Competition Commission of Singapore on SMA Guidelines: Recommended Fees by Trade Associations in Singapore are Illegal
We are pleased to provide this global competition/antitrust law update from our friends at the leading Singapore firm Rajah & Tann LLP.
On 19 August 2010, the CCS issued a landmark decision that recommended fees or fees guidelines by professional or trade associations are generally in violation of the Competition Act. As a result of this decision, professional or trade associations which have guidelines on fees or on any other critical commercial term in place would be well advised to immediately review and if necessary, withdraw those guidelines to mitigate the risk of a fine being imposed on them for violating the Competition Act. Whilst this is a decision of the Competition Commission in Singapore, the principles enunciated are equally applicable in other jurisdictions.
The decision arises from the application in 2009 by the Singapore Medical Association (‘SMA’) for a decision by the Competition Commission of Singapore (‘CCS’) as to whether its Guidelines on Fees (the ‘GOF’) for medical practitioners were in breach of the Competition Act or rather excluded from the Section 34 prohibition in view of the Net Economic Benefit (‘NEB’) flowing from them. Whilst the CCS had in the past taken the view that recommended minimum fees by professional or trade associations are likely to be in violation of the Competition Act, the decision issued on the GOF suggests that any type of fees recommendations by associations of undertakings are illegal and expose both the association and the members of the association to fines under the Competition Act.
This update reviews the reasons for this decision and the lessons to be drawn from it.
The Guidelines On Fees Issued By The SMA
The GOF were first issued by the SMA in 1987 and were amended in 1992, 2000 and 2006. Through the GOF, the SMA recommended a range of fees, meant as a guide for a number of services provided by doctors in private practice in Singapore
The recommended fees were categorized under three parts: (i) general consultations fees for General Practitioners (‘GPs’) or Specialists; (ii) professional fees for office surgery and medical procedures, immunisation, medical examinations and reports as well as for specific procedures in a number of specialty care such as obstetrics, paediatrics, cardiology, etc; and (iii) fees for surgeons and anaesthetists in relation to hundreds of specific procedures.
In 2007, the SMA abolished the GOF published in 2006 amidst concerns that the GOF may infringe Section 34 of the Competition Act which prohibits decisions by an association of undertakings having as object or effect the limitation of competition in the relevant market in Singapore. However, in 2009, the SMA applied to the CCS for a decision as to whether the GOF were indeed anti-competitive or whether they were excluded from the Section 34 prohibition on the basis of NEB. In its decision, the CCS concludes that the GOF are prohibited under the Competition Act and could not benefit from any exclusion in the Competition Act. In particular, the CCS considered that no NEB resulted from the GOF.
The Recommendation Of Fees, Whether Minimum Or Maximum, Is Anti-Competitive Unless Exempted
In 2008, the CCS issued a guidance in relation to decisions by associations of undertakings relating to fees or prices. The matter arose from an application by the Institute of Estate Agents (‘IEA’) to the CCS for guidance on whether the fees guidelines it had issued, which recommended the fees payable and the fee structures (ie, which party should pay) applicable to real estate agents for their services (‘IEA Guidelines’), were likely to have the object or effect of restricting competition on the real estate agency market in Singapore. The IEA Guidelines set out the level of fees and the fee structures for sales, rental, assignment and management transactions involving all types of properties.
The CCS held that the adoption of the Guidelines was a decision by an association of undertakings that had the object of appreciably restricting competition. Importantly, however, the CCS highlighted ‘that the fees payable by property sellers are couched as a minimum fee recommendation in the Fees Guidelines. This practice discourages any price competition below the recommended rate. More efficient estate agents or agencies, which are able to charge lower rates, will have little incentive to do so’. This suggested that the fees recommendation was anti-competitive as it was setting out a minimum recommended price.
The decision issued by the CCS in relation to the GOF goes much further as the CCS takes the view that ‘[E]ven if the GOF comprised only recommended maximum fees (ie without recommended minimum fees), it would still be deemed to be anti-competitive in its nature’. In short, this means that, through its decision, the CCS effectively declares that any type of fees recommendations by professional or trade associations in Singapore are prohibited under the Competition Act.
