Merger control stays topical. The newly designated EU’s Competition Commissioner sets the scene for her priorities in the upcoming legislative period. Furthermore, last week, the German Parliament decided to exempt certain transactions in the hospital sector from German merger control as part of the so-called hospital reform. These developments are addressed in the following blog post.
Modernising European Merger Control
At European level, competition law is already undergoing a change in terms of personnel with the designated Competition Commissioner Teresa Ribera who recently explained her agenda for the coming months and years: Firstly, she plans to simplify and speed up processes. Secondly, she will focus on strengthening and better targeting competition enforcement. Finally, she plans to ensure a further effective alignment of competition policy with the EU’s priorities. In particular, she wants to modernise merger control, which includes a review of the Horizontal Merger Guidelines. She also intends to find a way to capture ‘killer acquisitions’, which is hardly surprising after Illumina/Grail (see our latest post on this topic here). She plans to find a solution without creating any unnecessary additional administrative burden or legal uncertainty for companies – sounds like an exciting project!
Tailwind for a political goal?!
It is well known that some politicians perceive merger control as an “unnecessary additional administrative burden”. Some German health politicians may feel the same way. The German hospital sector is undergoing a – political backed up – conslidation phase, leading to a high number of hospital mergers (consequently health care company Fresenius won the JUVE Award 2024 as the best in-house team for M&A – congratulations!) . So, when the proposed acquisition of a majority share in the University Hospital Mannheim by Heidelberg University Hospital was prohibited by the German Federal Cartel Office (FCO), this caused some political frictions (see also here). So it was not really surprising that the German Parliament decided to exempt certain transactions in the hospital sector from merger control as part of the hospital reform last week.
Exemption from German Merger Control for transactions in the hospital sector
The exemption concerns mergers of hospitals or individual departments of such hospitals. According to the new version of Section 187 (10) of the German antitrust act (GWB), such mergers that are implemented by the end of 2030 are to be exempted from merger control if the state authority responsible for hospital planning considers the merger to be necessary to improve hospital care and issues a corresponding confirmation and the merger does not conflict with any other competition law provisions (according to the information available to the authority). Only if the confirmation is rejected by the authority or the authority remains inactive for two months, the obligation to provide a notification under merger control law is “reactivated”. The goal of this newly introduced exemption is to help achieve the objectives of the hospital reform quickly.
The procedure has been criticised by Andreas Mundt, President of the FCO. In a post on X, he emphasises the importance of competition in the hospital sector, especially for the well-being of patients. Without effective merger control, patients would be threatened with a loss of choice if all hospitals belonged to the same owner. According to him, the variety of hospital owners is crucial for high-quality and patient-orientated treatments.
His comment comes as no surprise since the FCO has emphasised the importance of merger control for competition and quality in the hospital sector in its 2021 sector inquiry. The study came to the conclusion that hospitals compete with each other on quality. The diversity of hospital owners and thus the choice available to patients played a decisive role in ensuring quality. Merger control in particular was considered to be an important instrument for ensuring this diversity of owners.
Obviously, there are different perspectives on how to achieve better patient care, with the new regulation taking a different approach than the FCO. The exemption from merger control for hospital transactions is, however, not completely new. Since the 10th amendment to the German antitrust act in 2021, certain transactions in the hospital sector were exempted from merger control if they were supported by the so-called Hospital Structure Fund. The new exemption differs in a way that the exemption now only requires the approval of the competent state authority. Thus, the decision on mergers is to be made primarily on the basis of health policy considerations, as stated in the explanatory memorandum to the draft. Competitive aspects will therefore only play a minor role.
What does that mean for German Merger Control?
- Maybe not too much. The hospital sector is an industry with special meaning for the public welfare. It is therefore not necessarily comparable to other industries. How transactions in the hospital sector are assessed is much more of a health policy decision (than in any other industry). The significance of this exemption for the general German merger control may therefore not be overstated.
- Nevertheless, the short-term nature with which the exemption has made its way into the law is remarkable. The hospital reform has been under discussion for over two years. The new section on hospital mergers was not included in the previous drafts of the law but only introduced last week. It is likely that it was included in the draft under the impression of the prohibited merger of Heidelberg University Hospital and University Hospital Mannheim.
- Even though this prohibition may still be present, prohibitions of mergers in the hospital sector by the FCO have been the exception in the past. Out of 330 mergers notified to the FCO between 2003 and 2020, seven were prohibited (with the prohibition of Heidelberg University Hospital/University Hospital Mannheim, there would now be eight prohibitions); eight notifications were withdrawn.
- Nothing changes regarding European Merger Control. If a merger reaches the European turnover thresholds, it has to be notified to the EU Commission.
- My conclusion: it’s best to stay healthy!
Antitrustpolitics.com 