How   does   European   law   and   the   administration   of   the   Single  Market   influence   the   design   of   a   Money   Follows   the   Patient  system  for  Ireland?        Jarleth  Burke  and  Oliver  O’Connor      Introduction1    

1. The   Irish  Government  has  made  a  policy  commitment   in   its  Programme  for   Government   to   take   steps   towards   the   creation   of   a   system   of  Universal  Health   Insurance   (‘UHI’).2     In   terms   of   funding   and   providers,  this   represents   a   move   away   from   a   taxation-­‐funded,   block   granted,  public   providers   sitting   alongside   a   voluntary   health   insurance   system  that   pays   both   private   patient   units   in   public   hospitals   and   private  hospital  providers  (albeit  on  different  bases).      In  its  place,  eventually,  it  is  hoped   that   there   will   be   a   plurality   of   insurers   paying   a   variety   of  providers  most  likely  on  a  price-­‐per-­‐procedure  basis,  at  least  in  the  acute  hospital  sector.      It  is  assumed  that  the  plurality  of  providers  will  include  presently  public  sector  and  private  providers  without  distinction,  that  is,  all  will  be  free  to  provide  services  to  each  any  every  insurer.      

2. As  one  of  the  steps  towards  such  a  system,  the  Government  envisages  the  introduction  of  a  ‘Money  Follows  the  Patient’  (‘MFtP’)  payment  system  for  the  application  of  public  funding  for  the  acute  hospital  sector.    Essentially,  this   would   replace   the   prospective   block   grant   to   publicly-­‐funded  hospitals  with  a  prospective  price  per  procedure  or  per  episode  of  care.    The  precise  nature  of   this  payment  has  yet  to  be  determined:     it  may  be  constructed  from  existing  Casemix  Diagnostic  Related  Group  rates  (which  are  an  average  of  cost  across  hospitals   for  certain  procedures)  or   it  may  be  closer  to  the  procedure  rates  paid  by  insurance  companies  presently  to  private  hospital  providers.      The  present  per  diem  rate  (or  rates)  paid  by  insurers  for  private  bed  activity  in  public  hospitals  is  not  likely  to  be  the  basis   for   the  payment.    The  Programme  for  Government  has   identified  a  Hospital   Care   Purchase   Agency   (to   be   combined   with   the   National  Treatment  Purchase  Fund)  as  directing  payment  to  providers  in  the  run-­‐up  to  UHI,  so  it  might  be  expected  to  administer  some  form  of  MFtP.  

 3. It   remains   to   be   confirmed  by   the  Minister  whether   the  Money  Follows  

the  Patient  system,  implemented  in  advance  of  universal  health  insurance,  will  allow  current  private  providers  to  bid   for  or  provide  services  at   the  specified  tariff  or  price.      It  is  an  open  question  whether  the  MFtP  system  will   be   implemented   for   the   current   group   of   publicly-­‐funded   hospitals  only,   as   an   alternative   to   the   present   block   grant   method   of   allocating  public   funds   to   them.       If   this   is   the   case,   and   anticipating   a   system   of  

                                                                                                               1  This  discussion  paper  does  not  purport  to  give  legal  advice  and  should  not  be  relied  upon  as  such.  2  See  Government  for  National  Recovery  2011-­‐2016,  p.34-­‐38  

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universal  health  insurance  implemented  through  a  diversity  of  insurance  companies,  there  will  still  need  to  be  a  day  when  the  MFtP  funding  does  indeed   become   open   to   all   providers   –   at   the   limit,   that   day   is   when  insurers  take  over  the  purchase  or  commissioning  of  care.    This   is  a  key  consideration  in  the  policy  for  the  design  of  MFtP,  and  an  important  fact  in  looking  at  the  European  law  context.          

4. Depending  on  how  UHI  is  implemented,  competing  health  insurers  could  become   the   purchasers   of   all   of   the   care   currently   delivered   through   a  combination  of  public  and  private  hospitals.  An  immediate  issue  will  arise  as   to   the   basis   on   which   purchasing   decisions   will   be   made,   and   in  particular  whether   insurers  will   be   free   to   purchase   hospital   treatment  from  providers  of  their  choice.  While  insurers  might  be  expected  to  want  to   have   a   good   geographic   spread   for   hospitals,   regulation   apart,   there  might   be   cases   where   the   insurer   decides   not   to   cover   a   particular  provider,   including   potentially,   a   public   hospital.3  Similarly,   it   is   not  difficult   to   imagine   that   an   insurer   might   prefer   to   provide   cover   for  particular  treatments  at  a  number  of  restricted   locations  so  as  to  realise  lower   prices   or   a   particular   combination   of   quality   and   cost.   MFtP  therefore   looks   like   a   logical   precursor   to   UHI   in   that   it   will   begin   the  movement   away   from   block   granted   funding   of   public   hospitals   in  particular.    

 5. It   is   worth   also   noting   that   a   review   of   the   Fair   Deal   Nursing   Home  

Support  Scheme  is  being  prepared  in  the  Department  of  Health.4    In  some  ways,   this   Scheme   already   implements   a   Money   Follows   the   Patient  payment  system,  where  a  patient  can  choose  between  a  public  and  private  nursing  home  for  service.    While  the  State  contracts  for  a  price  per  patient  from  private  nursing  homes,  it  still  pays  public  nursing  homes  on  a  block  grant  basis;    however,  the  latter  are  required  to  account  for  costs  on  a  per  patient   basis,   and   their   notional   rates   per   patient   per  week   of   stay   are  published  alongside  the  prices  paid  to  private  nursing  homes.    The  review  is   likely   to  address   the  question  of  a  method   for  setting  a   tariff   for  a  set  level   of   care   for   each   patient,   to   apply   to   all   providers   equally,   with  perhaps  some  regional  variations.    The  same  challenge  of   finding  a  tariff  per  episode  or  level  of  care  that  is  fair  to  all  providers  will  arise  for  acute  hospital  services  if  private  providers  are  included  in  the  system.  

