ST. MARTIN’S CONFERENCE 2018

Currenttrendsanddevelopmentsincompetitionlaw:

PanelIII:Competitioninthehealthcaresector

HassanQaqayaSeniorfellow,MelbourneLawSchool

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Content§ Introduction

§ ThemeaningofUndertakingintheEU

§ Theconceptandorganisation ofPublicundertaking

§ Identifyingeconomicandcommercialactivities

§ Exerciseofpublicpowers

§ Purchasesofgoodsandservices

§ Publicservices

§ Socialactivityandsolidarity

§ ExclusionfromEUcompetitionlaw

§ Servicesofgeneraleconomicinterest

§ EnforcementofEUcompetitionlaw

§ AdvocacybyEUNCA2

The Importance of the health sector in the EUDefinitions:

The“healthcaresector’ isdefinedas‘aneconomicandsocialsectorconcernedwiththeprovision,distributionandconsumptionofhealthcareservicesandrelatedproducts’.

Healthcareservicesandrelatedproductsisabroadconcept.Itencompasses‘anyinterventionthatmaybeusedtopromotehealth,toprevent,diagnoseortreatdiseaseorforrehabilitationorlong-termcare.Thisincludespharmaceuticals,medicaldevices,proceduresandorganisationalsystemsusedinhealthcare.

See,‘HealthTechnologyAssessment(HTA)Glossary’,Firstedition.Stockholm:editedbyTopfer,L.A.,andChan,L.onbehalfoftheInternationalNetworkofAgenciesforHealthTechnologyAssessmentINAHTASecretariat,2006.

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Importance of the Health sector in the EU ThecitizensoftheEuropeanUnionspendmorethan1trillioneuroayearonhealthcare.Thisincludes‘anyinterventionsthatmaybeusedtopromotehealth,toprevent,diagnoseortreatdiseaseorforrehabilitationorlong-termcaresuchaspharmaceuticals,medicaldevices,proceduresandorganisationalsystemsusedinhealthcare.

InTheEUthehealthcaresectorisorganisedinintricateandcountry-specificsystemsinwhichthegovernmentsholdcompetenceinthefieldofhealthpolicy.Rolesandresponsibilitieswithinthehealthcaresectoraresplitbetweenregulators,payers,healthcareproviders,theindustry(suppliers)andpatients(consumers).

Healthservicesareuniqueamongpublicservicesoneconomicgroundsduetothecomplexityanddifficultyofovercomingmarketfailures,andonpublicinterestgroundsduetothefundamentalimportanceofhealthcare.

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Indicatorsofthehealthcaresystem2010 Slovakia EUaverage

Totalhealthexpenditureas%ofGD

Publicexpenditureas%oftotalhealthspending

Privateinsuranceas%oftotalhealthspending

Private-out-of-pocketas%oftotalhealthspending

9%

64%

0%

26%

9%

73%

4%

21%

OrganisationofthehealthcaresystemSocial insurance or tax-based system?Gatekeeping by a general practitioner (GP)?How are physicians paid? (e.g. salary, fee-for-service, capitation)

Patientorganisationinvolvement(3=good,2=intermediary,1=not-so-good)

SocialinsurancecompulsoryCapitation

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5SourceStudyonCorruptionintheHealthcareSectorHOME/2011/ISEC/PR/047-A2October2013EuropeanCommission– Directorate-General Home Affairshttps://ec.europa.eu/home-affairs/sites/homeaffairs/files/what-is-

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Sub-discipline Weight (Red = full score)

Doing well

Patient rights, information and e-Health 125 Netherlands, Norway

Waiting times / Access 225 Switzerland, Slovakia

Outcomes 289 Finland, Norway

Range & Reach of services provided 125 Netherlands, Sweden

Prevention 119 Norway

Pharmaceuticals deployment 89 Germany, Netherlands

EHCI 2017 sub-disciplines

EU HEALTH POLICY Article152(5)providesthatCommunityactioninthefieldofpublichealthmustfullyrespecttheresponsibilitiesofthememberstatesfortheorganisation anddeliveryofhealthservicesandmedicalcare.

