CHAPTER 1

INTRODUCTION TO COMPETITION LAW IN

HEALTHCARE DELIVERY SECTOR

1.1 INTRODUCTION

‘Antitrust laws … are the Magna Carta of free enterprise. They are as important to the
preservation of economic freedom and our free-enterprise system as the Bill of Rights is to
the protection of our fundamental personal freedoms.’1
United States v. Topco Associates Inc.

Sustainable economic development of a country requires well functioning markets in all its
manifestations. The direct consequence of this is consumer as well as economic well-being.
For a market to function expeditiously, maintaining competition is quintessential. Adam
Smith, the founder of modern economics, understood the need for this and laid stress upon
the need for free market economies, of which free competition forms an integral part. 2

Indian economy in the past two decades has slowly shifted towards greater reliance on market
forces with lesser emphasis on the need for deeper governmental role on markets,
investments and controlled central planning. There has been renewed assurance in the market
with greater role of the consumers in decision making. Trade and economic liberalisation has
aided competition in the market with better quality of goods and services at lower prices.
However, the potential benefits of a shift towards a more market oriented economy will not
be realised unless persons and business firms are prevented from imposing restrictions on
competition.3 It does not matter whether the country is developed or developing or passing
through a transition phase, anti-competitive practices induced by either non existence of
competition law regime or by a lack of efficient enforcement and monitoring system fosters
1
Canadian Competition & Regulator, Quotes, ( June 9, 2016) http://www.ipvancouverblog.com/quotes/
2
UNCTAD, Competition , Competitiveness And Development : Lessons From Developing Countries, 1.( June
9, 2016) http://unctad.org/en/docs/ditcclp20041_en.pdf
3
UNCTAD , Manual On The Formulation And Application Of Competition Law, ( June 12, 2016)
http://unctad.org/en/Pages/DITC/CompetitionLaw/The-Model-Law-on-Competition.aspx

1
unfair competition and lack of consumer welfare. This creates a need for legislative efforts to
either review the existing competition law framework or the creation of one in case there is
none for safeguarding and maintaining competition in the market by keeping in check the
anti-competitive behaviour.

Promoting free market and protecting competition is of greater importance in the industry
which provides healthcare. World renowned economist Amartya Sen has written:
‘... Health constitutes an important capability, in that it enables individuals to pursue things
that they might value.’4

The importance of establishing and function a sound healthcare system is one of the primary
priorities for every nation at any stage of economic progress. It becomes part of the vital
concomitant whether relating to policy or governmental decision making. A sound healthcare
system can be established by various methods starting from ‘right to health’ which is part of
intrinsic rights of people to a good healthcare system to allocation of various resources
efficiently in the healthcare sector.

The international community recognising the need for a specific human right has over the
years recognised ‘right to health’. It was the World Health Organization (WHO) which laid
down in its constitution, ‘the enjoyment of the highest attainable standard of health is one of
the fundamental rights of every human being without distinction of race, religion, political
belief, economic, or social conditions. 5’

The right to health is a universal entitlement, based on the dignity and integrity of all
individuals.6 At the outset itself the concept of this right does not mean right to be healthy as
it is impossible to expect the State to take care and protect every person from getting ill or
disable. Right to health also does not mean that every individual has unlimited right to
‘receive medical care for any and every illness or disability that may be contracted.’7 The
right to health can be understood as a right to the enjoyment of facilities which every State is
responsible for providing as being necessary for preservation of good health. This right

4
Amartya Sen, Commodities and Capabilities , Amsterdam and New York: North Holland (1985)
5
The Constitution of the World Health Organization, (Feb 1, 2015),
available at http://www.who.int/governance/eb/who_constitution_en.pdf
6
Judith Asher, The Right to Health , 27( Martinus Nijhoff Publishers, 2010)
7
Id.

2
includes two basic rights primarily; a right to health care and a right to healthy conditions.8
Understanding the importance of this right, it was further incorporated in other international
instruments laying down other essential rights for the member States. These instruments
include the International Covenant on Economic, Social and Cultural Rights (ICESCR)9, the
Convention on Elimination of All Forms of Discrimination Against Women10, The
Convention on the Elimination of All Forms of Racial Discrimination, 196911 and the Report
of the International Conference on Population and Development, 1994 (Cairo Programme of
Action)12 to name a few. The Indian Constitution as well as the higher courts has also
acknowledged this right under Directive Principles of State Policy13 as well as in various
cases over the years.14

Investing in the health system forms a sound basis for majority of economic decisions in any
nation. The question that comes to the mind is what does healthcare system actually mean
and what are its constituents? The World Health Organization (WHO), defines ‘health
system’ as-

The people, institutions and resources, arranged together in accordance with

established policies, to improve the health of the population they serve, while
responding to people's legitimate expectations and protecting them against the cost of
ill-health through a variety of activities, the primary intent of which is to improve
health. Health systems fulfil three main functions: health care delivery, fair treatment
of all, and meeting non-health expectations of the population. These functions are
performed in the pursuit of three goals: health, responsiveness and fair financing. A
health system is usually organized at various levels, starting at the community level or

8
Id.
9
United Nations, The International Covenant on Economic, Social and Cultural Rights, ( Feb 1, 2015)
available at http://www.ohchr.org/Documents/ProfessionalInterest/cescr.pdf
10
United Nations, Convention on the Elimination of All Forms of Discrimination against Women, ( Feb 1,
2015) available, http://www.un.org/womenwatch/daw/cedaw/text/econvention.htm
11
United Nations Human Rights Office of the High Commissioner, International Convention on the
Elimination of All Forms of Racial Discrimination, ( May 7, 2015),
available at http://www.ohchr.org/EN/ProfessionalInterest/Pages/CERD.aspx
12
United Nations Population Information Network ( POPIN) , Report of the International Conference on
Population and Development, ( Feb 4, 2015),
available at http://www.un.org/popin/icpd/conference/offeng/poa.html
13
India Const. Article 38,39,41,42 and 4 , ( May 7, 2015),available at http://lawmin.nic.in/olwing/coi/coi-
english/coi-indexenglish.htm
14
Bandhua Mukti Morcha v. Union of India AIR 1984 SC 802, Paschim Banga Khet Mazdoor Samity 1996(4)
SCC 37, N D Jayal and others v Union of India 2004 (9) SCC 362,

3
 the primary level of health care and proceeding through the intermediate (district,
regional or provincial) to the central level.15

Health care systems are complex social systems16, the researchers at Harvard University
define healthcare system as:

A collection of institutions and actors who provide healthcare (e.g., doctors , nurses,
hospitals, pharmacies, traditional healers, etc); the organization that provides
specialized inputs to the providers ( training schools, manufacturers of products); the
financial intermediaries, planners, and regulators who control , fund, and influence the
providers( e.g., insurers, government agencies, regulatory bodies); the organizations
that offer preventive services ; and the financial flows that finance the provision of
healthcare.17

Having an organised health sector where all its institutions and actors function well protects
a nation against the ‘financial risks inherent in an unhealthy population’. The evident reasons
for this are:

a. Well –being of a person is indicated by his / her health ;

b. Health of the populations heavily influences the aggregate economic outcomes of the
country;
c. Sickness may result in a financial loss to the entire household , even impoverishment
in some cases; and
d. India being a developing nation going through economic and social transitions
improvement in health is of great value.18

Healthcare system not only impacts but also determines the macroeconomic conditions of a
nation. Societal health in the long run shapes the societal wealth and vice versa.19 To
understand this from the perspective of India, one of the studies conducted collecting data on

S.K. Garg v State of U.P decided on 21.12.98 and Murli Deora v Union of India and Ors, (2001)8 SCC 765
15
World Health Organisation Centre for Health Development, A Glossary of Terms For Community Health
Care and Services For Older Persons, p 31 , ( June 10, 2015) available at
http://www.who.int/kobe_centre/ageing/ahp_vol5_glossary.pdf
16
Gilson L. Health systems and institutions. In: Smith RD, Hanson K, eds. Health systems in low- and middle-
income countries: an economic and policy perspective. Oxford, England: Oxford University Press,
17
Lawton Robert Burns , India’s Healthcare Industry, Cambridge , 7 (2014).
18
Ajay Mahal., Et AL., India Health Report, Business Standard (2010)
19
Burns, supra note 17 at 4

4
the health conditions of the Indian States suggest that if the State of Uttar Pradesh , had
Kerala’s life expectancy at birth , Uttar Pradesh’s output would be 17 to 47 percent higher
than the present rate20. This makes efficient allocation of limited and scares resources in the
health care along with the sound functioning of the sector vital.