 Questions  and  issues  that  arise  for  Money  Follows  the  Patient    

6. There  are  many   technical  and   legal   issues   to  be  addressed  so   that  a   full  MFtP  system  can  be  implemented,  and  even  more  so  for  the  full  transition  to  universal  health  insurance.    It  is  worth  thinking  about  one  aspect:    the  role  that  European  law  may  affect  the  design  of  policy  if  only  to  begin  to  

                                                                                                               3    There  is  of  course  the  possibility  that  regulations  would  be  adopted  under  the  promised  Universal  Health  Insurance  Act  that  requiring  insurers  to  cover  specified  hospitals,  perhaps  even  all  HIQA  approved  hospitals.  That  would  go  beyond  the  requirements  of  currently  applicable  Minimum  Benefit  Regulations  and  may  necessitate  complex  dispute  resolution  mechanisms.  4  See  Department  of  Health  press  release  of    14  June  2012,  accessible  at  http://www.dohc.ie  

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seriously   consider   its   application.     Questions   that   arise   include   the  following:    Policy  scope  

i. in   the   Money   Follows   the   Patient   phase   in   advance   of   an  insurance-­‐based   system,   is   the   State   free,   according   to  European   law   and   practice,   to   confine   payments   to   those  providers   (hospitals)   that   are   currently   publicly-­‐funded   by  block  grant?  

ii. in  that  case,  what,  if  anything,  does  European  Union  (‘EU’)  law  say  about  publicly-­‐funded  hospitals’  private  patient  services  to  insurers?  Is  there  a  State  Aid  issue  involved  in  public  hospitals  competing   for   a   private   source   of   funding   while   receiving  public   funding?     Are   such   hospitals   to   be   considered   as  ‘undertakings’  for  EU  competition  law  purposes?  What  are  the  implications  of  those  hospitals  being  undertakings?    

Price  setting  iii. If   MFtP   does   not   include   private   providers,   would   the  

continuation  of   the  present   system  whereby   the  Minister   sets  private  bed-­‐night  charges  for  public  hospitals  be  acceptable?  

iv. If   the   State   decides   to   allow   private   hospitals   to   provide  services   to   the   State   under   the  MFtP,   is   it   required   under   EU  law  that   that   the  same  price/tariff  be  paid  to  all  providers   for  the  same  service?  How  precisely  does  such  a  service  or  episode  of  care  have  to  be  defined?  

v. Specifically,  would  the  EU  rules  allow  for  a  price/tariff  to  be  set  that  did  not  reflect   the  cost  of  pensions  or  capital   investment,  with  the  effect  that  private  providers  were  not  remunerated  for  these  costs  while  the  public  sector  providers  were  provided  for  funding  for  these  costs  from  other  State  sources?    

Eligible  Providers  vi. Does  EU  law  allow  the  State  to  confine  MFtP  eligible  providers  

to  a  limited  set  of  providers,  e.g.  not-­‐for-­‐profit  groups?  vii. Must   any   new   hospital   be   allowed   to   provide   services   under  

the  MFtP  system  or  can  the  State  limit  the  number  of  providers,  including   private   providers,   for   capacity   control   or   other  reasons?  

viii. In   a   situation   where   both   public   and   private   hospitals   are  providing   services   under   MFtP,   do   Irish   and   European  competition   law   provisions   apply   to   mergers   or   co-­‐operative  agreements  between  them  and,  for  example,  in  relation  to  their  primary  care  referral  sources  (GPs,primary  care  centres)?  

 These  are  just  some  of  the  main  questions  that  arise  in  the  design  of  the  MFtP  system.    The  question  for  this  paper  is  the  extent  to  which  EU  law,  EU  Court  decisions  and  Commission  decisions/guidance  affects  the  design  

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of  pricing,  which  providers  are  part  of  the  system  and  the  rules  governing  each.  

   Relevant  European  law  and  guidance    

7. Without  providing  a  full  description  of  the  role  of  European  law  in  health  care  policy  and  provision  in  Member  States  –  which  were  discussed  at  the  Ceohealthmatters   Forum   on   Competition   in   Health   in   January   2012   –  there   are   several   points  worth  mentioning   in   general   before   addressing  the  questions  above.    

8. First,   the   European   Union   does   not   get   involved   in   the   fundamental  design  of  health  services  in  each  Member  State,  for  example,  in  relation  to  policy   choices   as   between   a   taxation-­‐funded   system,   a   private   health  insurance  system  or  a  social  health   insurance  system.  Under  Article  152  of   the   Treaty   on   the   Functioning   of   the   European   Union   (‘TFEU’),   the  Member  States  retain  primary  competence  in  the  field  of  health,  with  the  Union   only   capable   of   taking   forward   initiatives   of   a   complementary  nature.   While   the   principles   of   universality   of   services   and   equity   are  shared  in  various  guises  by  the  Member  States,    it  is  fundamentally  up  to  each  Member  State  to  decide  how  to  give  effect  to  them.    So,  for  example,  EU   policy   would   not   require   Ireland   to   offer   free   primary   care   to   the  whole  population  or  to  remove  all  payments  for  Emergency  Department  services  or  drugs.      

 9. Alongside   this,   it   is   accepted   in   European   law   that  Member   States  may  

organise  health  services,  including  the  funding  of  public  sector  providers,  without   being   constrained   by   State   Aid   or   Competition   law   provisions.    That   applies  when   the   delivery  mechanism   (whether   on   the   funding   or  delivery   side)   is   regarded   as   ‘non-­‐economic’   in   nature,   and   where   the  underlying  organisation  of  the  activity  is  regarded  as  social   in  nature,  or  entails  what   is   referred   to   as   the   ‘exercise  of   official   authority’.  The  key  criterion   for   qualification   under   the   non-­‐economic   exception   is   that   the  system/providers   not   be   regarded   as   ‘undertakings’.   In   very   general  terms  an   ‘undertaking’   is   an  entity  engaged   in  economic  activity  usually  for  gain.    Instances  of  the  exercise  of  official  authority  are  bound  up  with  the   traditional   functions   of   the   State   and   limited   to   those   functions  necessarily  undertaken  by  the  Member  States.5        

