Competition in the Irish Private Health Insurance Market

surrounding supplier-induced demand, there should be no fundamental
assumption in relation to whether or not new private hospitals would
lead to large supplier-induced demand effects in Ireland.
7.41 In a recent study of supplier-induced demand for medical services in
Australia, researchers concluded that well-targeted cost containment
measures could help to promote cost-effective outcomes in medical
provision and restrict the effects, if any, of supplier-induced
demand. 145
7.42 Cost-control strategies include annual budget and reimbursement
limits, price freezes, predetermined length-of-stay agreements, and
designation of procedures for day or side-room treatment. 146 These
measures can facilitate demand management by reducing the scope for
demand inducement. 147 PHI firms have a legitimate right to control
their costs, but in a situation where PHI firms, most notably Vhi
Healthcare, have buyer power, controlling costs related to private
hospital procedures can have knock-on effects. 148
An Analytical Framework for Buyer Power
7.43 An economic framework has been developed for the UK Office of Fair
Trading for analysing the potential presence of buyer power. 149 It may
be useful to apply this framework to the Irish PHI market. The
framework is set out as follows:
Table 6: An Analytical Framework for Buyer Power
Questions Relevant evidence Irish PHI market
1. Is there significant
buyer power?
(By ‘significant power’ is
meant the ability to
have a material effect
on prices set or
negotiated, on
quantities exchanged,
or on the viability of
traders at one or more
stages of the
production/distribution
cycle).
Significant proportion
of the product as a
whole purchased by
this firm.
Significant
arrangement of terms
of purchase by this
firm (e.g.: upfront
fees for distributing a
product, such as
slotting allowances).
Yes. Vhi Healthcare is the
significantly, the biggest
buyer of private healthcare
services.
145 Bickerdyke et al (2002), p.89
146 OECD (2004) p.35
147 Bickerdyke et al (2002), p.91
148 In its 2004 Report, the OECD noted that “Vhi imposed cost containment practices that, in the view
of hospitals, hampered productivity improvements”
149 Dobson, Waterson and Chu (1998), p.31
113