A proficient health system ‘delivers quality services to all people, when and where they need
them.’ The precise layout of the required services, according to World Health Organization
(WHO) varies from country to country, ‘but in all cases requires a robust financing
mechanism; a well-trained and adequately paid workforce; reliable information on which to
base decisions and policies; well maintained facilities and logistics to deliver quality
medicines and technologies.21’

In the Indian context, there is no clear definition of what constitutes ‘healthcare’. The
National Health Bill, 200922 does shed some light on the understanding of healthcare from
the perspective of governmental policy and objectives. Under the Bill, ‘healthcare’ includes -

testing, treatment, care, procedures and any other service or intervention towards a
therapeutic, nursing, rehabilitative, palliative, convalescent, preventative, diagnostic,
research and/or other health related purpose or combinations thereof, including
reproductive health care and emergency medical treatment, in any system of
medicine, and also includes any of these as a result of participation in a medical
research programme.

For the purpose of this research, health care can be understood to be certain services which
are provided by individuals, communities and health service providers for the primary
purpose of promoting, maintaining, monitoring or restoring health.23 These services are
provided in every country by a dedicated ‘health sector’ which mostly consists of ‘organized
public and private health services (including health promotion, disease prevention,
diagnostic, treatment and care services), the policies and activities of health departments and

20
Mahal, supra note 18 at 4
21
World Health Organisation, Health system, ( Oct 5, 2017), available at
http://www.who.int/topics/health_systems/en/
22
Draft National Health Bill, 2009, available at http://www.prsindia.org/uploads/media/Draft_National_Bill.pdf
23
Sen, supra note 4 at 2.

5
ministries, health related non-government organizations and community groups, and
professional associations.’24

The ominous fact that the general rising trend in the population and healthcare costs coupled
with limited financial resources at disposable has led to rethinking and re-evaluation of the
present legal framework for increasing health care delivery services output and efficiencies.
This need becomes critical as:

Patients want to receive the best possible treatment, but have limited medical
knowledge. The treatment is not homogeneous but differentiated based on individual
needs. Patients play a passive role and are often uncertain of the service they are
purchasing. They rely on doctors’ expertise to direct them correctly along the
healthcare supply chain. The large number of role players including medical schemes,
general practitioners, specialists, hospitals, emergency services, pharmaceutical
companies, medical consumables companies etc. adds to the complexity of this
market.25

Therefore, high performance of the entire health care system which comprises of various co-
dependent entities on each other is important in addressing the major health challenges faced
by people hence, with a sense of urgency; the lacunas existing in the present healthcare
industry must be met.

1.2 ROLE OF COMPETITION IN HEALTH CARE SYSTEM

Health systems around the world find themselves facing same fundamental question .i.e. how
to deliver access to health care services to the larger section of population while improving
quality of care and controlling costs. Greater competition has often been proposed as a
solution.26 Competition serves as an instrument to stimulate organisations within the system
to become more efficient and responsive to consumer preference. It leads to extracting more

24
World Health Organisation, Health Promotion Glossary, ( March 3, 2015)
available at http://www.who.int/healthpromotion/about/HPR%20Glossary%201998.pdf
25
Burns, supra note 17 at 4
26
Penelope Dash and David Meredith, When and how provider competition can improve health care delivery,
( May 5 , 2017)available at http://www.mckinsey.com/industries/healthcare-systems-and-services/our-
insights/when-and-how-provider-competition-can-improve-health-care-delivery

6
value from the available resources. Thus, through competition, the primary goal is to reduce
cost of the goods and services along with improvement in their quality and output.27

The appropriate role of competition in healthcare has been a subject of much debate over the
years where on one end of the spectrum some consider that competition has no role in
‘services aimed at protecting the sick’28, the others consider competition to be the ‘antidote
for bloated, inefficient services and even saves lives’. Both models operate between various
countries where sometimes competitive forces are in favour and other times not. One main
reason for this being-

The debate is difficult to settle as there seems to be insufficient evidence for

comparison of different practices. The reasons for this are: first, ‘competition in
healthcare’ is a broad term that does not capture adequately the many variations and
meanings of the term; second, even when defined carefully, evaluation of the impact
of competition is far from straightforward.29

Supporters of competition generally fall in two camps, those who believe in the innate value
of the market based resource allocation (that is a decentralised approach to production and
consumption decisions, with prices providing the main signals for such decisions) and those
who favour the market more for its potential to correct the failures of government
regulations.30

Considering the economic perspective, theoretically a competitive market is generally one

where the buyers as well as the sellers do business as if in a ‘perfect market’ exhibiting
characteristics predicting best possible outcomes for both the buyers and the sellers.
According to Porter and Teisberg31 :

In a normal market, competition drives relentless improvements in quality and cost.

Rapid innovation leads to rapid diffusion of new technologies and better ways of
doing things. Excellent competitors prosper and grow, while weaker rivals are

27
European Commission , Competition among health care providers in the European Union- Investigating
policy options, ( May 5 , 2017), available at
https://ec.europa.eu/health/expert_panel/sites/expertpanel/files/008_competition_healthcare_providers_en.pdf
28
Maria Goddard, Competition in Healthcare : Good , Bad or Ugly, ( Feb 10, 2015),available at
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4556571/pdf/IJHPM-4-567.pdf
29
Id.
30
European Commission, supra note 27 at 7
31
Michael Porter and Elizabeth Teisberg, Redefining Competition in Health Care, Boston: Harvard Business
School Press, 2006.

7
 restructured or go out of business. Quality-adjusted prices fall, value improves, and
the market expands to meet the needs of more consumers

It is to be kept in mind that competition achieves the desired objectives or even have certain
unintended outcomes depends largely whether a given market meets ‘a range of important
conditions’. These vary in markets, sub-markets and context. However, as no market is
perfect, ‘effective competition usually relies heavily on the ability of governments to
adequately respond to market failures- for example, through regulation and the provision of
information.’32

1.2.1 CONDITIONS WHERE INTRODUCTION OF COMPETITION IS

ADVANTAGEOUS TO THE HEALTH CARE DELIVERY

A vital question is when does competition has beneficial effects such as improvement in
efficiency without negative consequences to other gaols. Following are some of the situations
where introduction of competition within the health care system helps-

1. When the providers of healthcare such as doctors have, and exercise market power. This
will assist to effectively bring down the prices including healthcare expenditure.

2. When health care providers have market powers with inefficiencies in their operations.
Then, competition provides them the incentives for efficiency and innovation and other, more
efficient providers can offer the same services or products to consumers at lower prices or
higher quality or both.

3. When health care providers are not adequately responsive to key decision makers
preferences such as patient’s choice. In such a case, introduction of competition may increase
their responsiveness and accommodate heterogeneity in patients characteristics and
preferences.

4. When there is lack of innovation, competition by means of new market players may drive
both product and process innovation. By process innovation it means the ability to provide
the existing products and services at a lower cost and by product innovation, new markets of
innovated products and services to be made.

32
European Commission, supra note 27 at 7

8
Overall, whether competition within the healthcare providers or delivery services is able to
achieve the desired outcome depends on factors such as nature of different healthcare goods
and services, the priority afforded to different goals for health care provision, issues around
the manner in which competition is implemented and the potential unintended consequences.

