A recent decision by the Germany’s federal competition authority, serves as a reminder to businesses and investors to address regulatory hurdles like merger control early in merger and acquisition (M&A) transactions, an expert has said.
The German Bundeskartellamt, Germany’s federal competition authority (FCO), recently decided to prevent the proposed merger between Heidelberg University Hospital (UKHD) and University Hospital Mannheim (UKMA) following an in-depth investigation under German competition law. UKHD had planned to acquire a majority share in UKMA.
Investigations carried out by the FCO indicated that the merger would have significant negative effects on competition. Patients would be left with only a few, or in some medical areas, hardly any comparable and independent competing hospitals in the region.
The parties argued that the merger would increase the hospital in size, resulting in higher case value and specialisation, in turn improving the quality of care. However, the FCO disagreed, stating that other forms of cooperation would be capable of achieving similar positive effects without compromising hospital independence. The FCO’s decision was also based on the fact that larger university hospitals do not automatically become better through growth.
Michael Reich, European competition law expert at Pinsent Masons, said: "The quality in the hospital industry is fundamentally linked to the presence of robust competition. It is, therefore, a key responsibility of merger regulation to safeguard the variety of providers and the options available to consumers."
"At the same time, the merger of two university hospitals is a special case, as it not only concerns competition and patient care. It is also about maintaining study places and the quality of research and development in the region. At least in its press release, the Federal Cartel Office does not address the last two points,” he said.
Heidelberg University Hospital, as one of the largest university hospitals in Germany, already has a dominant position in the Heidelberg hospital market. The merger with the UKMA would further strengthen this position. In addition, the merged university hospitals would also be dominant in the Mannheim and Heppenheim regions as well.
Volker Balda, M&A transactions expert at Pinsent Masons, said: "Collaborations offer similar benefits without compromising the independence of the clinics. However, it remains to be seen how this decision will impact the healthcare market and whether more collaborations will be considered in the future."
Once the merger has been prohibited, it may not be implemented. The FCO's decision is not yet legally binding. An appeal can be lodged against it, which would then have to be decided by the Düsseldorf Higher Regional Court. The Ministry of science, research and the arts of the state of Baden-Württemberg said it was checking the options to file an appeal.
It also announced that it would challenge the decision by applying for a ministerial authorisation. This is a formally regulated review procedure in which the Federal Ministry for Economic Affairs and Climate Actions is in charge. The procedure is based on a comprehensive examination of macroeconomic aspects and the public interest.
The Ministry of Science, Research and the Arts of the state of Baden-Württemberg said it expects economics minister Robert Habeck to take into account aspects such as the need to provide healthcare, cutting-edge research and urgently needed medical study places in addition to the FCO's concerns regarding market dominance. It said that 270 medical study places could be lost in the event of a prohibition of the merger. It is hoping that the overriding public interest will outweigh the restrictions on competition identified by the German FCO.
Since the introduction of the ministerial authorisation more than 50 years ago, only 23 applications have been submitted to date, and only 10 have been granted. The granting was often linked to additional restrictions.
One case could be particularly relevant for the UKHD and the UKMA: In 2008, the former rederal minister of economics and technology, Michael Glos, granted ministerial authorisation for the merger of Greifswald University Hospital with Wolgast District Hospital. In this case too, the Cartel Office had stopped the merger, claiming that it threatened the regional hospital market. The Federal Ministry of Economics, on the other hand, categorised the preservation of the Greifswald Medical Faculty and the expansion of the 'Community Medicine' research focus operated there as more important.
Arkadius Strohoff, a European competition law expert at Pinsent Masons, said: "It will be interesting to see how the Federal Ministry of Economics under Robert Habeck decides in the end. However, the case of the Heidelberg-Mannheim hospital merger serves as a further reminder to companies and investors to address regulatory hurdles such as merger control at an early stage in M&A transactions.
