Bundeskartellamt prohibits hospital merger for the first time

The Bundeskartellamt has prohibited Rhön-Klinikum AG (Rhön), Bad Neustadt/Saale, from acquiring the two hospitals of the administrative district of Rhön-Grabfeld in Bad Neustadt (200 beds) and Mellrichstadt (70 beds) in order to prevent a further strengthening of Rhön’s dominant position in the markets concerned.

Rhön is one of the leading private hospital groups in Germany. The company’s principal shareholders are Bayerische Hypo- und Vereinsbank and the Münch family. Rhön currently operates 30 clinics in Germany and achieves a turnover of more than 1 billion €. Since the summer of 2004 alone the company has taken over nine hospitals with more than 3,000 beds.

The product market affected by the takeover is the market for acute hospitals which covers all general hospitals and specialised clinics, but not rehabilitation and other nursing centres. A narrower market definition, e.g. covering specialised hospital departments, would not have been appropriate as the specialised departments of internal medicine, surgery and gynaecology found in almost any general hospital account for two thirds of all hospital beds anyway.

In geographic terms, the Bundeskartellamt has defined two relevant geographic markets, the Bad Neustadt / Bad Kissingen market and the Meiningen market. The geographic market definition was based on a comprehensive survey of patient flows within a greater area of about 100 x 120 kilometres. The investigations showed that a vast majority of patients only choose hospitals located within a relatively short distance to their home.

The planned concentration would have strengthened Rhön’s existing dominant positions in the markets mentioned above. In the Bad Neustadt / Bad Kissingen market, an area in which Rhön already owns five clinics (as well as a further three clinics in the surrounding area), its market shares would have increased by approx. 25 per cent to approx. 65 per cent, and in Meiningen to approx. 60 per cent.

The seller, the administrative district of Rhön-Grabfeld, has argued that the preconditions for a so-called reorganisation merger are fulfilled. The Bundeskartellamt could not subscribe to this view. The precondition for clearing a project as a reorganisation merger is that the conditions of competition would worsen even without the merger, because without the takeover the target company would disappear from the market and, as no alternative acquirer exists, the market shares would automatically fall to the sole acquirer. According to the Bundeskartellamt’s findings in the present case at least one further potential acquirer exists whose acquisition of the district’s hospitals would not cause any restraints of competition. At any rate the administrative district has not proven that the hospitals are unsellable. For this reason alone the preconditions for a reorganisation merger did not exist.

The President of the Bundeskartellamt, Dr Ulf Böge, stated: “The Bundeskartellamt is fully aware of the special social-law regulations under which hospitals operate. In view of the difficult financial situation of many hospitals and their owners the Bundeskartellamt wholly welcomes the fact that also private investors can use their financial and management resources to restructure the German hospital system. In the recent past the Bundeskartellamt has thus cleared a large number of hospital takeovers. Private hospitals’ opportunities for expansion are only restricted if they result in considerable competition problems in the markets affected. Hospital takeovers must not lead to market dominance. Moreover it would be a most contradictory situation if companies were to use the possibilities of private-sector economic activity on the one hand, but refused to be controlled by competition on the other. Particularly in this difficult phase of co-existence between public-law planning guidelines and market-economy control mechanisms it is of decisive importance not to cement dominant positions held by private groups of companies. Enforcing competition as a controlling mechanism in the hospital market does not jeopardize the supply of services to the population, but ensures the long-term offer of choice of high-quality services in the interests of the patient.”

The decision is not yet final. The parties involved can appeal against this decision at the Düsseldorf Higher Regional Court.

The decision is available on the Internet at www.bundeskartellamt.de