However, there are effective and timely mechanisms that can be used to ensure legal protection for businesses and their staff across the broader health sector in implementing COVID-19 responses, and there are increasing examples of these being rapidly and effectively applied in the health sector, among others.
We outline the current approach of the Australian Competition and Consumer Commission (ACCC) to authorising potentially anti-competitive conduct as well as key considerations for clients and options for managing cartel risk. This will help to ensure businesses can respond rapidly in the best interests of its stakeholders and the community in a legally compliant way.
Businesses need to be aware of the legal position and types of conduct raising cartel risks
Businesses across the health sector are being called on by government, regulators and our community to co-ordinate their activities in various, unprecedented ways to assist in responding to the COVID-19 health emergency. In doing so, businesses should understand that the cartel provisions of competition law still apply, even where conduct is being undertaken for the 'greater good'.
One of the features of the COVID-19 health emergency has been the need for rapid changes to business practices, involving high degrees of coordination of supply chains across the broader health sector to support health and economic interventions. The pace and scale of these interventions has been unprecedented and businesses have had far less time than usual to consider legal compliance, with the focus rightly being on playing a constructive role in ensuring the health and wellbeing of our population. There is, however, no automatic exemption to Australian cartel laws based on public interest arguments, so health businesses still need to be aware of the legal position, types of conduct raising risks and the best approach to managing cartel risks.
The legal position remains that, absent a relevant exemption, defence or authorisation, any of the following types of arrangements or understandings between competitors remain a criminal offence under the Competition and Consumer Act 2010:
- Price Fixing
- Dividing or allocating customers, suppliers or territories
- Rigging bids
- Restricting the production, supply or acquisition of goods / services.
COVID-19 responses raising risks in the health sector
Many desirable COVID-19 responses require, in the short term, much higher levels of coordination of conduct between competitors in the health sector than in a 'business as usual' scenario – where competitors make decisions and act at arms-length from each other. Coordination of activities is occurring both via formal and informal government or regulatory directions or requests, as well as via the product of business or community initiated responses across a broad range of activities and functional levels in the broader health sector. What many of the responses have in common is that cooperation is being substituted for competition between businesses in the public interest. For example, restricting the sale or rationing the quantity of specific goods and services, restrictions on the manner in which goods and services are supplied, where they are supplied, or to whom they are supplied, and the co-ordination of many procurement activities.
On their face, many of these responses can, prima facie, amount to cartel offences if entered into between competitors. They can, to the extent they involve a high degree of information sharing and other interaction (particularly where it involves a large number of competitors), also create risks under the prohibitions against concerted practices or arrangements which have the purpose, effect or likely effect of substantially lessening competition.
So what can business in the health sector – whether hospitals, ancillary health providers, medical equipment manufacturers or suppliers, pharmaceutical wholesalers, pharmaceutical manufacturers and distributors, pharmacies, health professionals or suppliers of other key inputs to the healthcare system – do to manage these risks but still play their part in the COVID-19 response?
Approach to managing cartel risks as part of the COVID-19 response
In approaching this issue, there are a number of practical steps businesses can take. We suggest the following:
Consider whether a cartel risk actually arises
Are you being asked to coordinate the supply or acquisition of goods or services with a competitor to fix prices, divide markets, rig bids or restrict output?
Unilateral decisions to take particular actions that are not the result of communication and agreement with a competitor are not cartel conduct. For example, an individual voluntary decision to ration a critical supply in a manner consistent with a government recommendation will not amount to cartel conduct. Businesses in the health sector should not unnecessarily avoid or delay taking unilateral decisions to act in the public interest in their COVID-19 responses and support the Australian healthcare system due to unwarranted cartel conduct concerns. Alternatively, are you simply complying with a law or direction from the government or a relevant authority in taking the relevant action? If this is the case, even if your competitors are also required to take the same or similar action, it cannot without more amount to cartel conduct.
If a cartel risk may arise, are there ways that you can implement your COVID-19 responses in a way that does not cause concern?
For example, can the response be implemented without having to discuss and agree with a competitor on an action that amounts to price fixing, market division, big rigging or a restriction of output? Alternatively, if that is not feasible, can the government or a relevant authority be asked to consider using a lawfully binding power to compel you or your competitors to take the action or coordinate your conduct in order to support the Australian healthcare system? In this context, the action would usually be regarded as being the result of that government requirement or direction, not an illegal agreement or arrangement with a competitor. In some cases, it may be that a government direction is not on its own sufficient, or that the COVID-19 response would be even more effective if competitors could engage in further coordination of activities to give effect to the government direction and support Australia's response to this health emergency. In that case, seeking authorisation from the ACCC is an option that may be considered (see below).
If a cartel risk applies and there is no obvious exemption or defence applicable, it is possible to apply to the ACCC for authorisation of conduct if it would result in a 'net public benefit'?
This would be the case if the public benefit is likely to outweigh any anti-competitive detriment. While authorisation provides protection to businesses to engage in activities that would otherwise be illegal cartel conduct, it can also be used to offer additional protection for other competition law prohibitions that may be triggered by the same conduct.
Urgent interim ACCC authorisations that have been granted to assist the response to COVID-19
The ACCC has discretion to grant 'interim authorisation' to permit conduct to occur before a decision on final authorisation is reached. Given the extraordinary circumstances the community faces, the ACCC has quickly responded and commenced processing COVID-19 related urgent interim authorisation applications in much shorter time frames to reflect the rapid and urgent responses that are being required, including across the health sphere. This is a welcome development.
