Open season on referral

Bupa’s decision to move to open referral will change the dynamics of the group PMI sector says Neil Atkinson, senior consultant at NMG Consulting

Neil Atkinson
Neil Atkinson

Bupa’s recent announcement that it is to lead its large corporate proposition with an open referral arrangement marks a confident step forward for the UK’s largest healthcare insurer. It also potentially heralds a paradigm shift in how the industry tackles medical inflation and the high cost of private treatment.

According to Bupa, member choice and control has been the primary driver for them to adopt open referral as a lead proposition, although the potential cost savings are impossible to ignore. While some intermediaries have welcomed the move as they are acutely aware of the current pressure on corporate PMI expenditure, Bupa’s proactive move to a more cost efficient business model will also leverage their positioning as a trusted consumer brand to facilitate them taking a more prescriptive role in directing member referrals.

This announcement is important because it has the potential to shift power away from specialists towards insurers. From an end user perspective this places the concept of customer trust at the top of the agenda for insurer communications. The bond of trust that tends to exist between patient and GP facilitates less tangible justification for named referrals to specialists. An industry move towards insurers adopting a more evidence-based referrals system will have to overcome the tension that prevails when choice and cost is reduced and decision-making is taken away from GPs or members themselves.

According to NMG’s annual Corporate Health Insights Programme, Bupa is considered a high price/high value, or premium competitor/provider through the eyes of leading intermediaries. While commanding a price premium is attractive, being significantly out of line on price is a business risk when buyer values are shifting towards competitive pricing. We see the move to open referral as a clear attempt from Bupa to leverage its scale advantage to reduce this risk and provide greater capacity to compete on price and we believe this makes strategic sense given the importance of price in provider selection in the current climate.

In addition, analysis from the NMG annual corporate customer study amongst the largest buyers of employee benefits in the UK suggests price is currently a dominant factor for PMI provider selection, ranked second behind claims management. This is compounded by evidence from the same study that a third of employers with over 1,000 employees will seek to re-tender their healthcare business on an annual basis. Amid a backdrop of immense pressure on the bottom line, it is easy to see how relevant a lower cost model could be to the industry.

Lacking the scale to drive efficiencies through negotiating with networks, smaller providers may be forced to differentiate by adopting a premium positioning through espousing the benefits of complete choice at the expense of a higher premium.

Parallels can be drawn with the protection market. In 2009 we observed growing economies of scale along with fragmentation of demand causing the polarisation between ’at scale generalists’ and ’niche specialists’ in the UK protection market. Whilst the middle ground remained heavily populated, our analysis of insurer profitability suggested that profitability was concentrated at the extremes: the few very large insurers who are able to leverage cost advantage to price aggressively and specialists who commanded a price premium based on their capacity to differentiate within specific segments. There are clear parallels between this and a potential future state for the UK PMI market.

The most pertinent question is whether or not open referral is a better model for the industry.

The current GP or member-driven referral process is one that is derived from incomplete information. The bond of trust that exists between patient and GP has helped perpetuate the current system where a more expensive specialist is associated with ’better’ treatment.

The Bupa model suggests ’better’ as an appropriate medical intervention based on evidence to ensure the most satisfactory clinical out- come. This may well help to ensure the long term sustainability of the industry providing insurers can overcome the hurdle of persuading customers that it’s to their benefit that insurers influence the choice around which specialist they should see. Whilst this may seem intuitive, UK insurers don’t have a clean record in being trustworthy. Consequently, it is vital that their processes and communications strategy deal with these perceptions head-on.