 10. Leaving  aside  those  exclusions,  there  are  a  number  of  interacting  areas  of  

European   law  under  which  policy   issues   relevant   to  Money  Follows   the  Patient  can  be  examined:      

 a. Free   Movement   rules:     freedom   to   provide   services   within   the  

whole  European  Union  area  and  the  requirement  for  States  not  to  create   barriers   to   the   freedom   of   any   commercial   entity   to  

                                                                                                               5    The  classic  example  would  be  licensing,  but  other  more  operational  activities,  such  for  example  as  surveillance  against  pollution  have  been  accepted  as  falling  within  this  category,  

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establish  and  offer  products  or   services  are  core  principles  of  EU  law.  Medical  treatment  has  long  been  regarded  as  a  service  under  EU   law  when  availed  of  on  a  cross-­‐border  basis.  This  attracts   the  operation   of   the   free   movement   rules,   which   in   turn   have   even  been  interpreted  as  allowing  citizens  of  one  Member  State  to  avail  of  medical  services  in  another  to  claim  a  degree  of  reimbursement  from  the  home  Member  State.6    

b. State   Aids   rules:   These   prohibit   selective   subsidies   or   other  interventions   of   a   fiscal   or   para-­‐fiscal   nature   to   certain  undertakings   in   a   way   that   distorts   competition.     The   design   of  State-­‐originated  payments  for  health  services  and  their  compliance  with   State   aid   rules   is   important,   since   any   form   of   excess  compensation   being   at   risk   of   being   unlawful   State   aid.   Member  State  can  be  obliged  to  recover  from  beneficiaries,  with  receipt   in  good   faith   not   being   a   defence.   In   2003,   the   Court   of   Justice  adopted   a   very   significant   ruling   in   the  Altmark   case   concerning  the  conditions  that  need  to  be  satisfied  in  order  that    payments  for  public   services   will   not   be   treated   as   State   aid. 7          

c. Competition   law   provisions:     these   regulate   the   actions   of  ‘undertakings’,  broadly,  commercial  enterprises  or  the  commercial  actions   of   an   otherwise   non-­‐commercial   entity,   so   as   to   prevent  actions   that   diminish   consumer   welfare,   such   as   price   collusion,  restrictions   on   trade,   and   monopolistic   practices.     The   principal  prohibitions  are  Article  101  TFEU,  on  collusive  arrangements,  and    Article  102  on  the  abuse  of  a  dominant  position.  In  addition  to  the  rules  that  are  application  to  undertakings  in  their  own  right,  there  are  a  number  of  competition  rules   (principally  Article  106  TFEU)  that   apply   to   the   State   in   terms  of   its   relationship  with  what   are  termed   ‘public   undertakings’   (in   other   words   State   controlled  entities),   and   holders   of   ‘special   or   exclusive   rights’,   which   are  entities   that   enjoy   a   monopoly   or   otherwise   protected   position  within  a  given  sector.    

d. In  addition,  there  is  a  special  defence  built  in  to  EU  law  in  respect  of   what   are   known   as   Services   of   General   Economic   Interest  (‘SGEIs’).  Broadly   speaking   this  exception  applies   to   services   that  on   account   of   their   public   importance,   and   criteria   such   as  universality,   amount   to   SGEIs.   Other   TFEU   provisions   (including  free  movement,  State  aid  and  competition  rules)  may  be  limited  to  the  extent  that  this  is  necessary  in  order  to  support  the  provision  of   a   particular   SGEI   that   has   been   entrusted   to   one   or   more  undertakings.      

 

                                                                                                               6  Case  C-­‐372/04  R  (Watts)  v  Bedford  Primary  Trust  et  al  [2006]  ECR  I  04325  7    Case  280/00  Altmark  Trans  GmbH  [2003]  ECR  I  07747  

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11. All   these   factors   have   to   be   considered   in   setting   general   and   specific  policies   involved   in   the   Money   Follows   the   Patient   system,   leading   to  universal   health   insurance.       European   law   and   practice   is   evolving   in  relation   to   these   areas   as   they   interact   with   health   services.       New   EU  Court   cases   develop   in   novel  ways   and   give   certain   latitude   to  Member  States   and   the   Commission,   but   it   is   not   easy   to   describe   a   few   simple  rules  of  thumb  as  to  how  the  different  provisions  are  to  be  interpreted  in  every  circumstance.  The  key  challenge  is  to  determine  the  classification  of  various   entities   and   practices   within   a   given   sector,   with   health  presenting   a   special   challenge   given   that   aspects   of   its   organisation   are  purely   social   in   some   contexts,   entirely   economic   in   others,   and   very  frequently,  mixed.    With  that  in  mind,  the  following  tentative  answers  are  offered  in  response  to  the  questions  posed  above.  

   

Policy  scope    

i. in   the   Money   Follows   the   Patient   phase   in   advance   of   an  insurance-­‐based  system,  is  the  State  free,  according  to  European  law   and   practice,   to   confine   payments   to   those   providers  (hospitals)  that  are  currently  publicly-­‐funded  by  block  grant?  

 To  answer  this  question,  it  is  necessary  to  consider  the  legality  of  the  current  system  and  to   then  try  and  assess  how  MFtP  might   impact  on  that.  In  legal  terms,  the  current  public  system  in  Ireland  is,  in  so  far  as  it  concerns  with  the  delivery  of  limited  or  full  eligibility  under  the  Health  Acts   is   likely   to  be   regarded  as  outside   the   competition  rules   entirely,   on   the   basis   that   it   is   financed   through   mandatory  contributions  and  provides  for  cover  on  a  non-­‐discriminatory  basis  that  seems  to  accord  with  the  EU  principle  of  solidarity.8  A  corollary  of  that  is  that  the  State  in  reimbursing  the  cost  of  care  (even  through  the  HSE)  is  probably  not  engaged  in  economic  activity  (i.e.  is  not  an  undertaking).    On  one  view,  the  transition  from  block  grants  to  MFtP  is  not  such  a  big   change,   in   that   it   just   replaces   the   basis   on   which   the   State  reimburses   public   providers   for   treating   public   patients.   MFtP   in  whatever   form   it   is   initially   introduced   is   likely   to   be   an  administrative  matter  between  the  reconstituted  HSE  and  individual  public   providers.9  Provided   that   the   introduction  of  MFtP  does  not  detract  from  the  solidarity  related  features  of  the  Irish  public  health  