The ACCC has been processing and making decisions on appropriate interim authorisation applications in a few days and, if the circumstances warrant, as little as 24 - 48 hours. The ACCC has authorised a significant number of matters impacting the health sector, outlined below.
Private and public hospital coordination
The Commonwealth Government announced that funding will be provided to private hospitals to work with state and territory healthcare providers to ensure that the growing demand due to COVID-19 can be met, while also ensuring the continued viability of private hospitals. The funding package is being implemented and coordinated under the direction of the various State and Territory Health Departments. Given the level of coordination required, the ACCC has granted separate conditional interim authorisations to each of the Victorian and Queensland Health Departments to enter into agreements with specified owners of private health facilities and public hospitals and healthcare facilities for the broad purpose of maximising healthcare capacity and ensuring the State-wide coordination of healthcare services to facilitate the most efficient and effective allocation of healthcare during the COVID-19 pandemic. Interim authorisation was granted on the condition that the Departments must provide regular reports to the ACCC and must notify the ACCC if any other parties participate in the proposed conduct. The ACCC published a media release noting that it expects to receive similar applications from other State and Territory Health departments.
ACCC Chairman, Rod Sims, said 'there is a clear public interest in health authorities and hospitals responding to this pandemic in a cooperative, transparent and efficient way.'
Supply of critical medicines and critical devices
The ACCC has granted conditional interim authorisation to Medicines Australia, Generic Biosimilar Medicines Association and their members to implement a coordinated strategy in relation to the supply of:
- Prescription-only medicines that are critical to patient health, including medicines used to treat patients suffering from the symptoms of COVID-19; and
- Devices or services that are supplied or administered with these critical medicines, and therefore essential to the efficacy and proper administration of critical medicines, to address shortages in the supply of these critical medicines and devices that arise as a result of COVID-19. The ACCC granted interim authorisation on the condition that the ACCC receive regular updates regarding any material developments in relation to the proposed conduct. In granting authorisation, ACCC Chairman Rod Sims again stressed that 'there is a clear public interest in allowing these companies to do all they can to ensure Australians, including those being treating for COVID-19, receive the medicines they need.'
Private health insurance
The ACCC has authorised private health insurers to cooperate on COVID-19 coverage and providing financial relief in relation to insurance premiums. The ACCC granted conditional authorisation to Private Healthcare Australia (PHA), Members Health Fund Alliance and current members of Members Health Fund Alliance and PHA on April 8. Rod Sims noted that 'providing financial relief for policy holders during this pandemic is an important and welcome measure. We are also pleased to see moves to cover tele-health consultations, so that policyholders can still safely consult health professionals.'
Approval was granted on the condition that PHA notify the ACCC of any arrangement arising from the proposed conduct, that any arrangements must not have the purpose of increasing health insurance premiums and that any arrangements entered into in reliance on the interim authorisation must provide for immediate termination if the proposed conduct is no longer authorised by the interim or final authorisation.
Coordination of medical supply chains
The ACCC granted conditional authorisation to the National Pharmaceutical Services Association (NPSA), its members and other Community Service Obligation Distributors to coordinate to stabilise the supply chain for medicines and pharmacy products, which is currently disrupted as a result of the COVID-19 pandemic. The ACCC authorised the conduct on the condition that the NPSA regularly update the ACCC regarding any material developments in relation to the proposed conduct as the COVID-19 position evolves, including:
- Any material recommendations made by the Working Groups (which include the TGA coordinated Medicines Shortages Working Group and the Department of Health's Medicine Shortages Working Party);
- Key operational and supply arrangements and material conduct in parallel with, or to enable the optimal implementation of, Government decisions; and
- Any changes to the applicant group.
In announcing the interim authorisation, Rod Sims said that 'allowing pharmacy wholesalers to work together to help make vital medicines accessible to everyone during this pandemic is clearly in the national interest.'
Coordinating supply of medical equipment
The ACCC has granted interim authorisation to an urgent application to allow the Medical Technology Association of Australia, its members and other relevant businesses in the medical technology industry to implement a coordinated strategy in relation to the supply of medical equipment and supplies in response to the COVID-19 pandemic. The application was filed on Friday 24 March 2020 and interim authorisation was granted by the ACCC the next day.
When is an urgent interim authorisation likely to be granted?
These urgent interim authorisations show that the ACCC is working effectively and rapidly to process applications that are clearly in the public or national interest. The types of interim authorisations that are likely to be granted on an urgent basis to facilitate coordinated responses to COVID-19 issues are likely to include applications that, for example:
- Do not go further than necessary to achieve the public benefit – it may be difficult, for example, to convince the ACCC of the necessity for conduct involving price fixing;
- Are voluntary and do not compel third parties that have not consented to engage in the conduct;
- Are directed towards things such as continuity of supply chains or parity of access to critical goods and services or protection and aid to the most vulnerable members of the community to COVID-19 related impacts;
- Are temporary and appropriately limited in time (for example, to the period of the COVID-19 pandemic);
- Cannot easily be achieved through alternative means not requiring co-ordination between competitors; and
- Would give rise to relatively obvious and meaningful public benefit or benefits.
The ACCC has confirmed that these urgent interim authorisation applications to allow firms to coordinate some conduct during the crisis are an 'important priority', and has urged parties to engage with the ACCC as early as possible if they anticipate submitting such an application.
If you would like further assistance in managing cartel and other competition law risks in relation to your COVID-19 responses, please contact one of our competition and consumer law experts who are advising clients in health and other sectors on managing these risks.