In the first case of its kind, the Commerce Commission has said it cannot authorise mental health contracts Health Waikato and Midland Regional Health Authority have asked it to consider.
One contract would involve Health Waikato providing mental health facilities to Midland Health for 10 years. This would include building a new secure unit at Hamilton Hospital. The other would involve it negotiating to provide mental health services there.
Commission Chairman Dr Alan Bollard said the Commission's decision was not about the fate of Tokanui Hospital, which could be replaced by the new unit.
"Nor are we advising them on how to run a hospital or how to make clinical judgements about treating patients."
"The Commission's role is to promote competition. Our concern here is about how the contracts affect competition between organisations working in mental health markets, and that can affect the consumer."
Facilities contract
Under the facilities contract, Midland Health would pay Waikato Health $3 million a year for guaranteed access to the new unit.
If Health Waikato used the unit for another purpose or if it allowed any other organisation to use it, it would get less money. If Midland Health chose to use another unit, it would still have to pay $3 million a year to Health Waikato.
In addition, only Midland Health can buy mental health services in its area.
"These are strong financial incentives that prevent any other organisations being involved. The likely effect would be to shut out all other organisations from offering these services for 10 years," Dr Bollard said.
At a conference called to discuss the contracts, the Commission heard from four organisations who already provide mental health services to Health Waikato or Midland Health and who may have the potential to provide secure facilities within five years. They are Ashburn Hall, Richmond Fellowship, Hauora Waikato and Lakeland Health.
Service contract
The service contract would require Health Waikato to be given the first option of providing mental health services at the new unit. It is worth about $20 million a year and would be renegotiated every two to three years.
The contract would require Health Waikato and Midland Health "to negotiate co-operatively and in good faith, using their best endeavours to agree on a service contract".
The likely effect would be to prevent other organisations using the facility, and providing mental health services for patients in the region.
Commission decision
The Commerce Act prohibits contracts which substantially lessen competition in any market. It also allows them to be authorised if it can be shown that their public benefits are greater than their detriments to competition.
"In this case the Commission concludes these contracts would lessen competition. In addition, we consider that when weighed against the most likely alternative option, the benefits to the public which would result, or would be likely to result, from this proposal do not outweigh the lessening in competition," Dr Bollard said.
"The Commission considers that the most probable outcome of this decision is that the new facility will still be built at Waikato Hospital but under different contracts."
Health Waikato has said it does not mind how long the contract is, as long as its costs for building the new unit are covered.
If the contract term reduced to five years, there would be some increase in financial costs in the short term, though no increase in overall costs. In addition, there would be some chance of competition after five years.
Media contact:Communications Officer, Vincent Cholewa
