Competition in the Irish Private Health Insurance Market

treatment of approximately 15,500 119 patients in Irish private
hospitals in 2005. Given that the 16 participating Irish private
hospitals have a minimum of 1650 in-patient beds between them,
the NTPF paid for somewhere in the region of 9 patients per private
hospital in-patient bed in 2005. 120
• Between them, the restricted membership schemes account for
93,900 individuals, less than 3% of the PHI market. By corollary,
PHI firms, the only other purchasers of private healthcare services,
contribute the lion’s share of demand for private hospital in-patient
services.
It is clear, therefore, that private hospitals are heavily reliant on
custom generated by PHI rather than self-payers, the NTPF or
restricted membership schemes. This suggests that open enrolment
PHI firms hold buyer power in relation to private hospitals.
Provider Negotiations
7.17 Vhi Healthcare’s position as the largest PHI firm affects contractual
negotiations between private hospitals and other PHI firms. In its
submission, Vhi Healthcare states that “There is evidence to suggest
that both BUPA and VIVAS largely replicate the provider contract
arrangements (but not necessarily all the rates) of Vhi Healthcare. …..
In so doing significant entry costs can be avoided by an entrant
insurer. Furthermore, ‘free-riding’ on the economies of scale generated
by a larger insurer will secure significantly better provider
reimbursement rates. This ‘free-riding’ principle allows new entrants to
continue to enjoy cost advantages into the future and is perhaps
symptomatic of ‘second-mover’ advantages in the market.” 121 The
OECD also states that Vhi Healthcare negotiates reimbursement levels
which are followed by BUPA Ireland. 122
7.18 On the other hand, VIVAS Health has stated that “As VHI is their
primary supplier of business, hospital and medical practitioners are
very reluctant to fall out of contract. It has also been the experience of
VIVAS Health when negotiating with these parties that they are
extremely reluctant to give any insurer better rates than VHI as should
VHI discover this then they would force the private hospital or medical
practitioner to also lower their rates.” 123 Therefore, Vhi Healthcare’s
buyer power may be undermining competition upstream between
private facilities, and exaggerating the difference in competitive
positions between competing PHI firms downstream.
7.19 It is clear from these submissions that, by virtue of its size and longstanding
position in the market, Vhi Healthcare has established the
“rules of the game” with respect to provider contracts. Vhi Healthcare
claims this allows other PHI firms a second-mover advantage, while
119 90% of 18,197 = 16,377; 95% of 16,377 = 15,558.
120 Calculated in aggregate. The Authorities are aware that custom generated by the NTPF varies
significantly from private hospital to private hospital. The largest customers of the NTPF are the Mater
Private Hospital and Blackrock Clinic. “NTPF is good news for private hospitals”. Sunday Business Post,
June 25 th , 2006.
121 Vhi Healthcare submission at p.24
122 OECD (2004) p.35
123 VIVAS Health submission, p.7
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