Last week there were calls to abandon co-location amid predictions of a major fall-off in the numbers taking out private insurance. Consumer Affairs correspondent PAUL CULLENreports on the state of private healthcare
PRIVATE MEDICINE thrived during the boom years, with scores of major new healthcare facilities planned or built and the number of subscribers to the three main private health insurers increasing year on year.
The proportion of the population with private health insurance grew from 35 per cent to a record 52 per cent as employment expanded and disposable incomes grew.
But now that the boom is over and the wider economy is contracting, the question being asked is whether the private sector can withstand the buffeting wreaked by the recession, and whether a shake-out is likely.
The first signs that private medicine may have peaked are already there. For the first time since quarterly figures began in 2001, the number of subscribers dropped by 13,000 in the first three months of this year.
The market leader, VHI, alone has lost 70,000 customers in the first seven months of the year, although some of these will have migrated to its competitors, Quinn Healthcare and Hibernian Aviva. The VHI is predicting the numbers pulling out of private healthcare could reach 200,000 by the end of next year.
And what of all those ambitious hospital building projects, including the controversial plans to co-locate private facilities cheek by jowl with public hospitals? The most advanced projects are progressing slowly, but the prospects for many other proposals are looking increasingly dim, particularly since the last Budget removed many of the tax breaks previously available for such projects.
You only have to switch on the radio or look at a newspaper these days to see that the rivalry between different healthcare facilities and insurers is fierce; some take this as a sign of healthy competition in the market, others as an index of desperation. Meanwhile, the sector abounds with rumours about the financial health of different operators, though at least some of these appear to originate with competitors.
Michael Cullen, chief executive of Beacon Medical Group, believes the demand for private health insurance has peaked. “The proportion of the population with private health insurance is huge for a country with a publicly-funded health system,” he says. “We always reckoned it wouldn’t stay at those levels indefinitely.”
By contrast, only 11 per of people in the UK are privately insured.
Cullen predicts the Irish take-up of private health insurance will fall back further and premiums will rise by 25 per cent as private facilities are forced to pass on the full economic cost of their services to the customer. At present, much private medicine is effectively subsidised by the public system, which helps to keep down the cost of premiums.
Notwithstanding Health Minister Mary Harney’s plans for co-located hospitals, sentiment is growing that the market may be over-provided. The VHI, for example, believes there is a risk of excess capacity for its customers. “Current private facilities are not at full capacity, yet many of them are adding significant additional capacity,” a spokeswoman told The Irish Times.
However, fewer customers doesn’t necessarily mean less work, she points out. While subscriber numbers are down, the number of procedures being carried out in private facilities this year is expected to rise by 12 per cent.
As consultant neurosurgeon Ciaran Bolger points out, one reason for this is that those who are leaving the health insurance market are predominantly young people with fewer health problems than an older cohort. “The people who are leaving seem to be younger, with lower cover. The middle-aged seem to be surviving the downturn better and they are our main customers.”
At present, about 650,000 people are aged over 60, but this is set to double by 2020, Cullen says. Since older people account for 80 per cent of bed use in hospitals, this will put tremendous strain on the health service unless capacity is increased, he argues.
Vincent Barton of Prospectus healthcare consultants points out that in previous downturns, consumers showed a reluctance to shed their private health insurance. But he believes the recession will accelerate trends that are already occurring; for instance, the move away from traditional in-hospital care to day-patient procedures and the growth of specialist clinics between primary GP care and hospital levels.
Reports vary about how existing operators are performing in the current economic climate. Some private facilities are said to be struggling but when contacted, staunchly deny claims of empty beds or waiting rooms. Other established outfits, such as the Blackrock Clinic and the Mater Private, continue in expansion mode with new extensions currently underway.
New entrants to the private healthcare market are faced with the unenviable task of raising massive amounts of money from banks which are currently averse to lending. The consortiums behind some of the mooted projects include a number of developers whose financial ills have been extensively publicised in recent months.
Despite these difficulties, an extraordinary number of projects are in the pipeline – four in Cork alone, for example. However, the construction of co-located hospitals is falling behind schedule.
Beacon, the company with the most ambitious plans for expansion, has planning permission for three co-located hospitals at Beaumont, Limerick and Cork and says it plans to go the market to raise funding within the next six months. The projects were supposed to go to construction in the second quarter of this year but instead must wait for the Government to sign the project level agreements for them.
Cullen remains bullishly optimistic about their prospects, especially since Beacon sold a majority stake in its Sandyford hospital and a 40 per cent stake in the three co-located proposals to the US-based University of Pittsburgh Medical Center. It plans to work with up to 20 banks to secure the necessary funding.
He says the company recognised that its ability to raise €800 million on its own for the three projects was constrained in the current climate. “However, with this partnership our chances are hugely enhanced. We believe we have a bankable proposition.”
Plans by another operator to build a co-located hospital at St James’s hospital in Dublin are in the planning process, but another project in Waterford has yet to get off the drawing board. Whether the remaining five co-located facilities first announced by the Government in 2005 ever get built is in doubt since the abolition of tax breaks in the last Budget. Under these changes, projects have to apply for planning by the end of this year and be built by end 2013 to qualify for relief.
While few doubt the demand for the services provided by the private sector, especially as the Government cuts back public services, the question remains as to whether the money is there to pay for them. The €2,000-plus an average family pays for private cover each year may be one bill too many for wage-earners who have lost their jobs.