The IRIS-network and cross-border state aid to hospitals

Recently, the final decree from July 5th, 2016 of the European Commission (Commission) related to the public financing for the public hospitals of the IRIS-network in Brussels, Belgium was released. The Commission has stated that any form of compensation received by the public hospitals needs to be considered as state aid. Repayment is not necessary though, due to the fact that the Commission considers the state aid as reconcilable with the national market.

The case

On October 2014, the Commission launched an investigation on the compensation that was allocated to five public hospitals in Brussels. The investigation was started after the Commission received complaints from two associations of privately-owned, Brussels-based hospitals, who accused the five public IRIS-hospitals of receiving illegal state aid. The plaintiffs noted that the hospitals have received several payments since 1996 from six Brussels-based municipalities to compensate their deficits that occurred when providing healthcare services and social work services of general economic interest (SGEI). The privately-owned hospitals in Brussels did not receive any compensation for their deficits.

Some results of the investigation showed that the public hospitals had additional liabilities on top of the minimal requirements that apply for all hospitals in Belgium. One additional liability is the fact that public hospitals have to treat every patient under any circumstance, whether it is urgent or not and whether the patient can afford the treatment or not. This liability ensures the fact that all citizens of Brussels, including low-income citizens, have access to high-quality healthcare. Considering the fact that sources of funding for public and private hospitals are insufficient to cover these additional liabilities, the public IRIS-hospitals will have an increased deficit. By compensating those deficit, the municipalities from the Brussels Region ensure that IRIS-hospitals can still fulfill their SGEI-duties.

Evaluation of the Commission

First, the Commission has evaluated whether the financing of the public hospitals in Brussels can be classified as state aid within Article 107(1) TFEU. One or more undertakings (1) have selectively received an advantage (2) that was financed by the Member State or financed through State resources (3) which distorts or threatens to distort competition (4) in so far as it affects trade between Member States (5). These criteria are cumulative.

The additional social and community-supporting activities that public hospitals operate cannot be considered separately from the general hospital activities that have an economic value. As a result, the hospitals are considered to be enterprises or undertakings. According to the Commission, these additional social and community-supporting activities can be labeled as services of general economic interest (SGEI or openbaredienstverplichting in Flemish). Compensation for executing such activities are not considered to be a selective advantage when the four cumulative Altmark criteria are met. However, the Commission states that the fourth Altmark criteria has not been met as the public hospitals were not chosen through a public tender. This means that the public hospitals have received a selective advantage. The compensation has been paid by the State, the 6 municipalities from the Brussels Region in this case. As a result of the compensation, competition has been distorted due to the fact that the privately-owned competitors did not receive such compensation. At last, trade between member states has also been affected negatively. The IRIS-hospitals are highly-specialized hospitals with an excellent reputation, also abroad and is easy to access for international patients. Within a circle of 150 kilometers of Brussels, major cities like Aachen, Lille, Eindhoven and Rotterdam are located. Moreover, Brussels is connected with cities like Paris, London, Amsterdam and Cologne by high speed train. Also, a large percentage of inhabitants in Brussels are not Belgian natives (33.8% in 2012). Citizens from other EU Member States can opt for medical treatment in their native country or the country in which they reside at that moment.

After deciding that the compensation to public hospitals can be qualified as state aid, the European Commission has investigated whether this compensation is reconcilable with the national market. This proved to be the case. According to the Commission, the compensation met the criteria of EU state aid rules for the assessment of public compensation for services of general economic interest (SGEI).

Comments

The decision is rather interesting because of the extensive explanation of the Commission on why compensation to public hospitals affects trade between EU member states negatively. The question whether aid to the healthcare industry affects competition across states has been asked in the past as well. In 2015, the Commission has introduced a framework consisting of 4 sub questions within 2 directives on whether aid in the healthcare industry has any effect across borders. Within this framework, the following aspects are taken into account:

  1. The characteristics of the hospital
  2. The primary goal of the hospital
  3. The location of the hospital
  4. The conditions for cross-border locations or investments

What’s interesting to mention is the fact that the Commission does not mention these criteria, but rather speaks about the “customer aspect” (the area where goods and services are provided and the area from where customers are attracted) and the “supplier aspect” (whether a certain action causes distortion for cross-border investment and the location of actual or potential competitors). The Commission explicitly emphasizes the alternative aspects.

Regarding the compensation to the public IRIS-hospitals, the Commission only takes the “customer aspect” into account: it concerns highly specialized hospitals that are internationally renowned and highly accessible for international patients. This statement confirms the fact that the “customer aspect” aligns with the first three sub questions of the framework as introduced in 2015. Concluding, the decision is a good, additional clarification of this framework.

Eric Janssen, Competition Lawyer