Australia: Misuse of market power – relevance to hospital and aged care operators

Last Updated: 18 September 2016
Article by Alison Choy Flannigan

Private hospital operators conduct their business in a competitive environment and competition laws can affect how they interact with their competitors and other organisations such as private health insurers, pharmaceutical companies, medical device companies and medical practitioners.

The Competition and Consumer Act 2010 (Cth)19 (the Act) prohibits a number of restrictive trade practices, including misuse of market power, anti-competitive contracts, price-fixing and secondary boycotts affecting competition.

Every private hospital operator must be aware of these obligations and confirm that it has policies and procedures in place to ensure compliance with the Act, as a breach (as stated in s.76 of the Act) in the case of a corporation can result in penalties up to $10 million, the value of the benefit attributable to the breach or 10% of annual turnover (whichever is the greatest). For individuals, the penalty can be up to $500,000 and the individual can be disqualified from managing a corporation. In addition, damages and injunctive remedies may be available.

Section 46 – Misuse of Market Power

Section 46 states that "a corporation that has a substantial degree of power in a market shall not take advantage of that power in that or any other market for the purpose of:

  1. (eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market;
  2. preventing the entry of a person into that or any other market; or
  3. deterring or preventing a person from engaging in competitive conduct in that or any other market...."

The contravention of s.46 is "not merely the co-existence of market power, conduct and proscribed purpose, but a connection such that the firm whose conduct is in question can be said to be taking advantage of its power".20

What is market power?

Market power is the power to behave in a market in a manner not constrained by the competitors in that market for a sustained period. For example, being able to raise prices above supply cost without losing customers.

Example of misuse of market power

An example of misuse of market power is when the sole Australian manufacturer of a sterile fluid, being an essential product, tendered supply to public hospitals on a bundled basis with other fluids, where the price differential between the item by item price and its bundled price was substantial. This allegedly damaged competitors selling the other fluids: ACCC v Baxter Healthcare Pty Limited (No 2).21

What changes are proposed?

On 31 March 2015, the Federal Government released the final report of the Competition Policy Review (the Review).22 The Review recommended substantial changes to s.46.

The Review commented that the existing s.46 was not reliably enforceable and permits anti-competitive conduct. The Review recommended that s.46 be "reframed to prohibit a corporation that has a substantial degree of power in a market from engaging in conduct if the proposed conduct has the purpose, or would have or be likely to have the effect of substantially lessening competition in that or any other market."

Such a reframing would allow the provision to be simplified.

The review also made recommendations in order to mitigate concerns about inadvertently capturing pro-competitive conduct. The review recommended that authorisations (by the ACCC) should be available in relation to s.46 and that the ACCC should issue guidelines.

The Review included the following proposed wording for s.46(1):

"A corporation that has a substantial degree of power in a market shall not engage in conduct if the conduct has the purpose, or would have or be likely to have the effect, of substantially lessening competition in that or any other market..."

The recommendations met with some opposition. The Government announced in its response Australian Government Response to the Competition Policy Review in November 2015 that it would consult further on the reform and has decided to accept the Review recommendation in full Prime Minister of Australia – Joint Media Statement: Fixing Competition Policy to Drive Economic Growth and Jobs 16 March 2016. At the time of writing this article, the draft legislation has not been released.

What are the key differences?

The proposed changes:

  1. remove the 'take advantage' test – so the applicant will no longer have to prove that the respondent used its market power (and not some other power);
  2. shift 'for a purpose' to 'has the purpose, or would likely to have the effect' of substantially lessening competition – so the applicant will no longer have to focus on the purpose for which the market power was used, rather the effect of the conduct;
  3. move from a focus on 'damage to a competitor' to a focus on 'substantially lessening competition'; and
  4. adding further factors for a court to take into account and matters aimed at reducing uncertainty.

The amended s.46 is designed to make it easier to enforce penalties and to prohibit a breach of misuse of market power by large companies with market power (such as large private health insurers) from engaging in a misuse of market power which affects competitors (other private health insurers) and non-competitors in other markets (such as private hospital operators). It is not until the legislation is passed and tested that we will be able to measure its true effect.


19 Competition and Consumer Act 2010 (Cth) 1974

20 See Melway Publishing Pty Ltd v. Robert Hicks Pty Ltd (2001) 205 CLR 1

21 ACCC v. Baxter Healthcare Pty Limited (No.2) [2008] FCAFC 141; (2008) 170 FCR 16, 249 ALR 674

22 Competition Policy Review – Also known as the Harper Review

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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