Publichealthbodiesholdapositionofspecialresponsibilityinnationalhealthmarkets.Inmanycases,theyenjoyapositionofdominanceindomestichealthmarketsthroughtheinterventionofstatelegislatorsandgovernments.Alldominantundertakingsaresubjecttospecialresponsibilities.

Articles10,3(g)and82andnationalhealthmarkets

InEUlaw,publichealthbodiesmaybeconsideredtobeemanationsofstatebyreferencetothedegreeofcontrolexercisedoverthembydomesticgovernmentsorparliaments.Insituationswhereadominantpublichealthbodyisconsiderednottofallwithinthedirectscopeofarticle102byreferencetothedecisionoftheCourtofJusticeinFENIN,article10oftheECTreatyrequiresmemberstatestoabstainfromanymeasurewhichcouldjeopardise theattainmentoftheobjectivesoftheCommunity'scompetitionrules.

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EU HEALTH POLICY Regardlessofwhetherornottheconductofpublichealthbodiesisdirectlysubjecttotherequirementsofarticle102,memberstatesmustatalltimesdutifullyensurethatcompetitioninupstreamordownstreammarketsisnotdistortedbytheiremanationsofstateincontraventionoftherequirementsofarticles3(g),10andto"asystemensuringthatcompetitionintheinternalmarketisnotdistorted".

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The meaning of ‘Undertakings’ in EU Competition Law

TheunderstandingoftheconceptofundertakingisvitaltotheapplicationofEUcompetitionlaw.itcanbeconsideredasthefirstimportantstepinacompetitionassessmentbecauseforanagreementtofallwithinthescopeofEUcompetitionlawitmustmeetfourcriteriainwhichthetwoarerelevanttothetermofundertaking.Theyinclude:”theremustbeanagreementoradecisionbyanassociationofundertakingsoraconcertedpractice'andthat“theagreement!decisionorconcertedpracticemustbebetweenundertakings'.

However,althought Article101oftheTFEU,Article102TFEUandArticle106TFEUmentionundertakingtheTreatiesdonotprovideadefinitionoftheterm.

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The meaning of ‘Undertakings’ in EU Competition Law ThegeneralunderstandingofthetermwasgivenbytheEuropeanCourtofjustice(ECJ)inHöfner andElser vMacrotron.Itdefinesanundertakingtobeallentitieswhichareengagedineconomicactivitiesnotwithstandingthelegalstandingofitandthemethoditisfinanced.

Thenextpointistolookatwhatconstitutesaneconomicactivity.InPavlovandothers,itwasstatedthat“anyactivityconsistinginofferinggoodsandservicesonagivenmarketisaneconomicactivity”

Thestartingpointofthesedefinitionsisthefactthatthelegalstatusisirrelevant.Further,itisalsonotnecessaryfortheentitytomakeprofits.

InnadditionSELEXalsomakesitclearthatanentitymaynotbesubjecttocompetitionlawinrespectstoallofitsactivitiesbutforsome.

Itisalsovitaltonotethatthegeneralprinciplethattheexerciseofpowersrelatingtopublicauthoritiestendnottobegovernedbycompetitionlaw.

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Concept and organisation of public undertakings

Theconceptofpublicundertakingcoversverydifferentsituations,primarilybecauseofthemanydifferentreasonsthathavejustified,formorethanacentury,thecreationofpublicundertakingsinEuropeancountries.

Variousdefinitionsofpublicundertakingsexist;TheEuropeanCommissioninDirective80/723of25June1980concerningthetransparencyoffinancialrelationsbetweenMemberStatesandpublicundertakingsdefinesapublicundertakingas'anyundertakingoverwhichthepublicauthoritiesmayexercisedirectlyorindirectlyadominantinfluencebyvirtueoftheirownershipofit,theirfinancialparticipationtherein,ortheruleswhichgovernit'.

Itfollowsfromthisdefinitionthatdominantinfluenceofapublicauthorityandnotpublicownershipisnowconsideredtobethemaincriterionofthepublicundertaking,influencebeingexerted,irrespectiveofownership,throughthepowertoappointtopdecision-makersintheundertakingortheabilitytocontrolmajordecisionsthroughspecialrightsforpublicauthorityrepresentatives.

