The Competition & Markets Authority (CMA)
published its Final Report on the Private Healthcare Market in 2014, a significant proportion of which dealt with the relationship between private medical insurers (PMIs) and clinicians. Readers who wish to understand the complex world of PMIs and their interaction with consultants in greater detail are recommended to consult this text. This web page is written by a consultant for other consultants and as such represents a doctor’s perspective, dealing particularly with recent changes in the relationship between clinicians and PMIs.
Possibly the biggest threat for privately practising consultants at the current time is the role of the PMIs. Recent times have seen some PMIs overstep their traditional role of reimbursing patients for clinicians' services, in some cases attempting to regulate private practice and a move towards providing managed care pathways (see below) for many of their patients. Some commentators have interpreted this behaviour as cost cutting, however, it appears far from clear that any savings have been passed onto patients in the form of reduced premiums.
The change in some PMIs' behaviour over the last 10 years represents a critical change in the nature of private practice in general and has implications for us all, no matter how insulated we currently feel. Key tenets in providing any private professional service are the ability to decide which treatments one provides, as well as setting the fees
that one wishes to charge. In the absence of collusion, the simple economics of supply and demand should then lead to local self-regulation of fees. The author believes that the introduction of new contracts between clinicians and some PMIs, recognising clinicians only if they accept certain fee levels, cedes significant market power to the PMIs. This creates a system of external regulation, where there is the potential for clinicians' fees to be driven down. The evidence would suggest that this has already occurred.
The results of these actions are already being felt across all disciplines, although some specialties, for example, ophthalmology, have been particularly targeted, with some PMIs attempting to reduce fees by well in excess of 60% for certain common procedures, such as cataract surgery.
In common with many other businesses in the UK, PMIs are organisations trying to balance their books and it is completely understandable that they would wish to minimise their expenditure. Nevertheless, clinicians need to consider the implications of happily agreeing to imposed changes: it is surely questionable whether regulation of privately practising doctors should be the province of PMIs.
Remember that a fundamental reason why patients choose to be treated privately
is choice. If insured patients are unable to see the clinician of their choice - typically on grounds of cost - this will likely lead to dissatisfaction with their product, with consequences for the PMIs.
Providing a desirable, quality service at a reasonable fee level of your choice will ultimately prove successful.
"...a fundamental reason why patients choose to be treated privately is choice..."
The traditional relationship
In traditional private practice - whether a patient is insured or not - a contract exists between the doctor and the patient. The patient is liable for the payment of a fee to the doctor, ideally and typically agreed in advance, for the services provided. If the patient is insured, then the PMI contributes towards this fee, typically up to a maximum level as laid out in each particular PMI's individual 'schedule of fees'; it is important to realise and understand that each PMI has a very different schedule. Where the amount that the PMI is prepared to contribute is less than the fee charged, the patient is liable for meeting the advised shortfall. Individual consultants set their own fee levels according to their abilities, business sense and the economics of supply & demand; a significant private waiting list might justify an increase in fees, and vice versa.
In many cases, in order to streamline the process, providers (i.e. clinicians) bill the PMI directly for their services on the patient's behalf. It is important to realise that the contract is still between the doctor and patient and, in the event of a PMI failing to settle an account, it is entirely appropriate to approach the patient for the shortfall. It is, however, increasingly important to provide patients a quote in advance for all anticipated services, even if patients are insured. The main reason for this is to ensure that any shortfall - either for you or potentially your anaesthetist (who may have a very different relationship with the relevant PMI) - does not come as an unpleasant surprise for the patient.
While essentially a self-regulating system, when fees are considered excessive by insurers, consultants are on occasion contacted by insurers and asked to reduce their fees. Consultants should remember that they are under absolutely no obligation to reduce their fees in such a situation; where a patient has agreed to pay a certain fee in order to have treatment by a particular consultant of their choice, the bill should not come as a surprise! On occasion, insurers may threaten to delist excessively charging consultants in an attempt to prevent their patients from being seen by you. Provided your fees are indeed reasonable and justifiable, the provision of a consistently high quality and desirable service will protect you to a certain extent against such a threat, as patients will insist on seeing you.
But things have changed…
Until 2008, the above was largely true for all insurers. One by one, however, the arrangements have changed dramatically over the years so that, by 2020, only a small proportion of insured patient interactions occur in this way.
