The emergence of hospital networks in recent years has led to clashes of opinion within the private healthcare industry. The ultimate goal of the network system is keep a lid on spiralling PMI premium costs, but opponents of the schemes fear the insurers may have another agenda.
The given reasons for the introduction of networks are easy to understand: escalating PMI premiums have been attributed to changes in medical technology and the proliferation in the number of private hospitals.
And the experience of the past few decades has done little to help the situation. Medical advances and the development of specialised expensive equipment mean people are living longer and claims rates have increased. The boom in private hospital building in the 1980s and the subsequent drop in PMI sales during the recession has created too many hospitals and too few patients. Most private hospitals now have an average occupancy of 40%-50%. And policyholders are in the unfortunate position of subsidising empty hospitals.
Additionally, the bulk of claim expenditure lies in the charge made by the hospital provider, over which insurers had no power. It is also worth noting that the percentage of an insurance claim which accounts for the patient’s bed is 60%. A total of 20% pays for the consultant and 14% is for the anaesthetist.
The combination of these factors means controlling hospital prices is always going to be a challenge for insurers.
Laing’s Review of Private Healthcare 1997 lists three inherent problems in the UK private hospital market:
• Separation of payment from consumption. Hospital bills are mainly paid not by consumers but insurers.
• Consumers generally choose neither their own treatment nor the hospital in which it is to take place.
• Independent hospitals effectively have a monopoly position within their local community
The introduction of hospital networks by different providers addressed and sought to solve these dilemmas in various ways.
BUPA offered network products in the years preceding its national network launch in 1996. David Quick, head of network development, says the original plans were quite distinct from the present scheme: “The network products were different in that they were tied to one hospital, with only 50 hospitals available. We negotiated the best discount we could get but it wasn’t necessarily the best hospital.
“By 1996, we wanted to try and give members a cheaper product, without the small print, with as high a level of cover as possible.”
To be more precise, he says: “We needed to take 15%-20% off people’s premiums.
“In order to reduce premiums we needed to ensure a number of things. A hospital with acute services had to be within 20 minutes driving time. Our market research showed specialised procedures had to be within 45 minutes driving time. And members expected to have access to really specialised areas like children’s services. We discovered we needed 150-170 hospitals nationally to give that level of cover. Geographical access and access to high technology were always top priorities.”
BUPA negotiated with hospitals to obtain discounts in return for a promised volume of customers. And the result is that policyholders benefit from a reduced subscription and an assurance of no nasty financial surprises after treatment.
BUPA’s national network is now firmly established and it has 30% of members opting for a network product. Approximately 30% of those clients are its personal book, with 25% from the commercial sector. And the sales are growing rapidly.
PPP is currently in the process of rolling out a national network which will also consist of 150 to 170 of hospitals. This is expected to be completed within the next two years.
Dr Adrian Bull, director of healthcare procurement at PPP, says the dramatic change in the complexity of work done in the private sector, and the vast imbalance in supply and demand prompted PPP to embark on founding a national group.
He asserts: “PMI is all about people paying to know they are getting quality care at the time of their choosing. Our policyholders are seeking for us to use our expertise to nominate hospitals for them. And we will preserve their choice of specialist.”
He emphasises hospitals will only obtain the PPP endorsement if they satisfy certain quality criteria: “These include specialists working within their experience sphere; the identification of certain operations people may require; and facilities for patients like accommodation standards and nursing levels.”
The overlap between BUPA’s and PPP’s national networks is widespread. Both want to protect the consumer, extend the role of the insurer/hospital provider and achieve a geographical spread of affiliated hospitals.
This can also be said of other major insurance companies who have similar networks, or a preferred provider agreement.
For example, Prime Health introduced a hospital network last September which enables customers to save 15% on the cost of policies. It now allows access to 95 hospitals. And Nuffield Hospitals are the preferred providers in Norwich Union Healthcare’s network.
Why is it then that BUPA and PPP have received so much derogatory coverage about their networks? Perhaps the primary reason is the method the insurers have employed to assemble a national system.
Quick explains BUPA’s selection process: “We did it by invitation and our list of hospitals has changed very little since 1986 as we issued long term contracts. We didn’t place any importance on a financial tendering exercise so we couldn’t be accused of being in it for the money.
“A team of three went to any hospital which wanted to be recognised or included in the network, it had to have a full day’s inspection. We invited 176 hospitals to participate and only two turned us down.”
PPP is in the third phase of rolling out its network. Hospitals in a specified area, regardless if they are part of a commercial chain, an NHS Trust or a charity hospital, are invited to tender competitively for the right to be included in the healthcare network. PPP says that rolling out its network region by region means every hospital is individually selected for the quality of care and services it provides.
Whereas BUPA has never said that its intention is to direct all its business into network products, PPP states over 90% of customers have joined when given the opportunity.
Keith Stephenson, partner at Kent-based Private Health Associates, does not believe hospital networks are in the interest of the client unless the disadvantages are clearly explained.
“Any PMI scheme has a purpose of three principal controls: who, when and where. You only retain one – when – if you accept a local network option,” he says.
Private Health Associates has produced an information sheet which it sends to clients explaining the issues behind network products. It states: “Choosing a selected network list not only reduces the choice of hospital at your disposal, it can actually prevent you from seeing consultants that may be the best specialist to treat you for that particular condition.”
Quick is fast to point out if a policyholder cannot be treated in the network, BUPA gives authority for them to be treated outside, as long as the insurer is contacted beforehand. He adds that BUPA is liaising with its sales force to make sure clients fully understand the way the network operates.
Gerald Pilkington of CHF, a federation of charitable hospitals, is not convinced of the major insurers’ commitment to client communication.
CHF, comprising 21 of the 31 UK charity hospitals, recently carried out two surveys to gauge PMI patients’ levels of understanding of their policies.
The survey found clear indications that members of the public did not fully comprehend what their cover included.
“People don’t realise the implications of what they have signed up for,” observes Pilkington.
Pilkington is also concerned about the detrimental effects of hospital networks: “If a hospital is not a member, this has significant implications for its viability. Our members provide charitable work, such as Macmillan services and hospices, things that have good value in the community. This is in jeopardy.”
A particular criticism of PPP is its way of recruiting members to the network scheme. Policyholders whose plans are up for renewal are contacted by a letter telling them about the hospital network. If they do not respond, they are automatically included in the network.
Bull says comments from clients were monitored last year and different approaches were tested: “The most acceptable method was to assume customers would be in the scheme if they didn’t write back.”
George Connolly, principal of Dorchester-based Healthcare Matters, does not approve of PPP’s methods: “I don’t like the way it has done it. It’s inertia selling. It is claiming 95% acceptance but people don’t know until they want to claim.
“I have a renewal coming up for a PPP customer, all his letter said was the networks were a new initiative. They automatically include you in the membership of the network.”
Industry pundits are unlikely ever to agree on the pros and cons of hospital networks. There is always going to be a school of thought which believes some insurers are manipulating the market and that this could lead to the closure of some high quality independent hospitals.
But it is clear something needs to be done to reduce PMI premiums and inject some life back into PMI sales.
However, it is vital intermediaries ensure their clients are made aware of the pitfalls of network product – and up to the product providers to drive forward the quality agenda.