For several weeks now, the news has been dominated by the failing NHS. I’m not keen on making predictions, but am willing to stick my neck out – this issue will loom large for the foreseeable future, because there is no obvious mechanism for resolution.
A hysterical politically polarised shouting match rages in the public square about the future direction of healthcare in the U.K.
Most rational observers and participants accept things can’t go on like this, and the best outcome would be to change our current system to one more like the European social insurance model, with a mixed healthcare economy.
The problem of course is that there is no mechanism or clear pathway to arrive at that destination, due to a lack of political and institutional consensus.
In previous articles, I have tried to explain to readers some of the road-blocks to reform within our current system: structural problems, legacy problems and the plethora of hidden agendas. In the short term I think we are heading for the worst possible outcome – a two tier system by default. Those who can pay will be exploited by insurers and private hospital providers. Those who can’t will continue to receive a failing NHS service. Interest in both private health insurance policies and the self-pay sector of the private market has increased significantly, and will continue doing so as the NHS collapses.
I will briefly discuss how the private health system currently works in the U.K. It is a fragmented and opaque market – even more so than the NHS – and very difficult for non-medical people to understand. I should start with a trigger warning: a lot of readers probably aren’t going to like this, and you probably won’t like it if the current model of private healthcare becomes a major feature of life in this country. I have worked in the private healthcare sector for 20 years, the last seven in full-time private practice. I have also had 20 years of interaction with healthcare insurers as both a practitioner and as a customer – I don’t have a good word for any of them. There are some things the private sector does well, but the overall model is highly unsatisfactory for many reasons.
By necessity, this piece will be a very high-level analysis of a complex subject. If there is sufficient interest among readers, I can write more specifically focused granular articles at a later point.
The private healthcare economy can be separated into the following categories. Healthcare ‘providers’, defined as hospital or clinic chains, regulated by the Care Quality Commission (CQC); healthcare insurers, regulated by the Financial Conduct Authority (FCA); healthcare practitioners; individual physicians and surgeons, regulated by the General Medical Council (GMC); and the ‘market’ – all the people wishing to purchase private healthcare. The market as a whole is regulated by the Competition and Markets Authority (CMA). Confused yet? If not, you will be.
Along with these key market participants there are a variety of associated trades – marketing and advertising organisations, economic analysts, business consultancies providing practice software, billing and secretarial services and so on.
I will start by looking at the relationships between the three key provider segments: private hospitals, medical insurers and practitioners. Together, these entities act to provide the market with a product, ostensibly at the most competitive price. There is a constant tension between hospitals, insurers and doctors within a ‘zero sum game’ – each participant can increase its profit margin only by reducing remuneration for the other two. The economic power of the participants is not equal, and over the last decade has tilted strongly in favour of the insurers and the hospitals, to the disadvantage of practitioners.
Think of the system as a board game. The patient is the most important piece on the board, because the money flows to where the patient interacts with other participants. Insurers, hospitals and doctors therefore compete for patient flows, because that’s how they make their money. Patients have to navigate the board under differing circumstances, depending on whether they are self-funding or insured and, if insured, the nature and extent of their policy. I will try to explain roughly how the game works.
Doctors in private practice are almost all self-employed. They make money by providing services to patients. It used to be said that success in private practice depended on the ‘3 As’: Availability, Affability and Ability – in that order. However, it has become more complex of late. Doctors cannot just set up practice in their front room as they used to in the 1950s, because all medical services now have to be registered with the Care Quality Commission. Some doctors form groups to set up their own clinics. If successful, this can go very well and be highly lucrative, but it requires a lot of effort and a high degree of financial risk. So, the majority of private doctors work in facilities run by a relatively small number of private hospital providers.
Successful doctors work hard to burnish their reputations by displaying themselves on social media and in the press to attract more patients. Private practice is hard work, entailing substantial business costs. Secretarial costs, medical indemnity insurance cost, general office expenses, tariffs levied on billing systems for insured patients, compliance with GDPR rules, costs of appraisal, licence revalidation and room hire costs in private hospitals all mount up. Success depends not just on medical ability, but on skills in business management and, above all, tenacity. I have mentioned in previous contributions that only 20% of hospital doctors in the U.K. do any private practice. The majority of these have small part-time practices of a couple of sessions per week, while working mostly for the NHS. A small number of doctors are in full-time private practice, mostly in London and the South East where the market is. It is critical that a private sector doctor is able to maintain his or her ethical compass – to make the right medical decision for the patient, irrespective of financial considerations. There is a potential conflict of interest in favour of over-treatment as the doctor is paid a fee per episode of service. The majority of doctors handle this tension successfully – but some don’t.
Providers (HCA, Circle Health, Spire, Nuffield, etc.) entice doctors to work in their hospitals by providing them with a place to practice that’s registered with the CQC. The hospitals make money by taking a margin from the cost of diagnostic tests and scans, drugs (especially cancer drugs, where mark-ups are huge) and procedures like operations or endoscopies. Prior to the internet, hospitals left patient flow management to specialists making themselves known to local GPs, who in turn would then refer patients. With the advent of the Web, Hospital providers have started marketing services directly to patients. This gives them greater control over patient flow. The entity that controls patient flow controls an important part of the game.
