Belgium: Hospital Mergers No Longer Subject To The Belgian Competition Authority's Prior Review

For the past five years there has been an ongoing battle between the Belgian Competition Authority ("BCA") and the legislator about the BCA's competence to review mergers between hospitals. This wrangling has lead to a whole collection of legislative reforms, opinions, merger decisions with strong press releases, and communications going back and forth. The legislator has now had the last word, by providing that, in principle, hospital mergers are no longer subject to the BCA's prior review and approval.

This exception to the general Belgian merger notification requirement has been included in an Act that the Belgian federal Parliament approved on 28 March 2024. That Act further contains different competition law-related provisions that amend various rules related to the BCA's organisation and grant the BCA more powers to improve its efficiency and allow it to adequately support the European Commission in the latter's application of the Digital Markets Act. Further information on those amendments can be found here in our dedicated post.

1. The rule and its new exception

The rule

Merger and acquisition (M&A) transactions that meet certain conditions can typically only be implemented once they have been notified to, and approved by, the competent competition authority. To protect competition in the market, such a prior merger notification requirement has existed for many years at both the European level (with notification to the European Commission) and at the national level of many EU member states, including Belgium (with notification to the BCA). Consequently, any M&A transaction that meets the Belgian statutory turnover thresholds – with at least two parties concerned individually having a Belgian turnover of EUR 40 million and all the parties concerned collectively having a Belgian turnover of at least EUR 100 million – must be notified to and then approved by the BCA before it can be implemented.

The new exception

The mandatory prior merger notification has always existed in Belgium irrespective of the sector in which the M&A transaction occurs. However, an act that was approved by Belgium's Federal Chamber of Representatives on 28 March 2024 now excludes in principle hospitals from the BCA's prior merger review. To receive public financing, hospitals have to meet certain criteria and obtain an accreditation under the Coordinated Law of 10 July 2008 on hospitals and other care centres (Gecoördineerde Wet van 10 juli 2008 op de ziekenhuizen en andere verzorgingsinrichtingen/Loi coordonnée du 10 juillet 2008 sur les hôpitaux et autres établissements de soins). From when the new Act comes into force, mergers between such accredited hospitals in principle will no longer have to be notified to and approved by the BCA. Such an exception to the notification requirement already existed for the establishment of a loco-regional hospital network and any subsequent changes in its composition, and thus now also applies to hospital mergers in general.

Prior merger notification to the BCA will only be necessary for M&A transactions involving the largest hospitals, i.e. for transactions in which at least two of the hospitals concerned individually have a Belgian turnover of EUR 250 (thus instead of the normal EUR 40 million) and all the hospitals concerned collectively have a Belgian turnover of at least EUR 900 (thus instead of the normal EUR 100 million).

2. Fierce debate on the new exception

The introduction of this unprecedented exception to the Belgian merger notification requirement has been subject to fierce debate in the Belgian parliament.

For a couple of years now the pharmaceutical sector has been high on the BCA's radar. In its priorities note for 2023, the BCA listed the pharmaceutical and health care sector as one of its major interests. It noted that "in the coming months, the BCA will also devote additional attention and resources to the continued consolidation in the hospital sector."¹ It is therefore logical that, when the BCA became aware of the legislator's intentions to exclude hospitals from the general merger notification requirement, it requested the opportunity to be heard by the Chamber's "Economy, Consumer Protection and Digital Agenda" Committee to provide any useful clarifications on the consequences of the proposed exception. In its request, the BCA reminded the legislator that the purpose of its prior merger control is to see whether in the future the best products or services are still offered at the best possible conditions. When a concentration between hospitals takes place, there is, according to the BCA, always a risk that incentives disappear for those hospitals to offer high-quality services at affordable prices. The BCA noted that merger oversight can prevent price increases and quality degradation and ensure a level playing field.

The BCA, concerned about the legislator's intentions, also published on 20 February 2024 a second press release on the approval of a merger that already dated from 21 December 2023, so that it could make the public aware of its request to be heard, and to stress the importance of prior merger control in the hospital sector: "The BCA's action in the current wave of hospital mergers in Belgium is aimed in particular at ensuring that the interests of the patient remain at the heart of the strategy of general hospitals, which are private structures for the most part, that the public money which finances the healthcare system is used efficiently, and that the working conditions of hospital personnel are not degraded as a result."

