Competition in the Irish Private Health Insurance Market

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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
Questions Relevant evidence Irish PHI market 2. Is the buyer power against relatively powerless suppliers? If so, it is more likely that buyer power has policy implications. (In contrast, if buyer power is linked with significant seller power at the upstream stage then it is more likely that the existence or enhancement of buyer power is beneficial). Absence of evidence that suppliers dictate terms of sale. Low seller concentration in the upstream market. The power of suppliers varies significantly between private hospitals and consultants and within each of these groups. In particular, the concentration of private hospitals outside of Dublin is low. 3. Does the buyer attempt to constrain its suppliers’ other actions? If so, such an arrangement should be treated with suspicion. Evidence of exclusive supply requirements, specific custom designs or arrangements, idiosyncratic specification, etc. Vhi Healthcare engages in a range of common cost control measures, such as fixed price contracts. Private hospitals are not constrained to submit to exclusive supply or similar requirements, however. 4. Are there significant productive efficiency gains associated with buyer power? If so, then there may be an efficiency justification for the presence of buyer power. Pecuniary or other economies of scale indicating ‘natural’ monopsony tendency (i.e. average costs lowered by buying being undertaken by a single party). Buyer power may keep premiums lower. Vhi Healthcare states that its negotiating ability has kept down the cost of private medical care. It asserts that the two other insurers gain from the prices that Vhi Healthcare negotiates. Vhi Healthcare´s buyer power may also limit the effect of supplier induced demand. 7.44 Using this methodology, Vhi Healthcare may have some buyer power, with potentially negative competition effects in both the upstream (private hospital) and downstream (PHI) markets. However, the evidence for some criteria is inconclusive and Vhi Healthcare’s strong bargaining position may benefit consumers in price negotiations with private healthcare suppliers and by limiting any effect of supplier induced demand. 114
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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
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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 and 112: approval on coverage of facilities
Page 113: Supplier-Induced Demand 7.36 The Vh
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,
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Vhi Healthcare (2005), Annual Repor
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Competition in the Irish Private Health Insurance Market

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