Primary Health Care Limited - s.87B undertaking

On 15 June 2016, the ACCC accepted undertakings (the Primary Undertaking, the Healthscope Undertaking, together the Undertakings) from Primary Health Care Limited (Primary) and Healthscope Limited (Healthscope) in relation to Primary’s completed acquisition of Healthscope’s pathology business in Queensland.

 The Primary Undertaking requires Primary to divest to an ACCC approved purchaser those pathology assets that Primary acquired from Healthscope and still owned at the time of giving the undertaking. The Healthscope Undertaking requires Healthscope to divest additional pathology assets to an ACCC approved purchaser. As part of accepting the Undertakings, the ACCC approved Medlab Pathology Pty Ltd (Medlab) as the purchaser of the package of assets. The package of divestiture assets will be sold to Medlab to enable it to establish a competitive presence in Queensland. 

The ACCC considered that if the Undertakings were implemented, the completed acquisition would not be likely to have the effect of substantially lessening competition in one or more markets for the supply of community pathology services in Queensland or relevant regions within Queensland in contravention of section 50 of the Competition and Consumer Act 2010.

The ACCC found that Healthscope’s pathology business in Queensland provided a significant competitive constraint on Primary and Sonic Healthcare Limited, the two major full-service pathology providers in that state. Therefore the ACCC was concerned that the completed acquisition would substantially lessen competition in one or more relevant markets in Queensland.

The objective of the Undertakings is to address the ACCC’s competition concerns that would otherwise arise as a consequence of the completed acquisition.

The Primary Undertaking aims to achieve this objective by placing obligations on Primary to:

1. ensure that the Primary divestiture assets are sold to Medlab;
2. create a viable, effective, stand-alone, independent and long term competitor in the supply of community pathology services in Queensland;
3. ensure that Medlab has the necessary consents, personnel, technical assistance and transitional supply to compete effectively with Primary in the supply of community pathology services in Queensland;
4. maintain the economic viability, marketability, competitiveness and goodwill of the Primary divestiture assets prior to divestiture pursuant to this Undertaking;
5. refrain from, for a period of five years from the completion of the divestiture of the Primary divestiture assets, disparaging Medlab or making reference to Medlab’s business, except in certain circumstances;
6. desist from, for a period of 42 months from the completion of the divestiture of each collection centre, taking steps to enter or entering into any arrangement for the right to use or occupy that collection centre for the purposes of offering community pathology services  except in limited circumstances after the first 24 months;
7. ensure that any of the Primary divestiture assets that are not transferred to Medlab by the end of the initial sale period are sold to an alternative ACCC approved purchaser; and
8. provide for the effective oversight of Primary’s compliance with the Primary Undertaking.

The Healthscope Undertaking aims to achieve this objective by placing obligations on Healthscope to:

1. ensure that the Healthscope divestiture assets are sold to Medlab ;
2. create a viable, effective, stand-alone, independent and long term competitor in the supply of community pathology services in Queensland;
3. ensure that Medlab has all the necessary associated assets and rights to enable it to compete effectively with Primary in the supply of community pathology services in Queensland;
4. ensure that the Healthscope divestiture assets are maintained and separately and readily accounted for prior to divestiture;
5. ensure that if the Healthscope divestiture assets are not transferred to Medlab by the end of the initial sale period, they are sold to an alternative ACCC approved purchaser; and
6. provide for the effective oversight of Healthscope's compliance with the Healthscope Undertaking.

A copy and a description of the Healthscope Undertaking can be found as a separate entry on the Public Registers website .

Waiver

UPDATE: During the course of 2017, Primary requested waivers in respect of a number of its obligations under the Primary Undertaking. The reasons for seeking the waivers related to some landlords refusing to consent to transfer leases to Medlab, refusals from counterparties to novate agreements to Medlab, Medlab determining that it did not wish to acquire some centres, and some site closures in the ordinary course of business or the applicable service level agreement coming to an end during the divestiture period.

On the basis of the information provided by Primary to the ACCC and after consultation with the Approved Independent Auditor, and Medlab, the ACCC agreed to waive Primary’s obligations under the Primary Undertaking in relation to the following:

1.   Primary’s obligation under clause 5.1(a) to divest to Medlab the following Divestiture Assets:

    a.     The benefit of the following Service Level Agreements (with a lease) where Healthscope is the landlord or sub lessor:

        i.              Chermside Medical Centre

    b.     The benefit of the following service level agreements (without a lease):

        i.              Milton Clinic

        ii.             Molescan Booval

        iii.             Molescan Morningside

        iv.            Molescan Cairns

        v.             Molescan Sunnybank

    c.     The benefit of any oral or written agreement or arrangement under which Primary has the right to use or occupy the leasehold property in respect of the site of the following pathology collection centres where Healthscope is not the landlord:

        i.              Part 28 Crofton Street, BUNDABERG

        ii.             Part HIMC, 21C Marina Shopping Village, Santa Barbara Road, HOPE ISLAND

        iii.             Part 180 Napper Rd, PARKWOOD

        iv.             Path Room 1, 294 Bourbong Street, BUNDABERG

        v.             Part Unit 32/33, Jimboomba Junction SC, 671 Cusack Land, JIMBOOMBA

        vi.             Part Shop 5 Palms SC, 172 Goondoon St, GLADSTONE

        vii.           Part Shop 48, Homeworld Centre, 502 Hope Island Road, HELENSVALE

        viii.           Bleeding Room, Unit 3, 16-18 Falkinder Avenue, PARADISE POINT

        ix.             Path Rm, Station Chamber, 3/120 Lennox St, MARYBOROUGH

        x.             Path Rooms 1 & 2 and Nursing Station, 116 Robertson Street, FORTITUDE VALLEY

        xi.             206-214 Philip Street, GLADSTONE

    d.     The benefit of any oral or written agreement or arrangement under which Primary has the right to use or occupy the leasehold property in respect of the site of the following laboratories and associated collection centres not owned by Healthscope:

        i.  Caloundra Laboratory (Accreditation No. 15094; Category B (Branch)), 1st Floor, Golden Beach Medical Centre, 34 Landsborough Parade, GOLDEN BEACH – Pathology laboratory and collection centre

        ii. Bundaberg Laboratory (Accreditation No. 15231; Category B (Branch), Shop 7, 53 Woongarra St, BUNDABERG

2.  The operation of clause 5.4, which provides that Primary is in breach of its Undertaking if it is unable to effect the divestiture of any of the Divestiture Assets by reason of a failure to obtain Consents;

3.  Primary’s obligation under clause 9.2 to appoint and maintain an Approved Divestiture Agent from the end of the Initial Sale Period to effect the divestiture of any Unsold Assets; and

4.  Primary’s obligation under clause 7.11 not to use or disclose any confidential information in relation to any Divestiture Asset which it has not been able to divest to Medlab.

We note that Primary will continue to be subject to all other ongoing obligations pursuant to the Primary Undertaking, including the following:

1. an obligation under clause 7.6 to refrain, until 15 June 2021, from disparaging Medlab or making reference to Medlab’s business except in certain circumstances;
2. an obligation under clauses 7.8 and 7.9 not to enter into (or take steps to enter into) any arrangement for the right to use or occupy a Divestiture collection centre which has transferred to Medlab for a period of up to 42 months after the date on which it transferred to Medlab;
3. an obligation not to use or disclose any confidential information about the Divestiture Assets which Primary has transferred to Medlab (including any collection centres to which the confidential information relates); and
4. an obligation to maintain the Approved Independent Auditor and procure the provision of the audit reports in accordance with clause 8.11 of the Undertaking.