Though the traditional model of competition does not exists within the healthcare sector, yet
the model provides a much needed benchmark for the relevant health care aspects to be
analysed and changes to be made accordingly. These pre-conditions of the market
mechanism which leads to effective competition in a general market are:

1. Existence of multiple providers of goods and service

For competition to exist there is need for existence of alternatives along with the
opportunity to enter the market as alternatives. Some healthcare delivery services may not
have multiple players due to specialisation of the services and goods. This applies especially
to services and goods based upon new and advanced methods of treatments.

2. Entry and exit

In the health care delivery services if there are dominant private providers of these services ,
the question that remains to assessed is whether the form of ‘competition in the market is
actually effective in the first place. Further since the introduction of health insurance , the
organisation of these insurers along with the regulators ‘decide’ the purchasing arrangement,
terms for the various third party administrators which eventually leads to making the sector
more open for new entries or exits. ‘Competition as an allocation mechanism relies on the
pressure of exit of providers that are not chosen by consumers to provide incentives for
efficiency and for innovation.’

Heavily regulated systems constraining competition among healthcare providers will

not be, typically, innovation friendly. But a balanced view is in order. Health systems
providing financial protection to citizens, under free entry of providers of health care
will be characterised by too much innovation, which may actually be detrimental to
the health system. Competition creates an incentive for innovation. When the patient
does not pay at the moment of use of health care, technologies with low value added
may generate too much expenditure for the health outcome produced. There is the
possibility of supplier-induced demand in adoption of innovation, especially when

9
 patients do not sense the link between utilisation and payment for the new technology.
One example pointed out as illustration is robotic surgery.33

3. Information

Availability of information regarding the health or the treatment been given is a critical
element of effective competition in health care delivery. To achieve this regulatory agencies
of the health care system require improving the availability of information. Such information
needs to be comprehensive, comparable. Reliable as well as easily understandable by the
consumers of the health care delivery services.

Information can be considered an economic good for which there is demand, supply
and an optimal level. The type and detail of information required by buyers from
providers depends on who is the key decision maker and who is responsible for
payment to the health care providers.

Hence even if there is no equal distribution of information, for an effective competition it

may be sufficient that only a fraction of them are informed about health care providers, which
eventually may benefit all patents.

To this end , Van Ginnekel34 lays down ten different types of information that can be
provided to patients: (a) Information on hospital clinical outcomes; (b) Comparative
information about the quality of individual providers (e.g. doctors); (c) Comparative
information about hospitals; (d) Interactive web or 24/7 telephone information; (e)
Information on patient satisfaction collected (systematically or occasionally); (f) Information
about statutory benefits; (g) Comparative information about purchasing organisations; (h)
Comparative information about the quality of hospitals; (i) Information on hospital waiting
times; (j) Patient access to own medical record. From these, the first five are more common
than the others.

The issue of information may be further divided into two areas i.e. imperfect information and
asymmetric information. Imperfect information or inability to measure quality of information
creates impediment in achieving competition based on quality or even quality based

33
Id.
34
Van Ginneken, M.Bluemel Et al., Trends and patterns in EU28 health system and Iceland, Norway and
Switzerland, Copenhagen, World Health Organisation, (2014).

10
payments. Treatments in healthcare suffer from such imperfections as there exists an
‘intrinsic uncertainty’ and the information regarding the final outcomes is not available
beforehand.

Asymmetric information is very much present within the healthcare delivery system causing
difficulty in competition. Since buyers have difficulty in judging or evaluating the quality of
care or goods in health care, this also leads to strategic misuse of the relevant information.
For example if only the provider knows the quality of the goods or services offered, and then
it may reduce quality in order to save costs.

Information is better and easier to obtain in the case of goods. It is relatively easy to
obtain for non-clinical services. But it is more difficult to obtain for clinical services.
For clinical services there is a lot of information available at clinical settings for
health personnel involved, but summarising this information for patients and payers is
not easy. There is no wide consensus on which variables to use, who is reporting, and
so on.

Hence, though information provided to patients varies considerably across products and
countries, creation of a balance between allocations of resources with information asymmetry
within the market is a difficult task contingent on the system of concerned healthcare, its
goals and payment systems.

4. Standardised products

Health care delivery services include services which are not only emergency care but also
long term treatment. Product standardisation with details on prices and quality has been
considered to be a crucial aspect of competition in the healthcare market. This ensures that
users or patients can choose from various products based on a comparison of requirements or
characteristics. However, standardisation of goods is possible; standardisation of products
and services is difficult in both non-clinical as well as clinical services

5. Multiple buyers

Generally competition requires multiple buyers in the sense that ‘neither has the ability to
impose conditions upon providers of health care.’ However, this is difficult to achieve when
health care delivery is based on terms and conditions set between health care providers (

11
doctors ) and third parties such as insurance companies , sickness funds or national schemes
providing health care ( example National Health Services in the U.K)

Some of the other aspects which makes competition within the health care market different
are:

a. Competition between private and public sector;

b. Competition in this market is not purely price-based. Non-priced aspects of care such
as consumer choice are difficult to assess;
c. Many health care systems rather than exhibiting competition in the market i.e. health
care providers competing for patients end up having providers competing for the
market i.e. competing to win the business of a commission where it is feasible to only
have one or very few providers of a service.35
d. Dichotomy between competitive and non-competitive market. By the very nature , the
health care delivery services market is complex as well as diverse making the
evidence of their impact in the market often “conflicting and non-generalising; lastly,
e. Due to lack of robust evaluation system in place to analyse the effect of policies when
implemented further becomes an impediment in gathering reliable evidence on the
working of competition in the health care delivery market.

Hence, looking at the above discussion the proponents of competition in the market will
agree that some of the basic mechanisms that works in normal market to drive competition
does not work in the health care market. This market suffers from a number of potential
sources of market failures such as information asymmetry, uncertainty, adverse selection and
moral hazards. Further:

the restrictive conditions under which such outcomes are achieved, will exist in
healthcare markets which are characterised by serious imperfections or ‘failures’
(such as buyers inability to determine quality), and thus it has long been held that
healthcare almost everywhere, is provided in the context of regulated markets,
sometimes called ‘quasi-markets.’ Therefore, the debate is about the degree of
competition, as well as the degree of regulation (from central, federal, regional, or

35
Id.

12
 local governments), that will produce the best outcomes, rather than between
competition versus no competition.36

As such issues impede the way of understanding the various nuances relating to the
healthcare systems, at the heart of the matter relating to the role of competition in healthcare
is the challenge that what should be the degree of regulation whether at central, state or local
level that will produce the optimal outcome rather than the debate on competition should be
there or not. The fact that competition may be considered by some as a ‘problem’ and by
others as the ‘solution’ clearly indicates the important role of competition in understanding
how market forces can effectively improve the present Indian health care system.

...using the special features of the healthcare provision to argue that competition is of
no benefit in the healthcare sector ignores the fact that(i) in some submarkets the
difference between health care and other goods may not be large or justify a different
approach and (ii) alternatives to competition are not flawless. Thus, for each situation
careful appraisal is required. 37

Nevertheless, many believe that by examining the available evidence through the lenses of
economic and legal theories and regulations, it is possible to develop a framework ‘that can
be employed to decide when and how competition can be used to promote access to high
quality, efficient care.’38

The researcher believes that competition can be the tool used to drive up not only quality of
health care services but also control the cost by ‘matching the level of competition to the
nature of the clinical services delivered.’ For this to occur, the present health care system
needs to make appropriate changes in the structure of the health care market for better
competition to exist.

Competition law along with economic regulation have become market regulating tools in the
hands of the government which regulates the market to ‘secure better outcomes for society’.

Though the researcher is aware that multiple policies and legislative legal issues exists while
understanding the Indian health sector, the present study, however, deals with one of such
complex aspects of this industry namely competition law. Under the aegis of this law there

36
Id.
37
Id.
38
Dash, supra note 26 at 6

13
are primarily three types of activities that are controlled and have been discussed at length in
the subsequent sections of this chapter. Considering the vastness and the intricacies involved
in each of these issues, the researcher has analyzed one of the three common anti-competitive
practices namely, the anti-competitive agreements.

