The proposal for a market investigation reference follows an in-depth market study of PH by the OFT launched in March 2011.
The market for PH encompasses a range of medical treatments, which are privately funded, either directly by patients or through their private medical insurance (PMI) policies, and provided to patients by consultants, medical and clinical professionals in private hospitals, clinics or units (PH facilities).
The total value of the market for acute PH in the UK was approximately £5 billion in 2009. And 80% of acute PH purchases are made through patients' PMI policies. On average 15.8% of people are covered by such a policy in the UK.
According to the OFT report the market for PH is likely to be an area of growing importance to the UK economy given, in particular, that demand for healthcare services is forecast to grow in line with an expanding and ageing UK population. It may also be increasingly important to the delivery of NHS services as a result of reforms aimed at enabling providers of PH to play a larger role in delivering NHS treatment.
In this the OFT has also been aware of the developing linkages between PH and NHS services.
But he OFT's report provisionally finds a number of features that, individually or in combination, prevent, restrict or distort competition in this market.
The OFT considers that these features of the PH market impair the ability of patients, GPs and PMI providers to choose between competing service providers, including new entrants, on the basis of superior quality of services to patients and better value for money. This ultimately may result in patients paying higher prices and receiving lower quality and less efficient services.
The OFT considers there is a shortage of accessible, standardised and comparable information provided to patients, GPs and PMI providers in relation to the quality of PH facilities and of consultants. In addition, for self-pay patients, there are difficulties in easily comparing the prices charged by different PH facilities.
And the OFT considers that this shortage of accessible, standardised and comparable information weakens the ability of patients and GPs to drive efficiencies and stimulate enhanced competition between rival PH facilities and between consultants, and may give rise to a dampening of competition in the market overall. The lack of access to information on quality and price for consultants produces a situation where both the patient and PMI provider cannot differentiate between consultant performance and fees in order to judge whether they represent value for money. This may also be preventing the development of more flexible, less distortive methods for PMI providers to control consultant costs, whereby patients can choose between consultants on the basis of their respective fees and quality and pay a top-up fee to the consultant, above the maximum provided by their insurance cover, if a patient judges it to be worthwhile.
The report also says the size of the larger PMI providers appears to result in a degree of buyer power in that PH providers are, to some extent, dependent on these larger PMI providers for the financial viability of their facilities. But there may be limits on the PMI providers' ability to exercise their buyer power. Firstly, in order to provide nationwide coverage, it advises PMI providers need to purchase PH in most local markets, including areas with solus and 'must have' PH facilities as described above.
Ownership of these facilities appears to give PH providers bargaining leverage over PMI providers. Secondly, since it is GPs that usually recommend consultants to patients, and consultants who then often determine the patient's choice of PH facility, the PMI providers have limited ability currently to direct patients to different PH facilities. Therefore, as the buyer power of the PMI providers appears not to be countervailing, the larger PH providers may have a degree of market power.
Commenting on the announcement, a spokesman from AXA PPP said: "We welcome the publication of the OFT report and certainly share its concern that there are a number of features of private healthcare provision in the UK that undermine competition in the market and make it difficult for consumers, GPs and insurers to make informed choices between competing providers on the basis of the quality and value of their services.
"Safeguarding our members' interests is our foremost concern and, to address the issues highlighted by the OFT, we support its proposal to investigate the market further by referral to the Competition Commission.
"We hope this includes a long overdue review of some of the practices of healthcare providers that we believe do not work in customers' best interests.
"We look forward to supporting the Competition Commission in its investigations and we will continue to strive to ensure that our healthcare cover offers customers clarity and choice."