On 5 October 2012, details were published concerning a 5 September 2012 decision by the German Federal Cartel Office ("FCO") prohibiting a proposed merger between two hospitals in Worms, a city on the west bank of the Rhine River in southwest Germany.
According to the FCO, the proposed acquisition by the Klinikum Worms of the Agaplesion Hochstift Hospital ("Hochstift") would have resulted in a dominant position for the Klinikum Worms on the regional market for acute inpatient hospital services, i.e., in the provision of stationary medical services provided by general hospitals to patients. The FCO distinguished the market for acute inpatient hospital services from the markets for services provided by purely private hospitals, rehabilitation centres and nursing homes, on the basis that public health insurance covers the costs for general hospitals but generally does not cover the costs for services of these other kinds of care suppliers. The FCO defined the relevant geographic market as the region of Worms.
With 555 beds, the Klinikum Worms is already the largest hospital in the Worms region, with a market share of around 37.5%. Post-transaction, this share would have increased to 52.5%, whereas all remaining competitors would have had individual market shares of 7.5% or less, as a consequence of which the FCO considered that patients' choice would have been considerably decreased post-transaction.
Interestingly, the FCO considered whether Hochstift met the requirements of the failing firm defence, i.e., whether: (i) Hochstift was in need of restructuring and could not have survived on its own, (ii) there was no less harmful alternative from a competition point of view than the proposed transaction, and (iii) Hochstift's market position in any event would have been taken over by the Klinikum Worms in the absence of the merger. Considering each prong of the test (which has been a recognised defence in merger cases going back to the European Commission's 1997 approval of the Boeing/McDonnell Douglas deal), the FCO found the failing firm defence not to apply to the facts at issue. In particular, there was no indication that Hochstift would become insolvent and the seller did not enter into any negotiations or talks with any companies other than the Klinikum Worms (thus making it impossible to know whether another buyer might have existed whose acquisition would have been less harmful to competition). Moreover, the FCO considered that the Klinikum Worms's market share would have been likely to increase only up to around 42.5% in the event of Hochstift ceasing its activities (about 10% less than if the transaction were allowed to go ahead).
This decision, which can still be appealed, marks the sixth prohibition of a proposed concentration in the hospital sector in Germany since 2004.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