                                                                                                               8    It  is  true  that  the  Irish  systems  is  not  universal  in  the  same  way  as  the  UK  NHS  (free  at  the  point  of  use  and  covering  primary  and  acute  care),  but  it  still  is  arguable  that,  even  with  liability  for  statutory  hospital  charges  and  no  statutory  entitlement  to  State-­‐provided  primary  care  for  a  non-­‐medical  card  holders,  it  exhibits  a  sufficient  degree  of  solidarity  for  a  substantial  portion  of  the  population.  See  in  particular,  Case  C-­‐205/03  P  FENIN  [2006]  ECR  I  06295.  9    In  that  regard,  see  the  comments  of  Minister  Reilly    before  the  Seanad  on  14  February  2012  concerning  a  pilot  of  the  MFtP  system:    “The  Health  Service  Executive  has  also  implemented  a  pilot  project  in  regard  to  prospective  funding  for  certain  elective  orthopaedic  procedures.  That  has  yielded  a  saving  of  nearly  €6  million  in  its  first  year.  Where  hip  and  knee  orthopaedic  procedures  were  being  paid  for  under  the  money  follows  the  patient  system,  the  hospitals  were  reimbursed  immediately  on  submission  of  the  bill  as  long  as  the  patient  was  admitted  on  the  day  of  surgery.  That  had  a  dramatic  effect  in  both  Navan  hospital,  Cappagh  hospital  and  elsewhere.”  

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system,  then  the  State  would  appear  to  have  broad  legal  latitude  in  framing  its  implementation.    An   argument   can   be   made   in   opposition   to   that   based   on   Article  106(1)  because  although  public  hospitals  are  not  undertaking  in  this  context  (being  the  delivery  mechanism  for  public  eligibilities),   they  might   be   regarded   as   holders   of   ‘special   or   exclusive   rights’   under  Article   106(1)   TFEU,   in  which   case   the   competition   rules   apply   to  prevent   the   State   unduly   restricting   competition.     While   there   is  some   basis   for   arguing   that   public   hospitals   at   least   hold   special  rights,  the  State’s  system  of  purchasing  care  from  them  (and  in  turn  block   funding)   is   likely   to   be   regarded   as   an   incident   of   the  operation  of   a   solidarity-­‐based  public  health   system.    According   to  the   FENIN   case,   it   is   not   possible   to   separate   the  prior   purchasing  activity  from  its  subsequent  use.10    If   it   is   lawful   for  private  hospitals   to  be  excluded   from   the   current  system   of   block   funding   (i.e.   not   allowing   them   to   be   eligible   to  provide   services   to  meet  public   eligibilities   and   in   turn  be  paid  by  the   State)   then   it   would   not   appear   that   the   introduction   of  MFtP  would   affect   the   legality   of   that   restriction   under   EU   law,   it   being  assumed  that  the  deployment  of  MFtP  will  be  an  administrative  and  accounting   matter   within   the   HSE.   As   such,   it   would   appear   that  Ireland   may   restrict   participation   within   a   MFtP   system   to   public  hospitals.  

   

ii. in   that   case,   what,   if   anything,   does   European   law   say   about  publicly   funded   hospitals’   private   patient   services   to   insurers?  Are   such   hospitals   to   be   considered   as   ‘undertakings’   for   EU  Competition   law   purposes?  What   are   the   implications   of   those  hospitals  being  undertakings?  

 There   are   a   number   of   questions   here.     There   are  many   instances  across   the   European   Union   where   publicly-­‐funded   hospitals   also  provide  private   services.     In   the  NHS   in   the  UK,   for  example,   there  are   Private   Patient   Units   (‘PPUs’)   within   NHS   hospitals,   both  Foundation   Trusts   and   non-­‐foundation   NHS   hospitals.     The   UK  effectively  takes  the  view  that  the  activities  of  these  PPUs  are  subject  to  EU  and  national   competition   law  provisions,   as   implemented  by  the   Competition   and   Co-­‐operation   Panel   and   the   Office   of   Fair  Trading   and   ultimately   the   Competition   Commission.11     Separating  out  in  which  respect  they  are  acting  as  undertakings  and  when  they  are  not  can  be  practically  very  difficult.    

                                                                                                               10    See  footnote  8.  11    See  OFT  Press  Release  71/12  of  16  August  2012  concerning  assurances  that  a  number  of  NHS  trusts  gave  not  to  continue  to  share  pricing  information  in  respect  of  their  private  services  delivered    within  Private  Patient  Units.  

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The  reason  the  EU  has  not  been  involved  in  the  UK,  so  as  to  speak,  is  that   there   has   not   been   any   significant   European   Commission  decisions   or   EU   court   judgments   directing   the   UK   authorities   on  competition-­‐related  matters.  Furthermore,  it   is  difficult  to  establish  whether   private   hospitals   have  made   a   case   that   NHS   Foundation  Trust  Hospitals  PPUs,  for  example,  receive  unwarranted  State  Aid  by  virtue  of  the  public  funding  of  their  NHS  activities.12    However,   it   is  accepted   that   sophisticated   accounting   systems   are   necessary   to  ensure   traceability  of   funding  so   that  PPUs  do  not   in   fact   receive  a  cross-­‐subsidy  from  NHS  funds.    The  position  concerning  public  hospitals  in  Ireland  in  so  far  as  there  is  a  system  of  designating  private  beds  in  public  hospitals  is  not  very  different   to   that   of   NHS   hospitals   providing   private   services.   In  respect   of   the   provision   of   that   capacity,   the   hospitals   are   to   be  regarded  as  undertakings  under  EU  (and  national)  competition  law  since  they  are  competing  in  the  ordinary  course  for  the  provision  of  hospital  treatment  mainly  to  the  insurers.  The  fact  that  the  pricing  of  beds  in  public  hospitals  is  ultimately  determined  by  the  Minister  for  Health  has  no  bearing  on  that.    It  does  though  on  one  hand  limit  the  scope  for  certain  types  of  abuse  by  the  hospitals,  but  on  the  other  as  will  be  discussed  immediately  below,  creates  potential  for  potential  forms  of  liability  for  the  State  when  setting  those  prices.  Given  that  prices  are  set  by  the  Minister,  a  public  hospital  is  not  likely  to  price  below  that   level  but   it  might  nevertheless  be  able  to  offer  ancillary  benefits  as  a  method  of  competing  with  private  providers.  As  such,  there  is  some  potential  for  anti-­‐competitive  behavior.  