Indian health care sector has been growing exponentially in the past few years. It is expected
to be $280 billion in size by 2020, growing at a compound annual growth rate of sixteen per
cent.39 It is not only booming in revenues but also in terms of employment. It is the fifth
largest employer among all sectors in terms of direct and indirect investment.40 India like
other nations relies heavily on this sector for providing health services. Out of the entire
healthcare system, the healthcare delivery segment is the largest and comprises 75 per cent of
the overall sector while pharmaceuticals, medical devices and diagnostics account for 14 per
cent, 8 per cent and 3 per cent of the market respectively.41

Though the sector has seen growth over the last few years; the health infrastructure is lagging
behind when compared to other developing nations. Further, the Indian health sector practices
various methods of medicine including allopathy, ayurveda, unani and homeopathy. The
study at hand restricts its examination of anti-competitive agreements in health services to the
practice of allopathic medicine.

Over the years numbers of cases relating to various aspects of the health industry have been
bought forward to Competition Commission of India, the Commission in charge of
promoting and sustaining competition in the Indian market as well as its predecessor i.e. the
Monopolies and Restrictive Trade Practices Commission42. The researcher in this study only
scrutinizes the health care services43, an important segment of the larger health sector from

39
Indian healthcare sector to grow to $280 billion by 2020: Report, The Economic Times, ( Oct 3, 2015),
available at http://articles.economictimes.indiatimes.com/2015-09-01/news/66107692_1_healthcare-sector-
healthcare-delivery-social-sector
40
Healthcare: The neglected GDP driver, KPMG, (March 11, 2016)
available at https://assets.kpmg.com/content/dam/kpmg/pdf/2016/03/Healthcare-the-neglected-GDP-driver-
2015.pdf
41
Gautum Dhawan, Is Indian healthcare market consolidating? ( March 11, 2015), available at
http://www.pharmabiz.com/ArticleDetails.aspx?aid=87025&sid=9
42
The Monopolies and Restrictive Trade Practices Act, 1969, ( March 15, 2015), available
athttps://www.vakilno1.com/bareacts/mrtpact/mrtpact.html
43
Services which are performed by medical or health care professionals for the purpose of ‘promoting,
managing or restoring health’.

14
the vantage point of anti-competitive agreements. The objective of this examination is to
create a more efficient, competitive and accessible health care services in India. The health
services for the purpose of this study include disease prevention, diagnostic procedures,
curative medicines and rehabilitation care. Though this study also includes analysis of trained
medical professionals and laboratory examinations it, however, does not dwell into the anti-
competitive practices that exists in other segments of the health sector namely,
pharmaceutical and drug manufacturing companies, device manufacturers and pharmacies.
This has been done to have a more focused analysis of the anti-competitive agreements in
health care delivery services which has till date not been subject of scrutiny and deliberation
by the Competition Commission of India.

1.3 COMPETITION LAW- CONCEPTS AND FRAMEWORK

Following is a brief overview of the basic concepts and frameworks relating to competition
law which forms part of the competition law jurisprudence in various competition law
jurisdictions.

1.3.1 CONCEPT

Competition as a concept marks the idea of a free market. The genesis of it can be traced in
the writings of John Locke who propounded the unalienable right of one and all to pursue
happiness. The idea gained further momentum with the Bill of Rights in United States of
America. The very first competition law was enacted in USA in 188944 following the concept
of prohibition of restraints to competition in the market. Modern competition law has come a
long way since then. Yet there exists disagreement regarding the main goals of the
competition law.

Competition as a concept has various interpretations under the competition law. It has been
defined as a ‘process of rivalry’45 among business firms in seeking to meet market demands
along with contribution to the benefits of the economy. Competition has also been considered
as a means of preserving the competitive process46, freedom to compete with absence of

44
The Sherman Act, 1889, 15 U.S.C. § 1 , available at
http://gwclc.com/Library/America/USA/The%20Sherman%20Act%201890.pdf
45
Richard Whish and David Bailey, Competition Law, Oxford University Press, (6th Ed 2008).
46
NYNEX v. Discon 525 US 128, 135(1998)

15
restraint over the economic activities of an undertaking47 , as a means to enhance total
welfare48 and a state of perfect competition

Setting in place, competition law is essential for realization of benefits that flow through
market competition. Competition law is generally worded in negative terms.49 The reason for
the same is that competition law does not directly encourage competition in the market or
makes the firms existing in the market to compete; the law on the contrary strives through a
network of rules and procedures to prevent any situation which will harm competition. . For
example, Sec 1 of the Sherman Act, 198050 which lays down the foundation of the antitrust
law in USA declares entering into practices in restraint of trade or commerce is prohibited.51
The section does not speak about promoting or encouraging competition directly, however, it
seeks to achieve the same result.

Antitrust refers to a field of economic policy and laws dealing with monopoly and
monopolistic practices. Antitrust law or antitrust policies are terms primarily used in
the United States, while in many other countries the terms competition law or policy
are used. Some countries have utilized the phrases Fair Trading or Antimonopoly law.
The intellectual basis for antitrust economics or policy is the sub-field of industrial
organization economics which addresses issues arising from the behaviour of firms
operating under different market structure conditions and the effect this has on
economic performance.52

Therefore, competition or antitrust law refers to a combination of economic/ industrial policy

and law regulating firstly, behaviours such as collusion, price fixing and predatory pricing
and secondly, structures such as mergers, monopolies, concentrations and dominant market
positions. Thus, competition law refers to a system with the objective to ‘control or eliminate
restrictive agreements or arrangements among enterprises, or mergers and acquisitions or
abuse of dominant positions of market power, which limit access to markets or otherwise
unduly restrain competition, adversely affecting domestic or international trade or economic

47
Chicago Board of Trade 246US 231 (1981)
48
Eugene Buttigieg, Competition Law: safeguarding the consumer interest . 5. ,Wolter Kluwer Law and
Business.,( 2009)
49
H. First, Antitrust Law Fundamentals of American Law , Oxford University Press (1996)
50
Sherman Act, supra note 44 at 15
52
OECD, Glossary of Industrial Organisation Economics and Competition Law, ( March 15, 2015),available at
http://www.oecd.org/regreform/sectors/2376087.pdf

16
development.’53 Though the goals of competition law may vary, it is a system of rules and
regulations aimed to protect the process of competition so as to maximise consumer welfare.

1.3.2 SCOPE AND FRAMEWORK

The scope of competition law has been the subject of much discussion:

Whether competition law should be concerned with regulating uses of power by large
firms or with the removal of hindrances to free competition; whether it should (and in
practice it is actually used to) protect competitors and/or the process of competition;
and whether it is or should be more concerned with the interests of consumers than
the interests of producers. The fundamental differences between competition law
regimes around the world such as those concerning the type of procedures and
mechanisms that should be relied on to enforce competition law – have rendered such
questions more interesting but they have also made them more difficult.54
Though there are endless debates spanning over different schools55 of thought on competition
law and its goals, yet there are certain common provisions and mechanisms that have been
established in the long run. These are:

