Planned reform of merger control for hospitals – both a blessing and a curse?!

The German government's draft bill on the Hospital Reform Adjustment Act (“Krankenhausreformanpassungsgesetz“ – KHAG) provides for a further amendment to the sector exemption from merger control for hospitals:

I. In brief – What can be expected?

• Clearer responsibilities and thus prevention of parallel proceedings by regional authorities and the Federal Cartel Office
• In contrast: (Unnecessary) potential procedural delays at the expense of the parties involved in the merger
• More planning effort, but also better predictability for the parties involved in so-called mixed cases 
• From the perspective of the Federal Cartel Office: Risk of an extensive abolition of hospital merger control and thus the lack of competition law review of increasingly monopolistic structures

II. Planned changes in detail

The new Section 186a GWB is intended to replace Section 187 (10) GWB, which created an exception for hospitals from merger control in the Hospital Care Improvement Act (“Krankenhausversorgungsverbesserungsgesetz“ – KHVVG). This is intended to address legal uncertainties with regard to the scope of application and procedure. 

The amendments and transfer to a separate provision (Section 186a GWB-E) clarify the procedure: According to paragraph 1, at the request of the merging parties, the procedure is to be carried out primarily at the regional level. However, this is subject to the condition that the merger is within the meaning of Section 37 GWB, in which at least two hospitals within the meaning of Section 107 (1) SGB V or individual medical departments of different hospitals, such as specialist departments, are merged in whole or in part. Outpatient care units such as medical care centres (“Medizinische Versorgungszentren“ – MVZ), which are already not covered by the definition of a hospital in Section 107(1) SGB V, are explicitly excluded. In addition, preventive care and rehabilitation facilities are also not covered by the definition of a hospital and therefore remain subject to the merger control regulations.

A notification is only admissible and necessary if the scope of merger control (Sections 35 et seq. GWB) has been opened. The application must be submitted to the regional authority or authorities responsible for hospital planning in the states in which the hospitals or medical departments involved in the merger are located.

The notification is aimed at confirming that the competent regional authority considers the merger of the hospitals or individual medical departments involved to be necessary to improve hospital care.

In terms of content, both the criterion of "cross-location concentration" (“standortübergreifende Konzentration“), which was previously contained in Section 187 (10) sentence 1 no. 1 GWB, and the previous criterion, according to which the merger must not "conflict with any other competition law provisions" according to the available information of the regional authority responsible for hospital planning, have been deleted. However, competition concerns may still be taken into account in the decision of the competent regional authorities due to the obligation for the regional authorities to consult with the Federal Cartel Office before issuing the so-called confirmation of necessity (Section 186a (2) sentence 2 GWB-E).

If the merger affects other markets, in particular for outpatient medical services, these are not subject to the confirmation of necessity by the regional authorities and are not covered by the exempting effect of the confirmation of necessity.

Section 186a (1) sentence 3 GWB-E stipulates that if several regional authorities are responsible for hospital planning, they can only decide by mutual agreement with a joint confirmation or rejection. If no agreement can be reached, the notification shall be deemed rejected after the expiry of the three-month period (previously a two-month period) in accordance with paragraph 2 sentence 4. The period specified in sentence 4 may be extended by the competent regional authority with the consent of all parties involved in the merger. If the merger only affects markets in which hospitals within the meaning of Section 107 (1) of the German Social Code, Book V (SGB V) provide services within the meaning of Section 39 (1) sentence 1 SGB V and provided that the regional authority issues the confirmation of necessity within the deadline, the procedure is concluded at this point and the merger may be carried out as there is no obligation to notify.

If the competent regional authority has rejected the notification pursuant to Section 86a (1) sentence 1, or if the presumption of rejection pursuant to paragraph 2 sentence 3 applies, proceedings before the Federal Cartel Office shall be initiated pursuant to Section 186a (3) sentence 1 no. 1 GWB at the request of the parties to the merger. The same applies pursuant to paragraph 3 sentence 1 no. 2 in so-called "mixed cases" in which the confirmation of necessity has been granted but the merger project does not exclusively affect markets in which hospitals within the meaning of Section 107 (1) SGB V or medical departments of hospitals provide services within the meaning of Section 39 (1) sentence 1 SGB V. These mixed cases should – once confirmation of necessity has been obtained – only be subject to review by the Federal Cartel Office with regard to the other markets (e.g. for outpatient medical services or medical care centres). When assessing the question, whether the parts of the merger that do not concern hospital markets are subject to a notification requirement under Section 39 GWB, the part of the merger to which the confirmation of necessity under paragraph 1 sentence 1 applies shall not be taken into account when assessing the turnover thresholds under Section 35 GWB.

According to Section 186a (5) GWB-E, this provision shall only apply to mergers that are completed by 31 December 2030. Thereafter, the exception already provided for in Section 187 (9) GWB shall apply again.

III. Conclusion and recommendation for action

The planned new regulation in Section 186a GWB-E creates to some extent more clarity and efficiency when assessing hospital mergers. The clear responsibility of the regional planning authorities and the precise definition of the scope of application reduce the previous uncertainty in individual questions and rule out parallel proceedings. However, the elimination of the option to make a notification directly to the BKartA in the absence of cross-location concentration inevitably leads to considerable delays, particularly in cases that are unproblematic in terms of substantive law, already due to the one-month publication period (Section 186a (2) sentence 3 GWB-E).

In mixed cases, it is advisable for companies to consider at an early stage whether it is possible and valuable to notify the project separately. If applicable, the part of the project that exclusively concerns hospital markets must be notified to the regional authority responsible for hospital planning, and any parts that go beyond this must be notified directly to the Federal Cartel Office.