For several PMIs, new consultants have been forced to charge no more than the fee maxima of the PMI fee schedules. Failure to do so leads to the consultant no longer being able to see any other patients insured with the associated PMI. In addition, in many cases, restrictions have been put in place regarding fee maxima for consultations, plus specifications regarding how many postoperative consultations will be funded, or if at all. Shortfalls versus the schedule fee maxima, in such a situation, may not be charged to the patient.
The introduction of such stipulations has of course led to significant differences in certain PMI relationships between established consultants and newer consultants, the latter being much more restricted in terms of their billing arrangements.
Directional
policies for patients are often cheaper than more traditional policies. With a traditional
policy, patients have the option to choose whichever clinician they wish, the decision being that of the referrer (in conjunction with the patient) and being made on the basis of local information, e.g. quality, reputation, personality, correspondence etc. Many PMIs now operate directional
policies, whereby patients are directed towards certain consultants whose fees are within the relevant PMI’s fee maxima. This may mean that, in many cases, referrals to named consultants are intercepted and passed to a cheaper option, the decision of the referrer being overridden. In the view of many clinicians, this is completely unacceptable.
PMI treatment pathways
have also been introduced. Under this arrangement, typically for higher volume procedures such as cataract, the PMI negotiates a total fee for the entire pathway with the private hospital / facility directly; this fee includes payment for the initial consultation, the procedure itself, the surgeon’s (and, if applicable, anaesthetist’s) procedure fee, and any associated follow-up. It is then left up to the facility to negotiate with the clinicians regarding the fees split between the facility and clinician(s). In many cases, there are stipulations regarding what can and cannot be carried out under such arrangements, an example being the use of premium lens technology in cataract surgery. In this scenario, some patients may be placed in a very difficult position, for example, if they are specifically excluded from receiving a lens implant that would give them better quality vision than they would otherwise receive. For many patients, the whole purpose of being seen privately is in order to access a choice of health options.
"...the whole purpose of being seen privately is to access a choice of health options..."
Three tier healthcare?
As a result of these PMI-imposed changes, UK patients now appear to have the luxury of a three-tier health system:
• Tier 1: self-pay private healthcare (or traditionally insured patients), seeing the consultant of their choice, with no compromise or restrictions on procedure choice or equipment use. This includes those with less comprehensive health insurance, who are willing to self-fund a shortfall.
• Tier 2: insured patients, who are seen privately by a consultant of their insurance company's choice, who is perhaps not as motivated as if they were dictating their own fees. Compromise on equipment, procedure choice and / or implant is possible or necessary. Restrictions on number of follow-ups are likely, due to reduced funding by the insurer (as a result of policy or pathway).
• NHS: patients may ironically have more choice than some 'tier 2' insured patients, although significant waiting times for assessment and treatment may apply. Compromise on equipment, procedure choice and / or implant is possible or necessary, as advised by NICE/ CCGs.
The advent of managed care
Managed care is simply that: the imposition of third party control on the management of a patient and by default, the fees payable too.
It exists in many ways and represents a significant threat to the business of traditional private medical practice. Examples range from the PMIs' directional policies, which decide whom patients are referred to, to some private facilities' self-pay packages, which dictate fee levels for certain groups of patients. More recently, as above, some PMIs have forged care pathways direct with certain private hospital chains and other organisations for common procedures. The end results are potentially reduced choice for insured patients, the ceding of decisions regarding clinicians' fees to third parties, and hence a potential lack of autonomy for participating consultants.
The key concept in managed care is that a third party dictates the fees payable to the clinician, effectively rendering the consultant effectively employed - rather than self-employed - for that part of their work. To the newcomer, this may seem inconsequential if the fees are comparable for the work in question, however, the fees may well change with time; furthermore, taken to extremes, there may be taxation implications.
Example:
A new consultant starts work at a private hospital, which receives many generic referrals (i.e. not directed to a particular consultant). She agrees to perform significant numbers of procedures at a particular fee level, earning an acceptable level of income. There is no marketing required on her part and no time required to develop a welcome private income stream. One year later, the private hospital revises its fee schedule downwards; new consultants relish the opportunity for the work and the existing consultant is forced to accept a reduction in fees.
