Private health groups may have to sell hospitals, competition watchdog rules - The Guardian

Lack of competition in the healthcare market meant private patients were paying more than they should, the commision said. Photograph: OJO Images /Rex Features

The country's largest private hospital groups will have to sell up to 20 hospitals and end incentive schemes that encourage doctors to choose particular private providers for patient treatment in return for cash, a landmark investigation by the competition watchdog has recommended.

The Competition Commission, which began its investigation of the private healthcare sector in April last year, found significant instances of anti-competitive behaviour in the market, and criticised four of the five biggest operators for generating excessive profits.

The result, says the commission, is that most patients in UK private hospitals are paying more than they should for treatment because of a lack of local competition.

The report says: "There is a causal relationship between self-pay prices and local concentration. Private hospital operators, on average, currently charge somewhat higher prices in local areas where they face fewer competitive constraints."

More than 100 private hospitals around the country are in areas with little rival healthcare provision, said the commission.

The provisional findings of the inquiry call for up to 20 hospitals to be sold off from the three largest private hospital groups – HCA, Spire and BMI – in 11 locations across the country. Between 2009 and 2011 the three firms had used their market power to amass half a billion pounds to the detriment of consumers, it found.

The watchdog also said that cash bonuses for patient referrals should end – warning that in many cases patients ended up having treatments that they did not need.

The commission said it was "concerned that consultant incentives might tempt consultants to refer patients to a hospital that they would not have chosen on grounds of either quality or of price and that they might lead to over-treatment or unnecessary diagnostic tests".

These secretive payments are highly controversial in the medical community – leading to claims that doctors can be swayed into over-treating patients. In a case study released this year, the commission noted that payments worth at least £1m had been made to doctors in Bath as part of a "consultant loyalty scheme" by BMI in the three years up to 2012.

Under a pilot scheme in Bath GPs would "undertake pre-operative examinations of patients referred by them [by BMI] and to receive payment for these examinations in the event that the patient was treated [by BMI]".

When the Guardian attempted to use freedom of information requests to ascertain the size and extent of the schemes the commission rejected the approach saying that it would be a criminal act to disclose information obtained in the course of a "market investigation".

The commission also called for new rules to stop the overcharging of privately insured and self-pay patients by the biggest providers. It said the buying power of health insurance firms did not offset the hospitals' strong position.

Four-fifths of private patients pay for their treatment through medical insurance, which is often a perk of their employment.

Although prices charged by operators to insurers are set nationally, the commission said it believed that the lack of local choice pushed up premiums for all patients, because insurers had no option but to use the local hospital.

"The lack of competition in the healthcare market at a local level means that most private patients are paying more than they should, either for private medical insurance or for self-funded treatment," said the commission's chairman, Roger Witcomb.

"The lack of available and comparable information, often less than is available to NHS patients, also makes informed choices – which could help drive competition – for these patients difficult."

The commission noted that in recent years usage of private hospitals by the NHS in England to provide publicly funded services had grown substantially. Recent studies have shown that spending on private services by the NHS reached a record £8.7bn last year, a jump of more than £3bn since 2006.

Paolo Pieri, chief financial officer of Circle, the company behind the complaint that prompted the investigation, said: "We are delighted that we have been vindicated by the Competition Commission and believe more patients will now be able to access our state-of-the-art facilities as a result of this ruling.

"This report is clear that patients across the country have suffered higher prices and poorer care because of the monopolistic behaviour of private hospital providers."

The largest private operators said they did not accept the commission's analysis. Stephen Collier, chief executive of BMI Healthcare, said: "We reject absolutely any assertion that BMI Healthcare and its hospitals exercise market power or that we make excess profits at the expense of patients. The vast majority of BMI's 69 facilities, in a UK market with over 500 rival facilities, face very significant local competition from other private hospitals and, increasingly, from the NHS.

"The commission's belief that BMI Healthcare makes excess profits ignores financial realities such as the necessary costs of keeping our hospitals equipped with the ever more expensive technology required to meet the needs of patients, commissioners and insurers."