VHI in dramatic stand-off with private hospitals

The current stand-off between the VHI and some of Ireland's most high profile private hospitals may result in privately insured patients with VHI cover having to pay more for their care. So, what's going on and why now? By Sara Burke

Every year the VHI negotiates new contracts with Irish private hospitals. The fees the VHI pays for private patients in public hospitals is set by the State but what it pays to private, largely profitable, hospitals is negotiated on a one by one basis.

The VHI is bargaining hard to get a better deal for 2011 in two ways. Firstly, by cutting the amount it pays for patient care by 3% in private hospitals in 2011. It negotiated the exact same cut last year. So it is trying to do that again. And secondly, it is suggesting a cap on how much it pays each hospital each year.

Some of the private hospitals say this is just not viable, that they can't take the 3% hit two years running but also that the cap on care just does not make sense. The cap on care means that if a private hospital treated 500 patients at €1 million in 2010, it will be paid €1 million or €1.1 m in 2011 (minus the 3% cut) but with no lid on actual numbers of patients.

So if they treat 500 in 2011 or 650, they will be paid the same. VHI says the hospitals are profitable, that the VHI needs to cut its costs and get a better deal for its clients and this is a reasonable proposal.

The poor financial situation of the VHI has to be taken into account – they have lost €160 million in the last three years and in the letter they circulated to hospitals in recent weeks, they say "we are currently unable to generate sufficient premium income to fund our customers healthcare needs". This is a very grave acknowledgment.

The VHI have 62% of the Irish healthcare market but pay out 80% of all health insurance costs to private hospitals. The high proportion of VHI pay outs is because the vast majority of older Irish people are in VHI, and as older people are living longer, with more expensive illnesses this is contributing to the high costs and VHI losses.

The VHI set 1 December as the date by which private hospitals had to accept or not accept the new terms and conditions for 2011. On 2 December the VHI said discussions "are ongoing with the private hospitals", however the private hospitals that I spoke to said that there were no negotiations, that they had been presented with an ultimatum that was unviable for them, even "catastrophic" for their hospitals.

The hospitals say they are being told that if they don't sign up to the deal on offer, the VHI will put a letter in the paper next week on 8 December informing customers of the hospitals which will no longer be included under VHI cover.

This scenario is problematic for the private hospitals who depend for a large extent on their private health insurance for income, for example 60-80% of all private hospital income comes from the VHI and many of these hospitals have huge financial commitments undertaken in much more prosperous, profitable times.

If certain hospitals are not covered by VHI, this will also be very problematic for patients with private health insurance because if they want treatment in those hospitals that might not be covered then they will have to pay 25% of the cost of that care. So if their treatment costs €20,000, then the patient – who would have been entirely covered before for the total cost of inpatient treatment – in the new circumstances they would have to pay €5,000 for it.

The VHI says that patients will not suffer, that there is excess capacity in Irish private hospitals and patients will be able to get treatment in other VHI covered hospitals, and that many of the consultants practice in different hospitals.

Patients currently being treated in any private hospitals covered by VHI will not be affected but if you are scheduled for planned surgery in the new year then it may impact. Doctors are particularly concerned with the impact on the continuity of patient care. And it will also impact on the public hospital system if people opt out of private insurance or are referred to public hospitals because they can't get treated with VHI cover in private hospitals.

This, combined with increasing numbers of people opting out of private health insurance would also put public hospitals under increased pressure. There has been a decline of people with private health insurance coverage from 52% to now under 50% – 10,000s have dropped out but most have moved from VHI to other insurers which often offer cheaper packages and also within the VHI, people are moving from higher coverage to lower coverage and cost packages.

What happens now remains to be seen. It may be clear on 8 December when the ad may appear in the paper. It may need ministerial intervention to sort it out. It may end up in the courts, who knows. Soon, we will...