The Recommendation Of Fees By A Trade Association, Whether Binding Or Not, Is Anti-Competitive Unless Exempted
In its decision, the CCS concluded that the GOF restricted competition even though compliance was voluntary, confirming its view that even non-binding recommendations can amount to a violation of the Section 34 prohibition. The decision lacks clarity on this front, however, as the CCS’ reasoning considers that ‘although the GOF was stated to be voluntary, SMA had an objective mechanism in place to foster compliance’. It seems, therefore, that in this case, the CCS took the view that the recommendation was nevertheless binding on its members, despite the fact that compliance with the Guidelines was said to be voluntary.
It is worth noting, however, that in 2008, the CCS had already publicly taken the view that non-binding recommendations by professional or trade associations may have as object or effect the restriction of competition. This statement was made by the CCS in relation to the recommendation by the Singapore School Transport Association (‘SSTA’) of a fuel surcharge to its school bus operator members. In this case, the CCS only issued a warning to the SSTA. The Media Statement issued by the CCS on 1 August 2008 on the case made clear that a recommendation of prices by an association of undertakings, whether binding or not binding, was likely to be anti-competitive:
“[The] CCS holds the view that price recommendations or guidelines tend to restrict independent pricing decisions. The circulation of such recommended prices by a trade association, even if it is non-binding, is likely to prompt industry players to cluster their prices around, if not exactly matching, the recommended prices. This is not helpful to free competition”.
Based on this, it seems that the CCS has decided to take a strong stance against any type of price or fees recommendations by professional or trade association and will, as a rule, consider them as being anti-competitive by object and therefore contrary to the Competition Act unless exempted.
The GOF Do Not Result In Net Economic Benefit
In its application for a decision by the CCS, the SMA argued that the GOF resulted in NEB and were, therefore, exempted from the application of the Section 34 prohibition.
In particular, the SMA alleged that in the healthcare market, there is a high degree of information asymmetry between medical practitioners and patients, which afford medical practitioners the ability of overcharging their patients. In addition, patients are not armed to make informed choices on pricing and quality of medical practitioners prior to consultation. By preventing overcharging, the GOF, therefore, promoted the consumption of medical services at socially and economically optimal levels, which, in turn, translated into increased investment in health capital and a boost in productivity. Hence, the GOF promoted economic progress.
The CCS, however, took the view that in the two relevant markets identified, namely the primary care market in Singapore and the hospital care market, either there was no concern of over-charging or the concern was very limited, and, in any event, the GOF did not prevent medical practitioners from overcharging. The CCS analysed that the services in the primary care market related to common and recurring ailments, so that patients would generally know what kind of treatment they need and what would be a reasonable price for the service provided. As such, patients were able to exercise choices and eventually easily switch to another practitioner if overcharged. Therefore, the CCS concluded that over-charging was not a major concern in the primary care market which was, in fact, recognized by the SMA.
In relation to the hospital care market, the CCS recognized that, due to the complexity of the medical conditions, information asymmetry was possibly more severe than in the primary care market and that, effectively, the risk of over-charging existed. However, the CCS highlighted that, in Singapore, the major supplier of hospital care was the public sector which did not refer to the GOF in setting prices of hospital in-patient and specialist outpatient services. On this, the CCS noted that the Ministry of Health had taken various measures to increase transparency of hospital care costs, notably by publishing hospital bill sizes on its website and by requiring hospitals to provide financial counselling to patients and medical bills given to patients to be itemised. As a result, the CCS concluded that over-charging was not an issue for those patients electing the public sector for the provision of hospital care services and was, therefore, an issue only for patients choosing services provided by the private sector. The CCS found, however, that contrary to what was argued by the SMA, the GOF did not provide those patients with greater transparency on private fees and were, therefore not helpful in preventing over-charging. For the CCS, the use in the GOF of ‘highly technical medical terminologies which only doctors would be expected to understand’ made the GOF useless to patients who ‘would not be able to identify or match the medical procedures by themselves, let alone estimate the likely size of the overall bill, based on the information provided in the GOF without any doctor’s assistance’. The CCS, therefore, concluded that there was no support to the SMA’s point that the GOF could, even remotely, prevent overcharging in the hospital care market.
Further, the CCS also found that the SMA had not produced any evidence to establish that medical services in Singapore will fall or has fallen below socially and economically optimal level without the GOF or further to the withdrawal of the GOF. It appears from the decision that the SMA submitted that this would be a ‘complex endeavour’, although the SMA tried to give anecdotal evidence of its allegation.
