ACCC Proposes Authorising Australian Private Health Insurer to Set Prices on Dental Services

In Short

The Background: The Australian Competition and Consumer Commission ("ACCC") has proposed allowing health insurer Hospitals Contribution Fund of Australia Limited ("HCF") and participating dentists to agree on the maximum price they will charge HCF members for basic preventative and diagnostic dental services.

The Significance: The proposed authorisation signals that otherwise potentially anticompetitive price-fixing arrangements may proceed with statutory immunity when the public benefit exceeds the anticompetitive effect.

The ACCC, in March 2018, released a Draft Determination stating that it proposes allowing health insurer HCF and participating dentists to agree on the maximum price they will charge HCF members for basic preventative and diagnostic dental services. Under the proposal, dentists that either operate under HCF's vertically integrated Direct Clinic Network ("DCN"), or participate in HCF's More for Teeth Program ("MFT") as preferred providers, would agree to cap fees for these basic services so that members do not have to pay a gap.

HCF also proposes increasing the number of DCN clinics in areas surrounding MFT providers in Australian cities, starting with Melbourne. The proposed cap arrangement between DCN clinics and MFT providers will be active for 10 years (in total, "Conduct").

HCF submitted its application for authorisation in October 2017, and five submissions were received before the ACCC released its Draft Determination proposing to authorise the Conduct.

The ACCC's Draft Determination proposing to authorise the Conduct is important as it demonstrates that statutory immunity, including protection from the ACCC or third-party action in relation to the authorised conduct, is available where there is an overriding public benefit outweighing any anticompetitive effect arising from the authorised conduct.

ACCC Draft Preliminary Authorisation

Under section 88 of Australia's Competition and Consumer Act 2010 ("CCA"), the ACCC may grant authorisations to parties proposing a course of conduct that may potentially be found to be in breach of the core competition law provisions in Part IV of the CCA. Prior to making a determination regarding a proposal, section 90A of the CCA requires the ACCC to prepare a draft determination to be considered by interested parties.

The ACCC proposes to authorise the Conduct on the basis that the operation of the MFT program and DCN clinics is likely to lower the cost and increase the use of preventative dental services, resulting in a net public benefit that outweighs any public detriment.

The ACCC proposed that MFT and DCN clinic providers are likely to continue to be subject to competition from other insurance and dental service providers for the following reasons:

• The Conduct relates only to preventative and diagnostic services (only three of the 13 most common procedures), meaning HCF members will receive the same rebate regardless of the dentist they choose for non-MFT dental services.
• HCF members are a small proportion of all consumers of dental services (about 5 percent of the population).
• DCN clinics are a relatively small proportion of all providers of dental services (10 clinics nationally, in comparison to insurance company Bupa, which owns 191 centres through ownership of the Dental Corporation).
• MFT providers are free to set their own prices in relation to non-MFT services.
• In relation to MFT services, HCF members remain free to choose between MFT/DCN clinics or independent dental service providers (and accept the difference in rebate).
• Dentists remain free to choose whether to participate in the MFT.

In the ACCC consultation process, the Australian Dental Association ("ADA") submitted a number of arguments against the Conduct. In the Draft Determination, however, the ACCC did not appear to be persuaded.

The ADA submitted that:

• Through discriminatory rebates and a lack of transparency regarding the rebates of independent dental service providers, HCF will steer customers toward the MFT Program and their DCN clinics, resulting in significant market power;
• The discriminatory rebate for preventative and diagnostic services will result in policy holders coming back to HCF/MFT Program providers for more complex procedures, thereby concentrating market power;
• Once MFT providers and DCN clinics concentrate market power, HCF will attempt to "steer" policyholders away from MFT providers and toward their own clinics (through preferential marketing and a general withdrawal of support for MFT providers); and
• The proposed agreement is only for 10 years and that HCF could renege on this agreement after this period, by which time HCF and MFT will have significant market share.

In its preliminary assessment of the proposal, the ACCC responded to the ADA's submissions, arguing that:

• If the application was refused, HCF would likely operate its MFT program and open the proposed DCN clinics under a contractor (rather than employee) model;
• If future changes to the services offered under the arrangement fundamentally alter the nature of the arrangement from its current form, the ACCC will reconsider authorisation; and
• There will be limited detriment to competition between dentists or health insurers, as HCF and its clinics will remain subject to competitive pressure from other insurers and providers of dental services.

Conclusion

The proposed authorisation is significant because it reminds parties that otherwise potentially anticompetitive price-fixing arrangements may proceed with statutory immunity, provided there is a discernible public benefit to be gained that outweighs the limited relative impact of the anticompetitive arrangement.

Parties with a commercial benefit from engaging in similar conduct may take comfort from the ACCC's cost/benefit approach to this matter. However, the ACCC authorisation process does require careful planning and consideration, having regard to the time required (i.e., six or more months) and the nature and extent of information that must accompany the authorisation application.

Further, as this Draft Determination relates only to authorised proposals, parties should maintain regular assessment of their conduct as it relates to section 46 of the CCA (the misuse of market power prohibition).

The ACCC is inviting further submissions on the Draft Determination, with a final determination to be released sometime in April 2018.

Two Key Takeaways

1. Where a vertically integrated health insurance service provider agrees to set a maximum cap on prices with other service providers operating under Preferred Provider Agreements, the ACCC may not consider this anticompetitive provided the effect on competition is low and there is a net public benefit arising from the arrangement.
2. Where the ACCC authorises proposed conduct of parties that is potentially anticompetitive, the parties receive statutory immunity from the ACCC and third-party action in relation to that conduct.

Lawyer Contacts

For further information, please contact your principal Firm representative or the lawyer listed below. General email messages may be sent using our "Contact Us" form, which can be found at www.jonesday.com/contactus/.

Chris Ahern
Sydney
+61.7.3085.7030
cahern@jonesday.com

Prudence J. Smith
Sydney
+61.2.8272.0593
prudencesmith@jonesday.com

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