Ever since they were launched, by BUPA in 1996 and swiftly followed by PPP in 1997, hospital network...
Ever since they were launched, by BUPA in 1996 and swiftly followed by PPP in 1997, hospital networks have come under fire by, it seems, everyone except those offering them.
While their supporters insist that networks are in the interest of the consumer, others argue that they restrict freedom of choice, and in so doing undermine the founding principles of private medical insurance.
The reason insurers set up networks, according to their opponents, is commercial gain. By channelling policyholders through fewer hospitals, insurers can increase hospital through-flow and increase their bargaining power to negotiate better deals.
PPP, however, contests these charges and argues that in operating networks it is able to guarantee the quality of patient services in the absence of an effective regulatory regime, while at the same time address issues of overcapacity.
Dr Adrian Bull, medical director at PPP, says: 'The background to hospital networks was simply that there was a large over-provision of private hospital facilities where patients were not making a choice based on price and value, instead GPs and consultants were making the choice for them, for their own reasons.'
With about 80% of patients having their care paid for by the insurer, hospital charges were not an issue for those referring the patient. As a result, patients were scattered across numerous half empty hospitals, therefore subsidising empty beds.
Bull's views are supported by Stephen Flanagan, sales director at BUPA, who believes hospital networks kill two birds with one stone benefiting consumer and insurer. 'It is in the interest of the consumer to let us give them good value for money and networks help us do this,' he says. If policyholders are not happy with using a network then they do not have to, but with the attraction of premium reductions of 10%-12%, BUPA's network has been popular. A total of 36% of policyholders are now using networks while over 50% of new sales are for networked schemes.
Quality control
With the cost of PMI continuing to spiral, customers will be swayed on price, yet accepting this cheaper alternative will have no impact on the quality of their treatment and care, says Flanagan. In fact, he adds, the use of networks can be used to guarantee levels of care received by patients. 'It is easier for us to monitor quality in a network than on a broad range of hospitals,' he adds.
The PPP network has a particularly high penetration, with over 90% of its policyholders now covered. Although this figure may look high, it is more realistically the result of its application than a measure of its popularity.
PPP members are automatically placed on the network scheme. Should they wish to opt out they will have to pay an uplift on their premium of between 8%-15% depending on the supply of private hospitals in their locality. As a result it is a win-win situation for the insurer; those who remain on the network are not offered discounts in return for restricted access while those who want freedom of choice have to pay for it.
Hospital closures
Philip Fowles, sales and marketing director at BCWA, is concerned that
in applying networks, a number of high quality hospitals, popular with both patients and consultants, are being excluded. 'By excluding some of the trusts and charitable hospitals they are left struggling to fill beds, which means that they could eventually disappear.
'Given time we could be left with the big hospital groups which have forced the smaller groups out of the market. Who is likely to gain from this?'
Stephen Walker, principal at Medical Insurance Services, has similar concerns: 'Some hospitals will be forced out of business by not getting network status. A classic example is Bon Secours in Beaconsfield which closed down earlier this year.' The hospital was not included on a network and, as a result, it lost 75%-80% of its insured business.' Medical insurance is particularly important to private hospitals because it is the main channel through which people access private medical care. 'Hospitals generally rely on insurers for 80%-90% of their business,' adds Walker.
Another example is the Fulford Grange Hospital which failed to be included in the BUPA network and was then forced to close to surgical admissions. It was then bought by BUPA Hospitals and included in its network.
Mike Hughes, head of partnership development at Nuffield Hospitals, argues that a contributory factor which may be driving independent hospitals out of networks and subsequently the market, is rising cost.
'It is becoming increasingly expensive to run a private hospital due to the level of investment needed in new technologies. So smaller, independent hospitals may not be able to keep up,' he says. Digital imaging equipment, lasers and hi-tech operating theatre equipment all come with a high price tag and it is inevitable that insurers will select the best equipped hospitals, particularly since much of this equipment facilitates more sophisticated surgery and reduced hospital stays.
Battle for inclusion
In a situation where private hospitals are vying for inclusion on to the primary networks, an insurer's selection and rejection of hospitals is bound to come under a degree of scrutiny and at times, may be controversial. The most reported case has been that of the newly opened London Heart Hospital which PPP declined to include on its network. While many say that the hospital
was excluded to favour Colombia Hospitals, in which PPP has a 49% stake, Dr Bull insists the decision was made irrespective of its interest in the group.
'The London Heart Hospital only opened to patients in October 1998 and has yet to establish a clinical track record. We already have a number of hospitals with specialist cardiac units, providing a service with an international reputation,' Bull says. These include St. Mary's, the Royal Brompton and Harefield Hospital, London Bridge Hospital, the Cromwell Hospital, Kings College Hospital, the London Independent Hospital, the Royal Free Hospital, the Harley Street Clinic and the Wellington Hospital. PPP only has an interest in the latter two.
Market saturation
In an over-saturated market, basic economics dictates that there will be an element of natural wastage. With many hospitals not working at maximum efficiency some are bound to fall by the wayside. 'In any given industry you cannot support an inefficient level of service when the facility is only half used,' says Bull. 'The logic is that there will be fewer hospitals and the ones that survive will be those that can offer a comprehensive range of services at a high quality.'
Yet it is the closure of a number of hospitals that have led market commentators to believe that the perpetrators of networks have a hidden agenda, particularly those who have a financial interest in the hospitals themselves.
