The insurance industry lacks the market power to take on local monopolies in private health care, the Competition Commission has said
It has warned that providers may be forced to sell off up to 20 hospitals to bring adequate competition into local markets.
Around 100 private hospitals face little local competition, leading to higher medical insurance premiums and charges for patients, the commission said in provisional findings from its investigation of the private health market. This was published today, following a referral last year from the Office of Fair Trading.
Costs of setting up a hospital meant new providers rarely entered the private healthcare market and discouraged established ones from beginning operations in a new area.
The commission also criticised incentive schemes, which encourage consultants to choose particular private providers for diagnosis and treatment, and the lack of available information on the performance of hospitals and consultants.
Although the prices charged by operators to insurers are set nationally, the commission believes that the lack of local competition can leave insurers - who pay for most private treatments - with little choice but to use the local operator concerned, resulting in higher premiums for all patients. Those who pay their own bills would also face higher charges.
The commission has provisionally concluded that while large insurers like AXA PPP and Bupa have some countervailing strength through their buying power, for the insurance market as a whole industry purchasing power 'is not enough to offset the hospital groups' strong position'.
Commission chair Roger Witcomb said: '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.'
Witcomb said the commission had looked at the incentive schemes for physicians and 'we struggle to believe these can be in the interests of patients'.
He warned: '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.'
He also told insurers that greater clarity was needed from them on what patients could expect for their premiums.
'We're aware of the disquiet expressed by some patients and consultants in relation to the actions of some health insurers,' Witcomb said.
Among the commission's other main findings were:
HCA charges significantly higher prices to insurers than other operators, even allowing for higher costs in London. 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.
The two larger insurers, Bupa and AXA PPP, achieve significantly lower prices than the smaller insurers and have some countervailing buyer power, Bupa more than AXA PPP. However, no insurer has countervailing buyer power that can fully offset the market power of BMI, Spire and HCA.
Bupa and AXA PPP have some buyer power in relation to consultants but the commission has found no evidence to suggest that it is being exercised in such a way as to harm competition.
Possible remedies that may be imposed by the commission after further consultation included:
Divestiture of hospitals in areas where one operator owns a cluster. Preliminary analysis has identified slightly fewer than 20 potential divestitures.
In areas with just one or two hospitals, preventing the incumbent(s) from expanding and deterring entry by partnering with NHS hospitals to operate Private Patient Units. Preventing hospital operators from offering to consultants incentives to refer patients to or treat them at its hospitals.
Measures to prevent a hospital operator using its position in local areas as leverage in its negotiations with insurersby stopping operators responding to a loss of business or reduction in price in one area by raising charges in another.
Aidan Kerr, head of property and health at the Association of British Insurers, welcomed the findings.
He said: 'Insurers are committed to ensuring their customers get the most appropriate healthcare and service they expect, and the healthcare information available to patients should be at least comparable to the information available on the NHS.
'Patients have the right to be informed about the costs and quality of their healthcare so they can make informed decisions on whether what is proposed is within their insurance cover. We look forward to continuing to work with the Competition Commission as they finalise their findings and remedies over the coming weeks.'
Fiona Booth, chief executive of the Association of Independent Healthcare Organisations, said she was 'disappointed that the Competition Commission has not acknowledged the substantial work done by the independent healthcare industry on cost, price and quality transparency'.
She added: 'The Competition Commission has been made aware of this and the sector's further plans in this area'.
Booth said further investigation was warranted 'into the strength of private medical insurers and their relationship with providers to ensure there is healthy competition in the interests of patients'.