1. Restrictive agreements or arrangements

One of the flourishing areas of competition law is the prohibition of agreements
whose object or effect is restriction of competition. These manifest in various forms
53
UNCTAD, Model competition Law, ( Feb 18, 2015), available at
http://unctad.org/en/Pages/DITC/CompetitionLaw/The-Model-Law-on-Competition.aspx
54
Maher M. Dabbah, International and Comparative Competition Law, Cambridge University Press,( 1st Ed,
2010).
55
Harvard School of thought which emerged at the Harvard University considered antitrust involves a larger set
of objectives rather than the conventionally defined measures of economic efficiency leading to Structure-
Conduct-Performance model. According to Chicago school of thought economic efficiency is the only objective
of antitrust law which is to be measured in terms of consumers’ and producers’ surplus. It also argued minimal
intervention by the State Further it also supported the view that competition in market which remains untouched
by legal restrictions has the tendency to produce an economically efficient outcome . Criticism of the Chicago
school of thought lead to creation of Port-Chicago school of thought under the aegis of Hovenkamp believes that
market failures are not necessarily self correcting and due to that firms take advantage of such imperfections to
produce inefficient results even in a competitive market. Ordoliberal school of thought developed in Europe
believes competition provides the best way to organise social change. This believes in the idea of “social market
economy” and encourages open market access which in turn serves as an excellent control of power both private
and political. Moschel in his works explains the four concepts of competition policy by the Ordoliberals. Their
first goal is individual economic freedom, the second is that the state retains a strong place in protecting the
basic tenants of the competition system, yet limits its intervention. Thirdly, competition policy is shaped by the
rule of law and fourthly, that the entire competition policy follows the economic order of a free and open
society. See W. Moschel, The Proper Scope of Government Viewed from an Ordoliberal Perspective: The
Example of Competition Policy 157 Journal of Institutional and Theoretical Economics 3 (2001) ;See H.
WILLGERODT AND A. PEACOCK (EDS.), GERMAN NEO-LIBERALS AND THE SOCIAL MARKET ECONOMY146
(London: Macmillan, 1989)

17
 of agreements (written or oral) such as agreements to fix price or share
market/customer or bid rigging to name a few.
2. Abusive behaviour by a dominant market player
Acts or behaviour through which abuse of a dominant position or monopoly is done in
the market. Predatory pricing to eliminate competition and refusal to deal are some of
such acts which are prohibited.
3. Consolidations or mergers
Certain mergers, takeovers, joint ventures between firms that could harm the
competition in the market require a scrutiny and notification before approval.

There may be conditions where the firms, associations or persons may participate in an
agreement or behaviour which involves either all or some of the three above mentioned anti-
competitive practices together. In health care industry particularly there have been many
instances where pharmaceutical companies, medical device manufacturers enter into anti-
competitive agreements as well as misuse their dominant position in a particular market.56 A
number of joint ventures, mergers of hospitals and drug manufacturing companies have also
raised the eyebrows of competition agencies worldwide. Hence, instances of anti-competitive
behaviours are very much present within healthcare industry as well.

1.4 COMPETITION LAW IN INDIA

Whether efficiencies or freedom to compete are targeted, it is pertinent to ascertain the
premises and objectives a particular competition law is meant to perform either in a nation or
within a specific market/community. The goals or objectives of the law vary depending upon
not only the political but also economic goals set up by any nation.

In United State of America irrespective of the influence of the Harvard or Chicago school of
thought , the foundation of the antitrust lies on a consumer welfare standard and controlling
private economic power. Therefore, the law protects the economic process and not the
competitors.57 The goals spelled out by EU competition law are primarily market integration
and protection of competition.58

56
OECD Policy Roundtables, Competition in Hospital Services 2012, ( Feb 20, 2015), available at
https://www.oecd.org/daf/competition/50527122.pdf
57
Manisha M. Sheth, Formulating Antitrust Policy in emerging economies, Georgetown Law Journal 451 (Nov
1997).
58
EU, supra note 27 at 7

18
When it comes to the goals of Indian competition law, a reading of the Competition Act
200259 shows that Indian law has multiple goals. The Statement of Object and Purpose
explains the need of a new law which is capable of keeping pace with the rapid economic
development of the country. The Act has established a Competition Commission of India
which has the task60 to:

a) Prevent practices having adverse effect on competition in various markets.

b) To sustain competition in the markets.
c) To protect consumer interest.
d) To ensure freedom of trade is carried on by other participants in the markets 61.

The above goals give the impression that the Competition Act seeks to achieve social as well
as economic goals.

The Raghavan Committee Report, an important document that paved way for the enactment
of the present competition law mentions the need for India to have a competition environment
and states:62

The ultimate raison d’être of competition is the interest of the consumer. The
consumer’s right to free and fair competition cannot be denied by any other
consideration. There is also a need for supportive institutions to strengthen a
competitive society notably, adequate spread of information throughout the market,
free and easy communication and ready accessibility of goods.
Further,

It follows that Competition Law Authority (Competition Commission of India) will be

governed by the principles of competition in its adjudicatory effort. In other words,
primarily its objective will be to act as an effective instrument for engendering and
protecting competition in the market in the interest of maximising national welfare. It
will deal effectively against specified anti-competitive practices and will have powers
to mete out deterrent punishment to those who violate its provisions.

59
The Competition Act, 2002 , No. 12 Acts of Parliament, 2003( India ).
http://www.cci.gov.in/images/media/competition_act/act2002.pdf
60
Id.
61
Id.
62
The Raghavan Committee Report, ( Oct 23, 2017),available at www.manupatra.com

19
Though the legislative intent does not expressly spells out which welfare standard or model it
is following or has created, it may be derived from the Statement of Object that Indian
competition law aims to protect the free market economy and in the long run provide
consumer welfare. The objectives were deliberated upon by the Supreme Court in the case
Competition Commission of India v. SAIL63 :

Most countries in the world have enacted competition laws to protect their free market
economies- an economic system in which the allocation of resources is determined
solely by supply and demand. The rationale of free market economy is that the
competitive offers of different suppliers allow the buyers to make the best purchase.
The motivation of each participant in a free market economy is to maximize self-
interest but the result is favourable to society. As Adam Smith observed: ‘there is an
invisible hand at work to take care of this’64

Justice Swatanter Kumar further explains in the judgement:

The main objective of competition law is to promote economic efficiency using

competition as one of the means of assisting the creation of market responsive to
consumer preferences. The advantages of perfect competition are three- fold:
allocative efficiency, which ensures the effective allocation of resources, productive
efficiency, which ensures that costs of production are kept at a minimum and dynamic
efficiency, which promotes innovative practices. These factors by and large have been
accepted all over the world as the guiding principles for effective implementation of
competition law.

Elaborating further in another case, the Competition Commission of India explained that the
principle objective of competition law is to maintain and encourage competition as a vehicle
to promote economic efficiency and maximize consumer welfare. It further stated that ‘the
focal point of competition must be the actual and / or potential business conduct of firms in a

63
(2010) 10 SCC 744
64
Id.

20
given market and not on the absolute or relative size of firms’.65 The CCI recapitulated these
views66 by further explaining the function of the Competition Act, 2002 which:

...basically seeks to take care of the supply side of the market to ensure free and fair
competition among firms at the market place so that firms may compete with each
other and offer their products and services in market without limiting the supplies of
goods or services or fixing prices. It is foreseen that competition among the firms
would ultimately benefit the consumers since as a result of that better products would
be available at competitive prices. This would also increase the efficiencies of firms
and incentivize them to innovate. It is considered that competition results in total
welfare encompassing both consumers' as well as producers' welfare. However, what
is looked into is the behaviour of the firms at the market place so that market is not
distorted in the interest of a few firms acting either in collusion or in favour of a
dominant enterprise or group.67

The Court explained that the Indian competition law strives to promote and protect
competitive forces in the market. Competition at a market place essentially means that all the
market participants attempt at a greater share of market of goods/ services and as a
consequence earn higher profits.

Competition laws essentially look into the structure, conduct and performance of
economic firms at a market place, in other words, activities of a business or
commercial nature. Therefore, conduct of any non-market entity whose basic activity
is not of economic nature, cannot be examined as conduct of a market or economic
enterprise.

In a path breaking case68 recently where CCI held fourteen automobile manufacturing
companies guilty of anti-competitive practices and imposed a penalty of Rs 2544.65 crores
upon them. CCI stated:

65
Surinder Bhakoo Informant Chandigarh v The HDFC Bank Ltd [2011]110SCL17(CCI)
66
2012CompLR172(CCI)
67
Id.
68
Shri Shamsher Kataria v. Honda Siel, [2014 Comp LR 001 (CCI)]

21
 ..the Competition Act not only states in the preamble the objectives or the task of the
Competition Commission of India (CCI) but also goes on further to emphasise the
duty of the Commission to ‘eliminate practices having adverse effect on competition’,
as well as promote and sustain competition along with protecting the interest of the
consumer and ensure that freedom of trade is carried on by all the market participants
in India69. For the purpose of discharging its duties or functions CCI has been
empowered to enter into any memorandum or arrangement with the prior approval of
the Central Government with any agency of any other country.