However, the BCA's request to be heard was denied – the Act's preparatory works indicated that such a hearing was not perceived as having added-value since the BCA had had its say and neither the BCA's opinion nor the government's opinion on this topic would change.

Different reasons are given in the Act's preparatory works for justifying the adoption of the exception to the Belgian merger notification requirement for hospitals. It is, for example, noted that:

• Only a small portion of the revenue of accredited hospitals is generated by commercial and unregulated activities.
• Competition law should not apply to social enterprises such as hospitals as it does to commercial enterprises. Public enterprises that are financed by national solidarity should not necessarily be subject to the competition rules.
• The exception is justified for health policy reasons in Belgium. Mergers of accredited hospitals should be encouraged, as they allow for more efficient and better quality care by optimising resources.
• This measure represents a very important administrative simplification for hospitals. The detailed nature of the merger control and the amount of information thereby requested from hospitals would have been disproportionate to the purpose pursued by the merger control rules.
• It would make no sense that, on the one hand, the government encourages, and even almost forces, hospitals to concentrate to increase the efficiency and quality of the care provided, and, on the other hand, to make those operations subject to prior merger control.

3. Some remarks on the exception

The Act provides that the new Belgian exception for hospital mergers is without prejudice to the application of the European merger control rules. Consequently, should the EU notification thresholds be exceeded by the hospitals concerned in the concentration, a notification at the European level would be required even for transactions that would come within the scope of the Belgian notification exception. However, the European merger notification thresholds are so high that a scenario in which a hospital M&A transaction would enjoy the Belgian exception but be caught nevertheless by the European merger review will probably be very exceptional.

It should be noted that the exception for hospital mergers only applies to accredited hospitals. Consequently, different types of beauty clinics or therapeutic centres with clearly commercial activities may not enjoy the exception.

Hospital mergers with the highest turnover exceed the exception's threshold and therefore must be notified. Nevertheless, it remains to be seen to what extent the BCA will in such a situation still apply its sector-specific analytical framework for hospital concentrations that it published on 18 October 2023. In that note, the BCA listed ten questions that would be key for its examination of a notified hospital merger, focusing on the transaction's impact on the types and quality of care offered by the hospitals, the geographic scope of their patients, their costs, revenues and rates, their (para)medical staff, etc. (Please see here for our prior blog on this framework).

Furthermore, the BCA had also indicated in that note that the standard notification form may also be adapted to the specificities of the hospital sector and the examination of the relevant issues as set out in the ten topics. It is unlikely that the BCA will still apply such flexibility towards hospitals that exceed the exception's threshold because of their high turnover and therefore are required to notify their hospital merger.

The Act will enter into force ten days after its publication in the Belgian Official Gazette. However, the Act does not specify to what extent it will apply to ongoing hospital merger transactions – in particular mergers that already would have been notified to the BCA by that time but without having yet obtained a decision– but one could argue that the BCA's decision in such a case would not be prohibitive as the parties could even in the case of a negative decision decide to proceed with the same transaction immediately afterwards without any BCA involvement.

4. Five years of discussion between the BCA and the legislator

This Act providing for an exception for hospitals to the general Belgian merger notification requirement is the end of a long battle between the BCA and the legislator on the BCA's competence to review hospital mergers. While the general merger notification requirement has always applied in Belgium irrespective of the transaction's sector, uncertainty about the applicability of the notification requirement for hospitals arose in 2019. In February 2019,² a legislative amendment to the General Act of 2008 on Hospitals obliged hospitals to establish and be part of a loco-regional hospital network from 1 January 2020. A loco-regional hospital network is defined as a "long-term, legally formalised cooperation with legal personality... between at least two non-psychiatric hospitals that are separately recognised at the time of the creation of the local hospital network... which are located within a geographically contiguous area and which offer complementary and rational locoregional care assignments."

The legislative reform's preparatory works stressed that the establishment of loco-regional hospital networks would be aimed at maintaining long-term qualitative, accessible and affordable care and that collaboration between hospitals would improve the coordination of care for patient benefit.

Following this amendment, the BCA received some questions regarding the applicability of the merger control rules to concentrations under the newly updated hospital legislation. Consequently, the BCA issued a note in July 2020 in which it clarified that the creation of regional clinical hospital networks could be caught by the merger control rules if those concentrations met the normal notification thresholds. In that note, the BCA also set out the principles that it would use when assessing the establishment of hospital networks and their possible qualification as concentrations under competition law.

