Competition in the Irish Private Health Insurance Market

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The Supply of Hospital Consultant Services 7.32 Almost all hospital-related PHI claims are a combined package of consultant services and hospital services because the hospitals do not supply private consultants’ services. Furthermore, the insurer cannot usually have an influence on the decision on the type and level of medical treatment that is required by the patient and that will be refunded by the insurer. Invariably, the consultant is the sole decision-maker (with the consent of the patient). This is why the VHI Healthcare states that it has “payer power” but not “buyer power”. 7.33 The choice of consultant is made by the patient and the referring medical general practitioner or accident and emergency department. While almost all consultants in Ireland have contracts for reimbursement with the three health insurers, each consultant is limited in the number of hospitals that he or she practices in. Therefore, the referral decision to a particular consultant implicitly is the major deciding factor in the choice of hospital. Where a consultant practices in more than one hospital, the consultant usually decides, after consultation with the patient, in which hospital treatment may take place. Therefore, it is possible for consultants to direct medical business to a particular private hospital, within the constraints of providing best medical care for the patient. 7.34 Apart from the consultant’s dominant role in deciding on the required medical treatment, consultants services account for approximately 30% to 35% of total claims to PHI insurers in Ireland. Capacity issues in the private sector may be attributable to consultants as much as to hospitals. For instance, if private sector waiting lists are significant, this may be due to either a shortage of consultant capacity or private hospital bed capacity or both. In fact, the ratio of consultants to the Irish population is relatively low by European comparisons. There are very few private consultants that are not salaried employee consultants in public hospitals. If one assumes that there is a practical maximum number of hours that consultants can and will work supplying private consultancy services in addition to their public consultant duties, then the supply of private medical consultant services in Ireland is, effectively, almost entirely determined at present by the number and category of consultants’ posts in public hospitals and that supply is not susceptible to normal market forces. 7.35 Recent competition-related developments may have augmented the buyer power of Vhi Healthcare, although possibly only on a temporary basis. At the behest of the Competition Authority, the Irish Hospital Consultants Association (IHCA) discontinued its long-standing practice of representing consultants in negotiations with hospitals and health insurers because it would be in breach of the 2002 Competition Act. Following a public consultation on possible models for establishing market prices for consultant services, the Competition Authority is due to publish guidelines for possible market mechanisms that might facilitate the determination of market prices for medical consultants’ services. The relative bargaining positions of consultants and insurers under any such guidelines can only be fully assessed once the guidelines are published and in operation. 111
Supplier-Induced Demand 7.36 The Vhi Healthcare Chief Executive recently warned that new private hospitals would lead to increased healthcare costs for patients. 138 He went on to state that while, in the short term, increased competition could help reduce prices, in the longer term, supplier-induced demand would drive up the cost of PHI. Vhi Healthcare also stated in 2004 that the addition of one private facility to its portfolio would add upwards of €40 million to its costs. 139 This has not prevented it from extending coverage to three new private facilities in 2006, Forest Treatment Centre in Wicklow, the Advanced Radiology Centre at the Beacon Clinic, Dublin and Limerick Radiotherapy Centre. 140 7.37 Vhi Healthcare’s analysis is predicated on the assumption that healthcare costs will not be reduced significantly by competition between private facilities, and that PHI cost control measures will fail to prevent significant supplier-induced demand. Given the increasing focus of PHI firms on limiting costs, for instance by moving towards day-patient and side-room procedures, 141 measures are being put in place to promote cost efficiencies. Vhi Healthcare, for example, has agreed fixed prices for a range of procedures, services and accommodation, and covers day-care radiotherapy treatments. 142 7.38 Private hospitals are currently constrained in what they can charge PHI firms. Although eventually 1,000 beds will be moved out of the public system into the private system, private hospitals will still be under competitive constraints, as they will have to compete against other existing private hospitals, as well as 11 new entrants. Indeed, given that private hospitals tend to specialise in elective, rather than nonelective and A&E procedures, competition should become more intense among private hospitals in the provision of these services. 7.39 While no generally accepted theory of supplier-induced demand has yet been formulated, the phenomenon is well recognised in healthcare. The special nature of decision-making in healthcare purchasing facilitates it; those who make the procurement/purchasing decisions are not those who pay. Doctors are necessarily the primary decisionmakers on the nature and extent of treatment purchased or procured even though the patient, the public healthcare system or the health insurer must pay for the treatment. This necessary dichotomy between the purchasing decision-maker and the payer represents a significant special case in micro-economics. 7.40 Some studies conclude that, where supplier induced demand arises, its effect is small, both in absolute terms and relative to other influences on the provision of medical services. 143 Other studies suggest that it is a significant effect and would be measurably greater if it were not for the actions of PHI firms to counteract it. 144 Given the controversy 138 “Glut of private hospitals ‘will increase healthcare costs’” Irish Medical Times, June 24 th , 2005. Available online at http://www.imt.ie/displayarticle.asp?AID=8433&NS=1&CAT=18&SID=1 139 Vhi Healthcare Annual Report 2004, p.18 140 Vhi Healthcare Annual Report 2005, p.15 141 In its submission, Vhi Healthcare states at p.14 that more than 65% of all cases are treated on a day care basis 142 Vhi Healthcare Annual Report 2004, p.11 143 Bickerdyke et al. (2002), p.xiv 144 Richardson J and Peacock S, “Reconsidering theories and evidence of supplier-induced demand”, Centre for Health Economics, Research Paper 2006 (13), Monash University, Business and Economics 112
