Pounds for Patients? The weak regulatory approach to financial incentives in UK healthcare
Originally published on LSE blog here.
The US healthcare system is plagued with fraud, with an estimated $272 billion lost to fraudulent practices each year. Much of this involves healthcare providers falsely billing the taxpayer-funded system for treatment which has not been carried out, whilst other forms of fraud involve healthcare companies paying ‘kickbacks’ to consultants in return for referring patients to them.
The idea that such practices could occur in the UK is difficult to contemplate. Yet as the private hospital industry has grown its business, mainly through its contracts with the NHS, such illegitimate and harmful practices have started to pose more of a threat to the integrity of UK healthcare than most people realise.
In 2014 the Competition and Markets Authority (CMA) published a study into the private hospital market. It found that payments to clinicians by private hospitals ‘were widespread‘. Even though the medical consultants who received these payments denied that they existed, the CMA found that in some cases consultants were given additional payments each time they referred a patient to a particular private hospital, in others they received a share of the profits made by the hospital if they committed to referring their patients to them. In short, they found a hidden and widely tolerated culture of ‘kick backs’ which they considered could amount to bribery.
Like in the US, the reason behind the use of financial incentives by private hospitals in the UK is the fact that it is the medical consultants who bring business to the hospital. As a result, and as one private healthcare company put it, the competition between hospitals for consultant referrals is ‘fierce‘ – and amounts to a ‘contest for control of the patient pathway’.
The CMA recognised the impact of these incentives on the competitive nature of the private hospital market and intervened because such incentives distort competition – rather than competing on the basis of quality or price, those hospitals which paid the biggest kickbacks were likely to win the most business.
As a result, the CMA prohibited outright the use of payments designed to induce referrals, but did not go as far as banning clinicians from owning shares in the private hospital facilities to which they referred patients. This was despite the fact that it was presented with compelling evidence from the US that where clinicians have a financial stake in either healthcare facilities or equipment, they provide more treatment than is necessary which is both harmful to patients and a waste of money.
Instead, after lobbying by the private hospital industry and also the British Medical Association, the CMA refused to ban share ownership outright and only limited clinicians to owning a 5% equity stake in a hospital facility. And, because the CMA believed that making such arrangements transparent would limit the more harmful aspects of the kickback culture, it merely required that private hospitals publish on their websites the details of any shares or equipment owned by the consultants who referred patients to their hospitals and any corporate hospitality which they provided them with.
However, the threat posed by financial incentives to individual patients – in the form of overtreatment or unnecessary interventions – is the same in the UK as it is in the US or indeed anywhere else in the world. Yet, the UK has chosen to treat this risk with the regulatory equivalent of a pair of kid gloves. Not only is the body which has introduced these rules a competition authority rather than a healthcare regulator, it has no sanctions available to it to enforce the requirements – its powers under the Enterprise Act 2002 are limited. This means it can only seek a court order requiring a private hospital company to comply but cannot issue fines or prevent a company from operating if it breaches the rules. And, as far as it is possible to tell, the CMA has devoted few resources to either enforcing or monitoring these requirements.
Contrast this with the US system where prison sentences, multi-million dollar fines, and disqualification from providing Medicare or Medicaid services all provide a major reason to comply with the laws designed to prevent healthcare fraud, whilst the Department of Justice, the FBI, and the Office of Inspector General make up a formidable enforcement outfit. In addition, those who blow the whistle on US healthcare fraud are rewarded with a share of any settlement reached which makes breaches of the law much easier to detect.
Yet, our research confirms that the use of financial incentives within the UK healthcare system remains rife despite the CMA’s interventions. Over 600 medical consultants now own shares and equipment in the private hospitals to which they refer patients and a number of consultants receive a fee from the private hospital every time the equipment they own is used. In both cases these arrangements provide a potential incentive for clinicians to over-treat patients.
In addition, we estimate that £1.5million has been spent by private hospital companies over the past two years on corporate hospitality for their referring consultants, with one private hospital company spending an estimated £1million of this total amount.
Lavish trips to the cricket or to Wimbledon worth more than £1000 a head are almost certainly designed to win the business of consultants and this practice may in extreme circumstances stray into the territory covered by the Bribery Act 2010. In any case, NHS consultants who are in receipt of this hospitality will have breached the NHS England guidance on conflicts of interest which limits the value of corporate hospitality to £75.
More concerning is the fact that NHS Trusts have struck contracts to treat NHS patients worth over £40million with 11 private hospitals where their own employees (the consultants) own shares. Whilst there is no evidence that NHS consultants have been referring NHS patients directly to these private hospitals in order to gain financially, it is concerning that so few of them have publicly declared their financial interests in these companies.
Quite why the NHS hospitals who have struck contracts with private hospitals have not required their consultants to divest themselves of their shares is unclear, but it is almost certainly the case that this practice would not be tolerated in any other area of the public sector and there are good reasons for NHS England to be concerned.
Again, the contrast with the US is striking. Under the Stark Law it is illegal for doctors to refer any patients funded by Medicare or Medicaid to a facility where they, or their immediate family members, have a financial interest, with any doctor found guilty of this facing fines and disqualification from providing state- or federal-funded healthcare services. And whilst it could be argued that the issue of financial incentives in the UK healthcare system is a matter to be dealt with under public procurement rules or anti-bribery legislation, it is first and foremost a patient safety issue.
The breast surgeon Ian Paterson who was convicted of deliberately harming patients in two private hospitals told over 750 private patients that they had cancer when they didn’t and operated on them unnecessarily. Each time he treated a patient both he and the private hospital where he worked will have a received a fee. As a result of providing this unnecessary treatment which caused untold psychological distress and physical harm, Paterson will have made millions of pounds. And whilst this is the very worst example of financial incentives impacting on patient safety, the lax regulatory regime which now exists in the UK provides no impediment to medical consultants and private hospitals placing their own financial interests above the clinical need of patients.
Rather than seeking to manage ‘conflicts of interest’ in the traditionally British way, these types of arrangements ought to be prohibited outright if patients and the public are to have any confidence in the integrity of the private hospital sector.