   

Price  setting    

i. If   MFtP   does   not   include   private   providers,   would   the  continuation   of   the   present   system   whereby   the   Minister   sets  private  bed-­‐night  charges  for  public  hospitals  be  acceptable?  

   

The  ability  of  the  Minister  to  set  the  price  of  private  beds  in  public  hospitals   has   not   been   challenged.   In   this   instance   the   output  (namely   private   hospital   accommodation)   is   sold   on   separate  market   in  which   public   providers   compete  with   private   providers.  Public  hospitals  are  undoubtedly  undertakings  under  EU  law  in  this  particular  context.  That  said,  the  Minister’s  power  to  set  those  prices  is   probably   justifiable   on   at   least   two   separate   bases.   First,   the  public   functions   are   de   facto   State   controlled   and   the   Minister’s  determination  of  price  is  in  effect  an  incident  of  that  control.    This  is  not  very  different  to  Ministerial  determination  of  the  price  charged  by  a  State-­‐owned  company  for  a  particular  commodity.  As  a  result,  

                                                                                                               12    There  are  no  recorded  decisions  on  this  point.  

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while   an   insurer   might   well   prefer   to   be   able   to   negotiate   prices  directly  with  individual  hospitals,  the  Minister  appears  to  be  entitled  to   make   a   pricing   decision.   In   this   context,   the   position   of   the  Minister   is  analogous  to  that  of  the  controller  of  a   ‘single  economic  entity’,   and   there   is   no   obvious   basis   to   allege   any   freestanding  breach  of  the  competition  rules.  Second,  and  drawing  on  the  theory  of   the   exercise   of   Official   Authority,   the   State   has   a   legitimate  interest  in  controlling  the  price  of  private  beds  in  public  hospitals  in  order   to   indirectly   control   the   cost   of   private   health   insurance.  There  will  no  doubt  be  a  respectable  argument  to  be  made  that  there  is   an   optimum   price   to   be   selected   which   maximises   the  contribution   of   private   payers   into   the   system   while   minimising  their  use  of  public  beds.13    Perhaps   a   bigger   issue   connected   with   the   system   of   Ministerial  setting  charges  for  private  beds  is  whether  those  charges  are  in  line  with   economic   costs   and   in   turn   whether   in   practice   private  hospitals  are  recovering  charges  for  beds  that  are  used,  there  being  longstanding  concerns  that  public  hospitals  are  allowing  holders  of  private   insurance   to   occupy   beds   on   a   private   basis   that   have   not  been   designated   as   such. 14  These   concerns   have   significant  implications   for   private   hospitals   seeking   to   compete   and   for  prospective  entrants   to   the  hospital  market,  both  of  which  may  be  confronted  by  a  market  price  that  is  below  cost.  In  this  scenario,  the  argument  would  be   that   the   State   is   in  breach  of  Article  106(1)   in  conjunction   with   Article   102,   in   that   in   respect   of   public  undertakings  (the  VHI  being  one),  it  has  adopted  measures  (namely  the   legal   and   administrative   system   for   bed   designation)   that  restricts  competition  by  completely  distorting  the  market  for  private  hospital   accommodation.15     Insurers   such   as   the   VHI   have   little  incentive   to   buy   private   hospital   accommodation   from   exclusively  private   providers   if   at   present   it   can   be   secured   below   cost   from  public  hospitals.    There  is  also  the  theoretical  possibility  of  an  insurer  arguing  that  the  rates   set   for   private   accommodation   in   public   hospitals   are  excessive,   although   the   current   evidence   if   anything   points   in   the  opposite  direction.  An  argument  for  State  aid  might  be  viable  in  this  context,   although   an   argument   that   the   State   has   brought   about  excessive   pricing   (and   therefore   breached   Article   106(1)   in  conjunction  with  Article  102)  looks  like  a  better  fit  for  the  facts.  As  against   that,   excessive   pricing   claims   are   notoriously   difficulty   to  establish  under  EU  law  and  in  this  instance,  the  Minister  will  be  able  

                                                                                                               13    Ireland  can  point  to  the  CFI  judgement  in  Case  T-­‐289/03  BUPA  Ireland  v  Commission  where  the  Court  accepted  the  argument  that  regulated  health  insurance  was  a  “pillar”  of  overall  health  policy  and  provided  important  relief  to  the  public  system  by  directing  patients  elsewhere.  While  the  Court  may  have  overstated  the  diversion  point,  nevertheless,  private  medical  insurance  is  an  important  source  of  funding  for  public  hospitals  for  private  beds.  14  See  for  example,  Irish  Times,  Thursday,  8  December  2011,  ‘Hospitals  could  earn  €120  million  from  Better  Management’  15  In  this  paper  we  make  a  general  assumption  that  an  effect  on  trade  under  EU  law  is  present.  That  though  needs  to  be  established  on  the  facts.    

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to  point   to   quite   detailed   cost   calculations   that   have  been  built   up  over  time  on  which  to  base  more  recent  decisions  setting  the  price  of  private  hospital  accommodation.  

 ii. If   the   State   does   decide   to   allow   private   hospitals   to   provide  

services  to  the  State  under  the  MFtP,  is  it  required  under  EU  law  that   that   the   same   price/tariff   be   paid   to   all   providers   for   the  same   service?   How   precisely   does   such   a   service   or   episode   of  care  have  to  be  defined?  

 As   previously   noted,   the   State   is   unlikely   to   be   obliged   to   allow  private  providers  to  participate  in  a  MFtP  systems,  but  some  degree  of   participation   looks   unavoidable   if   private   hospitals   are   to   get  some   prior   experience   of   how   UHI   might   operate   in   terms   of  insurers  having  freedom  to  decide  which  hospitals   to  cover  and  on  what   terms.   It   is   true   that   MFtP   can   be   deployed   in   an   entirely  internal   way   and   with   the   use   of   benchmarking   across   public  hospitals   could   result   in   more   cost-­‐oriented   tariffs   for   hospital  episodes.  That  however  is  unlikely  to  simulate  in  a  meaningful  way  what  may   transpire   under  UHI,  which   in   principle  will   effect   a   big  shift  in  negotiation  power  to  insurers.    The   moment   the   State   decides   to   allow   private   participation   in   a  MFtP  system,   this  will  necessitate  very  careful  consideration  of   the  justification   for   any   form   of   price   discrimination   in   terms   of   tariff  setting.   The   current   system   of   block   funding   obscures   the  underlying   prices,   which   will   become  much  more   apparent   under  the   MFtP   system.   As   previously   noted,   a   critical   issue   will   be   the  legal   classification   of   the   underlying   public   system   and   its  components   following   the   introduction   of   MFtP   and   in   turn   its  extension  to  private  providers.    On  one  view,  this  will  not  according  to  the  FENIN  ruling  entail  such  a  radical  change,  or  for  that  matter  attract  the  application  of  rules  that  would   significantly   restrict   Ireland’s   freedom   of   action.   In   FENIN,  the   fact   that   particular   goods   were   bought   for   the   Spanish   public  health  system  was  ruled  by  the  Court  of  Justice  not  to  be  severable  from   their   use   within   that   system.   Earlier   in   the   proceedings,   the  European  Court  of  First   Instance  accepted   that   the  Spanish  system  was  based  on  solidarity  having  regard  to  its  method  of  financing  and  the  benefits  offered.    In  other  words,  the  argument  is  that  the  State  entity  that  is  engaged  in   the  procurement  of   services  under  a  MFtP  system  would  not  be  regarded  as  an  undertaking.  This  conclusion  rests  on  a   single   legal  point  determined  by  the  Court  of   Justice   in  FENIN,  namely  that  the  purchasing  activity  may  not  be  dissociated  from  the  subsequent  use.    While   in  FENIN  the  Court  of   Justice  did  not  pronounce  on  whether  the   Spanish   public   health   system   satisfied   all   of   the   solidarity   and  

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related  criteria,  overall  the  analysis  of  the  Court  of  First  Instance  to  that  effect  looks  compelling.    By  contrast  if  the  same  approach  was  take  as  had  been  by  the  UK’s  Competition   Appeal   Tribunal   in   BetterCare   II,   then   the   situation  would   be   completely   different.16  In   that   case,   the   Tribunal   treated  the  purchase  of  care  by  NHS  entities  in  Northern  Ireland  as  distinct  economic   activity.   This   meant   that   in   that   context   those   entities  were   undertakings.   Taking   that   logic   a   step   further   for   present  purposes,   if   in   Ireland   the   HSE   was   to   introduce   MFtP   and   make  private   providers   eligible,   then   it   would   make   the   HSE   a   public  undertaking   under   Article   106(1)   when   purchasing   hospital   care,  and  then  the  argument  would  be  that  differential  pricing  would,  all  things   being   equal,   mean   that   Article   106(1)   was   breached   in  conjunction   with   Article   102.   Article   102   prohibits   most   forms   of  price  discrimination  by  dominant  firms.  If  then,  the  State  wished  to  justify  differential  pricing  (i.e.  different  prices  for  public  and  private  providers  of  the  same  service),  it  would  need  to  show  that  the  public  providers   were   entrusted   with   an   SGEI   and   that   the   burden   was  such  as  to  justify  different  tariffs.17      Justifying   a   differential   tariff   on   the   basis   of   an   SGEI   might   be  difficult   since   the   nature   of   the   obligation   imposed   on   public   and  private  hospitals   for   a   specified  procedure   is   likely   to   be   identical.  That  said,  while  similar  delivery  criteria  might  be  applied  to  certain  procedure,   it   is   unlikely   (at   least   in   the   short   term)   that   private  hospitals  would  assume  all  of  the  day  to  day  characteristics  of  public  hospitals,  although  the  latter  would  probably  need  to  be  formalised  into   concrete   obligations   of   a   legal   or   regulatory   nature   so   as   to  meet  the  ‘entrustment’  requirement  of  SGEIs  under  Article  106(2).  

     

iii. Specifically,  would  the  EU  rules  allow  for  a  price/tariff  to  be  set  that   did   not   reflect   the   cost   of   pensions   or   capital   investment,  with  the  effect   that  private  providers  were  not  remunerated   for  these   costs  while   the   public   sector   providers  were   provided   for  funding  for  these  costs  from  other  State  sources?  

 The  principal  basis  for  attack  of  differential  tariffs  (leaving  aside  the  issue   of   whether   Irish   public   hospitals   would   be   regarded   as  undertaking  in  this  context)  is  whether  or  not  this  would  amount  to  unlawful  State  aid.    There  is  however  a  very  significant  qualification  to  the  application  of  State  aid  rules  to  the  funding  of  hospitals  in  the  

                                                                                                               16    Case  1006/2/1/01  BetterCare  Group  Ltd  v  Director  General  of  Fair  Trading  [2002]  CAT    17    Note  that  the  Court  of  Justice  ruling  in  FENIN  came  after  the  CAT  ruling  BetterCare  II.  Since    FENIN  indirectly  over-­‐rules  BetterCare  II,  the  approach  taken  in  the  latter  case,  although  intellectually  rigorous,  is  unlikely  to  be  followed.  The  OFT  takes  the  view  that  FENIN  is  conclusive  on  the  severability  point  including  as  to  the  interpretation  of  UK  competition  law.  

