How forcefully can the @OFTgov reign in #NHS anti-competitive procurement?

In his speech about Competition in Public Services, the Chief Executive of the Office of Fair Trading (OFT) has expressly mentioned the need to address market design issues in the current reform of the provision of public services and, more specifically, healthcare services. It is worth noting that the OFT considers that:

Market design needs to flow from the public policy objectives intended from opening up a market.

For example, in health it has been considered necessary to fix price tariffs and allow competition to focus on quality to avoid competition focusing on price at the expense of quality. In this context, quality is partly about clinical outcomes, partly about other things like access and service.

But articulating clear objectives can be difficult when the purpose of introducing choice and competition itself varies: sometimes to address concerns about quality, choice or innovation; in others to reduce costs. Weighing up these points is an important first step in market design (emphasis added),

As should be expected, it looks like the OFT's approach to the reform of healthcare provision is based on the premise that competition is still the best mechanism to achieve the desirable levels of quality. And this seems difficult to reconcile with the provisions of the National Health Service (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013, which (as briefly discussed here) precisely allow NHS commissioners to engage in anti-competitive behaviour (ie in distortions or restrictions of competition) in order to achieve desired quality improvements.

With this in mind, it looks difficult to reconcile the substantive guidance given by the sectoral regulator Monitor--which has advanced that qualitative assessment is not a mathematical exercise and that quality improvements can justify reductions in competition (although some marginal competition is expected to be protected)--with the warning issued by the OFT, which Chief Executive has stressed that it will seek direct enforcement of the competition provisions in the healthcare sector where appropriate, as its recent enforcement track record shows, since:

For example, last summer we secured voluntary assurances from eight NHS Hospital Trusts that they will no longer exchange commercially sensitive information about their Private Patient Unit (PPU) prices, to ensure they comply with competition law. We have urged all Trusts to take steps to ensure compliance with competition law when engaging in commercial activity.

One can wonder whether this type of enforcement activities will still be possible when NHS commissioners argue that their anti-competitive behaviour is justified on the basis of Regulation 10(1) of the 2013 Procurement, Patient Choice and Competition (No. 2) Regulations, since it was carried out in the patients' interest, measured in qualitative terms.

Enforcement of competition law in this area is growing more and more complicated precisely at a moment where the reform of the provision of public services may have a significant impact on market structure and competitive dynamics. Therefore, it is to be welcome that the OFT has prioritised this area in its strategic plan for 2013-14 and that this focus is likely to gain equally important strategic relevance for the future Competition and Markets Authority. 

However, closer coordination with the sectoral regulator Monitor may be necessary at this point in order to prevent sending mixed messages to the actors in the field and, more importantly, to prevent situations where an excessively broad interpretation of regulatory exclusions of competition could take place. The market structure resulting from the current wave of public sector reform is likely to influence market dynamics for a relatively long time in the future and, consequently, getting the process right is of utmost importance.

An interesting reminder on institutional culture and public service commitment: First speech by Clive Maxwell, new OFT's Chief Executive

The new Chief Executive of the Office of Fair Trading, Clive Maxwell, gave his first speech on 10 September 2012 at the RPI Annual Competition and Regulation Conference (http://www.oft.gov.uk/shared_oft/speeches/2012/0612.pdf). Even if he will only hold this post for about two years due to the already launched and significant reform of the UK's competition enforcement bodies (ie the establishment of the Competition and Markets Authority, which will take on the competition, markets and remaining consumer functions of the OFT plus all of those of the Competition Commission), I think that his speech is an interesting reminder of institutional culture and public service commitment that deserves praise and diffusion.

One of the keys to a strong delivery culture is to invest in people and their skills. Only then can we efficiently deliver high impact, outcomes across our portfolio. This is a critical issue not just for the OFT but for regulators more generally, and one that may get overlooked in the rush to discuss processes and procedures

I care about how we choose what we do, how we achieve change for the better in the real world most efficiently and effectively.

I led an ‘enforcement debate’ at the start of 2012 within the OFT, to identify what we at the OFT do well and less well, and the challenges we face in doing it even better. We also discussed these issues with similar bodies in the UK and abroad. I was especially struck that we need to look outside the competition and consumer community and more generally at the way in which other authorities – such as the FSA, the Serious Fraud Office and Her Majesty’s Revenue and Customs – tackle what are broadly similar challenges in addressing wrongdoing by businesses and individuals.

The conclusions to this work included three points:

• The importance of skills.

• The need for the right attitude –or culture– for successful enforcement work.

• The importance of intelligence.

What does this all show?For me, there are three important points to all of this.
The first is that while it is right that any agency needs to work hard at its processes and procedures, the skills and culture of the people in the organisation is at least as important. I believe that some of the potential for sharing such ideas between authorities remains to be exploited further. It is also the case that tackling this requires putting your money where your mouth is – skills development is an investment and it is important to recognise that this costs money. [...]
The second is that even where we are facing big organisational changes and uncertainty it is important to continue to invest time and effort doing things better. [...]
The third is that in running agencies such as the OFT it’s really important to continue to review how we do things, to experiment where needed, and to learn lessons from our own and others’ experiences. 