From the above cases it can be highlighted that though the jurisprudence of the Indian
competition law is in its nascent stage, the eventual aims of it is to provide the economy a
free market based on sound competition principles that in the long run provides consumer
welfare to the ultimate consumer. The Act strives to achieve a balance between both
consumer welfare standard and efficiency; this is apparent under the anti-competitive
agreements provisions where promotion of efficiency by a firm has been a criterion for
exemption of certain agreements such as joint ventures.

1.4.1 ANTI-COMPETITIVE PRACTICES

Since the focus of this study is the anti-competitive practices and agreements, it will be of
value to deliberate a little on its concept.

OECD explains anti- competitive practices as:

a wide range of business practices in which a firm or group of firms may engage in
order to restrict inter-firm competition to maintain or increase their relative market
position and profits without necessarily providing goods and services at a lower cost
or of higher quality70.

The Indian constitution guarantees the fundamental right to practise any profession, or to
carry on any occupation, trade or business71 within India; however people/ firms may tend to
resort to practices which have an adverse effect on the market as well as consumer. One of
the primarily areas as mentioned above regulated by the competition law is restrictive
69
Competition Act, Sec 18,supra note 59 at 19
70
OECD, Glossary of statistical terms, ( Feb 2, 2015), available at
https://stats.oecd.org/glossary/detail.asp?ID=3145
71
The Constitution of India, Art 19 (1) (g), supra note 13 at 3

22
practices. These practices include both anti-competitive agreements and abuse of dominance
by the firms in a market. The present research is based as mentioned earlier on the analysis of
the provisions relating to anti-competitive agreements and their implementation.

Under the Indian competition law, maintaining a healthy competition in the Indian market by
preventing practices which have adverse effects on competition is a quintessential part. The
Act achieves this by either prohibiting or regulating (in the case of consolidations) certain
agreements which it considers anti-competitive.

The Monopolies and Restrictive Trade Practices Act of 1969,72 which may be said to be the
predecessor of the present Competition Act under Sec 33 deemed certain categories of
agreements to be in relation to ‘restrictive trade practices’ and further provided for
compulsory registration of such agreements in order to ensure control over such agreements.
The present position of the Indian law is different under the competition law regime.

Generally any agreement entered between enterprises can hamper competition, however not
all agreements which give rise to mutual rights and obligation may be considered anti –
competitive. Every country which has a competition or antitrust law in place has laid down
certain concepts and parameters for the same. Anti-competitive agreements are such
agreements which restrict competition in a relevant market73. Such agreements are unlawful
unless they enhance economic efficiency. Following is a discussion of such anti-competitive
agreements and practices.

Sec 3 of the Competition Act, 2002 encompasses the primarily provisions relating
to this subject. It states that any agreement74 or arrangement in respect to production, supply,
distribution, storage, acquisition or control of goods or provision of services which cause or
likely to cause ‘appreciable adverse effect on competition’75 are prohibited and are termed

72
The Monopolies and Restrictive Trade Practices Act, supra note 42 at 14
73
Under Sec 2 (r) of the Competition Act, 2002, relevant market means the market which may be determined
by the Commission with reference to the relevant product market or the relevant geographic market or with
reference to both the market.
74
For the purpose of understanding the anti-competitive business practices in the Indian healthcare industry
any collective agreement, arrangement, understanding, or concerted action that may have anti-competitive
effects is referred to as ‘an agreement’.
75
The application of Sec 3 is centred around the process of determination of whether an agreement has an
“appreciable adverse effect on competition”. This term, however, has not been defined in the Act itself. In India
to prove that an agreement is anti-competitive, it has to be shown that there is an adverse effect on competition
which appreciable. If the effect is negligible then the agreement will not attract any penalties. Under Sec 19 (3)
of the Act certain factors have been laid down to give consideration by the Commission while deciding upon an

23
anti- competitive. This in – principle prohibition applies not only to written agreements but
also to oral arrangements and concerted practices. Concerted practices include parallel
behaviour by enterprises, which is not the result of the normal competitive process. These
agreements can be between enterprise76 or person or association of persons.

Predominately, anti-competitive agreements are categorised in two types, horizontal and

vertical. The competition law in India does not use the two terms specifically, however,
distinction can be drawn between the two considering that while the agreements which are
horizontal are dealt with under Sec 3(3)77 , whereas vertical agreements have been referred to
in Sec 3(4).78

1.5 RELEVANCE OF COMPETITION LAW IN REGULATING THE

HEALTHCARE DELIVERY SERVICES

As reiterated earlier well functioning health system strives to meet a number of goals ranging
from equitable access, quality care, transparency and accountability to cost effective service
availability. Competition is used as a means to invigorate firms to become more efficient and
responsive to consumer preferences by providing better value for the available resources.
Generally it is understood that certain ‘market’ mechanisms lead to good allocation of

agreement. The concept of AAEC has an equivalent in US Antitrust law known as ‘restraint of trade’ and
‘attempts to monopolize’ as under Sec 1 of the Sherman Act. However, the term used EU similar to the Indian
term and is mentioned under Article 101(1) of the Treaty of Functioning of European Union. The Article
prohibits agreements which have as their ‘object or effect the prevention, restriction or distortion of
competition’, therefore, under the EU law it is required that either the object or the effect of the concerned
agreement is anti-competitive. Further, another important criterion to demonstrate that an agreement will be
anti-competitive is that the concerned restriction must have an ‘appreciable effect on trade between member
states. This is known as the de minimis doctrine as layed down by ECJ in the case of Volk v. Vervaecke [1969]
ECR 295
76
Sec 2 ( h) , Competition Act, 2002 defines “enterprise” to be a person or a department of the Government,
who or which is, or has been, engaged in any activity, relating to the production, storage, supply, distribution,
acquisition or control of articles or goods, or the provision of services, of any kind, or in investment, or in the
business of acquiring, holding, underwriting or dealing with shares, debentures or other securities of any other
body corporate, either directly or through one or more of its units or divisions or subsidiaries, whether such unit
or division or subsidiary is located at the same place where the enterprise is located or at a different place or at
different places, but does not include any activity of the Government relatable to the sovereign functions of the
Government including all activities carried on by the departments of the Central Government dealing with
atomic energy, currency, defence and space.
Explanation to the Sec 2 (h) further elaborates-
(a) “activity” includes profession or occupation; (b) “article” includes a new article and “service” includes a new
service; (c)“unit” or “division”, in relation to an enterprise, includes
77
Competition Act, supra note 59 at 18
78
Id.

24
resources in the economy. However, the primary notion of demand and supply requires re-
evaluation in the case of healthcare. By demand we mean all those who require healthcare
goods and services and by supply in health care context, we refer to those who want to
produce healthcare goods as well as services. The simple approach to competition must be
treaded cautiously when applied to healthcare services as it might be potentially damaging.

The introduction and impact of competition in health service is different from other markets
that exist within the economy. Sufficient assessment should be made before introducing
competition as an instrument to derive health system performance. Yet competition in the
health sector appears to be an effective alternative to one with no competition at all.
The Health sector has been attracting heavy private investment from both domestic and
foreign players to provide goods and services as well yet the penetration of healthcare
services in the rural areas is still lacking. Some of the indicators are listed as following:

1. While the public healthcare network is widespread, majority of the service share lies
with the private sector, which today caters to seventy per cent of out-patient and 60
per cent of in-patient services 79
2. In comparison to World Health Organisation’s (WHO) stipulated minimum doctor to
patient ratio of 1:1,000, India has only 0.7 doctors per 1,000 patients.80
3. National Healthcare expenditure is less than four percent of Gross Domestic Product
2010 (GDP) making it one of the lowest among developing countries.
4. Out of pocket expenditure on healthcare services is high.81
5. Hundred percent increase in number of nurses required as compared to OECD median
of nurses to physician ratios.82
6. While majority of the country’s population resides within the villages and rural India,
most of the hospital and healthcare facilities are located in or near the larger cities.
7. Out of the entire public sector hospitals in India, though the majority are located in the
rural area (fifty three percent as per 2010 data) seventy two percent of these beds are

79
KPMG in India analysis and Primary research interviews, ( May 1,2015), available at,
https://assets.kpmg.com/content/dam/kpmg/pdf/2016/03/Healthcare-the-neglected-GDP-driver-2015.pdf
80
WHO, World Health Statistics 2014, ( Feb 12, 2015), available at
http://apps.who.int/iris/bitstream/10665/112738/1/9789240692671_eng.pdf
81
See generally National Health Profile, 2015, ( March 4, 2015), available at
http://cbhidghs.nic.in/writereaddata/mainlinkFile/NHP-2015.pdf
82
Mahal. Supra note 18 at 4

25
 located in the urban public hospitals83 making hospitalisation facilities restricted for
the people residing in the rural areas.

