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Perhaps Not Optimal

Posted by Dr No on 08 December 2011

challenger.jpgSpeaking on the Today programme, their business reporter did his best to put some heat into a cold December morning. ‘Despicable cartel like practices,’ he flamed, quite putting Humph and the rest of the gang in the shade, over OFT allegations that UK private healthcare providers have rigged the market. The lady from the OFT stayed cool, although she did concede that the performance of the market was ‘perhaps not optimal’. To Dr No, the turn of phrase made about as much sense as if NASA public relations had used the words to describe the performance of the space shuttle Challenger on its last fateful flight.

The OFT, Monitor’s big brother, have been investigating the £5 billion UK private healthcare market, and – provisionally – it does not like what it saw. Provisionally – no one’s sticking their neck out here – it found ‘a number of features that, individually or in combination, prevent, restrict or distort competition’ – or cartels and rigged markets to the rest of us. Private healthcare, it appears – provisionally, of course - to be not so much about stitching up patients with subcutaneous Dexon, as stitching them up financially, in a web of cartels, restrictions and misinformation. The OFT plans – provisionally, as they don’t jump guns at the OFT – to refer the market to the Competition Commission.

These market providers are of course the very willing providers that La La wants to welcome into the health service. Circle have already stitched up the Hinchingbrooke deal, and others can be expected to follow. But what, one wonders, are – provisionally, of course, one wouldn’t want to prejudge the matter – these villainous anti-competitive practices that suggest the private healthcare market is, depending one's point of view, 'despicable' or 'perhaps not optimal'?

The OFT report, perfused as it with the kind of unmellifluous jargon that would have had Dr Crippen’s eyes watering – how about drive time drive time isochrones (equal journey times), solus hospitals (no nearby rival) and fascias (Dr No is still baffled by this one, but wonders if it means the hospital equivalent of ‘shop-front’) – is not a read for the faint-hearted. So, after a stiff-hearted read, it seems as though the OFT’s chief – and of course provisional – concerns are:

Information asymmetries: not telling punters about the small print, or hidden extra charges (including ‘shortfall payments’ – top-up payments when costs exceed insurance cover); big on nice glossy brochures but short on easily compared cost details – somewhat like the baffling tariffs in the oh-so-successfully privatised energy utilities. Private hospitals, it appears, get up to the same sort of tricks and wheezes.

Concentration (more accurately, market concentration): the extent to which most of us choose - or are perhaps ‘obliged’ to - do most of our shopping (say groceries) at big name suppliers (Tesco/Sainsbury’s/Asda). This – if Dr No understands the OFT’s impenetrable prose correctly - is the big boys squeezing out newer or smaller competitors, and unsurprisingly, big private healthcare providers (the top five had over three quarters of market share last year) happily borrow a leaf out of the big supermarkets’ book, the better to ensure the small fry get left on the beach. Nor are private doctors above similar wheezes. Almost half of private anaesthetists belong to ‘Anaesthetists Groups’ - apparently to save on administration and marketing costs. In practice, they operate as thinly disguised gasser cartels that rig prices, jump patients moments before surgery, and then bag the money.

Barriers to entry: blocking out newcomers. Established private hospital rely on techniques ranging from restrictive covenants to threatening price hikes to ‘persuade’ PMI (private medical insurance) providers to look unfavourably on new entrants. Private hospitals also stitch up consultants, either by requiring or, in some cases bribing, them to carry out most or all of their procedures in their unit, so denying new entrant hospitals a fair crack at the consultant whip.

As Dr No’s esteemed colleague Dr Phil Yerboots recently reminded us in another place, leopards do not readily change their spots, and it seems – at least to Dr No – unlikely that the private healthcare provider leopards will, regardless of any OFT or Competition Commission action, provisional or otherwise, readily change their spots once they have their claws in the flesh of our NHS. Which leaves Dr No wondering: is this really the best way to ensure an open, comprehensive health service for all, and at the same time ensure value for money? Somehow, he suspects it is not.


Dear Dr No,

I expect that it is not a journal that you read very often but you may care to browse this:

There are some similar articles discussing how private hospitals and private insurers deal with knee referrals. The Hospitals want the referrals to go to the surgeons with the highest intervention rate (80%) while the insurers want referrals to go to the surgeons with the lowest intervention rate (20%). Neither is interested in exploring the variation in intervention rates. Is it because one surgeon is a specialist in sports injuries, while the other deals with a different patient group? Neither wants GPs to control referrals, or for patients to choose.

Meanwhile insurance companies refuse to raise fees despite inflation plus increases in their charges to patients. There are cartels out there, but it is not me and my chums.


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