In the example above, the brand of the private hospital has attracted the referrals, not the individual herself, thus ceding all power to the hospital. Had the consultant taken the time and effort to establish her own 'brand'
- albeit at the private hospital – and had received the referrals in her own name, it would have impossible for a reduction in her fees to be imposed.
From a doctor's perspective, the advantages of managed care include: a quick start to one's private practice; administrative support; in some cases reduced indemnity costs (but be careful to work within defined protocols!); and a likely regular stream of work. Disadvantages include: a lack of autonomy; the likelihood of progressive reductions in fees for you and especially your subsequent colleagues; and potential challenges from HMRC regarding your employment status, which may impact heavily on your income tax liabilities.
From a patient's perspective, they are likely to receive care from an externally very polished, highly marketed
organisation, which they may perceive to be of high value. It is also likely that the buying power of managed care organisations could potentially drive down costs, however, there is little evidence of savings on clinicians' fees being passed onto consumers in the form of reduced costs or premiums. Disadvantages to patients often include: a lack of knowledge - and choice - of whom one's clinician/ surgeon might be; potential difficlties in establishing liabilities when things go wrong; and the possibility that care may be compromised by conflicts of interest.
The key weapons in combating managed care are establishing your own brand, providing high quality care and educating your referrers. Alternatively, managing your entire care pathway yourself - and taking control of the hospital fees
- is a potentially viable option (see below).
"... the end results are reduced choice for insured patients, the ceding of decisions regarding clinicians' fees to third parties, and hence a lack of autonomy for participating consultants..."
So what should the response of consultants be?
Options include the following, which may or may not be possible, depending on your individual circumstances:
• Accede to the conditions of the PMIs.
Many have. The UK has no business education within its medical education system, a fundamental flaw in tackling the PMIs' perceived dominance. Many clinicians simply do not realise their options, choosing the path of least resistance, which in some cases keeps life very happy: no need to decide on fees; patients referred directly to you, bypassing more eminent colleagues; no disputes with PMIs or patients regarding unpaid bills etc. In fairness, new consultants have little option but to initially sign up with PMIs on their terms, however, they are under no obligation to carry out all treatments, with some offering only procedures that are appropriately rewarded. Remember that, in addition to your duties as a doctor, you are running a business and need to be mindful of the costs involved. If the PMIs are right, then other clinicians will be only too happy to carry out work that is uneconomical for you.
• Provide a quality service not available elsewhere.
The single most important action to take is to become indispensable by providing an excellent, quality service for your patients. A key benefit of private healthcare is choice and an excellent reputation will ensure that patients and referrers choose you, not your hospital. Once your position is established, you are then in a position to dictate your fees to your insured patients and their PMIs.
• Treat all patients from less accommodating PMIs as self-pay patients.
This is of course the traditional approach to private practice: PMIs originally developed to help fund the costs of private healthcare and reimbursed the patient for doctors' and hospitals’ fees. The concept is simple: advise patients of your fees in advance, advise them that you do not recognise their particular insurer for billing purposes and advise them to seek reimbursement from their insurer, if this is possible (and they need to check in advance), following the procedure. All liability and responsibility lies with the patient and they will soon learn the deficiencies of their PMI, particularly if your local colleagues had a similar mindset.
• Educate your referrers regarding changes in referral pathways.
No inducement should ever be given for a referral, however, there are many benefits in getting to know your referrers. For example, many opticians, dentists, physiotherapists and osteopaths have already encountered such challenges at first hand and are very sympathetic on learning of interference in referral pathways. General practitioners, who typically function as the gatekeeper to healthcare in general, are often irate to learn that their carefully directed referrals have been intercepted and redirected by PMIs. A joint communication from you and your colleagues, senior and junior, describing such interference is a very effective tool. Some organisations, such as FIPO, have produced documents that you can also send to referrers, which helps them to educate their patients.
• Charge shortfalls direct to patients.
When faced with fees that they believe are excessive, some PMIs will suggest that they will attempt to redirect future referrals if fees continue to be charged beyond a certain level. For future patients, you can explain to patients that you are aware that their PMI provides a certain level of reimbursement and that any additional shortfall will be charged direct to the patient. It is then up to the patient to decide to agree to your proposed fees or seek care elsewhere.
• Discuss the situation with your peers.
