OFT refers ‘distorted’ PMI market to Competition Commission

The OFT is referring the PMI market to the Competition Commission because of concerns of a lack of transparency for patients and significant barriers of entry to new providers.

A market study published by the OFT today found a number of features it says, individually or in combination, prevent, restrict or distort competition in the £5 billion UK private healthcare market.
It found a lack of easily comparable information available to patients, GPs or health insurance providers on the quality and costs of private healthcare services. The OFT says this may mean that competition between private healthcare providers and between consultants is not as effective as it could be. In addition, the full costs of treatment may not always be transparent for private patients, it argues. 
The report also points out that because there are only a limited number of significant private healthcare providers and of larger health insurance providers at a national level, this means there are pockets of particularly high concentration in some local areas where private healthcare providers own the only local hospital or a ’must have’ facility. This may give a degree of market power to healthcare providers in these areas, as the larger insurance providers will generally rely on them to be able to provide full national coverage to policyholders, says the OFT. 
It says a number of features of the private healthcare market combine to create significant barriers to new competitors entering and being able to offer private patients greater choice. For example, some larger private healthcare providers can impose price rises or set other conditions if an insurer proposes to recognise a new entrant on its network. There also appear to be certain incentives given by private healthcare providers to consultants, such as loyalty payments for treating patients at a particular facility, which could raise those barriers further.
Following the report the FSA will now work with the Association of British Insurers (ABI) and health insurance providers to make it clearer for patients that they may face extra shortfall payments when there are limits that apply to the amount payable under their insurance policies.
The referral by the OFT is a provisional one at this stage. Parties wishing to respond to the consultation on the proposed market investigation reference can send written representations to the OFT before 30 January 2012 by emailing privatehealthcare@oft.gsi.gov.uk. The OFT expects to reach a final decision by the end of March 2012.

John Fingleton, chief executive of the OFT says: “Our provisional findings suggest that private patients in the UK don’t have access to easily comparable information on quality and costs and that competition is also restricted by barriers to new private healthcare providers entering and being able to offer private patients greater choice. It is important that patient demand and choice are able to drive competition and innovation in this market with a view to better value for all patients.
“We have provisionally decided that these significant concerns merit a more in-depth investigation by the Competition Commission.”
Nick Starling, director of general insurance and health at the ABI says: “We welcome findings in the Office of Fair Trading report and the need to ensure a competitive market for high quality private healthcare. We agree with the concerns raised on transparency and support consultants clearly informing patients on treatment options and costs. Private medical insurers are committed to ensuring that customers clearly understand the cover they provide and will continue to work with the FSA to achieve this.
“Private medical insurance enables people to make informed decisions about what treatment they want to pay for privately and how much they want to use the NHS.“
Dr Natalie-Jane Macdonald, managing director, Bupa Health and Wellbeing says: “For too long, the lack of competition amongst private hospitals and consultants in private practice has pushed the price of health insurance up to unsustainable levels. We have been saying for some time that we need more competition and efficiency amongst private hospitals and consultants in the UK and are pleased this has now been recognised by the OFT. We will be engaging with the OFT and, when appropriate, the Competition Commission, to ensure that their proposals help deliver better value healthcare for our customers.”