The public sector’s health services performance is poor due to limited investment and sub-
optimal utilisation of available resources. This has contributed to the ‘prevailing perception
of healthcare as more of a social expenditure rather than a growth enabler.’ Therefore:

While the government hospitals infrastructure is extensive, the poor conditions of

many of these hospitals deter patients from using them. Despite higher costs, patient’s
preference for private sector facilities has led to reduction in the utilization of
government facilities thereby worsening their conditions.84

Therefore, the inefficiency and imbalance between capacity and utilization leads to the fact
that though roughly two - third of the hospitals are public owned, utilization of hospital
facilities majorly occurs in the private sector.85 Adding to the gravity of the situation are the
various factors such as information asymmetry between consumers and providers, lack of
coherency in policy formulation as well as implementation between Centre and State,
regulatory oversights etc. Such imperfections have in the long run led to market malpractices
that are prevalent within the health services. If such practices can be curbed it would be
beneficial for consumers not only in obtaining healthcare at a reduced cost but also will lead
to greater efficiency, access and quality of health services.

While many of these practices may infringe the provisions of various laws including the
competition law, it is to be considered that the effects of anticompetitive business practices
on a developing country is more severe as concentration levels in the market are much
higher; firms are more prevalent with dominant position along with higher entry barriers.
Adding to it is the competition authorities who are in their incipient stage and thus less

83
Id.
84
National Sample Survey Organization 2004 study shows decline in market share of government hospitals in
both urban and rural areas, ( June 9, 2017), available at https://www.brookings.edu/wp-
content/uploads/2016/12/201612_health-and-morbidity.pdf
85
Mahal, supra note 18 at page 4

26
resourced and skilled in handling such practices. According to World Trade Organizations
(WTO) Report:86

There are reasons to believe that developing economies tend to be more vulnerable to
anti-competitive practices than developed countries. The reasons include: high
‘natural’ entry barriers due to inadequate business infrastructure, including
distribution channels, and (sometimes) intrusive regulatory regimes; asymmetries of
information in both product and credit markets; and a greater proportion of local (non-
tradable) markets. Thus it may be particularly important to protect, consumers in
developing countries against cartels, monopoly abuses, and the creation of new
monopolies through mergers. Bid rigging in public procurement markets (i.e.
collusive tendering) is also pervasive in many developing economies, and merits
vigorous enforcement initiatives.87

Anti- competitive practices such as cartels and price fixing affect most gravely the
competition in any given market if not identified and stopped. According to one of the
Background Paper’s88 by the World Bank in 1997 ‘developing countries imported US$81.1
billion worth of goods from industries that had seen a price-fixing conspiracy during the
1990s’.Wholesellers and chemist associations determining indirectly the sale prices of certain
drugs or imposing anti-competitive conditions for the appointment of stockists of drugs have
been identified as anti-competitive agreements which have negative impact on not only the
market but also the consumers. Agreements which create market or client allocations of the
healthcare products or services or rig public procurement of such medical products have
deeper ramifications. Certain forms of vertical anti-competitive agreements such as ‘tie-in
arrangements’, exclusive supply as well as distribution agreements and boycotts can have
sever effects on the entire present as well as future healthcare delivery services as they
hamper prospective entrants in the market. An important part of health care delivery services
is the health insurance contracts entered by patients with various private and public sector
insurance companies. The premium rates, coverage plans which form an integral part of such
86
WTO, Trade Policy Review – Report by the Secretariat: INDIA[2007], WTO Document No. WT/TPR/S/182.
p. 96., ( June 25, 2015) available at http://trade.ec.europa.eu/doclib/docs/2017/july/tradoc_155733.pdf
87
Id.
88
Levenstein, Margaret and Valerie Suslow (2001): Private International Cartels and their Effect on
Developing Countries, Background Paper for World Bank’s World Development Report 2001, ( June 4 , 2015),
available at
http://www.worldbank.org/wdr/2001/bkgroundpapers/levenstein.pdf

27
contacts may also be part of a larger anti-competitive agreement entered between the
insurance companies themselves and/or between these companies and hospitals, pharmacies
and diagnostic centres. Such practices are detrimental to the whole health care system and its
future growth.

Many countries have experience with competition law investigation or enforcement in the
health care market varying from collective boycotts, cartels relating to prices of medical
products, fees charged, supply of medical devices, hospital mergers, planning licenses,
physician negotiations, and hospital exclusivity. Further, even anti competitive restrictions
by professionals can reduce a more flexible use of resources according to patients needs and
hospital resources.

Hence while on one hand it is important to introduce market mechanism to a particular

industry on the other the need arises for the promotion and protection of competition as well.
This means government and the competition authority require to pay attention to both
structural conditions in the market (by merger control) and co-ordination among suppliers
(anti-cartel programs).

With a large population to cater to, the Indian healthcare expenditure whether in urban or
rural India is mostly from out of pocket. The healthcare system in India is regulated by
multiple laws, guidelines and Ministries. At the helm of the affair is the Ministry of Health
and Family Welfare (MOHFW). To regulate alternate forms of medicines such as
homeopathy, Ayurveda and Unani, the Ministry of Ayush has been established. Production
and supply of drugs is monitored by Department of Pharmaceuticals under Ministry of
Chemicals and Fertilizers. Therefore, there are multiple regulators and departments involved
in this huge network of healthcare segments where chances of anti-competitive agreements
become much higher because of multiplicity and complexity of the market itself.

As already stated, competition can play a substantial role in increasing the quality of services
to patients. In India where less than 2.5 % of GDP is spend on healthcare by the
government89 ( much below the world average of 5.99%) and where unequal access to health

89
TOI, Economic survey says India's public spending on health well below global average, ( Jan 31 , 2017),
available at https://timesofindia.indiatimes.com/business/economic-survey/economic-survey-says-indias-public-
spending-on-health-well-below-global-average/articleshow/56897993.cms

28
care, unequal insurance cover or financing exists with heterogeneous quality of service and
market, certain preventive and corrective measures by the authority can lead to enhanced
productivity , service quality and overall performance of the market. Competition authorities
have a decisive role to play in ensuring promotion of competition and its functioning
effectively for the benefit of consumers along with the general market as a whole.

1.5.1 SCOPE OF THE STUDY

The study at hand has looked at the anti-competitive agreements (horizontal as well as
vertical agreements) within the healthcare delivery services. The two pivotal providers who
deliver healthcare services are hospitals and the doctors. Hence, the study has analysed the
agreements which have already been identified or which may have anti-competitive colours
to them from the vantage point of these two important elements of the health care delivery
services. Following is a diagrammatic representation of the same:

29
 DRUG PROCUREMENT

DIAGNOSTIC
CENTRES

HOSPITALS DOCTORS

HEALTH
INSURANCE

MEDICAL
EQUIPMENTS

Figure 1: Potential anti-competitive agreements between hospitals and other elements in

the health care delivery services.

