Senior EBCs urge PMI market to continue move to Open Referral

Health Insurance panellists debate 'perfect storm' facing private healthcare industry

A “perfect storm” is brewing which could change the landscape of the health insurance and private healthcare landscape forever, according to panellists assembled for Health Insurance's Boardroom Briefing on corporate healthcare.

Participants at the event – held just ahead of the Office of Fair Trading's decision to refer the private healthcare market to the Competition Commission – agreed that there is little doubt that employers will continue to kick back against the rising cost of private medical schemes. This will come at a time of great uncertainty, they said, when major reforms to the NHS are bedding in.

There was also widespread agreement that private hospitals and consultants will have to change their ways of working in order to make healthcare more affordable for employers, or else the private medical insurance (PMI) market will continue to contract.

Participants also said PMI providers will need to find new models of funding healthcare in the years to come.

Aviva UK Health’s Nick Reynolds said: “There’s a perfect storm brewing. Employers want innovative ways to maintain the benefits and reduce costs at the same time. You can put in limits, you can raise excesses, insurers have tried with hospital networks to reduce costs, but they are fairly blunt tools. [...] Aligned to that you have got the private hospital groups who just seem to think that they can put through increase after increase, year after year, and they’re not getting any more efficient or any more effective. Employers are not going to carry on just paying and they want to see a different approach to this market.”

Consolidation in the PMI market is going to be one of the factors that brings the issue to a head, according to Jon Austin of Xafinity Consulting, the advisers.

Austin said: “As consolidation comes, so there will be a commensurate hardening of prices and that’s actually going to force the debate straight to the fore. That is going to drive the change because year on year increases such as we’ve had over the last 25 years are no longer sustainable. There have to be other changes.”

As procurement departments continue to play a greater role than their HR colleagues in managing corporate healthcare schemes, cost is becoming the main factor driving purchasing decisions, participants said.

John Horley of employee benefit consultancy Enrich explained: “A lot of organisations are bringing procurement in almost for the first time so you’ve got very inexperienced people coming into the market. They’re coming in to make their mark which is basically that they need to save costs. So you’re not dealing with an educated adversary, if you like, you don’t have the opportunity of explaining the long-term benefits of the investment they’re making and the product and services that they’re buying. Procurement is just looking to drive down costs, they’re not taking into consideration the return on investment that they might get with reduced absenteeism.”

Paula Aitken of The Private Health Partnership, another intermediary, added that companies’ attitudes to other cost focused insurances such as employer’s liability and professional indemnity are having an impact too.

“That is beginning to translate across to the healthcare benefits and the onus is on us to educate them [employers] that it’s a very valuable benefit,” she said. “That’s absolutely paramount.”

Panellists including Aitken agreed that in spite of the challenges of dealing with procurement departments which are focused on cutting costs in the short-term, more sophisticated discussions around strategy are still possible.

Xafinity’s Austin said: “Actually you [one] can have a far better strategic debate about procurement because a lot of their brief is about risk management outside of healthcare. Healthcare is being dragged into risk management and because risk management is all about a long-term strategic fix and not short-term sticking plasters, it’s a debate a lot of them are open to having.”

In light of the challenges facing the PMI market, participants at the Briefing said they were pleased with the emergence of one long-term strategy that they believe could change the gamefor the better. The decision by Bupa, the largest provider in the PMI industry, to roll-out its so-called “Open Referral” system at the turn of the year was widely applauded by panellists during the Briefing.

Essentially, Open Referral means that instead of referring patients directly to a named consultant of their choosing, GPs 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. The system has angered some consultants and hospital groups, who claim that Open Referral is part of an ongoing Bupa initiative to direct patients to healthcare facilities who charge the lowest price rather than offering patients the best quality hospitals and doctors.

But participants at the Briefing said that the strategy, coupled with Bupa’s tough stance with BMI Healthcare, Britain’s largest hospital group, over costs, could work well for the industry in the long-term.

Xafinity’s Austin said: “We all applaud Bupa for having taken the stance that they took with BMI and indeed with its Open Referral initiative. I think it’s good to see the market leader leading the market.”

Andrew Aldana of Thomsons Online Benefits, the advisers, added: “I applaud Bupa’s way of doing it. You still have got choice; they still offer a choice of consultants and hospitals. Clients can’t have it both ways; they can’t complain about the cost and medical inflation and on the other hand complain that they’re going to a system they don’t like. I think it’s the way to go for the rest of the market.”

In fact, variations of Open Referral are already active in some parts of the PMI market, participants pointed out. Aviva UK Health’s Reynolds, who believes Open Referral has “immense value strategically moving forward”, said that around 15% of all new claims at his organisation are coming in on an Open Referral-style basis.

Larry Bulmer of intermediary ADVO Group added: “A lot of insurers have been happily doing ‘soft’ Open Referral for many years. People ring up and they’re directing it differently. It’s not quite case management, it sort of sits between two schools when they’re doing it.”

Participants were cautious,however, about what kind of impact Open Referral-style approaches will have on the customer or patient experience.

Mike Blake of intermediary firm PMI Health Group said: “People who have claimed and are accustomed to it [the traditional approach] will want to go back and see the consultant they’ve seen before. But a lot of them, if you present them with Open Referral the first time they ever claim, will accept that as being the standard practice.”

Xafinity’s Austin suggested that an Open Referral-type approach actually gives insurers an opportunity to enhance the individual customer’s experience.

He said: “You’re right, for the first time claimers, there will be this expectation that the insurer will be guiding them through that. People are probably a bit surprised the first time they make a claim. There is that natural expectation that it will be the insurer that’s leading everything along the way and if insurers do that properly I think they’ve got a great opportunity to really enhance the overall experience of the customer.”

The full briefing is available as a free pdf download here.

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