0 5 10 15 20 25 Sou th E ast Londo n East of En glan d Sou th W est We st M idlan ds Yor kshi re a nd T he H um ber East M idland s North We st Wa les Scot land No rth East United Kin gdom
65Proportion of Population Covered by PMI & self-insured medical expenses schemes (PMI
Penetration) 2010 (%) Source: Target Group Index, Kantar Media, Quarter 2 (January 2010- December 2010); in Keynote, Private Healthcare, 2011
4
MARKET DEFINITION
Introduction
4.1 It is widely acknowledged that assessing the likely PH product and geographic market definitions is a difficult task. This is due to two main characteristics of the PH sector:
• heterogeneity of patients and PH facilities—patients' preferences, such as willingness to pay or willingness to travel to different PH facilities may differ between patients, while facility characteristics can differ by, for example, location or quality of service
• lack of PH patient treatment price-sensitivity—the majority of patients fund their treatment through PMI, and are therefore insensitive to immediate increases in the price of treatment.
Therefore, any market definition technique that relies on the patient's reaction to price is unlikely to capture the market accurately. 66
4.2 The OFT has not striven in this market study to arrive at conclusions on the definition of the relevant product and geographic markets concerned, as the OFT does not consider this to be necessary for an examination of the features as prescribed by the OFT's Market Investigation References guidance. 67
66 Given some of the theoretical and methodological difficulties in defining markets for private
healthcare, the OFT commissioned the economic consultants Oxera to undertake a literature review and assessment of the techniques for defining markets in private healthcare so that this may of use for future competition analysis. The findings of this report are reviewed in this chapter. Oxera, Techniques for defining markets for private healthcare in the UK, 2011
67 Market Investigation References – Guidance about the making of references under Part 4 of
the Enterprise Act (March 2006). 'In making a market investigation reference to the CC, the OFT
must specify the goods or services for whose supply or acquisition competition is adversely affected. This will require some consideration of the definition of the relevant market.' The guidance provides further that '[t]he effects on competition of some feature may be clear enough that firm conclusions on the definition of the relevant market by the OFT are unnecessary'. See: www.oft.gov.uk/shared_oft/business_leaflets/enterprise_act/oft511.pdf
4.3 Rather, the OFT has sought to assess the relevant competitive
constraints operating on the supply of PH that form the basis of likely product and geographic market definitions.
4.4 In line with previous OFT and CC merger decisions, the OFT considers the product market is likely to be the provision of privately funded healthcare services in the UK. These are provided to patients via private facilities/clinics including PPUs, through the services of consultants and medical professionals who work within these facilities.68
4.5 In terms of extending the product market, the competitive constraint provided by PPUs varies based on the size of the PPU, the reputation of the NHS facility it is attached to, and the support it receives from local consultants. In some local markets, PPUs are likely to form part of the relevant product market.
4.6 The geographic market appears to be primarily national and local in nature. However, the OFT considers that there may be some regional aspects to competition, mainly for corporate PMI policyholders who are based in particular regions. For the purposes of this market study local markets have been defined using 30-minute drive time isochrones, centred on PH facilities.
4.7 As part of this market study, the OFT commissioned the economic
consultants Oxera to produce a report assessing the different techniques for defining markets for PH in the UK (OFT market definition report).69
While the OFT market definition report was commissioned as part of this market study, this report has wider value for the OFT, CC and other bodies in any future studies of this market and in any future merger
68 Previous OFT and CC merger decisions: (i) Completed acquisition by General Healthcare Group
of control of four Abbey hospitals and de facto control over Transform Holdings Limited previously part of the Covenant Healthcare Group, October 2010; (ii) Completed acquisition by Spire Healthcare Limited of Classic Hospitals Group Limited, July 2008; (iii) Completed
acquisition by General Healthcare Group of assets of Nuffield Facilities, May 2008; and (iv) British United Provident Association Limited and Community Hospitals Group Plc: A report on the proposed merger; and British United Provident Association Limited, Salomon International LLC and Community Hospitals Group Plc; and Salomon International LLC and Community Hospitals Group Plc: A report on the existing mergers, December 2000.
cases. This report mainly focused on local geographic market definition because Oxera found that much of the academic literature and case law on PH market definition has focused on quantifying the local geographic element of market definition.
4.8 The OFT market definition report has found that there are a number of ways to define local PH markets, each of which may be appropriate in different circumstances. A brief discussion of the appropriateness of these different techniques for defining local PH markets can be found in the geographic market section of this chapter.
4.9 This chapter summarises the previous relevant market definitions used by the OFT and CC in recent merger cases, the analysis presented in the OFT market definition report, the related evidence received in the course of this study and includes an assessment of the relevant competitive constraints that operate in the provision of PH. This chapter has two sections. These are: