Private Spending on
Healthcare
Seminar Summary - 12th December 2007
January 2008
© ippr 2008
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Private Spending on Healthcare | Seminar Summary – 12th December 2007
ippr hosted a seminar in December as part of our work on Private Spending on Healthcare. The
seminar provided an opportunity to debate the role of private spending in health systems from an
international and national perspective. The discussion also centred on specific areas where the
contribution of private spending might be improved in order to contribute to the UK health economy in
the future.
The discussion was conducted under the Chatham House rule, although the two speakers have given
permission for their presentations to be quoted in this summary.
Francesca Colombo, health researcher at the OECD and co-author of Private Health Insurance in
the OECD (2004) opened the seminar with a presentation based on her recent report, updated with
the latest OECD health data.
Private Health insurance
in the OECD
Francesca Colombo, OECD Health Division
London, 12 December 2007
http://www.oecd.org/health
Double click on the image above to view the full presentation
Francesca concluded:
- Private Health Insurance (PHI) has enhanced consumer choice
- There are concerns about the impact of PHI on equity (differential access depending on insurance
status)
- There is still a long way to go to improve efficiency in PHI markets
- Performance varies across OECD countries (it depends on PHI role; government interventions)
- Policy makers face trade-offs, for example between increasing capacity of PHI and ensuring
equity for uninsured patients, or between fair competition and insurers’ efficiency incentives
Discussion
There followed a discussion on the following themes:
International trends
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Private Spending on Healthcare | Seminar Summary – 12th December 2007
It was noted that although there are variations between countries, other than a few outliers the
majority of healthcare is publicly funded, for both inpatients and outpatients.
Out of pocket spending
Participants called for more detailed description of the composition of out of pocket spending. For
example, informal direct payments common in Greece are different to out of pocket spending in the
UK. In particular, there is a need to differentiate cost-sharing or co-payments from direct payment.
We know that a fast-growing area of private spending is cosmetic surgery. This raises questions about
whether private spending ‘duplicates’ NHS funding (ie paying for services also provided free by the
NHS); and how much is ‘supplementary’ – buying services that the NHS doesn’t fund, either because
of cost concerns or because of low clinical need. Ippr will be providing a more detailed analysis of
different types of private spending in the UK as part of this project.
It was noted however that it was not always possible to separate duplicate and supplementary
spending. Private health insurance packages combine both elements, although in some countries they
are separated – for example Canada only permits supplementary health insurance
Outcomes derived from private spending
There was a common wish for better measurement of the health outcomes arising from private
spending. Although OECD and the Office of National Statistics are working on measuring productivity
throughout the health system, there is a lack of data on outcomes. Recent OECD work to track health
care quality through internationally comparable indicators of quality of care is included in the 2007
edition of OECD Health at a Glance.
If there was better measurement, it would be possible to compare the value for money from public and
private spending. However few outcomes data are collected from public spending either, so no
comparison would be possible. There would be difficulties comparing private insurance with publicly
funded healthcare because of the differences in the populations covered, although there are methods
for risk-adjusting outcomes for particular procedures. With mixtures of public and privately funded
patients being treated in the same hospitals, there should be an additional opportunity to compare
differences in outcomes between publicly and privately funded patients.
Although some private healthcare providers collect outcomes data, they are not made public for
comparison. It was argued that patients should have access to comparable quality information, and
that regulators and commissioners should be able to compare providers by tracking patients going
through the system.
Charity spending
It was pointed out that the true size of private spending in the UK is probably higher than OECD
estimates, due to charity spending which is not captured in the OECD statistics.
Tax subsidies
There was discussion about how public expenditure through tax subsidies should be captured in
estimates of private and public spending. It was noted that tax subsidies can lead to significant
Treasury costs (subsidies were abolished in the UK in 1997).
Workforce training and planning in private systems
There was some discussion about how workforces are trained and planned in publicly-funded
systems. Most countries have publicly funded training even if a large amount of care is funded
privately. Limits on intakes to medical training are normally set by medical schools, the important
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Private Spending on Healthcare | Seminar Summary – 12th December 2007
question being whether limits are set centrally or locally. According to one intervention, OECD
countries often recruit from abroad when there are shortfalls in staff, meaning poor countries were
subsidising rich ones through paying for training. OECD countries employ a considerable number of
foreign-born doctors and nurses, however evidence from recent OECD suggests that the size of the
workforce crisis in origin countries is greater that the migration phenomenon and that the cost for
origin countries is lower when foreign-born health professionals are trained in destination countries.