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Competition law applies to undertakings, that is, bodies engaged in economic activity

A body can act as an undertaking in respect of some of its functions in respect of its functions and not in respect of others

Conduct amounts to economic activity when the body is: (a) supplying a good or service, and (b) that supply is of a commercial nature

Exercise of certain public powers are deemed not to involve a supply of goods/services are deemed not to involve a supply of Goods/services

Profit-making activities in competition with private sector will be commercial

Non-profit making activities can also be commercial if they could be provided by the private sector

CConduct will not amount to economic activity if it is of a wholly social nature

Activities that could not conceivably be carried out for profit by a private sector body may be wholly social

Redistributive activities carried out according to principles of ' solidarity ' may be wholly social

Upstream purchasing is an economic activity if the purchased g/s are subsequently used to conduct economic activities downstream.

Identifying 'economic activity'

Whetheraparticularactivitycarriedonbyapublicbodyistreatedasaneconomicactivitynecessarilydependsonthespecificfactsathand.Forthisreason,pastcasesmayprovideonlylimitedwiderguidancetopublicbodiesseekingtoapplylegalprecedenttotheirownspecificcircumstances.

Inbroadterms,thefollowingquestionsforeachactivitiesseparatelyarerelevant:

Ø Isthesupplyofgoodorservice,asopposedto,forexample,exercisingapublicpower?

Ø isthatofferorsupplyofa'commercial'– ratherthananexclusively'social'– nature?

Iftheanswertoboththesequestionsisyes,then– forthepurposesofthatactivity(andanyrelatedupstreampurchasing)– thepublicbodyislikelytoberegardedasanundertakingsubjecttoEUcompetitionlaw.

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Economic activity ….Anyactivityconsistinginofferinggoodsandservicesonagivenmarket.”

IntheFENIN,.TheCommissionrejectedthecomplaintonthegroundthattheallegedbodieswerenotactingasundertakingswhentheypurchasedmedicalgoodsandequipmentfromFENIN.TheECJheldthat”anorganisationwhichpurchasesgoods- eveningreatquantity- notforthepurposeofofferinggoodsandservicesaspartofaneconomicactivity,butinordertousetheminthecontextofadifferentactivity,suchasoneofapurelysocialnature,doesnotactasanundertakingsimplybecauseitisapurchaserinagivenmarket”.

Itisalsoimportanttonotethatthis'functional'approachmeansthatapublicbodymayactasanundertaking– andthereforebesubjecttocompetitionlaw– inrespectofsomeofitsactivities,butnotinrespectofothers.

Socialactivitynoteconomicactivity

JoinedcasesC-159/91andC-160/91,Poucet andPistre :TheECJheldthat“Fulfilledanexclusivelysocialfunctionbasedbasedontheprincipleofnationalsolidarityandisentirelynon-profitmaking“.

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Commercial activity

Wheregoodsorservicesareofferedorsuppliedbythepublicbody,isthatofferorsupplyofa'commercial'nature,asopposedtoanexclusively'social'nature?

Theprovisionofgoodsorservicesona'commercial'basiswillconstituteeconomicactivity.Theclearestexampleofthisisanactivityundertakenforprofitindirectcompetitionwithprivatesector.

However,theconceptof'commercial'activityshouldnotbeconsideredlimitedtosuchexamples:importantly,anactivityneednotinfactgenerateaprofit.Forexample,inthecaseofapublicbodyprovidingemploymentrecruitmentservicesfreeofcharge,theEUcourtsfoundthatthoseserviceswereaneconomicactivity,astheycouldbe(andhadpreviouslybeen)providedbyprivatesectorcompanies.

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Exercise of 'public powers'

Theexercisebyabodyofpowerswhichare'typicallythoseofapublicauthority'(thatis,whereitcarriesoutStateprerogativesoressentialfunctionsoftheState)aredeemednottoinvolvetheofferorsupplyofgoodsorservicesonamarket.

CaseC-343/95DiegoCali&Figli SrL vServizi Ecologici PortodiGenovaSpa[1997]ECRI- 1547('DiegoCali'),paragraphs22to23.

