Competition in the Irish Private Health Insurance Market

approval on coverage of facilities until some time after a facility has
commenced operations. 134
7.28 Hospitals are relatively expensive to set up and to staff, and are
therefore characterised by both high fixed (and potentially sunk) and
variable costs. As the largest PHI firm in the market, Vhi Healthcare
pays the largest amount of private hospital bills. It is potentially in Vhi
Healthcare’s interests to keep private hospital market capacity
constrained, in order to limit claims arising from newer, more
expensive medical facilities which, in the short run, at least, would lead
to increased costs for Vhi Healthcare. While this avenue of cost control
is also potentially open to BUPA Ireland or VIVAS Health, neither of
these PHI firms is able to exert buyer power to the same degree, nor is
failure by a private facility to ensure coverage by either of them as
inimical to its interests as failure to secure coverage by Vhi Healthcare.
7.29 It is prudent for PHI firms to refuse coverage for medical facilities
where there are justifiable concerns that such facilities would
constitute unused surplus capacity. This is because, where capacity is
not being fully utilised, the average fixed cost per patient to the PHI
firm is high. Average cost as a whole falls as more capacity is used.
The existence (or absence) of waiting periods for treatments in the
private sector can act as a useful indicator of whether private bed
capacity is constrained. Waiting lists are a simple form of rationing
device used where demand at a point in time exceeds available supply.
In other words, waiting lists occur when capacity is constrained, and
should not arise where there is surplus capacity.
7.30 According to research conducted by the Sunday Business Post in July
2006, however, a range of procedures performed privately in five
Dublin hospitals 135 are subject to waiting lists, under the most popular
PHI plan, Vhi Healthcare Plan B. 136 Furthermore, the report quotes two
consultants who state that public waiting lists for some neurological
conditions at Beaumont and for chemotherapy at St. Vincent’s are, in
fact, shorter than private waiting lists. 137 While this data is limited in
terms of hospitals and treatments, it supports the hypothesis that, for
certain procedures, demand outstrips supply in the private sector and
that capacity constraints do exist in private hospital provision.
7.31 Capacity management (such as tendering for private hospital facilities
by PHI firms) and payment policies have a role to play where a
competitive private hospital market is supplying services to a
competitive PHI market. If PHI firms did not carefully manage capacity
and provider payment negotiations, the costs of unused private
hospital capacity would fall on all PHI consumers, potentially increasing
the cost of PHI, although access and technology would have improved.
Where a PHI firm of Vhi Healthcare’s relative size and influence in the
market engages in these practices, the effects on the private hospital
market are much more significant than if a smaller PHI firm were to
engage in similar practices.
134 Vhi Healthcare also denies these claims.
135 Adelaide, Meath and National Children’s Hospital Tallaght, St. James’, St. Vincent’s, the Mater and
Beaumont Hospitals.
136 A table setting out waiting lists for these procedures is included as Appendix 4
137 “Private not much quicker for treatment” Sunday Business Post, July 30 th , 2006
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