"The NHS will last as long as there are folk left with the faith to fight for it"
Aneurin Bevan

Thursday, 20 October 2011

PMI eyes PPUs

The Health Bill will abolish the private patient income cap (PPI) that was imposed by the 2006 NHS act. This cap says that Foundation Trust hospitals cannot earn more from private patient income than the proportion that was earned in 2003. Overall, Foundation Trusts' income generate 1.1% from private patients and services to private patients, but some specialist hospitals have large incomes from private sources (the Royal Marsden has the PPI cap set at 30.7%, Royal Brompton and Harefield the cap is 14.4% and Moorfields Eye Hospital the cap is 13.7%). Most of these hospitals have a private patient unit (PPU), quite simply because private patients pay not to rub shoulders with us, the hoi polloi.

In the last year or so, several trusts have said that they want to increase their private patient income on a rather naive assumption that thousands of patients are desperate to spend their money with them. Private health in this country is in the doldrums and has hardly recovered from the recession, so it is naive to think that a NHS hospital's PPU will be a money spinner. PPUs are likely to be a drain of money since there is no guarantee that they will get enough private patients to pay for the investment they have had to make to shield the private patients from the NHS public. However, Foundation Trusts have recently been hit with a 1.5% cut in tariff (the payment for most elective procedures) and need another source of income, and private patients appears to be an easy ssolution.

A report by ippr in 2008 suggests that spending on private medical insurance (PMI) remained static over the previous decade at 2.81% of the entire UK economy. They suggest that in 2005, 6,536,000 people were covered by PMI (10.9% of the population) and that 51% of the insurance was paid by employers. Additionally, they suggest that in 2005 19% of the payment for private healthcare in hospitals was self-pay. More up-to-date figures from OFT suggest that by 2009 self-pay had fallen to 15% whereas income for private hospitals from NHS patients was 23% and from PMI was 61%.

The ippr report says:

"If waiting times are high and/or perceived treatment quality of the public system is low, [PMI] is perceived to be necessary for timely, high-quality medical treatment. As such, demand for [PMI] will be driven by middle and higher income groups. If waiting times are low and perceived quality is high in the public system, demand for [PMI] shifts towards non-clinical features such as 'convenience' of access to treatment, and 'hotel-like features' of medical facilities; as a consequence, [PMI] tends to concentrate among higher income groups only."
which is common sense. It is reasonable to assume that in a time of austerity, when there is a free-at-the-point-of-use service available to all (hence basic coverage without the "non-clinical features" mentioned above), self-pay for private treatment would be considered to be an unnecessary luxury and private hospital income from self-pay would fall. PMI is less sensitive to an economic downturn (since the contributions are smaller), but clearly as incomes shrink it too would be considered an unnecessary luxury both by individuals and employers and so the proportion of people covered by PMI should fall.

Considering that the UK economy is in such a poor state, all of this suggests that private hospitals are in a bad position. Indeed, the Nabarro Healthcare Industry Barometer 2011 (pdf) survey says that 60% of respondents think that their income will not return to "pre-credit crunch levels" until after 2014 (this was up from the figure of 55% in their 2010 survey). Interestingly, the Nabarro survey says that 35% of respondents thought that "budgetary pressure in the NHS led to increased demand for private care provision". Further, the government policy of Any Qualified Provider, which means that patients can choose care in a private hospital, is one way that private hospitals can make up for any falls in self-pay or PMI patients, so it will be interesting to see how the 23% figure given above will change when AQP is introduced.

Private medical insurance clearly need to do something to increase their subscribers and one way to do this is to lower the cost of the product. A few days ago I got the following junk mail from Aviva:

This is the usual nonsense: "you deserve private medical treatment" when in fact everyone deserve a comprehensive health service. However, I have highlighted an interesting paragraph:
"By choosing the Trust Care hospital list, you can reduce your monthly premiums by 25% by simply using private facilities within NHS Trust hospitals."
This ignores the fact that by choosing the NHS you can reduce your monthly premiums by 100%! The letter raises some questions. Why is it that insurance for NHS PPUs is 25% cheaper than private hospitals, what is it that makes them cheaper? If PMI is recommending NHS PPUs does this mean that in the past when they have emphasised that private hospitals are clean and have expert care - and by implication that the NHS does not - that they were actually, wrong? Will we see PMI actually promoting NHS PPUs in the future?