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Purchase of goods or services

Competitionlawmayapplytoagreementsandconductrelatingtoapublicbody'spurchasingactivities(whetherindividuallyorjointlywithothers).However,indeterminingwhetherapublicbodyisactingasanundertakinginrelationtosuchpurchaseofgoodsorservicesinamarket,theeconomicornon-economicnatureofthatpurchasingactivitydependsontheendusetowhichthepublicbodyputsthegoodsorservicesbought.

NB.Publicbodiesshould,evenwheretheyarecarryingoutessentialfunctionsoftheState,ormerelypurchasinggoods,theirconductmay— evenifnotsubjecttotheEUcompetitionlawprohibitions maybesubjecttootherlegalcontrols,includingadministrativeorprocurementlaws..

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State bodies Statebody

“theclassificationasanactivityfallingwithintheexerciseofpublicpowersorasaneconomicactivitymustbecarriedoutseparatelyforeachactivityexercisedbyagivenentity”.CaseC-49/07,MOTOE

Exerciseofpublicauthority

ECJfoundArticle101notapplytoagreementsconcludedbybodies“actingintheircapacityaspublicauthoritiesandundertakingsentrustedwiththeprovisionofapublicservice”(Case30/87,Bodson)

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Public servicesPublicservicesarenotdefinedbyspecificownershiparrangementsbutbytheirfunction:forthepublicauthorities,thisfunctionconsistsofensuringthatcitizenshaveaccesstoservicesofaneconomicnaturewhichmeetessentialgeneralinterestrequirementsandthatcannotbesatisfactorilymetbyprivateinitiatives;

theservicesaredefined,organizedandregulatedbytheauthoritieswhichgenerallygrantthemspecialrightswhichareperceivedasnecessaryfortheserviceprovision.

Publicservicesexistwheneverapoliticalcommunitydecidesthataparticulareconomicactivitywhichisvitalforthegeneralinterestcannotbeprovidedbythemarketalone.

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Public servicesAtthesametime,apublicundertakingmusthave:

(1)adegreeofautonomyvis-à-visthepublicauthorities;

(2)aneconomicpurpose:i.e.toproduceandsellgoodsorservices;

(3)operatingmethodssimilartothoseofprivateundertakings.

Publicservicesarenottobeconfusedwithpublicundertakings,whichmaycarryoutactivitieswhicharedevoidofanygeneralinterest.

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'Social' activity Bycontrast,wherepublicbodiescarryoutanactivityofanexclusivelysocialnature,neitherthatactivity,northebodies'purchaseofgoodsorservicesforthepurposeofthatactivity,willgenerallybetreatedasaneconomicactivity.

Anyassessmentofwhetheranactivityisofanexclusivelysocialnaturewillnecessarilybefactspecific,andmusttakeaccountofallaspectsoftheactivityinquestion.

Pastcaselawonthisissueprovidecertainprinciples:

•Theactivitymustbeexclusivelysocial;

•ActivitieswhichbytheirverynaturecouldnotbecarriedoutforprofitwithoutStatesupport;

•Inthecontextofsocialsecurityandinsuranceschemes,theoperationofaschemeaccordingtocertainwholly'uncommercial',redistributiveprinciples(knownas'solidarity')hasbeenconsideredtobeanexclusivelysocialactivity.

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'Social' activity However,itcanbeseeninFFSAandAlbanythattheCJEUinthesecasesrejectedthesolidarityargumentsalthoughtherewereelementsofitasthebenefitsweredependentontheresultsofinvestmentsmade.

InacontroversialcaseinvolvingthisareatheUK,theCJEUsuggestedabroaderinterpretationtotheideaofanundertakingascomparedtopreviousC-EUcases#In

IntheSpanishHealthService,theCJEUheldthattheGCwasrightintakingtheviewthatalthoughtheSpanishHealthServicepurchasedlargeamountsofgoodsitcannotbeconsideredtobeaneconomicactivityasithastotaketheviewofwherethegoodswereputtousein,howitwasfundedandwhetheritsserviceswereprovidedfree.Thus,eventhoughtheSpanishHealthServicecouldexertgreateconomicpoweritcouldnotbeclassifiedasanundertaking.

