Health Insurance editor David Sawers poses the questions
Bupa’s Tony Wood has been in charge of sales during a major period of transformation for the organisation’s UK business. Health Insurance editor David Sawers asks him for his take on open referral and the dispute with BMI Healthcare
Tony Wood could not have picked a busier – or perhaps more challenging – time to join Bupa’s UK business as sales director.
Against the backdrop of a contracting private medical insurance (PMI) market and rising healthcare costs, the organisation’s British unit is undergoing fundamental changes in the way it operates.
Last year, the provider decided to sell its individual and group protection business, Bupa Health Assurance (it would merge with AXA and Friends Provident to become Friends Life), while recent months have seen the introduction of a bold new strategy – open referral – which radically alters the PMI proposition. A high profile dispute with Britain’s largest private hospital group and an investigation into the way the country’s private healthcare system operates by the Office of Fair Trading (OFT) have also been top of the agenda in recent months. But while Wood does not appear to be fazed, was he really aware of the scale of change underway at the organisation when he accepted the role?
A PERIOD OF TRANSFORMATION
“We knew as a business that we were on a journey of transformation,” he tells me. “We have been for some time and I think that continues. As a business we are changing and evolving all around the world. I like change.”
During Wood’s previous role as sales director of MBF in Australia, he saw at first hand the merger of the coutry’s second and third largest medical insurers to become the largest privately owned player there.
“We had to merge people, computer systems, products and late last year we finally moved to the Bupa brand in Australia,” he says. “That’s the kind of journey I’ve been on.”
In any case, there was little doubt, Wood says, that the UK PMI industry was crying out for change. Statistics from market analyst Laing & Buisson appear to back that up, with PMI subscriber numbers falling by 10.2% since 2008. But as the numbers continued to tumble and as some big names left the market – Standard Life and Groupama most notably – Wood said he was “surprised” that the UK PMI industry as a whole did not seem to have a plan or an approach of how to stem the slide.
“It was easy for me to very quickly see that the UK was a declining market,” he explains. “From our point of view we’ve actually been growing market share in a declining market and that’s actually not a good place to be. I was just a bit surprised that there just didn’t seem to be a strategy and yet everyone I talked to expressed their concern about that. Everyone, every intermediary. There wasn’t one who didn’t express concern about the fact the market was declining and what its future was going to be.”
As an outsider looking in, Wood was shocked in particular to see that not enough was being done to address the rising cost of private healthcare, which he says is significantly higher in the UK than it is in Australia and twice what it is in Spain.
“That is really concerning because in Australia we talked about the affordability and the long-term sustainability of the industry,” he continues. “It had never dawned on me before I came here that the UK was so much more expensive.”
As market leader, Bupa, Wood says, was conscious that in order to address the issue it would have to drive through changes, both internally and externally, itself.
“Everyone wanted to see the business be more courageous, be more innovative, really lead the market more strongly, be more consultative and really do something about the sustainability of the market,” he says. “That was one of the key messages I heard from people. That was a very common theme.”
Of course, as market leader sometimes you can be damned if you do and damned if you don’t, but if nothing else Bupa cannot be criticised for failing to take the bull by the horns on the issue of price and sustainability. The introduction of “open referral” for its Corporate Select customers early this year, after a soft launch last year, has generated heated debate across the health insurance industry as a whole but it is nothing if not bold.
Open referral means that, instead of referring patients directly to a named consultant of their choosing, GPs will have to provide them with a referral for a procedure with no named consultant. The member will then call Bupa to preauthorise the diagnostic procedure or treatment they need and, provided this is covered by the policy, they will be provided with a choice of consultants at nearby hospitals. The member can then book their consultant appointment.
To the man on the street not used to PMI, this of course would seem quite straightforward. However, the introduction of open referral changes the very way the PMI market has operated for years. It has also come in for fierce criticism from some consultants and hospitals who argue that the new system is part of an ongoing Bupa initiative to direct patients to healthcare facilities who charge the lowest price rather than offering patients access to the best quality facilities and doctors – something which the insurer absolutely denies.