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form   of   Article   2(b)   of   Commission   Decision   2005/842/EC,   which  provides  a  complete  exemption  from  the  State  aid  rules  for:    “public  service  compensation  granted  to  hospitals  and  social  housing  undertakings   carrying   out   activities   qualified   as   services   of   general  economic  interest  by  the  Member  State  concerned;’  18    Unusually   for  an  exemption,   this  provision   is   completely  unlimited  in   monetary   terms   and   moreover,   may   be   relied   upon   by   the  Member  States  through  the  mere  assertion  that  a  hospital  is  engaged  in  the  provision  of  an  SGEI.19  On  its  face,  the  exemption  would  block  off   a   challenge   on   State   aid   grounds   to   higher   payments   to   public  providers   for   identical   levels   of   service   provision   for   public  providers.     This   decision   was   recently   replaced   by   Decision  2012/21/EU,   entering   into   force   on   31   December   2012,   which   in  Article  2(b)  provides  a  complete  exemption  from  the  State  aid  rules  for:      compensation   for   the   provision   of   services   of   general   economic  interest   by   hospitals   providing   medical   care,   including,   where  applicable,   emergency   services;   the   pursuit   of   ancillary   activities  directly  related  to  the  main  activities,  notably  in  the  field  of  research,  does  not,  however,  prevent  the  application  of  this  paragraph;20    

 There  is  a  very  significant  case  pending  before  the  General  Court  in  Luxembourg   in   relation   to   the   deficit   funding   of   certain   public  hospitals   in   the   Brussels   region.     In   summary,   they   had   over   a  number  of  years  been  recipients  of  funding  going  beyond  payments  for   service  provision   to   ‘social   patients’,   of  whom   some  67%  were  catered  for  by  private  hospitals,  who  typically  were  reimbursed  less  for   patients   that   their   public   counterparts.21  Although   disputed   to  some  degree  it  would  appear  that  both  public  and  private  hospitals  were   under   the   same   SGEI   obligations.   Applying   Decision  2005/842/EC,   the  Commission  held   that   top-­‐up  payments   running  from   after   the   date   of   its   entry   into   force   of   that   instrument  were  entirely  exempt   from  the  State  aid  rules,  but   that  earlier  payments  were  not.22      Turning   to   those   earlier   top-­‐up   payments,   they  were   found   not   to  comply   with   the   Altmark   criteria,   and   as   a   result   were   State   Aid.  Nevertheless,   the   European   Commission   approved   the  compensation,   subject   to   certain   observations   about   the   need   for  

                                                                                                               18    This  Decision  was  introduced  to  assist  with  legal  certainty  in  the  light  of  the  Altmark  judgment  referred  to  above.  19  In  other  words,  the  usual  ‘entrustment’  requirement  for  SGEIs  under  Article  106(2)  is  not  applied.  20  Commission  Decision  of  20  December  2011  on  the  application  of  Article  106(2)  TFEU  to  State  aid  in  the  form  of  public  service  compensation  granted  to  certain  undertaking  entrusted  with  the  operation  of  SGEIs  (OJ  L  7,  11.01.2012,  p.  3-­‐10).    Attempts  by  private  hospital  operators  to  have  the  open-­‐ended  exemption  for  payments  to  hospitals  ended    were  unsuccessful.    21  Those  are  patients  who  are  unable  to  cover  the  cost  of  hospital  treatment.  22  State  Aid  Notification,  Belgium,  NN54/2009  

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greater   transparency,   on   the   basis   that   the   burden   of   SGEI  obligations   on   public   providers   justified   the   supplemental  compensation.   Part   of   the   alleged   difference   in   circumstances   is  understood   to   be   greater   pension   and   other   costs   for   public  employees.23  

   

Eligible  Providers    

i. Does  EU  law  allow  the  State  to  confine  MFtP  eligible  providers  to  a  limited  set  of  providers,  e.g.  not-­‐for-­‐profit  groups?    Restricting  participation   in  MFtP   to  public  providers   and  not-­‐for-­‐profits   would   has   the   potential   advantage   from   a   supply-­‐limitation   perspective   of   introducing   a   new   source   of   supply  short   of   the   full   panoply   of   private   providers.   That   said,   the  criteria   for   defining   ‘not   for   profit’   would   require   careful  definition  since  there  are  a  myriad  of  ways  in  which  profit  can  be  effectively  extracted  from  a  business  that  is  styled  otherwise.  For   example,  not   even   charitable   status  would  guarantee   that  no  economic  profits  were  being  extracted.  

 If   the   principle   that   the   State   is   free   to   decide  which   entities  and   on   what   terms   any   provider   (public   or   private)   can  participate  in  a  MFtP  systems,  then  it  would  appear  to  be  open  to   a   Member   State   to   limit   participation   in   MFtP   to   not-­‐for-­‐profit   providers.   Separate   to   that   first   principles   approach,  there   is   EU   precedent   to   the   effect   that   under   certain  conditions,   Member   States   may   limit   the   pursuit   of   certain  kinds   of   activity   to   not-­‐for-­‐profit   actors.   In   particular   in  Sodemare,   the  European  Court  of   Justice  upheld  the   legality  of  restricting  reimbursement  by  the  Italian  social  security  system  for  home  care   for   the  elderly   for  not-­‐for  profit  entities  only.24  The   restriction   was   challenged   by   a   Luxembourg-­‐based  operator  who  had  been  authorised  to  operate  a  home  in  Italy.    An  interesting  feature  of  this  case  is  that  although  the  Court  of  Justice   could   have   decided   the   case   solely   on   the   basis   of  whether   the   freedom  of   establishment  principle  was   violated,  not   only   did   it   do   that,   it   also   grounded   its   conclusion   in   a  Member   State’s   freedom   to   define   its   own   social   security  system.  So  while  the  Court  accepted  that  this  was  a  restriction  that  applied  without  reference  to  nationality,  it  also  set  out  that  it   was   open   to   Italy   to   decide   that   not-­‐for   profit   delivery   of  these   services  was  most   appropriate  method   of   provision   for  

                                                                                                               23  It  will  be  noted  that  the  underlying  features  of  the  Belgian  system  were  regarded  as  an  SGEI.  While  the  system  of  private  health  insurance  in  Ireland  has  been  approved  as  an  SGEI,  the  public  health  system  is  arguably  outside  the  competition  rules  in  their  entirety.  24  Case  C-­‐70/95  Sodermare  [1997]  ECR  I  03395  

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home  care  services.  In  this  context,  it  mentioned  that  the  Italian  system   was   founded   on   the   basis   of   the   solidarity   principle.  Although  this  judgment  only  concerned  the  free  movement  and  not   the   competition   rules,   it   is   hard   to   envisage   that   the   case  would   have   been   decided   any   differently   is   they   had   been  relied  upon.    