However,theCourthasheldthatnon-profit-makingorganisations,contributingtothemanagementofthesocialsecuritysystemandsubjecttothesolidarityprinciple,couldbeconsideredtobecarryingoutaneconomicactivity.

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Undertakings in the health sector Movingtothehealthservicesandsector,theEuropeanCourtshavedevelopedaconceptwhichtodeterminewhattypesofactivitiesinthesesectorsshouldbeexcludedfromcompetitionrules.

Theconceptofsolidarity wasfirstdiscussedinthePoucet andPiste case.inthiscasetwopeoplewantedtooptoutoftheFrenchsystemforcertainbenefitsthatrequiredmandatorypaymentsandtheyclaimthatthiswasinbreachofcompetitionlaw.TheCJEUinthiscaseheldthattheseschemeswerenoteconomicactivitiesastheywereofasocialnatureandwerethusbasedonthesolidarityprinciple.Theprincipleinthiscasewasthattheschemewasfinancedproportionallybyincomesofthepeoplethatpaidthemandidenticalbenefitsweregiventoallthosethatareentitledtoit.

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Undertakings in the health sector Itisthereforeclearfromthecase-lawthatthesocialaimofahealthinsuranceschemeisnotinitselfsufficienttoexcludeclassificationasaneconomicactivity.ItmustalsobeexaminedwhetherthatschemecanberegardedasapplyingtheprincipleofsolidarityandissubjecttothesupervisionoftheStatewhichestablishedit.Thosefactorsareliabletoprecludeagivenactivityfrombeingregardedaseconomic(seejudgmentof3March2011,AG2RPrévoyance,C-437/09,EU:C:2011:112,paragraphs45and46andthecase-lawcited).

Forthepurposesofthatassessment,first,itmustbenotedthatcharacteristicsofsocialsecurityschemesapplyingtheprincipleofsolidarityinclude,interalia,anobligationonhealthinsurancebodiestobeaffiliatedwiththescheme,alackofanydirectlinkbetweencontributionspaidandbenefitsreceived,compulsoryandidenticalbenefitsforallinsuredpersons,contributionsproportionaltotheincomeofinsuredpersonsandapplicationofthepay-as-you-goprinciple

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Undertakings in the health sector Second,characteristicsofsocialsecurityschemessubjecttoStatesupervisioninclude,interalia,anobligationforhealthinsurancebodiestooffercompulsorybenefitstoinsuredpersonsandanimpossibilityforhealthinsurancebodiestoinfluencethenatureandlevelofthebenefitssetbylawortheamountofthecontributionspaidbyinsuredpersons.

(see,tothateffect,judgmentsof17February1993,Poucet andPistre,C-159/91andC-160/91,EU:C:1993:63,paragraphs9to12;of22January2002,Cisal,C-218/00,EU:C:2002:36,paragraphs34to43,andof16March2004,AOKBundesverband andOthers,C-264/01,C-306/01,C-354/01andC-355/01,EU:C:2004:150,paragraphs52and53).

(seealsojudgmentsof22January2002,Cisal,C-218/00,EU:C:2002:36,paragraphs43and44;of22May2003,Freskot,C-355/00,EU:C:2003:298,paragraph78,andof16March2004,AOKBundesverband andOthers,C-264/01,C-306/01,C-354/01andC-355/01,EU:C:2004:150,paragraph52).

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Specific exclusions from competition law

Article106(2)TFEU,excludefromtheapplicationoftheEUcompetitionrulesundertakingsthatareentrustedwithproviding'servicesofgeneraleconomicinterest'orthatare'revenue-producingmonopolies',insofarasthoseprohibitionswouldobstruct,inlaworinfact,theperformancebythoseundertakingsoftheparticulartasksassignedtothem.

Theseexclusionsthereforeseektoensurethattheapplicationofcompetitionlawdoesnotpreventtheeffectiveprovisionofimportantpublicservicesortheproperoperationoffiscalmonopolies.

