Insurers/private hospitals: OFT assesses the balance of power

Concerns that large private hospital groups are creating barriers to new entrants

Private hospital groups in the UK enjoy significant market power which they wield to create barriers to new entrants, the OFT has suggested. 

In its review of the private healthcare market, the OFT raises concerns that powerful large hospital groups are able to use their negotiations for recognition with insurers to restrict new entrants. For example, by insisting that the insurer recognise all of its facilities in order to gain access to a "must have" facility, it could prevent the entrance of a provider that could better meet patient demand, possibly at lower cost.

One PMI provider told the OFT that, in response to its plans to include a new private hospital on its network, a large hospital group threatened to increase its prices across all of its facilities in order to offset any potential loss of revenue it would suffer as a result of rival entry.

Although the OFT recognises that there may be benefits in limiting new entrants if existing hospitals have "strong economies of scale and scope", it argues that innovations in healthcare, in addition to an increasing proportion of procedures being carried out as outpatient or day cases, means that the cost of entry has been reduced and that smaller clinics may make more sense in the market.

Overall, the OFT's report paints a picture of a powerful provider sector in need of a shake-up. Crucially, while it acknowledges that providers rely on insured patients to remain economically viable, it identifies limits on the power of insurers.

Notably, it concludes that the provider market is concentrated at a national level and "highly concentrated" in some local areas, where there is no alternative to some hospitals within a 30 minute drive or where a "must have" hospital exists. It also highlights limits on insurers' ability to direct where members go for treatment.

The findings are likely to be welcomed by new entrant Circle, which has complained that it encountered significant barriers to joining the market.



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