-specialties within this group). During
the past three years, the Parties bid for four specialised service contracts: in
three of the four tenders the Parties submitted joint bids and only RLBUHT
participated in the fourth tender.
97. Neither Party is currently commissioned to provide community services and
have not bid against each other for community services within the last three
years. The Parties explained that they have only participated in one tender for
community services during the last three years, where they submitted a joint
bid to provide community services that had been provided by Liverpool
45 Other nearby providers of private patient services include Spire Liverpool Hospital, Spire Murrayfield Hospital
in Wirral, Fairfield Independent Hospital in St. Helens, Nuffield Health Hospital in Chester, BMI the Beaumont
Hospital in Bolton and the Christie Private Care in Manchester as wel as other NHS trusts such as Wirral
University Teaching Hospital NHS Foundation Trust. All but Christie Private Care in Manchester also provide
private ophthalmology services.
46 Third-party responses did not indicate that the Parties were considered as particularly strong providers of
private ophthalmology services and showed that a large number of alternative providers offering credible
alternatives wil remain post-Merger; and no relevant competition concerns were raised by third parties.
link to page 24
Community Healthcare NHS Trust as part of the dissolution of that
organisation in 2017.
98. For the reasons set out above, the CMA considers that the Merger will not
give rise to a realistic prospect of an SLC in relation to the supply of
specialised and community services.
Conclusion on horizontal unilateral effects
99. For the reasons set out above, the CMA believes that it is the case that the
Merger may not be expected to result in a an SLC as a result of horizontal
unilateral effects in relation to the provision of elective, non-elective, private,
specialised or community services. Accordingly, the CMA found that the
Merger does not give rise to a realistic prospect of an SLC as a result of
horizontal unilateral effects in relation to any frame of reference.
Third party views
100. The CMA contacted Liverpool CCG and South Sefton CCG. Both CCGs
support the Merger. The CMA also sent an Invitation to Comment to other
CCGs and NHS providers in the Liverpool and north Mersey area as well as
to NHSE. Only NHSE responded to the Invitation to Comment, expressing its
support for the Merger. The CMA also contacted providers of private services
in the Liverpool and north Mersey area.47
No relevant competition concerns
were raised by third parties about the Merger.
101. Third party comments have been taken into account where appropriate in the
competitive assessment above.
102. Consequently, the CMA does not believe that it is or may be the case that the
Merger may be expected to result in an SLC within a market or markets in the
103. The Merger will therefore not be referred
under section 33(1) of the Act.
47 See footnote 46
Senior Director, Mergers
Competition and Markets Authority
22 August 2019
Following publication of the Long Term Plan, NHS England and NHS Improvement
continue to develop its proposed policies, including further engagement with the
sector. NHS England and NHS Improvement have also consulted on the legislative
proposals contained in the Long Term Plan. As a result, NHS Improvement informed
the CMA that this consultation may influence the final plan and requested a number
of clarifications to its position set out in the following End Notes. These adjustments
do not materially change the substance of this decision. At the time of the CMA
decision, NHS England and NHS Improvement had not published the final legislative
1. Paragraph 26, first sentence: ‘supports commissioners’ should be ‘supports
2. Paragraph 34, first sentence: ‘Since the HSCA in 2012’ should be ‘Since the
implementation of the HSCA in 2013.
3. Paragraph 38, second sentence: ‘combine’ should be ‘bring together’ and ‘with
shared goals’ should be ‘to formulate shared goals’.
4. Paragraph 38(b): replace paragraph with ‘providers are likely to be required to
take responsibility for wide objectives in relation to use of NHS resources and
population health, under the conditions of their licence’.
5. Paragraph 38(c): ‘ICSs will implement local contracts’ should be ‘ICSs will oversee
the implementation of local contracts’.
6. Paragraph 42, NHSI quote: ‘contract through ICSs’ should be’ contract through an
7. Paragraph 47(a), first sentence: ‘merged’ should be ‘formed a single organisation’.
Second sentence: ‘and managing the performance of NHS providers’ should be ‘and
performance oversight of NHS providers’.
8. Paragraph 48: NHSI told the CMA that the proposed changes to legislation are not
final recommendations which will be published in due course.
9. Paragraph 49: This is the CMA’s view.
10.Paragraph 50, second sentence: ‘reforms’ should be ‘policies’.
11.Paragraph 50(a), first sentence: NHSI told the CMA that the PbR system was
replaced by the national tariff from 2014. This sentence should be replaced with:
‘The shift away from activity (which is the basis of the national prices under the
national tariff) began with the Five Year Forward View, which called for greater
flexibility in payment mechanisms (including, but not limited to the use of non-activity