COMPETITION LAW UPDATE

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Clara Melton
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24 Aug 10 COMPETITION LAW UPDATE CCS ISSUES STATEMENT OF DECISION IN RESPECT OF THE SINGAPORE MEDICAL ASSOCIATION S FEE GUIDELINES On 18 August 2010, the Competition Commission of Singapore (the CCS

The CCS concluded that the GOF infringed section 34 of the Competition Act 1, and did not benefit from the Net Economic Benefit exclusion (the NEB exclusion ).

This is the first time the CCS has issued a Statement of Decision concluding that a notified agreement infringes section 34 of the Competition Act.

1 24 Aug 10 COMPETITION LAW UPDATE CCS ISSUES STATEMENT OF DECISION IN RESPECT OF THE SINGAPORE MEDICAL ASSOCIATION S FEE GUIDELINES On 18 August 2010, the Competition Commission of Singapore (the CCS ) published its final Statement of Decision in respect of the Singapore Medical Association s (the SMA ) Guidelines on Fees ( GOF ). The CCS concluded that the GOF infringed section 34 of the Competition Act 1, and did not benefit from the Net Economic Benefit exclusion (the NEB exclusion ). However, as the SMA had voluntarily removed the GOF in April 2007 prior to any investigation initiated by the CCS, there was no need for the CCS to take any further action on this matter. This is the first time the CCS has issued a Statement of Decision concluding that a notified agreement infringes section 34 of the Competition Act. As part of the CCS review, Drew and Napier LLC s Competition Law Practice Group, together with its economic advisers (the Consultants ), assisted the CCS in carrying out a market study into the medical services industry ( Market Study ). The Market Study took into account input from various industry stakeholders in Singapore, including the Ministry of Health, Singapore Medical Council, hospitals (restructured and private), various private specialist and GP clinics, insurance companies and the Consumer Association of Singapore ( CASE ). Background The SMA is an association of medical practitioners in Singapore, formed in It has several categories of memberships, including some categories extending to non-medical practitioners. Figures furnished by the SMA show that as at 31 January 2009, 4,602 of the 7,969 registered medical practitioners in Singapore were members of the SMA. The SMA is managed by the SMA council (the SMA Council ), which is elected by and answerable to the SMA s general membership at its annual general meetings. The SMA Council appoints various committees to deal with a range of matters. One of these committees was the GOF Committee, which was tasked with developing and revising the GOF. 1 Section 34 prohibits agreements between undertakings, decisions by associations of undertakings and concerted practices, which have as their object or effect the prevention, restriction or distortion of competition within Singapore, unless they are exempted or excluded.

2 The SMA s Guidelines on Fees The GOF recommended a range of professional fees for an array of services (eg. consultation services, professional services, operations and anaesthesia services) provided by doctors in private practice in Singapore. According to the SMA, a range of fees, rather than a fixed rate, was recommended for most procedures or operations as the actual fees eventually charged to patients would depend on variable factors such as the level of expertise, complexity, or time required. The fourth edition of the GOF, published in March 2006, was the latest edition of the GOF 2. The fourth edition of the GOF was extensive, covering more than a thousand procedures, with only the most esoteric operations excluded. It categorised the recommended professional fees into three major parts: General Consultation Fees for general practitioners and specialists; Professional Fees for office surgery and medical procedures amongst others; and Fees for Operations and Anaesthesia for a wide range of surgical operations. The SMA s voluntary withdrawal of the GOF On 1 April 2007, the SMA withdrew the GOF in light of concerns that the GOF might potentially infringe section 34 of the Competition Act. On 5 February 2009, the SMA submitted an application for a decision from the CCS as to whether the GOF infringed section 34 of the Competition Act. On 28 October 2008, the SMA further applied to the Minister for Trade and Industry to exclude the GOF from the application of section 34 of the Competition Act on grounds of exceptional and compelling reasons of public policy. On 3 June 2010, the Minister for Trade and Industry, after careful consultation with the Ministry of Health, declined to exclude the GOF from the ambit of the Competition Act, paving the way for the CCS to take a decision on whether the GOF was compatible with the Competition Act. The Decision Infringement of Section 34 of the Competition Act In reaching its decision that the GOF infringed section 34 of the Competition Act, the CCS concluded that the GOF had the object of restricting competition. 2 The first edition of the GOF was published in 1987, followed by subsequent editions in 1992, 2000 and

3 In particular, the CCS took into account the following: Purpose of the GOF The purpose of the GOF was to influence prices in the private medical services sector (particularly young medical practitioners entering the medical private sector) so that the general level of fees charged would likely to be within an acceptable range among the medical practitioners themselves. Compliance among medical practitioners Although the GOF was stated to be voluntary, the SMA had an objective mechanism in place to foster compliance among medical practitioners. GOF not formulated based on actual price data The GOF was not formulated based on actual price data and consisted of fees that may have been fashioned with a degree of selfinterest, even though the SMA indicated that the fee ranges were usual, customary or reasonable. Inherent conflict of interest As the SMA is made up of doctors, there is an inherent conflict of interest for them to set prices given their financial interest in the level of the GOF. GOF did not promote better quality of medical services It could not be objectively construed that either the minimum or maximum recommended prices in the GOF promoted better quality medical services. GOF deemed anti-competitive in nature if treated as an agreement Even if the GOF comprised only recommended maximum fees (ie. without recommended minimum fees), it would still be deemed to be anti-competitive in its nature, particularly if medical practitioners treated the recommendation as an agreement and gravitated their prices towards the maximum fees. Given the CCS conclusion that the GOF had the object of restricting competition, the CCS considered that it was not necessary to consider if the GOF also had the effect of doing so. Nevertheless, the CCS also noted that on the facts, the GOF had been effective in influencing prices. This was evidenced by statements in the SMA s submissions to the CCS and feedback obtained from interview sessions conducted by the Consultants with the various stakeholders. The quantitative analysis on professional fees also suggested that the GOF had led to price convergence when it was in force. No Net Economic Benefit In notifying the GOF to the CCS, the SMA claimed that the GOF was necessary to protect patients interests in respect of preventing uninhibited profiteering and the escalation of medical fees. The SMA argued that the GOF did so by increasing the transparency of healthcare costs, diminishing the information asymmetry between patients and medical practitioners, allowing patients to make an informed choice of medical practitioner, so that over-charging could be identified and curbed in the private sector. The CCS considered the SMA s claims in respect of the two relevant markets the Primary Care market and the Hospital Care market separately. 3

4 Primary Care Market In respect of the market for medical services provided through an island-wide network of outpatient polyclinics and private medical practitioners clinics (the Primary Care Market ), the CCS considered that over-charging was not a major concern and the need (and relevance) of the GOF was not established. The CCS also noted that the SMA had agreed that over-charging was not a major concern in the Primary Care market even following the withdrawal of the GOF. Hospital Care Market In respect of the market for multi-disciplinary acute inpatient and specialist outpatient services and 24-hour emergency services provided by the general hospitals (the Hospital Care Market ), the CCS considered the arguments put forth by the SMA and took into account, among other things, the results of the quantitative analysis from the Market Study (which did not provide support that the GOF was constraining doctors from over-charging) as well as records of over-charging reports submitted to the SMA and CASE. The CCS conclusion was that the scope of emergency cases where the patient is genuinely exposed to the risk of over-charging (if any) is narrow, and would not justify the publication of recommended fees for an entire gamut of medical procedures and operations, pertaining to both emergency and non-emergency cases, for the stated purpose of curbing over-charging. It therefore considered that the GOF did not meet the requirements of either improving production or distribution, or promoting technical or economic progress, of medical services in Singapore. It therefore did not qualify for the NEB exclusion. The CCS was also not convinced by the SMA s arguments that the GOF was indispensable to achieving the claimed economic benefits. The CCS preferred independent, objective and unbiased initiatives to address any information asymmetry problems, such as the measures adopted by the Ministry of Health to improve price transparency (eg. itemising medical bills and publishing condition-specific hospital bill sizes). Comment This decision clearly shows that when assessing the compatibility of a potentially anticompetitive agreement with the Competition Act, the CCS will carefully scrutinise the competitive environment in the relevant markets and the impact that the agreement will have on market dynamics. In this case, the CCS considered that the GOF, even if it was non-binding, had the object and effect of harming the competitive process by restricting independent pricing decisions and signalling to market players what their competitors were likely to charge. Associations that have issued or are considering issuing price recommendations should carefully consider their positions. The adoption of such a robust assessment by the CCS is a strong reminder that parties seeking formal clearance for their business activities must always provide clear and demonstrable economic evidence of any claimed benefits that their business activities will potentially achieve. 4

5 This decision also illustrates that while the CCS is open to considering claims that an agreement may benefit from the NEB exclusion, the burden of proof lies squarely on the party claiming such exclusion and such claims will need to be backed up by clear evidence establishing the applicability of the exclusion to the agreement in question. If you wish to discuss how this update may potentially affect you, or simply wish to find out more about competition law compliance, please feel free to contact Drew and Napier LLC s Competition Law Practice Group. You may also wish to browse through our publications which are available here. The contents of this update are only intended to provide general information on the subject covered. Nothing in this publication should be treated as specific professional legal advice concerning any particular business, operational or other situations with which you might be faced. Drew & Napier LLC accepts no liability for, and does not guarantee the accuracy of, the information contained in this publication, and does not accept any liability for any loss or damage arising from any reliance thereon. 5

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