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ACCC blocks proposed pathology merger
The regulator has determined that ACL’s proposed acquisition of Healius would likely reduce competition substantially.
ACL and Healius both operate pathology labs across Australia.
Australian Clinical Labs’ (ACL) attempted takeover of Healius is over, after the Australian Competition and Consumer Commission (ACCC) blocked the move following an ‘in-depth investigation’ into the deal.
The ACCC’s verdict was revealed late last week, with the regulator explaining that the merger would likely substantially lessen competition in the supply of out-patient pathology services, private hospital in-patient pathology services, and commercial pathology services.
‘The proposed acquisition … would combine two of the three largest providers of pathology services in Australia, further consolidating already-concentrated markets,’ ACCC Commissioner Stephen Ridgeway said.
‘A combined ACL and Healius would operate more than 50% of approved pathology collection centres in Australia. In some regions, they are the only two pathology providers available to patients.
‘We’re concerned that the proposed acquisition would impact patients and their referring doctors, potentially through longer turnaround times, shorter collection centre opening hours, reduced support for medical practitioners and increased prices for patients via increased private billing.’
ACL and Healius are two of the three private pathology providers that typically compete for large private hospital contracts and referrals from specialists practising at private hospitals. Similarly, large commercial pathology customers typically have few potential suppliers, including the merger parties.
When news of the proposed merger first broke, RACGP President Dr Nicole Higgins wrote to the ACCC’s General Manager of Merger Investigations, Daniel McCracken-Hewson, expressing similar concerns to those eventually laid out by Commissioner Ridgeway.
She warned that the merger could lead to a ‘significant reduction in competition’ between pathology companies to the potential detriment of patients, particularly those in rural and remote areas, and urged the commission to take this into account when ruling on the proposed acquisition.
‘Maintaining a higher number of providers in the marketplace has allowed smaller companies to compete on the market margins, as we have seen in radiology provision in rural location,’ she wrote.
‘If this merger were to proceed, ACL would become Australia’s largest pathology business with more approved collection centres nationally than any other pathology provider in the Australian market.
‘It is expected that this merger will have significant implications for competition in the pathology and diagnostic imaging sector, particularly given the high barriers to entry and the current level of competition.
‘As such, this acquisition is likely to create implications for pricing and service availability and general practice viability.’
The ACCC said it also considered the level of competition provided by other pathology providers, including Sonic, 4Cyte, and public sector providers, and judged none of them would likely be able to expand large enough or fast enough to address the loss of competition resulting from the proposed acquisition.
‘We believe a combined ACL and Healius may be able to raise prices and reduce services for private hospital services and large commercial pathology customers, due to the limited competition it would face,’ Commissioner Ridgeway said.
‘New or existing providers face a range of barriers to entry and expansion. There are significant incumbency advantages in pathology services, including economies of scale in laboratory testing and courier networks, as well as relationships with healthcare practitioners.’
During the review, ACL offered a court-enforceable undertaking to divest a package of collection centres across regional Victoria, Perth, and the Northern Territory. However, Commissioner Ridgeway said the draft undertaking did not allay the ACCC’s concerns.
‘To compete effectively and sustainably, rivals need to have scale, a strong reputation and expertise, and established relationships with doctors,’ he said.
‘The divestment package did not address the competition concerns.’
More information on the decision is available on the ACCC’s public register.
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ACCC and Australian Clinical Commission Competition Consumer Healius Labs pathology