​Competition Commission on offensive over high PMI premiums

A lack of competition amongst private hospitals is leading to higher private medical insurance premiums and charges for private patients, the Competition Commission (CC) has found.

In its provisional findings on privately-funded healthcare services published yesterday, the CC also highlighted incentive schemes, which encourage consultants to choose particular private providers for diagnosis and treatments and a lack of performance data on hospitals and consultants as further restrictions on competition.

The CC has identified 101 hospitals facing little local competition, some in clusters of hospitals under the common ownership of one of the major hospital groups such as BMI, Spire and HCA. Entry into the private health market—or expansion into other areas—is rare due in particular to the high costs of setting up a hospital and the flat demand for private health services over recent years.

The CC says the lack of competition in many local areas, where insurers will have little choice but to use the local operator, results in higher premiums for all patients.

The CC says the buying power of larger insurers such as AXa PPP Healthcare and Bupa have some countervailing strength, it is not enough to offset the hospital groups’ strong position.

The CC say possible remedies include requiring operators to sell hospitals in areas where they derive significant market power from the ownership of local clusters; a ban on some incentive schemes; prevention of ‘tying or bundling’ when an operator might respond to a loss of business in one area by raising prices nationally; possible entry enhancing measures; and the provision of better information on prices and quality for patients.

The report found 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.

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.

CC Chairman and Chairman of the Private Healthcare Inquiry Group, Roger Witcomb says: “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.

“Our job has been to look specifically at competition in private healthcare rather than health insurance but clearly we have had to consider the role of the larger insurers in particular. Although Bupa and Axa PPP have some clout, we haven’t found that this completely offsets the power of the hospital operators.

“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.

“Although many patients don’t pay directly for the services as they do in other markets, we think that greater comparable information of the sort that is available elsewhere would help drive greater competition on price and quality, potentially improving both. We now want to discuss which of these measures and in what form will be most effective in bringing about the change this market needs.

“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.’

A spokesperson for Axa PPP Healthcare says: “We welcome the publication of the Competition Commission’s notice of provisional findings and notice of possible remedies in relation to its investigation of the UK private healthcare market.

“We are encouraged by the direction that the investigation is taking, which is consistent with our experience of how the market operates in practice.  We look forward to working with the Commission on its possible remedies as it brings the investigation to its conclusion in the interests of consumers across the market.”