UK Private Healthcare Market Referred to Competition Commission

On 4 April, the UK Office of Fair Trading (OFT) referred the market for the provision of privately funded healthcare services to the Competition Commission (CC) for an in-depth investigation, due to concerns over current levels of competition in the sector.  The CC now has two years to undertake its market investigation and to decide whether remedies are required to improve the situation.  The CC has extensive remedy powers, including the ability to regulate prices and force structural changes to businesses.  It may also make recommendations to government concerning changes to regulation or legislation, where these are the source of any of the concerns identified.

The UK healthcare sector is unusual, by international standards, in that most health services are provided by the state-owned and taxpayer-funded National Health Service (NHS), which owns most hospitals and directly employs most doctors and other clinical staff.  As a result of the dominance of the NHS, as both a funder and provider of services, private healthcare is relatively underdeveloped in the UK and has tended to occupy a secondary role, as a provider of non-urgent elective treatments or a route to faster access to specialist doctors known as consultants.  Private hospitals also tend to provide a more pleasant environment for patients.  Private healthcare is mainly funded by private medical insurance, which is provided as a benefit by some employers.  Such insurance is not widespread, however, and currently covers only about 15% of the UK population.  Traditionally, the state and private systems have operated independently of each other, with patients having to decide at the outset of their treatment whether to use the NHS or 'go private'.  In either case, the patient's general practitioner acts as gatekeeper, by controlling the process of referral to a specialist clinician.

This long-standing situation is becoming rather more complex, as a result of intermittent efforts by governments of different political persuasions since the 1990s to separate the NHS's twin roles as funder and provider of healthcare services and hence to enable more provision of state-funded healthcare by private hospitals.  In fact, the NHS is already the largest single purchaser of private health services, accounting for 25% of all purchases, according to figures cited by the OFT.

The current coalition government is attempting to introduce greater internal competition within the NHS itself, as well as between private providers and the NHS, and has created a new regulator called Monitor to facilitate this.  Political controversy linked to the totemic status of the NHS in the eyes of the public has forced the government to scale back its ambitions in this area.  The Health and Social Care Act 2012, which completed its progress through Parliament at the end of March, nevertheless gives Monitor a general duty to prevent anticompetitive behaviour in the provision of NHS services and sweeping powers to enforce general competition law with respect to the provision of health care services in England.  These include the power to punish companies for abusing a dominant position and to make market investigation references to the CC.

The OFT launched a 'market study' into private healthcare back in March 2011, having received submissions from what it refers to as "a number of participants across the sector".  This study was essentially a fact-finding exercise, to assess whether the concerns raised with it by third parties were justified.

Just over a year later, the OFT confirmed its intention to refer the market to the CC, based on the concerns identified during its review.  These concerns, as set out in a detailed 156 page document, are:

• the sector suffers from information asymmetries, due to a lack of accessible, standardised and comparable information for patients on matters such as the quality of particular consultants and the price of treatment;

• the sector suffers from high levels of concentration, with service provision being concentrated at a national level (the top five providers have a combined market share of 77%, which has remained stable over the past five years).  Provision is often even more concentrated at a local level, due to a lack of alternative hospitals within a given area.  Although the OFT's report notes that private medical insurance is also concentrated, which gives insurers some buyer power vis-à-vis private hospitals, it observes that this may be moderated by the lack of competing providers in many locations; and

• there are significant barriers to entry, including conditions in agreements between insurers and providers that require existing providers to be consulted before a health insurer admits a new provider to its network of approved providers or provisions that automatically trigger price rises by existing providers, if a new entrant is admitted.  The OFT report also notes that issues arise from the fact that the inability of new entrants to attract consultants to their facilities also limits market entry.

The CC must now grapple with these complex issues.  Some appear to be common to other insurance funded health systems.  For example, the issues raised by provisions in agreements between insurers and hospitals acting as a barrier to new entrants appears similar to those addressed by the US Department of Justice in its Blue Cross Blue Shield of Michigan case, which is currently being heard by the US District Court for the Eastern District of Michigan.  At least some of the concerns around information asymmetries seem to be inherent to healthcare, given that it is very difficult for patients (or even a referring general practitioner) to assess the quality of a consultant or the likely cost of treatment with accuracy, especially given the increasing sophistication of modern healthcare and the wide range of patient needs.  Other issues may be more specific to the UK.  In particular, the presence of the NHS introduces a number of complicating factors.  These include the fact that a doctor typically needs to hold an NHS consultant position to be admitted to practice at a private medical facility or to be included on a private medical insurer's list of approved consultants.  While this is presumably designed to ensure a level of quality control, the exclusionary effect is clear, particularly bearing in mind that there are relatively few NHS consultants per head of population, compared with the levels of medical specialists in other developed countries.

So far, the CC has simply confirmed the members of the inquiry group, which will ultimately decide whether the OFT's concerns were well-founded, whether remedies are required and, if so, what those remedies should be.  The inquiry group of five individuals is headed by the current Chairman of the CC and includes a competition lawyer and other members with significant experience in the financial services sector.

The next formal step in the process will be publication of the CC's 'statement of issues' in mid-June.  This document, which will be published on the dedicated investigation site (www.competition-commission.org.uk/our-work/private-healthcare-market-investigation), will set out the core analytical framework for the investigation.  Although the CC has a free rein to investigate any issues it wishes, provided that they have an impact on the market referred to it for investigation, it is likely that its inquiry will concentrate on the issues addressed by the OFT's reference decision.  As a result, we can expect to see a greater focus on issues regarding the provision of private healthcare, and particularly the role of consultants, rather than on the operation of the private health insurance market.  Nevertheless, the nature of CC market investigations means that a vast amount of information concerning all aspects of private healthcare in the UK will be gathered at the outset of the investigation, with key issues of concern only emerging over time.

The most intensive phase of the investigation is likely to run from October this year, when the CC plans to hold hearings with interested parties, through to March/April 2013, by which time the CC hopes to have reached its provisional findings, which will set out the key concerns that it has identified.  This leaves almost a year for any remedies to be settled, with publication of the CC's final report, including remedies, currently scheduled for February 2014.  Given the number and complexity of the issues to be addressed, this may turn out to be an ambitious timetable.