PHARMACEUTICAL
COMPANIES

DIAGNOSTIC CENTRES

DOCTORS HEALTH INSURANCE

MEDICAL
EQUIPMENTS

OTHER DOCTORS

Figure 2: Potential anti-competitive agreements between health care professionals/ doctors

and other elements in the health care delivery system

30
1.5.2 RESEARCH OBJECTIVE

In the light of the complex structure and functioning of the health care system in India, the
present study has endeavoured to understand and identify anti-competitive agreements that
exists amongst various actors within a major aspect of the health care industry i.e. the health
delivery system of India and how the competition law can effectively plug/control them so as
to stop distortion of competition and promote over all fair competition.

1.5.3 RESEARCH PROBLEM

It has been observed that in spite of sectoral regulations and existence of competition law, the
Indian health care industry is characterized by a lack of effective competition and has various
maladies in different segments of the industry. Agreements which are entered into by various
actors in the healthcare delivery services may have appreciable adverse effect on competition
leading to higher costs and quality issues in services. Agreements such as cartels if existing
amongst hospitals, doctors and suppliers of healthcare products can not only jeopardize the
health and well being of the patients but also can have serious ramification on the economy
from financial as well as resource allocation perspective. Collective boycotts by Chemists
and Druggists association has already been noticed by the Competition Commission of India
and dealt with expeditiously. However, looking at the trend of cases decided by the
Competition Commission of India in the health care sector, hospitals and professional
(doctors) which form quintessential part of the healthcare delivery system have yet to been
scrutinized comprehensively.

Considering hospital expenditure itself forms the single most important component of the
total healthcare expenditure of an individual, this research focuses on the normative study of
the anti-competitive agreements as provided under the Indian competition law in the light of
the healthcare delivery services (hospitals and doctors). It has further considered whether the
present Indian policies and laws effecting the anti-competitive agreements on one hand are
sufficient in providing information to the participants in the industry to self-asses their
actions and on the other hand comprehensive enough to cover various shades of agreements
that though anti-competitive remain undetected or unregulated. The study has eventually
suggested some steps which not only create deterrent effect on cartels but also expedites the
entire process of curbing anti-competitive agreements i.e. it is time and cost saving from the
perspective of the Competition Commission of India. Such steps if incorporated would lead

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to better implementation of provisions relating to anti-competitive agreements and hence will
promote competition in the Indian markets generally and also lead to in the context of our
present study, better access and affordability of healthcare services to the larger section of
India.

1.5.4 RESEARCH QUESTIONS

The study had the following as broad research questions for consideration:

1. Whether sufficient analytical framework exists in India for assessing various types of
horizontal and vertical anti-competitive agreements? Are there any criteria's
mentioned to understand whether such agreements are anti-competitive?
2. Can professionals such as doctors and physicians come under the scanner of the
Competition Act, 2002?
3. Whether the exemptions under Sec 3 require amendments or clarifications for
effective application of competition law relating to anti-competitive agreements
generally and from the perspective of healthcare delivery service industry?
4. Which aspects of the India healthcare industry have been already scrutinized by CCI
from the perspective of anti-competitive agreements?
5. What has been the investigation and enforcement procedure of CCI in regulating anti-
competitive agreements generally? and what other mechanism/approach can be used
by CCI for effective enforcement of competition law?

1.5.5 RESEARCH METHODOLOGY

Since the study at hand aimed to increase the overall understanding of the meaning,
characteristics and normative aspects of the topic at hand, the research method employed has
been doctrinal. It primarily involves locating the source of law and then the process of
interpreting and analyzing the text. In the present study, the main sources of data have been
primary (legislations and Right to information application along with its reply) and secondary
such as commentaries, articles and journals. All of them were taken into account in order to
understand the intent of the legislations, the process of their enforcement and the gaps in
achieving these objectives.

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Further, the researcher did not feel the need for a quantitative study as the law, its
interpretation, application as well as enforcement was being considered. No requirement of
perceptions was needed to conduct the study hence no questionnaires or surveys were
conducted.

1.5.6 LIMITATIONS OF THE STUDY

The study has attempted to look at the present functioning of Indian healthcare delivery
services with existing or potential anti-competitive agreements within the concerned market.
However, comprehensive analysis of the entire healthcare industry from the perspective of
anti-competitive agreement was beyond the scope and timeframe of the study. In other words,
the study has made an endeavour to understand the various anti-competitive agreements
within the healthcare delivery services only. Further the study has not considered or
differentiated its analysis on the basis of other alternate types of medical treatments such as
Ayurveda, Unani and Homeopathy which are prevalent within the Indian healthcare market.
Since there does not exists an updated established database having details of all the forms of
medicines practiced in India along with their detailed structure and functioning, this is the
constrains of the study.

1.6 CHAPTERISATION / OUTLINE OF THE STUDY

The present study has been divided into six chapters. Chapter one introduces the two main
aspects of the study namely, competition law and healthcare sector. It outlines the role of
competition in the healthcare market, its relevance along with scope, research methodology,
research objectives, research problems and limitations of the study.

Chapter two discusses the main provisions relating anti-competitive agreements in the India,
US and EU competition laws. It critically evaluates these provisions from the perspective of
horizontal and vertical anti-competitive agreements in the healthcare delivery services.

In chapter three of the study an endeavour is made to critically analyse the exemptions given
to certain agreements under the Indian competition law vis a vis the treatment of exemptions
under the US and EU competition laws. This has been done keeping the various agreements
in the healthcare delivery services.

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Chapter four encompasses sixteen cases relating to the Indian healthcare industry which have
been decided by CCI and COMPAT. The researcher has critically examined various issues
and decisions in these cases keeping the effectiveness of their enforcement in mind.

Chapter five focuses on the investigation and enforcement mechanisms under the Indian, US
and EU competition laws while treating anti-competitive agreements and the lack of effective
enforcement within the Indian competition law.

Chapter six of the study lays down conclusions drawn in the study based on the research
questions set out. It also lays down certain legislative and policy recommendations for the
consideration of CCI as well as Ministry of Health and Family Welfare.

1.7 CONCLUSION TO CHAPTER ONE

Hence, in response to this unique challenge faced by India in the healthcare system where on
one hand certain parts of the sector are growing on the revenue and investment front (drug
and medical devices industry), the primary purpose of providing health services is getting
weaker especially in the larger rural India. The concentration of new hospitals and technology
concentration in secondary and tertiary hospitals located in semi-urban and urban areas is a
cause of concerns. Collusive behaviour, price, supply and distribution agreements such as
cartels, procurement malpractices etc may have sever adverse affects on the provision of
health services. By efficient monitoring and regulation of the sector by maintaining a healthy
competition as well as consumer welfare becomes paramount. Sectoral regulation requires an
umbrella of competition regulation to protect, and strengthen the healthcare services. A major
step in this regard is to analyse the present provisions relating to anti-competitive agreements
in the Indian competition law and further strengthen the applicability of the same by plugging
the gaps.

Competition and its need to be present in a well functioning healthcare delivery market is
incontestable. Due to the very complex nature of this market gathering evidence of its present
functioning though difficult is vital for assessing and improving the present framework.
Competition law which is the backbone of market economy, promotes, sustains and supports
free market mechanisms. It has the ardours task of weeding out anti-competitive behaviours
in all their manifestations so that the market functions based on competition. Its functions are
imperative for the essential industries such as health care. Competition in the health care

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delivery market as reiterated above benefits the consumers since it helps in reducing costs,
improving quality and encouraging innovation.90 Competition law enforcing agencies world
over provide guidance to the health care market participants whether drug manufacturers,
hospitals, paramedics or other health care professionals. Such guidance and regulations stop
firms and persons from engaging in anticompetitive conducts which harm customers.
Competition law and the agency, additionally, also assist the participants in the health
delivery market to comply with the nation’s competition law. For such reforms to occur it is
crucial to examine the present structure of anti-competitive law in the Indian health care
delivery services to bridge the gaps in the existing framework.

90
Federal Trade Commission, Competition in the health care marketplace, ( June 2, 2015), available at
https://www.ftc.gov/tips-advice/competition-guidance/industry-guidance/health-care

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