Private healthcare could be set for a shake-up following a review of the UK’s privately funded healthcare services by the Office of Fair Trading (OFT). The review, which highlighted a number of concerns, led the watchdog to announce that it had provisionally decided to refer the sector to the Competition Commission for further investigation.
Unsurprisingly, the announcement has been well received by the medical insurance industry. Dr Natalie-Jane Macdonald, managing director of Bupa Health & Wellbeing, sums up the mood: “It’s rare that you welcome the involvement of the Competition Commission into your market, but we’re really pleased with the OFT’s announcement. We firmly believe that we need the support of the Competition Commission to improve the market.”
Advisers are also backing the OFT’s finding. The Association of Medical Insurance Intermediaries (AMII) fully endorsed the review, saying it would bring benefits for consumers of private healthcare. Lindsey Joseph, divisional director for LBC Group and corporate spokesperson for AMII, adds: “If reform does happen as a result of the review it will bring greater clarity, transparency and understanding. This will enable consumers to make the right choices when selecting private healthcare.”
OFT findings
The OFT review, which was launched in March 2011 and saw the OFT working closely with the Department of Health and the Financial Services Authority (FSA), found a number of issues that prevented or reduced competition in the private healthcare market.
One of the most significant for the medical insurance industry was the lack of easily comparable information on the quality and costs of private healthcare services. This, the report stated, created difficulties for medical insurance customers in assessing the risk of a shortfall on specialist fees.
It’s something many insurers have observed. Dr Doug Wright, head of clinical development at Aviva UK Health, says that, although not commonplace, when a shortfall does occur it happens at the worst possible time for the insured, leaving them with a bill for treatment they thought was covered. “If someone has insurance and the treatment costs fall within the benefit limits it’s perfectly reasonable to assume the insurer will take care of the bill. It makes sense to have the fees up front,” he explains.
What makes it harder to anticipate a shortfall is the huge disparity in fees among consultants. Dr Wright says it can sometimes seem that there is no rationale behind the fees charged. For example, there could be a difference of as much as 50 per cent between two surgeons and, without any information to explain why this is the case, it is impossible for a patient to make a choice. “Very rarely do you see a clinical difference,” he adds. “It makes it very difficult to put proper controls around healthcare spend.”
To illustrate the scale of the issue, Dr Keith Klintworth, head of clinical risk at PruHealth, says he has seen instances where a consultant charged £10,000 for a procedure that has a market average charge of £2,500. “Part of the challenge in the UK will be how this information is benchmarked. It’s not easy to compare like with like as there are so many variables that can affect outcome,” he says.
His firm already operates a benchmarking system using data such as practice and administration costs and litigation results. This information is then used to challenge providers who submit bills for higher than average amounts.
“It’s rare that you welcome the involvement of the Competition Commission into your market, but we’re really pleased with the OFT’sannouncement. We firmly believe that we need the support of the Competition Commission to improve the market
The independent sector has also taken steps to collate this type of information through the Hellenic Project. Set up by Independent Healthcare Advisory Services and NHS Partners Network with Dr Foster Research, this collects clinical and non-clinical information to allow consumers to assess the performance of independent sector hospitals against each other and the NHS. Dr Klintworth adds: “It’s good to see that change has already started to happen in the private
While insurers are taking steps to prevent shortfalls, whether through challenging fees, treatment reauthorisation or by offering full refund products, some advisers have noted a new trend in the insurance market that is having negative effects. Wayne Pontin, sales director at Jelf Employee Benefits, explains: “The way some insurers view pre-admission tests is changing. These used to be part of the inpatient hospital charges but increasingly they’re being labelled as outpatient charges. This can cause problems where there’s a limit on outpatient benefit,” he says.
Why this is happening, Pontin says, is unclear but he speculates that it could be due either to an increase in the amount charged for these tests or a drive by the insurers to control claims costs.
As well as a lack of information on price and quality, the OFT also found other issues that could potentially affect competition in the private healthcare market. It identified significant barriers to entry for new competitors. For example, where an insurer proposes to recognise a new entrant on its network, it found that larger private healthcare providers could impose price rises or set other conditions to prevent this. Likewise, it found that, in some cases, consultants were offered incentives, such as loyalty payments for treating patients at particular facilities, to deter them from working with new entrants.
Benefits of reform
For those in the medical insurance industry, there’s a pressing need for reform of the private healthcare market. The medical insurance market isn’t in its healthiest state. Laing & Buisson figures show that company paid medical insurance fell by 3.3 per cent in 2010. In addition, two providers, Standard Life Healthcare and Groupama, have left the market in the last few years. “It’s not good for competition and it’s not a good sign for the market: they pulled out of the market because they were unable to make sufficient underwriting profit,” says Stuart Scullion, managing director of the Private Health Partnership.
Greater clarity over pricing will help to make medical insurance premiums more sustainable by helping to curb medical inflation. “Premiums have virtually doubled in the last five to six years as a result of medical inflation,” says Pontin. “The prices being charged for treatment are unsustainable, especially in times of austerity, but there’s little control over escalating costs. I hope the OFT review helps to address this: the outcome of doing nothing is the accelerated demise of the medical insurance market.”
Reform of the healthcare market will also open the door to more product innovation. As well as supporting initiatives such as the Bupa’s Open Referral and Axa PPP’s Pathways, by providing more information to reassure patients about the choice of specialist, Macdonald says it will allow insurers to offer richer coverage with keener pricing. “We’ll be able to move away from crude limits to offer products with fewer limits or ones with more targeted cover, for instance plans focussing on musculoskeletal and mental health, which are the key causes of workplace absence,” she adds.
It has been known for the OFT to change its mind after a consultation but I think it is unlikely given the amount of work that has already been put into the review
And reform is in the best interests of the private healthcare market as well as the medical insurance industry. The acute private healthcare market was worth approximately £5bn in 2009, with around 80 per cent of this generated through medical insurance according to the OFT. “It would be great to see more co-operation between the private healthcare providers and the insurance industry,” says Joseph. “By working together it would help to make both sides more sustainable.”
Next steps
To help the OFT decide whether to refer the private healthcare market to the Competition Commission, it launched a consultation, which ended in January. It will then determine whether to make the referral by the end of March.
Some changes that will affect the medical insurance industry are already underway as a result of the OFT’s work. In particular, the FSA is working with the Association of British Insurers to improve clarity for consumers around the issue of shortfalls.
But, while this will bring improvements, Dr Macdonald hopes the OFT will decide to go ahead with the referral. “It has been known for the OFT to change its mind after a consultation but I think it is unlikely given the amount of work that has already been put into the review,” she says.
But, even if the referral is given the green light, it could be some time before any action is taken. The Competition Commission’s investigation could take up to two years to determine the action required, with any recommendations likely to take even longer to implement.
But Klintworth is confident that change will happen sooner. He says that when the South African healthcare market faced the same scrutiny from its consumer watchdog a few years ago, this in itself was sufficient to bring around significant reform. “It was the catalyst for many providers to get their houses into order,” he explains.
Wright agrees that this may also happen in the UK. “The insurers have been saying it’s difficult for some time,” he says.