However, in an attempt to prevent delays in implementing the 2019 reform to the General Act of 2008 on Hospitals, the legislature overturned that BCA opinion with another legislative act, the Act of 29 March 2021.³ Through that Act, the legislator provided that the establishment of a loco-regional hospital network and any subsequent changes in its composition are nót subject to prior merger control under Book IV, Title 1, Chapter 2 of the Code on Economic Law (CEL). In other words, the Act of 2021 exempted any establishment of loco regional hospital networks, even if it would qualify as a notifiable concentration in accordance with the CEL's competition rules, from the obligation to be notified to and approved by the BCA.

It was in that legislative situation that the BCA received on 31 May 2023 notice of a proposed merger between two hospitals, the Jolimont hospital group (Pôle hospitalier Jolimont) and the Ambroise Paré hospital (the Centre hospitalier universitaire et psychiatrique de Mons). Due to the uncertainty regarding the application of the merger control rules to hospital mergers, for a long time the parties in the concentration process believed that their concentration did not have to be notified. Therefore, they asked the BCA for a derogation from the so-called "standstill obligation" (i.e. the prohibition on implementing a concentration until the competition authority has authorised the concentration). Indeed, the parties claimed that they had to execute certain (planned) transactions before a notary and that without these documents the merger could not take place on time, and that respecting the standstill obligation would not allow the parties to continue with those legal steps in time. The BCA considered that the request for a derogation from the standstill obligation arose from exceptional circumstances concerning the uncertainty surrounding the obligation to notify hospital mergers. The BCA found that the parties had believed in good faith that no notification was due, as (i) the Act of 28 February 2021 prescribes that the constitution of a hospital network is not subject to merger control; and (ii) according to the preparatory works of 2021, the Minister of Economic Affairs had suggested that a merger between members of the same hospital network would constitute an "internal restructuring". Furthermore, the BCA considered that a partial lifting of the standstill obligation should not have a significant competitive effect as long as the parties undertook that no act of coordination or integration of hospital activities would be adopted and that they would not undertake any irreversible action. Consequently, under these conditions, the BCA decided on 28 June 2023 to partially lift the standstill obligation on the parties.

As a follow-up to this decision, on 14 July 2023, the BCA's executive committee published a communication confirming that M&A transactions between hospitals would fall under its merger control regime. That communication first acknowledged that the Act of 29 March 2021 exempted from the BCA's prior merger control "the creation of a local-regional clinical hospital network and any subsequent change in the composition thereof". But then the communication explicitly confirmed that this exemption did not extend to M&A transactions between hospitals that were independent of the creation of a loco-regional hospital network or a change in the composition thereof, even if the hospitals concerned were already part of the same hospital network. According to the BCA's executive committee, these M&A transactions were structural in nature and would lead to a lasting change in the management of the supply of hospital services and were, therefore, notifiable transactions.

As already indicated above, the BCA thereafter, on 18 October 2023, published a sector-specific analytical framework that it said it would use to assess notifiable M&A transactions in the hospital sector. The BCA applied this framework in its decision of 21 December 2023 authorising the above-mentioned merger between the Jolimont hospital group and the Ambroise Paré hospital.

However, the clarity that the BCA thus provided was not long-lived as the legislator prepared a draft bill providing for an exception to the general Belgian merger notification requirement for hospital mergers. So, the BCA requested the opportunity to be heard by the Chamber's "Economy, Consumer Protection and Digital Agenda" Committee, and, on 20 February 2024, it published a second press release on the hospital merger authorisation decision of 21 December 2023 to make the public aware of its request to be heard, and to stress the importance of prior merger control in the hospital sector.

As indicated above, the BCA's request was however denied, and the Act was approved by the Belgian federal parliament on 28 March 2024. It can be expected that this is, for the time being, the legislative end to the discussion between the BCA and the legislator, but presumably this will not stop the debate on the justification, necessity and desirability of this unprecedented exception to the Belgian merger notification requirement.

Footnotes

1. https://www.bma-abc.be/sites/default/files/content/download/files/2023_prioriteitenbeleid_BMA.pdf.

2. Act of 28 February 2019 amending the coordinated Act of 10 July 2008 on hospitals and other health care institutions, concerning clinical networks between hospitals, Official Gazette of 28 March 2019.

3. Act of 21 March 2021 amending the coordinated Act of 10 July 2008 on hospitals and other health care institutions, concerning clinical networks between hospitals, Official Gazette of 16 April 2021.

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.