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Substantiated statement and recommendations given to the Minister for Social Affairs

29. september 2004

3/1120-0203-0013/SEK/kra The Council meeting 29 September 2004

The Competition Council has recommended that the Minister for Social Affairs ammend the legislation concerning free choice of supplier (service provider) within the Danish home care service. The Council recommends that private suppliers should receive compensation if the price, calculated and paid by the local council, proves to be too low.

Under section 71(1) of the Consolidation Act on Social Services, the local authority is required to offer personal care and assistance and assistance of support for necessary practical work in the home. This assistance is to be given to persons who are unable to carry out the above activities.

Since 1 January 2003 this market has been open to private service providers. The service is free of charge for the citizens, and the legislation means that the citizens are given a free choice of service provider. The local authority lays down price and quality requirements and must enter into agreements with any private supplier fulfilling these requirements. If the price requirement is not set through a public procurement, the local authority must calculate the price as the public provider’s average costs of delivering one hour of personal and practical assistance. At the same time, the calculated average costs are the price paid to all approved private providers per delivered hour of service.

The point of reference is that the price requirement must reflect the public provider’s actual and real costs by delivering one hour of service. However, in accordance to Order no. 903 of 31 August 2004 (former Order no. 837 of 9 October 2002) section 15(1) the local authority may count in expected improvements of efficiency. In other words, gains from increased efficiency may be deducted from the price per hour, even though they have still not been implemented and documented. By this, the local authority may set a price requirement that is actually lower than the real costs the public provider has at the time of the calculation.

The Competition Council found that this may lead to a distortion of competition in regard to the private suppliers in those cases where expected improvements of efficiency proves not to be implemented.

If the Competition Council finds that a public regulation is likely to cause harmful effects on competition, the Council may give a substantiated statement, which points out potentially detrimental effects on competition, and make recommendations for promotion of competition in the area concerned under section 2(5) of the Danish Competition Act.

Therefore, the Competition Council has given a substantiated statement to the Minister for Social Affairs, in which the Council points out the harmful effects of the provision. The Council recommends that the legislation is changed, so that the local authority must compensate all private suppliers, if the price requirement proves to have been calculated to low because the expected improvements of efficiency have not been implemented as planned.

Under section 2(5) of the Danish Competition Act, the Minister for Social Affairs must consult the Minister of Economic and Business Affairs and is obliged to respond to the Competition Council’s statement not later than four months after receipt of the statement.