Application of EU Single Market rules to providers of healthcare in Ireland anticipating move to Universal Health Insurance - legal and practical arguments

1.
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

2. 2
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

3. 3
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

4. 4
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,

5. 5
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

6. 6
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.”

7. 7
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.
See
footnote
8.
10
See
OFT
Press
Release
71/12
of
16
August
2012
concerning
assurances
that
a
number
of
NHS
trusts
gave
not
to
11
continue
to
share
pricing
information
in
respect
of
their
private
services
delivered
within
Private
Patient
Units.

8. 8
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.

9. 9
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.

10. 10
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

11. 11
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.

12. 12
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