A report by the UK’s Competition and Markets Authority (CMA) has broad implications for UK regulated professions with private equity investment (even though the focus of this report relates to veterinary practices).
Over the last dozen years, six large veterinary groups in the UK have increased their representation within the veterinary world from 10% to 60%, mostly through the acquisition of existing practices. Some also operate related businesses such as online pharmacies, specialist centres, crematoria, and out-of-hours providers. “These large groups are ultimately owned or significantly controlled by corporate and financial entities.
The report summary identifies several concerns arising from private equity’s increasing dominance of the market:
- Average prices charged by larger private equity groups are 18% higher than those charged by independent practices.
- Their average net satisfaction score for the cost of services is about half of that for independent practices. Their satisfaction score for quality of services is also lower.
- Internal documents obtained by the CMA indicate that price increases are not linked to quality improvement initiatives but rather the expectation that pet owners will simply bear the cost. Larger groups tend to commercialize the operation of their practices.
- Cost savings achieved by larger groups (e.g., using their purchasing power to reduce medicine costs) are not passed onto consumers.
- The profitability of large groups has increased significantly. “In a well-functioning market, we would expect more of these profits to be competed away through lower prices or greater investment in quality.”
- Pet owners have more limited choices than before (e.g., choosing a practice, choosing treatments and referrals, purchasing medicines, out-of-hours services).
The CMA observed:
At the heart of our concerns is a regulatory system that is out of date and out of step with the current structure of the veterinary industry, and so no longer fit for purpose. For example, there is no mandatory oversight of the businesses which own or control the majority of vet practices in the UK. Veterinary businesses make critical decisions on matters such as staffing levels, working practices, availability of medicines, investment in equipment and consultation length. In the past, when most veterinary businesses were owned by vets who were individually regulated, the lack of regulation of businesses was of less significance. Now that most veterinary businesses are controlled by non-vets, the lack of regulation of businesses that supply such important services is a serious regulatory failure. In addition, the regulatory framework could do more to help pet owners judge the clinical standards and general quality of veterinary businesses. The complaints system appears to us to be ineffective, denying pet owners effective means of redress when things go wrong, and there is no mandatory third-party consumer redress scheme.
The CMA proposes the following strategies for addressing these concerns:
- Larger groups will be required to provide enhanced disclosure. This will include information about all entities that form part of a group, out-of-office care arrangements, and detailed prices for a standard list of services.
- The regulator for veterinarians has agreed with the CMA to collate this information on its website (associated with its public register), which “will make it easy for a new pet owner, a pet owner moving into a new area or someone unhappy with their current practice to make comparisons between practices in their locality.” The CMA says: “We expect there to be considerable interest in this data and that pricing outliers, including those businesses which cannot justify higher prices (by demonstrating better quality, for example), will be highlighted, for example by the media or by consumer groups.”
- Large practices will be expected to provide written estimates for recommended veterinary services costing more than £500. Once treatment has been provided, itemized bills are to be provided.
- The CMA also says: “we have decided that veterinary businesses must have written policies and processes in place to ensure that vets and veterinary nurses are able to act in accordance with relevant provisions of the [veterinary regulator] codes of professional conduct and supporting guidance, including giving pet owners independent and impartial advice about costs and, where appropriate, a range of treatment options and prices.”
- Pet owners will also need to be informed that they can obtain written prescriptions, at a reasonable fee, for any recommended medications and that pharmacies may dispense them at a lower cost than that charged by the practice.
- Large practices must develop an in-house complaints process.
- The veterinary regulator will monitor compliance with and raise public awareness of these requirements.
- The CMA will advocate for updated legislation so that the veterinary regulator has direct authority over veterinary businesses. Its statutory mandate should include promoting competition between veterinary practices. In addition, the regulator should be given additional authority to regulate “veterinary nurses”, including defining their scope of practice. The regulator should also explore supporting innovative business models such as offering single services, such as vaccinations, and telemedicine service models.
It appears that this initiative by the CMA may soon be applied to other sectors such as the private dentistry sector and care homes. In addition, the same source (Proskauer Rose LLP) suggests that another regulator, the UK Financial Conduct Authority, is also considering a review of consumer credit activities by these entities.
The commercialization of professional practices is also occurring in Canada, often through practice management structures. Some of the CMA suggested strategies are already in place for some professions. The CMA report provides further food for thought for Canadian regulators.