PPUs have got the private hospitals spooked. The Nabarro survey says that 37% of respondents either agree or strongly agree that removing the PPI cap is a "threat to the independent healthcare sector". Since Aviva is now pushing PPUs as cheaper alternatives to private hospitals this backs up the pessimism about PPUs in the Nabarro survey.


  1. The marketing of private health insurance schemes annoys me greatly.

    There is one currently running that states "because we can be bothered" after promising to do certain things that most NHS hospitals would do anyway. The very unsubtle implication is deeply offensive. [http://www.youtube.com/watch?v=Zupub-2_bOA]

    Similarly a few years ago I lived close to the hospital I was working in. Said NHS trust has just received a 1* rating (whatever that actually means). I got a leaflet through the door "Dear resident, you are living in the catchment area of a 1* NHS trust. What would you do if you need quality healthcare?" Cheeky bastards.


  2. @AFZ the interesting thing about the SimplyHealth video is that this "service" was the just like the pilot that was done to "prove" that we needed choice in the NHS. The London Patient Choice study gave each patient who took part a choice advocate who would help the patient choose the hospital that they could use. They were popular. However, they were an expense that the NHS would not pay for, so when we got "patient choice" we did not get the advocates. Amazing, isn't it? We get a pilot that "proves" a concept but the final system does not have features of the pilot. Is that how pilots are supposed to work?

    (Actually, I think GPs should be patient advocates but under the proposed system there would be too much conflict of interest and so they cannot be used.)

  3. @Richard,

    I wasn't aware of that but sadly, it surprises me not at all. Typical.

    What struck me was the idea that you had a point of contact who cared about you and phoned you afterwards to check how things are going etc... Most types of cancer now have specialist nurses who fulfil this function extremely well, in my experience.

    As you say, the role of patient advocate is properly one that should be fulfilled by the GP. And worryingly, as you also say it will become impossible in the brave new NHS.


  4. @AFZ

    Indeed. I had cataract surgery 3 years ago and I was telephoned at home by a nurse the Saturday after each operation. I found this reassuring since I could ask questions that I felt may be considered trivial and so I was reluctant to ask the consultant.

  5. Having worked in the private sector I'd say that PPUs are able to undercut private hospitals for multiple reasons:

    1) They benefit from huge economies of scale as part of a much bigger unit when it comes to purchasing utilities, supplies, equipment etc.

    2) Their premises are part of the NHS estate for which they paid nothing (although this is greatly complicated in the case of a PFI) - in contrast a new private hospital has to pay for the land, for the building and for the whole planning process and recoup those extra costs from their charges.

    3) They can draw on full time NHS nursing and support staff while private hospitals tend to employ a lot more temp and particularly agency staff who are more costly.

    4) They also can utilise lower grade and much cheaper medics - while private hospitals are forced by PMI rules to use mainly exorbitantly expensive consultant level specialists.

    5) They generally have no need to advertise to bring patients in - the Royal Marsden name sells itself - but private hospitals need to spend a LOT on marketing and PR.

    6) Last but not least they have no shareholders, no big creditors (generally - with PFI again being a big complication) and are satisfied with much lower rates of profit than any private company.

    So the 25% aviva discount for PPUs looks entirely reasonable to me.

    And quality-wise any procedure involving any danger (and a very large percentage of private ops are on frail elderly folks for whom no procedure is entirely risk-free) whatsoever to the patient is much safer carried out in a PPU than private hospitals most of which really are just small-ish country house hotels with often rather basic operating theatres attached.