Consultants who are not part of a formal partnership or corporation are not permitted to discuss their fees or business strategies, as such behaviour would naturally be anti-competitive. However, consultants may wish to discuss: (i) the option of forming partnerships to allow a more corporate approach to business challenges; as well as (ii) discussing strategies to counter the potentially detrimental effects of poorly functioning managed care pathways on patient care (CMA 7.90 & 7.91): indeed, not doing so might constitute breaching one's duties as a doctor.
Taking control of the entire care pathway for a procedure, through becoming a limited liability partnership (LLP) or equivalent, may potentially lead to lower costs to the consumer too, with ensuing benefits not just for clinicians.
• Form an LLP or corporation.
As a LLP, you and your colleagues are entitled to take a more corporate approach to your practice. Discussion of your approach - within the LLP or company
- to quality, billing, PMI reimbursements and fees becomes expected and the norm. As a group, you can decide on corporate approaches to certain PMIs if necessary, including restoration of traditional approaches to private practice, such as treating their members as 'self-pay' patients. Another advantage is the ability to deliver the whole care package as a CQC-registered entity; this means billing for both the facility fee and various clinicians' charges directly, and then paying the facility a locally negotiated fee. Some larger LLPs are recognised by PMIs for reimbursements, allowing decisions regarding treatment locations to be decided entirely by LLP members - not PMIs – subject, of course, to CQC registration.
• Stop doing (insured) private practice.
In many cases, the fees proposed by PMIs are less than the remuneration received for carrying out NHS Choose & Book / waiting list procedures. Given that neither indemnity nor administration costs are typically payable for such work, it is not surprising that some providers simply refuse to see (some) insured patients, or carry out certain procedures; this is a simple business decision.
• Negotiate individually with the PMIs.
While you are likely to start receiving managed care referrals, which may boost income, it is important to consider the long-term possible sequelae of such actions. These may include mistrust by colleagues, difficulties with tertiary referrals within an area and of course, the possibility of having to accept ever-changing fees in the future.
• A mixture of the above.
The world of private medical invoicing seems increasingly complex and it may be necessary to maintain a flexible approach for different companies; dealing with some PMIs certainly leads to greater administrative costs than for others. Providing a seamless invoicing service for members of appropriately remunerating PMIs is easy to justify, whereas invoicing patients as 'self-pay' where their PMIs consistently offer poor administrative services and poor levels of remuneration may be worth considering. You are, after all, running a business and should consider all means available to reduce unnecessary costs.
Clinicians should beware of having a policy of charging different PMIs differing fees for the same procedure, although this is increasingly common practice. Some PMIs will describe your willingness to be 'fee-assured' on their public-facing website: it should not, therefore, come as a surprise when other PMIs insist that you charge no more for their members too. A potential solution to this is to bill all patients at the same level, but applying appropriate discounts to certain invoices, as required.
"... indeed, not discussing the effects on patient care of poorly functioning managed care pathways (CMA 7.90 & 7.91) might constitute breaching one's duties as a doctor ..."
Why are we here?
It is perhaps worth considering why so much has changed in the last ten years and why many new consultants no longer view private practice with the optimism that they did just a short time ago. The lack of any business education in UK medical training is a long-term problem and has not changed recently, so cannot be entirely to blame.
The reduction in junior doctors' hours, seen from early in the millennium and underpinned by the EWTD, has led some to understandably adopt a clock-on, clock-off mentality, which has been difficult for team-building in medicine; assaults on final-salary pensions and other benefits of NHS working have also been unhelpful. Such changes have perhaps fostered a more individualistic approach to consultant life. In addition, the mentality of Generation Y has led to impatience amongst new consultants and the unwillingness to allow a traditional private practice - founded on quality and reputation - to develop at its own pace.
Taken together, these factors have allowed a perfect storm to develop: highly-skilled, impatient and hungry new consultants have failed to adequately resist the temptations on offer from savvy, managed care organisations. Consultants have been very effectively divided and conquered, with individual short-term avariciousness crushing the potential for long-term prosperity.
Had overall costs for patients fallen as a result of the changes described above, then this would have been a victory for competition. Instead, with costs to patients showing few signs of falling, third party organisations have received a greater proportion of the income as doctors’ fees are driven downwards. And it’s going to worsen, unless clinicians understand what is at stake.
"... And it’s going to worsen, unless clinicians understand what is at stake ..."