Many private hospitals face little competition in local areas leading to higher private medical insurance premiums and charges for private patients, the Competition Commission finds.
In provisional findings on privately-funded healthcare services, the CC has identified 101 hospitals facing little local competition, some of them in clusters of hospitals under the common ownership of one of the major hospital groups, namely BMI, Spire and HCA.
To solve the problem, and increase competition, it wants to require the sales of hospitals to other operators where it can.
The CC highlights incentive schemes, which encourage consultants to choose particular private providers for diagnosis and treatment, and the lack of available information on the performance of hospitals and consultants as further restrictions on competition.
A summary of the main findings is as follows:
1. HCA charges significantly higher prices to insurers than other operators, even allowing for higher costs in London. Of the other hospital operators, BMI has consistently charged the highest price to insurers in recent years. Higher levels of local concentration lead to higher prices for self-pay patients.
2. BMI, HCA and Spire have, during the period under review, been earning returns substantially and persistently in excess of the cost of capital. Ramsay did so for some of the period.
3. There are high barriers to entry and expansion in this market in particular due to high entry and exit costs, likely response to entry by incumbents, reluctance by consultants to move activity to a new hospital and little or no growth in demand. Few firms have entered the market in recent years and entry by existing operators into new areas has also been uncommon.
4. Private hospitals offer access to resources which will make using their facilities more convenient for a clinician by, for example, making consulting rooms or secretarial services available. They may also operate schemes which provide financial benefits to consultants using their facilities. The schemes could affect consultants’ referral decisions and create an incentive for excessive diagnostic tests or consultations.
5. The two larger insurers, Bupa and AXA PPP, achieve significantly lower prices than the smaller insurers and have some countervailing buyer power, Bupa more than AXA PPP. However, no insurer has countervailing buyer power that can fully offset the market power of BMI, Spire and HCA.
6. Bupa and AXA PPP have some buyer power in relation to consultants but the CC has found no evidence to suggest that it is being exercised in such a way as to harm competition. Although the incentive is on PMIs to promote competition among consultants and maintain innovation and quality, the CC considers that PMIs, and in particular Bupa, need to ensure that their policyholders are provided with clear and accurate information about consultants.
6. Information on the performance of hospitals and consultants is not yet as good as it should be to promote effective quality competition between private hospitals and between consultants.
7. The CC has found no evidence that local market power possessed by consultants, either individually or in groups, is giving rise to competitive harm.
CC chairman and chairman of the Private Healthcare Inquiry Group, Roger Witcomb said: “The lack of competition in the healthcare market at a local level means that most private patients are paying more than they should either for private medical insurance or for self-funded treatment. The lack of available and comparable information, often less than is available to NHS patients, also makes informed choices—which could help drive competition—for these patients difficult.
“We’ve also seen the existence of a range of incentives which encourage medical professionals to choose facilities on grounds other than price and quality—and we struggle to believe these can be in the interests of patients.”
The CC’s remedies include:
- Divestiture of hospitals in areas where one operator owns a cluster of hospitals. Our preliminary analysis has identified slightly fewer than 20 potential divestitures.
- In areas with just one or two hospitals, preventing the incumbent(s) from expanding and deterring entry by partnering with NHS hospitals to operate Private Patient Units.
- Preventing hospital operators from offering to consultants any arrangements, in cash or kind, which create incentives for consultants to refer patients to or treat them at its hospitals.
- Measures to prevent tying and bundling—where a hospital operator seeks to use its position in local areas as leverage in its negotiations with insurers—by stopping hospital operators responding to a loss of business or reduction in price in one area by raising charges in another.
- Measures to improve available information on consultant fees and quality, and on the quality of individual hospital’s services.
Witcomb added: “Curing these ills and trying to get a better deal for patients is not going to be straightforward. High costs and other factors mean that new competing facilities are not going to spring up so we may look to increase competition and require sales of hospitals to other operators where we can. We will also look at ways that will stop hospital operators using local strength in one area as leverage in their negotiations nationally.
On private medical insurers he said: “We’re aware of the disquiet expressed by some patients and consultants in relation to the actions of some health insurers. To the extent that they are trying to keep premiums down and promote competition on price and quality, they are doing exactly what their customers would expect. However, companies like Bupa need to ensure that they communicate better with policyholders about what their premiums entitle them to.”
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