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A Report to the Minister for Health
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CONTENTS TABLE OF FIGURES _________
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CONSUMER ATTITUDES TO SWITCHING ___
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EXECUTIVE SUMMARY AND RECOMMENDATIO
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As a result it does not have to sat
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Recommendation 7 The Minister for H
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indicates that consumers of PHI hav
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Recommendation 13 The Minister for
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is quite unclear, so far as the Aut
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1.4 For the next number of months t
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other insurers were to enter the ma
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2.6 Private health insurance (PHI)
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2.17 Open enrolment and lifetime co
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• 2001: The Health Insurance Auth
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Figure 2: Annual Change in PHI memb
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of medical inflation and the higher
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VIVAS Health is rising steadily. In
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• Table 1 below shows the annual
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Figure 6: PHI Products BUPA Ireland
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• Work-based group schemes where
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from year to year and also during t
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3. DEFINING THE PRIVATE HEALTH INSU
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Figure 7: Key features of Related H
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price increase unprofitable by a hy
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4.6 Aspects of the exemption from i
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and quarterly management accounts t
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Table 4: Regulation of PHI Firms 48
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4.31 This is a positive step. Just
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obliges Vhi Healthcare to seek appr
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4.41 In the regulatory approval pro
Page 61 and 62: 4.50 However, the Authority is clea
Page 63 and 64: Unfunded Lifetime Community Rating
Page 65 and 66: President of the Society of Actuari
Page 67 and 68: − The main other deterrent at pre
Page 69 and 70: o The former members of the Advisor
Page 71 and 72: materially affected by any seasonal
Page 73 and 74: It may also be noted that the propo
Page 75 and 76: 4.94 There are 37 health insurers i
Page 77 and 78: Interviews with Possible New Entran
Page 79 and 80: have shown that new sales and switc
Page 81 and 82: not binding on incumbents and no in
Page 83 and 84: 5.33 In this context Vhi Healthcare
Page 85 and 86: 5.44 As the former incumbent monopo
Page 87 and 88: 5.52 Vhi Healthcare’s first mover
Page 89 and 90: • Psychological costs 6.5 Transac
Page 91 and 92: 18-24 9% 13% 25-34 34% 19% 35-44 31
Page 93 and 94: 6.24 The provision of renewal notic
Page 95 and 96: The HIA publishes on its website a
Page 97 and 98: Recommendation 10 Following consult
Page 99 and 100: Recommendation 11 The insurance com
Page 101 and 102: Regulations were established to aff
Page 103 and 104: transferred and the amounts require
Page 105 and 106: Buyer Power and Concentrated Market
Page 107 and 108: The Supply of Private Medical Facil
Page 109 and 110: VIVAS Health claims that Vhi Health
Page 111: approval on coverage of facilities
Page 115 and 116: Questions Relevant evidence Irish P
Page 117 and 118: to restrict individual choice of pr
Page 119 and 120: 8. CONCENTRATION AND MARKET POWER I
Page 121 and 122: gives us some indication of the com
Page 123 and 124: wishes to retain the flexibility to
Page 125 and 126: largest price increase that is prof
Page 127 and 128: scheme. Employees may be under the
Page 129 and 130: elevant regulatory requirements, ex
Page 131 and 132: Table 7 Vhi Healthcare Financial Re
Page 133 and 134: • There is limited buyer power fr
Page 135 and 136: Breaking up Vhi Healthcare would di
Page 137 and 138: expertise and other staff resources
Page 139 and 140: APPENDIX 1 Other forms of health re
Page 141 and 142: APPENDIX 2 Report of UK Government
Page 143 and 144: Australia Ireland Public hospital U
Page 145 and 146: Australia Ireland Risk equalisation
Page 147 and 148: 1.22 The Irish data is not split at
Page 149 and 150: Conclusion of normal claim payments
Page 151 and 152: APPENDIX 3 Consumer Attitudes to Sw
Page 153 and 154: Survey Respondent factors promoting
Page 155 and 156: APPENDIX 5 OECD Review of PHI The O
Page 157 and 158: not-for-profit insurers has posed c
Page 159 and 160: 114. Private insurers have not impl
Page 161 and 162: APPENDIX 6 List of Submissions The
Page 163 and 164:
Understanding and Comparing Private
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Benefits Outpatient Cover Cover for
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Dobson, P., M. Waterson and A. Chu,
Page 169:
Vhi Healthcare (2005), Annual Repor
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Competition in the Irish Private Health Insurance Market

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