The Competition Commission considers the Private Health Market to be anti-competitive

On 28 August 2013 the Competition Commission published its provisional findings of a lengthy investigation into the private health market. The findings conclude that aspects of the market do give rise to an Adverse Effect on Competition. This finding offers scope for a wide range of legally enforceable remedies. The provisional findings are sure to be hotly contested by private health providers and interested parties who have until 20 September to air their views.

19/09/2013

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Emily Heard

Partner

On 28 August 2013 the Competition Commission published its provisional findings of a lengthy investigation into the private health market.  The findings conclude that aspects of the market do give rise to an Adverse Effect on Competition.  This finding offers scope for a wide range of legally enforceable remedies.   The provisional findings are sure to be hotly contested by private health providers and interested parties who have until 20 September to air their views.

We look at the adverse findings and potential remedies and consider what the findings could mean in practice.

Factual background

The Competition Commission has conducted a lengthy investigation into the private health market and in particular looked at the interactions between consultants, hospital operators, patients and private medical insurers.  The provisional findings are that there are aspects of the supply and acquisition of privately funded healthcare services which prevent, restrict, or distort competition and which therefore results in having an Adverse Effect on Competition.

The provisional findings and remedies are considered separately below.

Finding: Adverse structural features of the market - High barriers to entry and lack of local competition

The Commission noted that very few new players have entered the private health market in recent times and that the defects in the market structure were driving up prices, with the estimated financial detriment to the consumer being somewhere in the region of £173m - £193m.  They considered that high start-up costs, the size of local market, static demand for private healthcare service and limited site availability were all barriers to entry.  In London, the local concentration of HCA hospitals was perceived as a specific problem.

In practice, the most likely solution to this problem is going to be an increase in NHS providers developing private patient services following the changes to the Foundation Trust private patient cap.  In London a specific problem of local concentration in the hands of HCA was perceived as a problem.

What remedy?

The Commission suggested the following possible remedies to address the adverse effects on competition that it saw as arising from the negative market structure:

  • A requirement to sell hospitals: Providers would be required to divest themselves of hospitals and /or assets in highly concentrated areas to suitable purchaser(s) in order to impose a competitive constraint on their remaining hospitals in that area.  The Commission has provisionally identified 20 hospitals in 11 local areas which qualified for divestiture.
  • Restricting expansion by single or duopoly providers by preventing partnerships, including preventing partnership with local NHS hospitals to operate private patient units.
  • Preventing providers using their market power in certain areas by requiring higher prices than would otherwise be the case in some specialties as part of an overall package that the insurers cannot do without.
  • Requiring healthcare providers to offer and price hospitals separately to private medical insurers.

Commentary

Whilst these remedies are not currently set in stone, if they go ahead this will have a dramatic impact upon the major private health providers. In particular, any requirement to sell hospitals is likely to be met with challenge.

Conversely, the opening up of the market may bring about benefits to smaller providers who are hoping to break into the market – assuming that in economically tight times there are providers with the capital to purchase private hospital facilities. The profits identified by the Commission may be an incentive.  It may also act as an encouragement for smaller providers to seek to partner with local NHS hospitals to challenge existing monopoly or duopoly providers.

However, despite any potential advantages and disadvantages the Commission has a legal duty to ensure any remedy is both proportionate and effective, so any remedy forcing a provider to divest hospitals will have to be clearly justified.

Finding:  Incentive Schemes

The practice of incentivising consultants to use their hospital facilities for private work also came under scrutiny. The Commission found that incentive schemes such as the offer of both financial or indirect benefits to consultants together with the encouragement of GPs to refer patients to particular consultants who use private hospital facilities also gave rise to an Adverse Effect on Competition. 

What Remedy?

 
The Commission's suggested remedy is to prohibit private hospital operators from offering any incentives in cash or kind to encourage consultants to undertake work at their facilities, with some limited exceptions for equity stakes held by consultants.

Although the Commission distinguished between long term and short term incentives for the purposes of discussion (long term being equity ownership arrangements and short term being fee per referral schemes), it found that boundaries between the two types of scheme are often blurred and considered that hospital operators should be precluded from entering into either type of scheme.

Commentary

Interestingly, the BMA response to the initial issues statement was extremely critical of any GP incentives but highlighted that the practice of indirectly incentivising consultants was widespread and suggested that prohibiting these indirect incentives could result in an adverse effect on patient costs.

This finding will clearly have an impact on pricing structures and will require private hospitals to consider their relationships with consultants. In effect, requiring the services provided to consultants to be paid for on an arms length basis could increase costs for the patient.  

Next steps

Interested parties have until 5pm on 20 September to submit their comments on the provisional findings and potential remedies.  The draft findings are expected to be hotly contested. 

The Commission is due to publish its final report by 3 April 2014.  

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