Competition authority weakens response to £174m hospital profiteering report

The Competition and Markets Authority has stepped back from enforcing recommendations that would have required HCA and BMI to sell nine hospitals.

Instead HCA will be required to sell two hospitals and BMI none at all.

The surprise decision by the CMA, which took over powers from the now defunct Competition Commission yesterday, means HCA will be required to sell the London Bridge and Princess Grace hospitals or the Wellington hospital, including the Wellington Hospital Platinum Medical Centre. The CMA is not requiring any hospital sales outside central London.

The CMA estimated that the potential extra cost to customers caused by the excessive profits the largest three hospital groups was between £155 million to £174 million a year between 2009 and 2011.

HCA says it will mount a legal challenge the order.

Other measures confirmed by the CMA include a crackdown on benefits and incentive schemes provided to referring clinicians by private hospital operators and measures to increase the availability of information to patients on consultant fees and the performance of consultants and private hospitals.

The CMA found that many private hospitals face little competition in local areas across the UK and that there are high barriers to entry. This leads to higher prices for self-pay patients in many local areas – and for both self-pay and insured patients in central London, where HCA, which owns over half of the available overnight bed capacity, charges significantly higher prices to insured patients than its closest competitor.

The CMA also pointed the finger at incentive schemes, which encourage clinicians including consultants to refer their patients for treatment or tests to particular providers, as a problem, which can lead to these referrals being driven by considerations other than quality and price. It also says that the lack of available information on the performance of private hospitals and consultants and on consultant fees means that patients can find it difficult to make informed choices which would drive competition between providers on quality and price.

CMA chairman of the private healthcare inquiry group Roger Witcomb says: “The sale of HCA hospitals will significantly increase competition in central London, in particular by allowing the insurers to offer corporates and individual policyholders a comprehensive alternative to HCA.

We’re also introducing measures that will improve competition across the whole market and ensure private patients get a better deal. Greater information on the performance of hospital operators and of consultants as well as consultants’ fees will allow patients to make far better informed choices about what they are paying for, when deciding which hospital and consultant to choose for their treatment. A more transparent market with patients actively making choices will drive hospital operators to compete on the things that matter to patients.

Equally we are going to restrict incentive schemes that encourage patient referrals to particular private hospitals – again so that the advice given by consultants is driven solely by the merits of individual facilities.
We have found that many private hospitals face weak local competition and it is difficult for new hospitals to enter the market. For self-pay patients, for whom charges are set locally, this can lead to higher prices. Additionally in central London it is clear that HCA’s market power allows it to charge higher prices to insurers, who need to include its hospitals if they are going to provide cover for patients in central London.

Outside central London the effect of weak local competition on prices charged nationally to insurers is less clear. The volume of evidence was huge and we carried out a very detailed analysis, but it was ultimately not possible to extract a consistent picture from it. Having considered the analysis carried out after provisional findings, two members of the Inquiry Group decided they could no longer be confident that local concentration outside central London had led to higher prices for insured patients – and so the Inquiry Group has not ordered the sale of hospitals outside central London.”

Axa PPP Healthcare commercial director Fergus Craig says: “The current situation has led to excessive concentration of hospital ownership, particularly in London, which has resulted in inadequate competition. Inappropriate incentives have also been given by hospital operators to consultants to encourage them to direct business their way and/or undertake unnecessary tests or treatments. This is clearly against the interests of patients.

Change is long overdue. We especially welcome the banning of consultant incentives that encourage some specialists to refer their patients to particular facilities.

Bupa Health Funding managing director Dr Damien Marmion says: “We welcome the final report, which has some cautious but positive steps in the right direction for customers and patients. 

“The sale of key HCA London hospitals will help to increase competition and will have a positive impact on customers in central London. However, self pay and insured customers will be surprised that no action has been taken outside London where excess profit and consumer detriment has been identified by the CMA, particularly as the majority of the CMA panel believed there was sufficient evidence to justify more significant intervention.

“We’re pleased they have carried through measures to end consultant incentives schemes and require the publication of better information to patients on consultant outcomes and costs. We are ready to fund our share of the new information body for the private sector because it will increase transparency and help patients make more informed choices.”

“We urge the sector to work together and to go further to revive the market to drive better value for customers and address significant customer detriment, particularly outside central London. This is the only way to achieve a sustainable long term future for the sector and deliver improved value and quality to many more people.”