The existence of a parallel private sector is sometimes seen by medical and other clinical unions as
helpful, providing staff with choice to work in different sectors, and a supplementary income. However,
there are concerns about the allocation of higher and lower risk patients between providers if private
healthcare was going to expand.
Innovation in public v private systems
Private insurers invest significantly in innovation. However, it was also suggested that public
commissioners in mental health stimulated innovation and were more flexible and responsive than
private insurers.
Tim Baker, Managing Director of Dr Foster Research, then addressed the seminar on Improving the
effectiveness of private spending in the UK health economy.
Tim declared that he was formerly a commercial director at Norwich Union.
As a caveat, he emphasised that the majority of healthcare should and will remain publicly funded.
However he argued that we shouldn’t ignore the role of the private sector. Should legislate to make
private healthcare more efficient, so that:
a) It could relieve pressure on NHS
b) It could provide a marker against which to compare the quality and accessibility of publicly
funded healthcare
The key challenge, Tim argued, is to improve efficiency of private sector without harming public sector.
He identified three areas for improvement.
1. Primary care
- Access to GP services is difficult/ inconvenient. This creates hidden costs to the economy
through lost work days.
- The NHS has a monopoly on provision, making it difficult for GPs to provide private services.
- Some employers realise this and are trying to address access to primary care for their staff,
but activity is piecemeal.
2. Private secondary care
- Due to the power of doctors’ unions, efforts to drive down prices in the private sector have
been resisted. For example, the price of private cataract surgery has remained the same
despite technological efficiencies.
- Independent Sector Treatment Centres provided an opportunity for insurers to restructure
private provision.
- Workforce organisation and regulations maintain high prices, meaning that insurance is just
for the few.
3. Private sector information
- The private sector is poor at providing information. Their performance data is not comparable
with national data for consumer choice. The NHS Choices website has data for NHS hospitals
and ISTCs but not other private providers.
Discussion then focused on the following issues:
Managing care and improving efficiency in the private sector
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Private Spending on Healthcare | Seminar Summary – 12th December 2007
It was pointed out that government would normally look to private sector to be entrepreneurial in its
use of information to manage care and improve efficiency. Some insurers are collecting outcomes
from different surgeons, but are not using it to manage care and efficiency.
This is partly because of a lack of data, with two insurers dominating the marketplace so that other
insurers don’t have the volume of data to measure quality. Insurers rely on royal colleges for quality
assurance rather than actively controlling quality of care.
The lack of provider management is also due to consumer demand, as subscribers would feel that
insurer management of providers would constrain their choice of consultants. Providers themselves
may also resent the pressure to reduce costs/ measure outcomes. It was also suggested that insurers
themselves were disengaged from the debate on improving efficiency because they are not competing
with each other on price.
There is also a lack of international competition, e.g. by flying patients abroad for treatment in cheaper
private healthcare economies, because the extra costs are prohibitive.
Co-payments
It was suggested that the NHS was over-used due to lack of costs borne by the individual patient. This
was in contrast with car insurance, where there was an incentive to ‘self-care’ in order to keep your
no-claims bonus.
In response, it was argued that price elasticity for much of healthcare is very low, so co-payments
would make little difference. Where there is high price elasticity, co-payments would lead to reduced
demand. However, it was argued that this was not a good way to drive down costs because you don’t
want to put people off accessing healthcare that may be necessary.
On the other hand, some health systems use co-payment to encourage patients to choose more costeffective treatments, for example generic rather than branded drugs.
Wider forms of private spending
This led to a discussion about how the benefits of private spending can be spread to more people, and
can contribute more to preventative healthcare.
It was suggested that more minor ailments could be treated without recourse to publicly-funded GPs,
by a better use of pharmacists. This would save GP appointments and improve health outcomes.
On the other hand in the context of the whole health system, over the counter drug spending is only a
small percentage of total costs. The highest costs are in other types of care, particularly the care for
people in their last years of life. The main challenge remains to make that segment of healthcare
spending more efficient.
It was also suggested that private spending could be used to shape behaviour, like insurance
schemes that incentivise gym membership and better diet.
It was claimed that there is willingness by employers to invest in improving health. This willingness
should not be put off.
It was argued that the project’s first question, about whether we should expand the share of private
finance in total health expenditure, was answered by the OECD conclusion that sick and old people
are unlikely to be privately funded and will always need public funding.
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Private Spending on Healthcare | Seminar Summary – 12th December 2007
If we are going to expand private spending, therefore, it was suggested that this must be in addition to
increased public spending.
Ippr would like to thank Norwich Union Healthcare and Genus Pharmaceuticals for their support of this
project, and for respecting its independence