By Alison Choy Flannigan - Partner Corporate & Commercial, health aged care and life sciences at Holman Webb Lawyers
Private hospital operators conduct their business in a competitive environment and competition laws can affect how they interact with their competitors and other organisations such as private health insurers, pharmaceutical companies, medical device companies and medical practitioners.
The Competition and Consumer Act 2010 (Cth) (the Act) prohibits a number of restrictive trade practices, including misuse of market power, anti-competitive contracts, price-fixing and secondary boycotts affecting competition.
Every private hospital operator must be aware of these obligations and ensure it has policies and procedures in place to comply with the Act.
A corporation found to be in breach of the Act (as per section 76 of the Act) can attract penalties of up to $10 million, the value of the benefit attributable to the breach, or 10 per cent of annual turnover (whichever is greater).
For individuals, the penalty can be up to $500,000 and the individual can be disqualified from managing a corporation. In addition, damages and injunctive remedies may be available.
Misuse of Market Power
Section 46 states that “a corporation that has a substantial degree of power in a market shall not take advantage of that power in that or any other market for the purpose of:
- Eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market;
- Preventing the entry of a person into that or any other market; or
- Deterring or preventing a person from engaging in competitive conduct in that or any other market….”
The contravention of section 46 is “not merely the co-existence of market power, conduct and proscribed purpose, but a connection such that the firm whose conduct is in question can be said to be taking advantage of its power” (see Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) 205 CLR 1).
What is market power?
Market power is the power to behave in a market in a manner not constrained by the competitors in that market for a sustained period. For example, being able to raise prices above supply cost without losing customers.
Example of misuse of market power
An example of misuse of market power is when the sole Australian manufacturer of a sterile fluid, being an essential product, tendered supply to public hospitals on a bundled basis with other fluids, where the price differential between the item by item price and its bundled price was substantial. This allegedly damaged competitors selling the other fluids: ACCC v Baxter Healthcare Pty Limited (No 2)  FCAFC 141; (2008) 170 FCR 16; 249 ALR 674.
What changes are proposed?
On 31 March 2015, the Federal Government released the final report of the Competition Policy Review (the Harper Review). The Harper Review recommended substantial changes to section 46.
The Harper Review commented that the existing section 46 was not reliably enforceable and permits anti-competitive conduct.
The Harper Review recommended that section 46 be “reframed to prohibit a corporation that has a substantial degree of power in a market from engaging in conduct if the proposed conduct has the purpose, or would have or be likely to have the effect of substantially lessening competition in that or any other market.”
Such a reframing would allow the provision to be simplified.
The review also made recommendations in order to mitigate concerns about inadvertently capturing pro-competitive conduct. The review recommended that authorisations (by the Australian Competition and Consumer Commission (ACCC) should be available in relation to section 46 and that the ACCC should issue guidelines.
The Harper Review included the following proposed wording for section 46(1):
“A corporation that has a substantial degree of power in a market shall not engage in conduct if the conduct has the purpose, or would have or be likely to have the effect, of substantially lessening competition in that or any other market…”
The recommendations were met with some opposition. The Government announced in its response in November 2015 that it would consult further on the reform and has decided to accept the Harper Review recommendation in full.
At the time of writing, the draft legislation has not been released.
What are the key differences?
The proposed changes:
- Remove the ‘take advantage’ test – so the applicant will no longer have to prove that the respondent used its market power (and not some other power);
- Shift ‘for a purpose’ to ‘has the purpose, or would likely to have the effect’ of substantially lessening competition – so the applicant will no longer have to focus on the purpose for which the market power was used, rather the effect of the conduct;
- Move from a focus on ‘damage to a competitor’ to a focus on ‘substantially lessening competition’; and
- Adding further factors for a court to take into account and matters aimed at reducing uncertainty.
The amended section 46 is designed to make it easier to enforce penalties and to prohibit a breach of misuse of market power.
It aims to prevent large companies with market power (such as large private health insurers) from engaging in a misuse of market power which affects competitors (other private health insurers) and non-competitors in other markets (such as private hospital operators).
It is not until the legislation is passed and tested that we will be able to measure its true effect. The greater question is whether the recommendations will survive the upcoming election.