As an aside, it is worth highlighting here that submissions to the CCS that an agreement or a decision by an association of undertakings should be excluded from the application of the Section 34 prohibition either based on the NEB exclusion or on any other exclusion in the Third Schedule to the Act have to be thoroughly substantiated with evidence. The onus is on the party alleging that the Section 34 prohibition does not apply to prove its case and the CCS can be very demanding when it reviews and eventually accepts the evidence provided to that effect. In practice, applying to the CCS for guidance or for a decision that an agreement results in NEB and is, therefore, not anticompetitive requires a considerable amount of upfront preparation and gathering of comprehensive evidence in support of the applicant’s argument that NEB applies. Without strong evidence being provided, it is unlikely that the CCS will issue a favourable guidance or decision.
In the particular case of the GOF, since the condition of promoting economic progress was not met by the GOF, the CCS decided that there was no NEB resulting from the GOF, with no need to assess whether the other conditions establishing NEB were present. The CCS, nevertheless, considered that the GOF was not indispensable to achieve the benefits alleged by the SMA and, in addition, eliminated competition for a significant part of the relevant markets.
CCS Action In Relation To The GOF
The CCS decided, therefore, that the GOF violated the Section 34 prohibition. As the GOF had been withdrawn prior to any CCS investigation, the CCS chose not to issue any direction vis-à-vis the SMA. It is worth highlighting, however, that in the case where the CCS had opened an investigation, it could have imposed a fine on the SMA for violation of the Competition Act.
On this, it is worth noting that under the Competition Act and its subsidiary legislation, the CCS can impose a financial penalty of up to 10% of the infringing undertaking’s turnover in Singapore for the period of the infringement up to a maximum of three (3) years. In the case of an association of undertakings, the applicable turnover is the aggregate applicable turnover of the undertakings that are members of the association.
Whilst, under Section 69 of the Competition Act, a financial penalty can only be imposed where the CCS is satisfied that the infringement was committed negligently or intentionally, it will be difficult for a professional or trade association still recommending today prices or fees to argue that it did not act negligently even. The decision issued by the CCS states clearly its position that fees or prices guidelines by professional or trade association should be banned.
The decision issued by the CCS is a strong signal to the professional or trade associations in Singapore, as well as their members. Clearly, any fees or prices guidelines issued by professional or trade associations in Singapore, whether binding or not on its members, whether setting maximum fees only or otherwise, whether they are followed or not followed by the members of the association are viewed as being anti-competitive in nature. In addition, recommendations on critical commercial terms and conditions to be inserted in the contracts entered into by the association’s members may also be viewed as anticompetitive, notwithstanding the fact that prices or fees are not subject of the recommendation. In taking such an approach, the CCS appears to have taken as strict a position in Australia, where such recommendations are per se prohibited.
It must also be emphasised that a decision by a professional or trade association may, in some instances, be also treated as an agreement between the members of the association, which, in most cases, will be competitors. In such cases, it is likely that a fine be imposed on and/or a direction be given to both the association and its members. This means that associations in Singapore that still have such guidelines in place should carefully review and, if necessary, consider withdrawing such guidelines before being investigated and possibly subsequently subjected to financial penalties by the CCS. Similarly, members of such associations should be aware that guidelines on fees or other critical contractual terms and conditions of the association they are members of may trigger their liability under the Competition Act.
A point that business which operate across several countries, including in the region, must note is that this GOF decision could quite easily be adopted in any of the other countries, particularly given the limited apetite for cartel type behaviours amongst various regulators. The Vietnamese and Indonesian regulators, for instance, have uped their ante and have been investigating and penalising businesses remotely in cartel type operations. The recommendation of minimum or maximum prices, where it is adopted and followed by competitors, whether as part of an association or otherwise, will be viewed as cartel behaviour, and so could be subjected to investigations in these countries.
It is thus imperative for businesses and associations operating in Singapore and across region, including Malaysia, Vietnam, Indonesia, India and Taiwan to take positive steps to review their operations.
The decision issued by the CCS is of importance both to professional and trade associations and to their members. In view of the hard stance taken by the CCS against certain types of guidelines, associations in Singapore that still have such guidelines in place should carefully review and, if necessary, consider withdrawing such guidelines before being investigated and eventually fined by the CCS. Similarly, members of such associations should be aware that guidelines on fees or other critical contractual terms and conditions of the association they are members of may trigger their liability under the Competition Act in Singapore as well as under the competition laws of other jurisdictions in the region.
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