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State regulation and services of general economic interest

Article106EUFTapplieswhenMemberStatesinterferewithamarketbygrantingexclusiverights(Article106(1)),orbyentrustinganundertakingwiththeoperationofaserviceofgeneraleconomicinterest(SGEI)(Article106(2)).

TheliberalizationofstatemonopoliesisencouragedinArticle86(1).DecisionsoftheEuropeanCourtofJusticethatprovideinterpretationsofthisprovisionshowthedevelopmentofcriteriatotestwhetherastatemonopolyislawful.Inshort,termsmustmeetefficiencystandardsandthestatemustlimitgrantstoavoidawardingexcessmonopolypowerthatcouldhaveadditionalanti-competitiveconsequences.

OnesuchcasearoseinGermany,wheretheLandofRheinland-Pfalzgrantedanundertaking(AmbulanzGlockner)theexclusiverighttoprovideambulanceservicesinaruralarea,givingthecompanyadominantpositioninthemarket.

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The consequences for public bodies of engaging in economic activity

ThefactthatapublicbodyactsasanundertakingandissubjecttoEUcompetitionlawdoesnotnecessarilymeanthatitwillhavetoamenditspractices.

Compliancewithcompetitionlawshouldnotmateriallyimpedepublicbodies'efficientexerciseoftheirfunctions.Instead,publicbodiesneedtoself-assesswhethertheirconductiscompliantwithcompetitionlawtodeterminewhetheranyamendmentsarerequired.

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Enforcement of competition law Variationsinthelevelofnationalenforcement.

Cartels

DutchCompetitionAuthority(DCA),‘Permittedpharmaceuticalpreferencepricingpolicyforhealthinsurers’,PressRelease,22June2005,

GermanCompetitionAuthority(GCA),PressRelease,19April2007,. FrenchConseil delaConcurrence(FCC),PressReleases,30October2007,w

A.Rubene,‘TheLatvianCompetitionCouncilnes themedicalgasmonopolistfortheapplicationofanunfairand discriminating price’, e-Competitions Law Bulletin No. 16460 (2006). ItalianAntitrustAuthority(IAA),PressRelease,8August2007. HungarianCompetition Council, Press Release, 21 February 2007,

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Enforcement of competition law Abuseofdominance

Definitionofrelevantmarket:TheCourthasconsideredtheportofGenoatobeamarketsufficientforthesepurposes,becauseofitsroleintradethroughouttheEU.Case C-179/90,Merciconvenzionali PortodiGenova[1991]ECRI-589,para.15;

DutchCompetitionAuthority,PressRelease,6June2003,

TheFrenchNCAfoundthatGlaxoSmithKlineFrance(GSK)wasliableforabuseofdominantpositionthroughpredatorypricinginamarketwhereGlaxowasnotdominant.TheCouncil’sinvestigationdeterminedthatGSKsoldZinnat,aninjectableantibiotic‘atapricebelowcostssoastodetergenericdrugmanufacturersfromeffectivelyenteringthehospitalmarket’.

TheCouncilalsofoundthatGSKwasdominantinthemarketforinjectableaciclovir .TheCouncilfoundabuseofdominancebecausethepredatorypricingwaspartofaglobalintimidationstrategytodiscouragegenericmanufacturersfromenteringotherGSKhospitalmarkets

theDCA’sinvestigationandstatementofobjectionsledthepharmacistsvoluntarilyadaptedtheiradmissionrules. 31

Advocacy by NCAs

NCAsinsomeEUcountrieshavecommentedonproposedorenactedhealthlegislationorhaveadvocatedinfavour ofimprovingcompetitionintheorganizationofnationalhealthsystems

TherisingcostofpharmaceuticalshasincreasedpressureonMemberStatestoinitiateregulationsthatwillimproveefficiencyandcompetitiononthepriceofmedicines.NCAsinseveralcountrieshaveweighedinonthedebatesinadditiontostrictlyenforcingcompetitionlawagainstthepharmaceuticalindustry.

In2006,theDutchHealthcareAuthority(DHA)wasestablishedtoimplementhealthsystemreforms,pavingthewayformarketforcestooperateinthehealthcareservicessector.

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Thank you