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Ramsay Health Care Australia Pty Limited (Ramsay) successfully defended Federal Court proceedings brought by the Australian Competition and Consumer Commission (ACCC) for misuse of market power (under the old “taking advantage” test) and exclusive dealing.
The case is a timely reminder that competition law and compliance is an ever present and important consideration for all levels of business to be aware of. Even in highly regulated sectors where a wide range of legal issues commonly arise, every day business conduct always needs to be considered through the lens of competition law.
The allegations related to Ramsay’s response to a proposal by some of its surgeons to set up a competing day surgery in the regional city of Coffs Harbour. Judgment was handed down in March earlier this year, with Johnson Winter and Slattery advising Ramsay in these proceedings.
It was the competition awareness of Ramsay’s regional hospital CEO recorded in contemporaneous file notes and emails which contributed to a finding that there was no misuse of market power.
Some critical lessons to be drawn from this case are:
Ramsay operates Baringa Private Hospital (Baringa) in the NSW regional city of Coffs Harbour. Baringa provides both in-patient and day surgeries and is the only private hospital in Coffs Harbour. At the relevant time Ramsay also operated Coffs Harbour Day Surgery (CHDS), the only private day surgery in Coffs Harbour.
Surgeons admit private patients to Baringa (and CHDS at the time) to perform elective surgeries. In order to do this, they are required to be accredited under Ramsay’s Facility Rules and allocated theatre time (referred to as “lists”) by Baringa’s CEO. As part of her role, Baringa’s CEO is responsible for monitoring and managing operating theatre utilisation by the surgeons.
In late 2014, a group of surgeons operating at Baringa started planning to set up a day surgery which they would run and operate in Coffs Harbour.
The ACCC alleged that in 2015, Ramsay conveyed to three surgeons that their access to theatre lists for in-patient surgeries at Baringa would be substantially reduced or entirely withdrawn if they carried out day surgeries at the new day surgery. The conduct comprised of separate conversations between Baringa’s CEO and three surgeons and a further conversation between Ramsay’s CEO of Australian operations (Ramsay’s CEO) and one of those surgeons. Despite differences in the particular words used, the same message was alleged to be conveyed to each surgeon.
This conduct was alleged to be a taking advantage of Ramsay’s substantial market power in the in-patient services market for the purpose of preventing the new day surgery from entering or competing in the day surgery services market (in contravention of the misuse of market power prohibition under s46 of the Competition and Consumer Act (Cth) (CCA) pre-“effects” test). It was also alleged to be an offer by Ramsay to supply in-patient surgery services to the surgeons on the condition that they not use the new day surgery, which had the purpose or effect (or likely effect) of substantially lessening competition (in contravention of the exclusive dealing prohibition under s47 of the CCA).
The Court found that the ACCC did not establish to the requisite standard the pleaded conversations which it contended constituted the contravening conduct for the following reasons.
Baringa’s CEO was well aware of competition issues
The Court put favourable weight on contemporaneous file notes and emails which indicated that Baringa’s CEO:
In these circumstances, the Court considered it was most unlikely that Baringa’s CEO would have made the threats as alleged even though at the time of her conversation with the first surgeon she did not know of the legal advice provided to her direct report.
Oral testimony was inconsistent with a sound recording
A sound recording of one of the conversations stated that if a surgeon chose to take the in-patient part of their business away, his major (in-patient) lists at Baringa “would no longer be guaranteed” because Ramsay needed a balance of day and in-patient surgeries. This evidence differed materially from accounts of the other conversations given by witnesses which was a significant issue because the allegation was that the message conveyed to each surgeon was the same.
Witnesses were not credible
The Court noted the witnesses were prone to exaggerate or overstate matters in order to ensure the ACCC took action.
It was not strictly necessary for the Court to consider the other aspects of the case given the pleaded conversations were not established but it did so for completeness and determined that there was no misuse of market power in any event. Although the Court found that Ramsay held substantial market power in the relevant market (due to barriers to entry and a lack of constraint) it did not “take advantage” of that power because it had a legitimate business rationale for the conduct.
The Court considered it was not demonstrated to be economically rational for a firm in Ramsay’s position to act in any other way, particularly in light of the following:
This case was brought under the old “taking advantage” test for misuse of market power which required proof that Ramsay took advantage of its substantial market power for a proscribed anti-competitive purpose. The current test prohibits a firm with substantial market power engaging in conduct for the purpose or effect (or likely effect) of substantially lessening competition (referred to as the “effects” test).
The “effects” test is also a necessary limb of exclusive dealing and was applied to the facts of this case in that context. The Court determined that the relevant conduct did not substantially lessen competition because:
In light of the above, even if the case was brought under the “effects” test, it is likely that the Court would have maintained its view that there was no misuse of market power.
In relation to the exclusive dealing claim, even without application of the “effects” test, the Court noted that it would have been dismissed because there could be no condition that the surgeons would not acquire services from a competitor when at the time there were no services to acquire and no competitor in existence.
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