   

ii. Must  any  new  hospital  be  allowed  to  provide  services  under  the  MFtP   system   or   can   the   State   limit   the   number   of   providers,  including  private  providers,  for  capacity  control  reasons?  

 The  State  would  appear  to  have  a  very  broad  discretion  to  limit  the  number  of  providers,   at   least  under  EU   law   in   so   far   as   it  can   point   to   some   need   connected   with   the   operation   of   the  public   health   system.   To   the   extent   that   Ireland   introduced  MFtP   in   part   to   prepare   public   providers   for   UHI,   then   there  might  be  valid  reasons  why  the  extension  of  MFtP  to  the  entire  private  hospital  sector  should  be  phased,  if  only  because  of  the  potential   strain   on   public   hospitals   finding   that   some   of   the  funding   that   automatically   that   now   goes   to   them   is   instead  allocated   to   private   providers.   In   the   context   of   a   static   or  declining  health  budget  this  could   leave  some  public  hospitals  in  major  difficulty.25    The  State  though  would  need  to  take  care  not  to  engage  in  subjective  decisions  in  the  choice  of  providers  admitted   to   the   MFtP   system   since   domestic   law   protection,  including   the   principle   of   equality   before   the   law   might   be  invoked.  

   

iii. In   a   situation   where   both   public   and   private   hospitals   are  providing   services   under   MFtP,   do   Irish   and   European  competition   law   provisions   apply   to   mergers   or   co-­‐operative  agreements  between  them  and,   for  example,   in  relation   to   their  primary  care  referral  sources  (GPs,  primary  care  centres)?  

 The   fact   that   both   public   and   private   providers   provide  services  under  MFtP  would  not  as  such  affect  the  applicability  of  these  regimes,  although  as  a  general  principle  Irish  and  EU  law   requirements   concerning   mergers   and   co-­‐operative  agreements   only   apply   to   undertakings.   Currently,   public  hospitals   would   be   regarded   as   undertakings   when   they  provide   private   beds,   so   for   example,   any   arrangement  between   them   and   a   private   hospital   (for   example   sharing  capacity)   could   fall   within   section   4   of   the   Competition   Act  2002   (and   possibly   Article   101   TFEU),   although   such  

                                                                                                               25  Interestingly,  in  Universal  Health  Insurance  –  the  Labour  Party’s  Health  Policy,  there  is  explicit  mention  of  the  likelihood  that  certain  hospitals  (in  particular  local  hospitals)  may  struggle  to  attract  business  under  UHI.  The  suggested  policy  response  is  some  sort  of  residual  funding  under  the  control  of  the  Minister.  

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arrangement   might   well   enhance   rather   than   restrict  competition,   or   be   otherwise   capable   of   exemption   under  those   rules.   The   position   is   broadly   similar   with   respect   to  mergers.        Conclusions    A   principal   purpose   of   this   discussion   paper   is   to   focus  attention   on   the   modalities   of   MFtP   by   asking   how   the  operation   of   EU   law   might   impact   on   its   introduction.  Currently,  we  do  not   know  whether  MFtP  will   be   an   internal  matter   within   the   HSE   or   will   be   developed   to   the   point  whether  private  providers  begin   to  participate   in   it.  A   crucial  feature   of   MFtP   is   that   it   is   to   be   a   precursor   to   UHI   where  payments   to   providers   are   made   by   insurers.     Thus,   the  inclusion   of   private   hospitals   in   MFtP   would   signal   the  beginning  of  greater  reliance  by  the  State  on  the  procurement  of   hospital   services   from   private   sources.   Decisions   about  pricing  of  services  and  about  which  providers  are  included  will  have   to   be   made,   even   in   a   phased   way,   if   MFtP   is   truly   a  transition   to  UHI.   In  principle   also,   the   advent  of  UHI   creates  the  possibility   of   insurers   contracting  with  providers   of   their  choice  and  in  turn  striking  individual  tariff  bargains.      From   an   EU   law   perspective,   just   as   the   operation   of   the  current   public   health   system   gives   Ireland   very   significant  authority  over  its  design,  the  introduction  of  MFtP  seems  to  be  largely   a   discretionary   matter   for   the   Irish   authorities.   That  said,  the  need  to  simulate  some  of  the  effects  of  UHI  may  lead  the   State   to   admit   parts   of   the   non-­‐public   sector   into   MFtP.  Separately,   while   objections   might   be   taken   to   differential  tariffs   by   provider,   Ireland   appears   to   be   in   a   position   to  defend   those   arrangements   on   several   bases,   although   the  transparency   inherent   in   MFtP   will   create   its   own   set   of  pressures  for  change.    Finally,   whatever   the   formal   requirements   of   EU   or   national  law,  there  is  always  room  for  initiatives  that  seek  to  minimise  competitive  distortions  and  which  give  effect  to  the  spirit  if  not  the   letter   of   EU   requirements,   even  where   they  might   not   be  technically   applicable.   The   UK   has   already   taken   several  initiatives   in   that   direction   concerning   the   NHS.   There  undoubtedly  are  crucial  distributional   issues  at  play   in  health  policy   and   the   challenge   is   to   reconcile   their   realisation  with  the  curtailment  of  monopolistic  practices.  Just  as  it  is  foolish  to  rely   on   competition   as   a   panacea,   equally   mistaken   is   the  assumption   that   just   because   the   competition   rules   do   not  apply,   there   is   no   reason   to   give   careful   consideration   to  

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competition   related   matters.   In   this   context,   the   promise   to  move  to  UHI  will  probably  necessitate  much  more  than  current  EU  law  requires.                                        Paper   presented   to   Ceohealthmatters   Forum   on   Price   and  Tariff-­‐setting  4th  September  2012    www.ceohealthmatters.com/4Sept    ©  Ceohealthmatters  Ltd.