I hope that the observations I have made have some relevance to the challenges your organisations are facing. For me, delivery is about people and commitment, as well as processes, and we must not forget that our staff are the major driver of our organisations’ success

I think that this is a reflection of the instutional culture present in most market regulators (broadly understood) in the UK, and an important ingredient in the recipe for a smooth transition to the new institutional framework for competition law enforcement.

It seems to me too that there are many lessons to be learned by other competition authorities immersed in enforcement architecture redesign, such as the Spanish National Competition Commission–which remains in a state of shock since a reform similar to the UK's was hinted at in the last Spring.

FSA fines Barclays in LIBOR / EURIBOR misconduct case: does it prevent competition law fines?

I have just seen a tweet by Angus MacCulloch (@AngusMacCulloch) where he wondered whether the FSA case against Barclays for misconduct relating to the London Interbank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (EURIBOR) (two key bank interest rates that influence the cost of loans and mortgages) would preclude an OFT investigation into possible cartel offences, since Barclays has been fined for conduct that involved other financial entities as well (see http://tinyurl.com/FSABarclays).

The question is highly relevant, since Barclays is said to have sought whistleblower immunity before the European Commission (as mentioned by Andrew Ward also on twitter, @ARWardMadrid), while it has settled the case with CFTC and DoJ. In general terms, the case raises (once again) the hard issue of the limits and overlaps between competition law and sectoral regulation--which remains an open issue with far reaching implications.

In general, it looks like the EU holds a very tough approach that requires the simultaneous, concurrent application of sectoral regulation and competition law, at least as long as the (dominant) undertakings retain some degree of discretion or room for maneuvre that would have allowed them to avoid a breach of competition law while competing within the limits set by the sectoral rules--as set in the field of art 102 TFEU by the 'ADSL saga' of the Court of Justice of the European Union [the next chapter to be delivered in the pending appeal C-295/12 P - Telefónica and Telefónica de España v Commission].

That is, complying with sectoral rules is not an antitrust defence if, within the same regulatory framework, the undertaking could have behaved procompetitively or, at least, could have avoided a breach of the competition law provisions of the TFEU. To be sure, this case law assumes that there is a clash between competition law goals and not sectoral regulation itself, but the understanding and strategic behaviour of (dominant) undertakings subjected to regulation--and ultimately, somehow, seems to blame undertakings under the (implicit) principle of the 'special responsibility' derived from market dominance and a more general duty to 'analyse and comply with' sectoral regulation in a procompetitive manner.

Per comparison, the US has a more lenient approach that tends to prevent overlaps and double enforcement of competition and sectoral rules, as long as undertakings meet the test set by the US Supreme Court decision in Credit Suisse v. Billing [127 S.Ct. 2383 (2007)]-- which requires a sectoral watchdog to be properly working and exercising its regulatory powers, and undertakings to behave within the limits set by sectoral regulation and the watchdog's decisions. Therefore, undertakings are 'off the hook' if their (possibly more competitive) conduct has been effectively overseen and approved by the sectoral watchdog. 

Under the US approach, it seems clear that, in a simplified manner, competition law should be adjusted (ie, reduced) when its application in regulated sectors could defeat the purpose and objectives of sectoral regulation (particularly, because it would impose a second check on market activities that were mandated by the sectoral regulator, diminishing legal certainty due to a potential squeeze between ex ante regulatory tools and ex post competition enforcement). If this is the case, then it may even be necessary to go so far as to refrain from applying competition law at all in regulated industries if the allegedly anti-competitive practices have been the object of specific regulation and effective supervision by the sectoral agency. But only in those cases.

In my opinion, regardless of the significant difference in approach at both sides of the Atlantic, there is nothing to be found in EU or US case law that suggests that there is a 'blanket competition law immunity' for market activities carried out in regulated industries. 

Hence, it is relevant to distinguish the LIBOR / EURIBOR case from existing case law in the EU and the US because the behaviour in this particular instance was in breach of sectoral regulation and, consequently, compliance with sectoral rules cannot be claimed as a defence by Barclays or other financial institutions that have similarly misconducted.

Moreover, price-fixing cartels are at the core of competition law prohibitions and fully in line with sectoral regulation, which cannot and does not require price-fixing agremeents (but, on the contrary, tends to promote competition by bridging gaps left by potential insufficiencies of 'natural' competitive pressure). Therefore, there is no potential clash between the goals of sectoral regulation and 'general' antitrust rules--and, consequently, no apparent spill-over or unintented consequences derived from the joint enforcement of both sets of rules.

The only concern that may be left to consider is the aggregate amount of the fines finally imposed, in order to deter overdeterrence and to avoid jeopardising the viability of entities already in a difficult financial situation (so that competition law fines do not require bail outs, for instance). In that regard, competition authorities (the European Commission, OFT, or others within the ECN)  should probably take into consideration the fines already paid to the financial supervision agencies, in order to adjust the level of the competition fines they intend to impose on the banks.

But, as a whole, the case seems to be sufficiently distinct from prior instances where the overlap between regulation and competition law has been analysed by the CJEU, and there seems to be no good reason to refrain from conducting full-fledged competition law investigations and, if deserved, to impose (adjusted) competition law fines.