The disagreement between Bupa and some hospitals and clinicians was most keenly – and most publicly – felt when the insurer decided to delist over 30 BMI Healthcare facilities towards the end of last year. While the dispute is now largely resolved – only a handful now remain out of network – the fact that it spilled over first onto the pages of Health Insurance and then the pages of the national press was “disappointing” for the image of the PMI and private healthcare industries, Wood says.
“We were disappointed that it became a more public discussion obviously,” he says. “Nobody would have wanted that and we regret that too. But at the end of the day we felt that we are there to only serve one constituency and that is our customers. We had to stand up for them and really felt we had to do that. And that, ultimately, will help the market move towards a sustainable and affordable position for the longer-term.”
The long-term impact of the introduction of open referral is, of course, still to be played out, but Wood stands firmly behind the strategy.
“It was us being bold and courageous and standing our ground,” he says. “There is no doubt about that. Fifty per cent of our premiums go towards hospital costs with the remainder largely going to other elements of the healthcare sector. That’s where the members’ premiums go at the end of the day.
“We looked into the future and we could see that the market conditions were if anything deteriorating,” he argues. “We really felt given the economic climate we needed to take action swiftly.”
The swiftness of that action, however, and the way in which the introduction of open referral was communicated has come in for some criticism from some sections of the intermediary community. But while Wood concedes “I suppose we could always improve”, some of the criticism Bupa came in for was unjustified, he believes.
“The pace of change suddenly was very quick,” he argues. “It was quick for us too – I don’t deny that. We had to put ourselves under pressure but we felt it was so important to the market that it was worth all of us joining together and putting ourselves under the pressure.”
Bupa’s decision to introduce open referral in the way that it did is largely due to the fact that the PMI industry is effectively “front end-loaded” to the beginning of the year, with 60% of the market being renewed by June.
“Our book is reflective of the market and it’s a huge chunk in the first quarter which means if you didn’t move on this basically for January renewals you were deferring a huge chunk of the market until 2013,” Wood explains.
Wood also argues that criticism from some intermediaries that they were not told about the changes is undue, given that, in the first instance, open referral does not apply to age-rated schemes.
“I know there were some that said ‘oh you didn’t talk to us about this’,” he says. “But we thought ‘you’re a key partner for us in the SME space and it’s age-rated and we’re not doing this for age-rated at this point in time’. I think there was some confusion there for some who felt ‘you haven’t spoken to us’.”
Wood points out that it is “impossible to talk to everyone on the same day in the same minute to the same degree of consultation”.
“It’s just not physically doable,” he argues. “How to do it differently? We’re always open to improving. It’s just you can’t connect with everyone at the same minute.”
According to Wood, discussions about open referral ahead of its introduction had gone down well with Bupa’s Intermediary Advisory Panel, a group of some the most influential advisory firms in the market. Indeed, brokers contacted by Health Insurance are largely supportive of the move, now that the concept has had time to bed in.
“Interestingly enough we’ve now had a number [of brokers] who have proactively contacted us and said ‘well why can’t we have this for our SME and age-rated [schemes]?’ We’ve said that we are considering that at the moment and we’ll be taking that feedback on board.”
So can the market expect more changes from Wood and Bupa in the future?
“Change is normal,” Wood says. “I have worked in financial services and been through every kind of reform you could ever imagine. I think it’s just a normal part of life.”
Wood is clearly relishing the challenge of heading up sales during a time of unprecedented change in the UK PMI market and he’s applying some logic from down under to see it through.
“We had a saying in Australia which is ‘pace over perfection’,” he says. “It’s something I’ve brought to this business which says ‘we can’t keep working on things forever and ever and ever and hoping to get it absolutely perfect’. Sometimes we’ve just got to get out there and make things happen. And I don’t mean get things wrong either but we’ve got to keep the pace up because that’s how fast the market is moving now.”