The business model for private hospital chains suffers from very high fixed costs to provide beds and staff. If the hospital cannot attract a satisfactory volume of profitable patients, it can lose money. A few years ago, some providers came under strain because NHS spill-over work wasn’t profitable, the insurers were squeezing margins and the more profitable self-paying patients were a relatively small part of the mix. The pandemic has changed all that, and business is booming, especially in the self-pay sector. Recently, some private hospitals have started to employ doctors directly, usually in ‘service type’ specialties, such as radiology or anaesthesia. This is attractive to the hospital as they can pay directly employed doctors less, and they have a higher degree of control.
Hospitals used to compete with each other for high calibre doctors, but with increasing regulation it has become harder for doctors to move their practices from one place to another. Increasing regulatory requirements have tilted the balance of power very significantly in favour of the hospitals over the self-employed practitioner, such that doctors are now very reliant on hospital management. Ironically, private hospitals are facing a similar workforce problem to the NHS. As private practice becomes less remunerative and more regulated, older doctors are retiring. Younger specialists are not replacing them, because the financial rewards are much lower than they used to be, the costs of setting up a private practice are higher, and prospects much less certain than staying in the NHS. It’s entirely possible that private hospital chains may offer younger specialists guaranteed slots, rather than accommodating them as self-employed practitioners. If this came to pass, it could simultaneously drive up hospital profits, reduce the NHS workforce even further and force down the unit cost of medical time.
There are several medical insurers in the U.K. market. The largest are BUPA, AXA, Vitality, Aviva, Cigna and WPA. Insurers compete with each other to attract subscribers for health policies. There is a bewildering variety of policy offerings – so bewildering that even doctors struggle to discern what policy represents best value. In essence an insurance model is quite simple – attract lots of paying customers to spread the risk. Attract a high proportion of young and fit people who pay without claiming. Preferably acquire a big share of the corporate market with bulk purchase and relatively little administration. Set premiums that cover liabilities and leave a decent profit margin. Insurers can make more money if they extract higher premiums from the customer and pay out less to hospitals and doctors – hence the ‘zero sum game’.
Doctors wishing to see insured patients must first register with the specific insurer. Insurers direct patients needing medical attention to registered doctors via directories on their website. The patient puts in their postcode and medical condition, and the site displays the insurers’ recommended doctors. This gives the insurers considerable market power. For the last few years, insurers have been forcing newly registering doctors onto lower remuneration scales. Patients are then directed by the insurer towards doctors who cost less per treatment episode, excluding older and more expensive practitioners from the patient flow and maximising insurer profit.
There is a significant difference between health insurance and insurance for cars or for houses. House and car insurance covers events that are unlikely to happen – whereas the one thing we can all rely on is that death will eventually arrive. Before death, most of us are likely to undergo a period of illness, often prolonged and expensive. Hence as a customer gets older, health insurance premiums rocket. If a customer doesn’t make a claim, the premium will increase substantially each year. If a patient does make a claim, no matter how small, the premium will increase even more. If a customer changes insurer, the new insurer will attempt to exclude all ‘pre-existing conditions’. So older customers, most of whom have pre-existing conditions, are usually stuck with escalating costs – they either pay up, or cancel the policy and rely on the NHS.
But what of the patient? The patient is overloaded with information to process in relation to every aspect of private healthcare. In 2014, the Competition and Markets Authority conducted an investigation into private healthcare. It concluded there was inadequate information available for patients, so funded an organisation called PHIN, to collate and provide detailed information about various private doctors (activity, fee levels, etc). Needless to say, most of this information is hard to interpret and not terribly helpful. The patient needs to consider whether to self-fund for private care, or to buy an insurance policy. Then, the patient needs to figure out how to navigate the system to find the right doctor for their problem, which is not easy.
Overall, private healthcare in the U.K. is very good at providing straightforward packages of care for routine conditions in a timely manner, such as joint replacement, cataract operations and so on. It is less good at managing complex conditions needing multi-specialty input over extended periods, and totally useless at dealing with emergency situations. There are a few large private hospitals (usually in central London) that are capable of handling complicated high-risk surgery or medicine, but the vast majority of private hospitals are not able to deal with complicated cases.
Ironically, the greatest ally private medical providers have in the U.K. right now are NHS zealots. The more they resist sensible change towards a European model of regulated social healthcare insurance covering most of the population, the more likely we are to end up with a two-tier system, where private hospital chains and insurers hold most of the economic power. Corporatism and regulation have already consolidated the market to the detriment of patient choice and the self-employed medical model. The one thing the NHS nutjobs have right about the private sector is that large corporates are ruthlessly rapacious when it comes to maximising profits. The tragedy is they can’t see how they are acting as useful idiots for the private healthcare sector. Winter is coming.
The author, the Daily Sceptic‘s in-house doctor, is a former NHS consultant now in private practice.