The end of 2011 was marked for the private healthcare market by the Office of Fair Trading's announcement of its provisional decision to refer the sector to the Competition Commission (CC) for investigation, and by public signs of tension between Bupa and BMI, the biggest private medical insurer and the largest private hospital chain respectively.  In this article Agnieszka Phillips summarises the latest developments.

Referral of the private healthcare market to the Competition Commission

On 8 December 2011 the OFT published its report on the £5 billion private healthcare (PH) market. It concluded that competition may not be as strong as it could be and so it has provisionally decided to refer the sector to the Competition Commission for investigation.

The year long investigation found a number of features that, "individually or in combination, prevent, restrict or distort competition" in the market.  The features include:

  • a shortage of accessible, standardised and comparable information provided to patients, GPs and private medical insurance providers in relation to the quality of PH facilities and consultants;
  • a lack of transparency over the full costs of PH services, leading to unexpected shortfalls that need to be funded by patients personally;
  • pockets of particularly high concentration in some areas (e.g. where a PH provider owns the only local hospital);
  • factors that create significant barriers to entry by new entrants (e.g. incentives given to consultants for referrals, and penalties imposed by a PH provider such as price rises should an insurer recognise a new entrant).

Whilst some market players welcome the prospect of the investigation by the Competition Commission others are conscious that responding to lengthy information requests and giving evidence will divert management and legal resources.

Prior to the publication of the report the OFT engaged with industry participants and bodies in order to see whether its concerns about the lack of comparable information and transparency could be resolved through agreed actions within the timescale of the market study.  However, the OFT concluded that "whilst there was a good deal of consensus amongst participants across roundtables about the benefit of greater information for patients and GPs, there was a clear diversity of views between participants in regard to how greater comparable information on quality could be developed and on how fee visibility could be improved."

The OFT is currently consulting on the report before deciding whether its provisional decision should be confirmed, and interested parties wishing to influence the regulator's decision regarding a referral should submit their comments by 30 January.  A final decision is expected by the end of March.

The OFT has the power to accept undertakings made during the course of the consultation instead of making a reference to the CC but, in its report, has cast doubt on whether that will be possible, saying that "given the complex and inter-related nature of the issues, and given the diversity of views expressed by industry participants in the course of the market study on possible solutions, it may not be possible to agree undertakings in lieu of a reference".

The report contains examples of specific undertakings or orders that might be agreed or made by the CC to address the adverse effects identified.  These include:

to address the information asymmetries

  • commitments from PH providers to publish clear, accessible and comparable quality information;
  • commitments by consultants to publish fee estimates and how often shortfalls in insurance payments occur;

to deal with the issue of concentration of PH provision

  • a ban on PPU partnership arrangements with a PH provider that has above a certain share of the local market,
  • obligations on PH providers to provide access to their facilities when they are the only local facilities;

to reduce barriers to entry

  • a ban on provisions in contracts between PH providers and PMI providers which are triggered by the PMI provider recognising new rival facilities to its network.

These are just the examples noted by the OFT.  The CC has more wide ranging powers than that and, whilst not suggested in the report, remedies could extend in theory to include, for instance, a requirement for a participant to divest part of its business.

The report has already had an impact.  The OFT has made a recommendation to NHS Trusts that, when seeking to agree partnership arrangements with PH providers, they should consider whether the arrangements are qualifying mergers and, if appropriate, notify the OFT.  The OFT has also revealed a move by the FSA, ABI and health insurers to make it clearer for patients that they may face extra shortfall payments when there are limits which apply to the amount payable under their insurance policies.

Bupa and BMI Healthcare in dispute

The tensions in the healthcare market have also become evident by the publicity surrounding the dispute between Bupa and BMI.  Unable to agree terms before last year's contract expired Bupa asked BMI for the out-of-contract prices it would charge for treating Bupa members at its hospitals.  When BMI did not do so by mid December Bupa announced that it would remove 12 of the network's hospitals from its coverage from the beginning of the year.  BMI's reaction was a letter to Bupa members setting out its views on what these actions meant for patients, the contents of the letter being described by Bupa as "misleading, defamatory and false".

Although discussions continued, a subsequent BMI offer was rejected because it included conditions that Bupa found unacceptable, and a further announcement by Bupa on 22 December confirmed that it had removed a total of 37 BMI hospitals from its recognised hospital lists from 1 January.  Bupa explained that it believed that BMI did not represent good value for its members and with the out-of-contract prices substantially more expensive (60% based on expected volumes for 2012) than at least one other national hospital group despite, in Bupa's view, offering no better quality of service.  BMI had also proposed changes to the billing and treatment authorisation process which Bupa believed were unnecessary and unacceptable.

One would have thought that Bupa and BMI are each too big for the other to live without them so it would be a surprise if some sort of compromise cannot be reached.  However, if the OFT believes there is something dysfunctional in the way the PH market operates, this dispute can only have added to that view.