Planet Insurance - PMI and The Competition Commission

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The Competition Commission is examining the private health sector. Richard Walsh investigates

In June the Competition Commission produced its "issues paper" on the private health sector and its interations with other stakeholders, including PMI. The paper sets the scope for their investigations over the next two years. In it they identify seven possible "theories of harm".

In essence these are hypotheses of where anti-competitive behaviour might occur. The investigations will establish whether they do or not. The ones that most concern us are as follows.

Number three looks at the market power of hospital operators vs insurers during national negotiations on the price that insurers pay when their customers are treated in hospital.

The negotiations result in national prices for treatments which apply to the hospitals owned by that particular hospital operator. Here the concern is that a hospital operator may have market power which is not offset by the buyer power of the insurer.

This can happen where the hospital operator has a local monopoly because of the location of its hospital compared with rivals' hospitals, or the size, or the specialities offered so that the insurer has little or no choice but to contract with a hospital operator if it is to offer an insurance policy to consumers living or working in that area.

What is more this can also mean that the insurer has little or no choice but to recognize all or most of the hospital operator's hospitals (ie not only those hospitals with local monopolies) if it is to provide national coverage.

That said, insurers have some leverage in these negotiations for example they can use the threat of not including a hospital in its network (‘delisting') to extract a better national price.

Or the insurer may be able to ‘steer' patients away from one hospital to another. Assuming this is not the case, insurers may have to pay a higher price when their customers are treated at a hospital owned by hospital operators with a local monopoly and this may result in higher insurance premiums.

Number four is about the power of insurers in their relations with individual consultants. It has become common practice for insurers to set the rates they will pay consultants for treatments. Consultants may charge more than this amount for their services, in which case the customers pay the excess.

Alternatively some insurers stipulate that in order for consultants to be recognized to treat their customers, the consultant must agree not to charge more than the amount specified by the insurer.

The idea is that such caps help to stop overcharging by consultants. However the other effect could be that the buying power of insurers results in consultant fees being too low.

If insurers were to suppress consultant fees to a level below those which would prevail in a competitive market, it could lead to a reduction in the quality of service provided by consultants to patients and affect the incentives to innovate.

In addition, there may be distortions to competition between consultants when caps on fees are applied to some consultants (eg newer or junior consultants) and not to others (eg more experienced ones). In the longer term, this may result in a shortage of consultants willing to practice privately and in a reduction in the potential output of the sector.

Finally we move to number 6 which concerns the availability of information available to insurers and customers to make an informed choice of which consultants to use. This means that customers cannot judge the value for money offered by paying a top-up fee.

The investigation will be complex. It is vital that insurers and AMII engage with it to get the best arrangements in the future for their customers and to ensure a vibrant competitive market.

Richard Walsh is a director and fellow of SAMI Consulting.

 

 

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