'We have to be suspicious of an organisation making profits on the hospital side but a loss on the insurance side. The one side is cross-subsidising the other, yet we are told that they are separate businesses,' says Fowles. This is a situation that will be detrimental to an already struggling industry in the long term.
He adds: 'Once the networks have control and are operating in a semi-monopolistic market are we going to see price reductions? I think not.'
Flanagan, however, insists that BUPA insurance does not enforce BUPA policyholders to use BUPA hospitals. 'Networked policyholders usually have three to four hospitals to choose from in their locality. If they choose a BUPA hospital that it is up to them.' While something has to be done to control soaring costs, there is debate as to whether savings made on network schemes are genuine since the networked hospitals themselves may be more expensive than many other high quality hospitals.
'Networks are sold in a way that suggests they are cheaper but still, year on year, premiums increase. If you are in a network and have been sold it as a cheap option then why is it that if you choose a non-networked hospital the actual cost of treatment is invariably cheaper?' asks Fowles.
Walker also believes that networks may not represent quite as good value as the providers suggest. 'Theoretically they do keep premiums down, but there are still non-networked schemes available that are just as competitive on benefits and price.' Stringent cost controls put in place by insurers could also impact on quality, he adds. 'If hospitals are tied cost wise and are, as a result, forced to cut back on cost it could affect the quality of care for the patient.'
Confusion
Dr Robin Loveday, immediate past president of the Hospital Consultants and Specialists Association, argues that many people purchasing networked plans may not fully understand the implications. 'People do not realise the significance of networks when buying the plan,' he says. 'It is not until they are faced with illness that they realise that the scheme is not as comprehensive as they thought. Customers understand the financial limits on their plans and they know when they reach those limits, but they do not understand all the deals that are struck between the insurer and the hospital.'
Walker is concerned that problems may arise when people purchase schemes without guidance, particularly when opting for a cheaper alternative.
He says: 'When buying through a good intermediary, consumers should understand how to use the plan and know what they are covered for. If they are buying on the basis of a leaflet in a magazine the chances are they will not, and they only discover this at point of claim. Many people have approached us in this situation, when they have become aware of the shortcomings in their policy.'
Despite the arguments surrounding the ethics of networks, PPP insists that the scheme has not been met
with resistance from their most important critics; their policyholders. 'Our subscribers have continued to renew happily on this proposition,' says Bull. More surprisingly, he says that the move has been welcomed in particular by corporate clients who account for 50% of PPP's business. 'We discuss the networks in full detail with the those responsible for setting up the scheme and the great majority believe that this is the way to deliver best value.'
Opting out
With only 1.6% of patients opting out of the BUPA network scheme back into the full choice scheme, Flanagan is also confident that policyholders are comfortable with the network. Yet this figure may not be as complimentary as it might seem the figure hides those opting out of BUPA altogether, while some policyholders who have made several claims may be uninsurable elsewhere, leaving them trapped in the scheme.
'Underwriting restrictions may prevent policyholders from switching to an alternative scheme even if they wanted to because of pre-existing condition clause,' says Nuffield's Hughes.
By restricting freedom of choice, insurers are frequently accused of interfering with the doctor/patient relationship of their clients. 'Hospital networks present problems for both doctors and patients,' explains Loveday. Specialists usually only work in one private hospital putting them in a situation where they may not be able to treat networked patients. 'When a patient visits their GP they are advised to see an appropriate specialist, the patient expects the insurer to refund their bill. However, on seeing the specialist they may then find out that the specialist works in a hospital that is not covered by the network,' he says.
In this situation, the patient has one of two choices, says Loveday: 'The patient can change to an alternative specialist who works in a networked hospital and be aggrieved at not having their first choice, or they can ask the specialist to perform the treatment in the networked hospital.' This, however, is not in the best interests of the patient.
'It is like asking a cook to work in somebody else's kitchen,' he says. 'In this situation the specialist will be working in an unfamiliar environment with a team of nurses that they are not used to. The patient is better off being treated by a specialist in their hospital of choice with their own team.'
Manipulation
As a result, hospital networks have been seen to have medical implications, and this is one of Fowles' principal objections to their use. 'The insurer is manipulating clinical decisions to suit their network which should be left to the medical profession, we do not think it is the insurers place to do this,' he says.
Bull, however, insists that this is not the case. He comments: 'If there is a clinical reason why treatment cannot be done in a networked hospital we will pay for it to be undertaken elsewhere, where appropriate.'
He adds that specialists should honour choices made by the patient and be prepared to work in more hospitals. 'Through the policy, the patient has chosen to be treated at a networked hospital, and specialists, as service providers should recognise this choice.' He also argues that networks will become increasingly important in the long-term future of private medicine.
With more insurers turning to networks it is important to point out that each operates on an individual basis with some offering more flexibility than others.
Yet as the number of networks increase, the criticism against them mounts, which has been marked by a number of non-networking insurers, independent hospitals and consultant associations making their views known to the Office of Fair Trading.
It was hoped that networks might be the answer to spiralling costs, yet while their use may have enabled insurers to negotiate better deals, their impact on private medicine has been called into question as has their value for money. A number of insurers using networks are still passing on hefty annual premium increases to policyholders suggesting that they might not be as effective as their supporters protest.
With criticism outweighing praise, networks may well be in trouble. Whatever the outcome of the OFT's investigation, the market will be ripe for a fresh bout of product innovation, be it to replace networks should they be dismissed by the OFT, or to combat them, should they survive.
Rachel Williams is a staff writer
