Private healthcare services more expensive for patients due to lack of competition, says regulator

In a report detailing its provisional findings from its review of the privately funded healthcare market (2-page / 112KB PDF), the CC said that it had concerns about aspects of the "supply and acquisition of privately funded healthcare services". Those features, either in isolation or in combination, "prevent, restrict or distort competition such that there are adverse effects on competition", it said.

The CC has put forward for consultation a comprehensive menu of potential remedies but has provisionally decided that a price control would not be proportionate.

One aspect of concern raised by the CC was in relation to "weak competitive constraints" which it said it had identified in many local markets, including within central London.

Where private operators face limited competition in a local market and in light of "high barriers to entry" for others to introduce other privately funded full service hospitals in that area, there is a danger that the limited competition may lead to patients in those areas paying higher prices for treatment, the CC said. This can impact on the prices private health insurance providers can negotiate with the private health care providers for patient referrals.

One possible remedy to those concerns (22-page / 275KB PDF) would be for some private healthcare providers to sell off some of their hospitals, the CC said. This would only be a potential solution in areas "where we have competition concerns in which clusters of hospitals are owned by the same operator", it said.

"In local areas where we have identified competition concerns (other than Single or Duopoly areas) the relevant hospital operator would be required to divest to a suitable purchaser, through an effective divestiture process, one or more hospitals and other assets," according to the proposed remedy.

"In determining the appropriate scope for a divestiture package the CC would aim to ensure that it was no wider than would be necessary to address the [concerns about adverse effects on competition] effectively. The CC would specify, though not necessarily disclose, the duration of the period during which the parties should achieve effective disposal of the divestiture package to a suitable purchaser," it added.

In areas of concern served by only one or two hospitals operated by different providers, it is suggested that companies could be restricted from expanding.

The CC also identified concerns in relation to incentives offered to consultants by private hospitals as giving rise to a "distortion of referral decisions to particular hospitals" and a "distortion of patient choice of diagnosis and treatment options", except in certain cases.  A lack of information on performance both in relation to private hospitals and individual consultants and on fees in relation to consultants was also identified as giving rise to adverse effects on competition. In both cases, the CC said that this reduces competition "on the basis of quality and price".

As a result, the CC has proposed banning most forms of incentive arrangements unless it can be shown that these have pro-competitive effects by lowering barriers to entry (particularly in the case of share participation schemes), The regulator also said that greater transparency on the performance of private hospital consultants and in relation to the fees they charge would help address the competition concerns.

"The scope of remedies the CC has put forward is comprehensive, only stopping short of price controls which can themselves have distortive effects, but they do not rule this out altogether", competition expert Angelique Bret of Pinsent Masons, the law firm behind Out-Law.com, said. "Even if they stick to their provisional view, the CC clearly recognises that implementation of some of their remedy options may carry risks and have unintended consequences. Both private operators and consultants will clearly be considering carefully the cumulative impact of the overall package of remedies proposed."

CC chairman Roger Witcomb, who is chairing the regulator's Private Healthcare Inquiry Group, said: "High costs and other factors mean that new competing facilities are not going to spring up so we may look to increase competition and require sales of hospitals to other operators where we can. We will also look at ways that will stop hospital operators using local strength in one area as leverage in their negotiations nationally."

"Although many patients don’t pay directly for the services as they do in other markets, we think that greater comparable information of the sort that is available elsewhere would help drive greater competition on price and quality, potentially improving both. We now want to discuss which of these measures and in what form will be most effective in bringing about the change this market needs," he said.

The CC's provisional findings report and proposed remedies are open to consultation until 20 September. Its final report from its review is due to be published by 3 April next year.