Settling the bill for private medical treatment is not as transparent as it seems. While most would argue that the cost of an operation should be the same regardless of who pays or how they pay for it, separate pricing structures are coming into play in the private healthcare sector.
Recent news revealed that the NHS is using private beds to help cut its waiting lists. And with its purchasing power it has been able to negotiate preferential rates with hospitals.
While you might expect a discount for this type of bulk buy, it is ironic that if a patient settles a bill directly with the hospital, it can be cheaper than if an insurance company, which should arguably have greater clout than an individual, were to pick up the tab.
And the situation gets even more perplexing. While annual reviews have, for the majority of providers, added at least 10 per cent to the price of PMI, the cost of self pay has actually fallen by four per cent in the last five years.
Admittedly making comparisons between the rising price of PMI and the falling price of self-pay is not strictly comparing like with like. While medical costs do play a part in the pricing of PMI premiums there is also the insurance element. Many providers have found themselves with escalating claims costs as their customers have grown older and more reliant on healthcare. And with policies still failing to attract younger, potentially less claim-happy, members, costs will continue to escalate.
Recent findings from Western Provident Association (WPA), highlight some serious anomalies in pricing. First it was alerted to the possibility of a dual pricing system when one of its members sent in a letter he had received from a consultant. This stated that the cost of the consultation was £150, or £185 if the person had insurance.
With this evidence WPA dug deeper. It found that in many instances it was being charged at least 30 per cent more than a self-paying patient. For example, while it was being charged £3,171 for a cataract operation on one of its members, someone paying their own bill was only being charged £1,495.
WPA’s communications director David Ashdown comments: “This is outrageous. Why should the prudent person who takes out insurance be penalised in this way? They’re not the rich who would be able to pay for any treatment when it is needed. It’s not fair.”
Perhaps by removing the insurance middleman from the billing process hospital charges can be cut. This is certainly the tack taken by WPA. As a result of its findings, it introduced an option for its members whereby they pay for the medical treatment on their credit card and subsequently claim back the cost plus 5O per cent of the difference between that and the price the insurers would have been charged.
Ashdown comments: “We have to reflect in our premiums what we pay out in claims. By introducing this option we are raising awareness of the issue, and hopefully hospitals will have to rethink their policies on two tier pricing. The industry can’t afford premiums to continue rising at a level above general inflation.”
Although the evidence WPA has collected on the dual pricing systems clearly indicates an inequality towards those taking the insurance route, other PMI providers are less convinced.
Following WPA’s announcement, Norwich Union Healthcare launched an internal investigation, and although it is still to be completed, it is optimistic about its findings. Norwich Union’s press officer Louise Zucchi comments: “So far we’ve found that we don’t suffer from this problem. In the past we have fought for good deals with hospitals and because of our name we have the clout to do this.”
David Potter, director of OHRA UK, is also sceptical about the reasons why dual pricing exists. He offers the following suggestion: “If someone pays their hospital bill on the nail the scales of fees will be less. The hospital doesn’t have a cash flow problem and there’s no administration cost chasing payment.”
This view is, to a degree, borne out by OHRA’s experience. It nearly found out how poor service levels, including settling bills with hospitals, could adversely affect its bargaining power.
With its claims being handled by third party administrators, Beech Street, it was not always able to track customer service to its satisfaction. Potter comments: “Since we moved our claims back in house we have been very pleased with the results. We like to turn hospital bills round in five days, although we’ve heard that it’s not uncommon for a hospital to wait six weeks for a settlement.”
This type of service has given OHRA some clout when arranging deals with hospitals. “Bearing in mind the size of our operation, the hospitals have been very well disposed towards us. We wouldn’t expect to get the same treatment as BUPA and PPP but it has been very positive.”
Other PMI providers have taken different approaches to managing costs. One that has received a lot of coverage is the use of a hospital network.
PPP healthcare is one exponent of this system. Its medical director Dr Adrian Bull explains how it helps to contain costs: “Hospitals are invited to make a price proposition and the selection of a hospital in each local area is made on the basis of an overall assessment of quality of service and on value for money for PPP healthcare subscribers.” Introducing this level of competition into the market, Bull says, allows subscribers to benefit from “significant reductions in hospital charges”.
This gives ultimate control to the relationship between the insurer and the hospital, but critics argue that it is not without its downsides.
The key criticism of using a network system is that it restricts choice. Although Norwich Union has itself been building “bulk buy” style deals with networks of hospitals, it is cautious that it never restricts customer choice. Zucchi explains: “We have negotiated a preferred provider contract with Nuffield which gives our customers access to its 39 hospitals. Because it is a bulk buy deal it gives us better value, but we would never use it to restrict customer choice.”
Long term, Norwich Union intends to have national coverage through preferred providers, but it will always be conscious that customer choice is paramount. Zucchi continues: “Using preferred providers will keep premiums down but if a customer chooses to go to a hospital not on the list this is always possible. However, at that point we would highlight the reasons we have the list and explain that they would have to meet any shortfall. This is also explained in our product literature. It is a very rare situation though.”
Building relationships with preferred providers is not simply a case of negotiating a rate, it is also important to Norwich Union that the relationship is monitored. Zucchi explains: “We keep a tight eye on our claims spend and balance it against how healthcare is changing. This ensures that charges are fair.
“Additionally we look at other cost drivers that maybe less direct, such as an NHS nurses’ pay award. This helps to anticipate change. Thirdly, we always make sure we have a good deal. For example, all long stay cases will be looked at on an individual basis and the most appropriate rate negotiated.”
This approach may reduce the occurence of overcharging and it is true to say that evidence of two tier pricing varies throughout the industry. But, while companies with a large presence, or well-known brand, may claim immunity, if WPA, the fourth largest PMI provider, can produce evidence of mark ups in excess of 30 per cent, there is definitely a problem.
And, with PMI premiums escalating at an alarming rate, insurers must find ways to contain costs. This may be through negotiations on pricing, or by launching products which will attract younger, healthier people to the PMI risk pool.
Ashdown sums up how the current situation could affect the industry: “If it continues, premiums will have to rise. This will lead to policy cancellations, especially from those people who don’t claim often. This will also fuel premium rises.”
Perhaps then, with fewer insured patients, some hospitals and consultants will realise that insurers are not there to provide them with an endless supply of lucrative work.