Regulator urges sale of nine UK private hospitals

A watchdog has called for nine luxury hospitals to be sold after finding that the cost of private healthcare has been inflated by millions because of a lack of competition.

HCA, a US group that is the biggest healthcare company in the world, would be forced to sell two hospitals in London – London Bridge and Princess Grace – where celebrities are often treated.

The South African-owned BMI, which owns 77 hospitals, faces being forced to sell seven hospitals in London, the home counties and the northwest of England.

Britain’s private medical industry is worth £4.1bn a year. More than 4m people, 80 per cent of private hospital patients, have medical insurance through companies such as Axa, Bupa, Pru Health or Aviva, which buy care from a handful of hospital chains.

But Roger Witcomb, chairman of the Competition Commission, said “many private hospitals face little competition”, leading to “higher prices for insured patients”.

The commission found in August that private operators had overcharged for providing care by £173m-£193m a year.

The regulator also said it would crack down on private hospital operators that offer incentives, such as bonuses, to encourage consultants to refer patients for treatment or tests at particular hospitals.

Operators will also be forced to publish data on the performance of private hospitals and consultants and make information on consultant fees available to patients.

Although the recommendations mark a climbdown from original proposals that 20 hospitals be sold from the three biggest hospital groups – HCA, Spire and BMI – the result is expected to be bitterly contested.

Mike Neeb, chief executive and president of HCA International, said the provisional recommendations were “plainly wrong”.

He said there were nearly 50 competitors in Greater London and HCA’s investment was driving a “higher standard of care in the UK”.

Stephen Collier, chief executive of BMI Healthcare, dismissed the commission’s estimate of the cost of a new private hospital bed being £400,000, saying “the reality, as proven by recent builds, is more than twice that. [The commission] has massively undervalued the investment required to provide high-quality private healthcare, seriously suggesting that hospitals should be valued as if they stood in farmers’ fields.”

The commission said it was unsurprised by the strong reaction. “We’re fully aware these are significant interventions and we haven’t made them lightly,” it said, adding that there would be more consultations.

The regulator also said it would review and potentially block any proposal by a private hospital operator to enter into an agreement to run a private patient unit in an NHS hospital in an area where there was little competition.

“The CC has clearly sought to come up with a package to nudge the market in the right direction but it has also recognised that these are challenging times for the market”

– Jenny Block, Pinsent Masons

Eighty-three NHS hospitals have private wings but the number is expected to grow after the Health and Social Care Act removed the limit on private profits being earned by NHS trusts.

This decision is important because it is seen as an easy route for new entrants to the market. Private hospital providers are earning more than a quarter of their revenues from treating NHS patients, up from less than 10 per cent a decade ago.

Take-up of private health insurance has stalled as hard-pressed employers cut benefits and insurers place tighter restrictions on claims.

Vernon Baxter, editor of Health Investor magazine, said it was difficult to see how consumers would benefit from the commission’s recommendations in the short to medium term.

“The main winners are the insurers, who will hope to reduce fee rates off the back of this. The private hospital estate requires continued capital expenditure and with complexities surrounding the financing of BMI’s properties this only makes its investment case for these facilities, not to mention the rest of their estate, harder to justify.”

Insurers welcomed the ruling. Dr Damien Marmion, managing director of Bupa Health Funding, said: “Customers will expect to see the benefit – so these proposals for hospital divestment must be carried through to the final stage.’’

But Jenny Block, competition partner at law firm Pinsent Masons, said: “The CC has clearly sought to come up with a package to nudge the market in the right direction but it has also recognised that these are challenging times for the market and encouraging entry may not be straightforward.”

Concern about the private hospital sector was sparked, in part, by a complaint from Circle Healthcare, a new entrant that opened a hospital in Bath in 2010. It complained that rivals had joined forces to lock out competition.

Paolo Pieri, chief financial officer of Circle Partnership, said it felt “vindicated” by the report but criticised the commission’s decision to withdraw a proposal that would ban hospital chains from negotiating “bundled” national deals with insurers.

The proposed rule, widely seen as unworkable, would have forced the two sides to negotiate on a hospital-by-hospital basis.

Source The Financial Times