ANYONE who has had to get their car repaired after a crash will know that there are two prices for any job. The first, lower, price is for customers who are paying for the work themselves. The second price, for those covered by insurance, is always far higher. But the customer does not object because he is not paying the bill - the insurance company is.

The same is true of private hospital costs. A patient paying for his or her own operation will probably be quoted an all- inclusive 'package' price, far lower than if an insurance company were paying. Containing these costs has become a serious problem for private medical insurers.

The Exeter Friendly Society may not be the best known private medical insurer, but with 67 years of experience, it knows about keeping costs down. As a result their premiums are not only competitive, they are also guaranteed not to increase simply because you get older.

Del Stevens, in charge of customer services for the society, says there are three keys to containing their costs. 'The first is negotiating accommodation costs. We have just finished our annual consultation with all the private hospitals to agree their charges for our members.'

This consultation is particularly important for those members who take the budget-priced Popular Plan. Unlike many budget plans this does not limit cover to treatment which is subject to a six-week wait in the NHS. Instead, it excludes outpatient treatment except for surgical procedures and radiotherapy/

chemotherapy.

Members covered by the Popular Plan are restricted to hospitals in the lowest band of accommodation charges, but Exeter have negotiated rooms in this band for the overwhelming majority of the hospitals on its approved list. As their brochure points out, these may be smaller rooms than others in the hospital, and may sometimes be shared with another patient, but the medical treatment is the same regardless of the room you stay in.

The second key way in which Exeter contains costs is to insist on fully itemised bills, to scrutinise them carefully, and challenge them where necessary. When one of the largest hospital groups wanted to introduce fixed charges for standard procedures, Mrs Stevens investigated the prices and refused in most cases to accept them. 'For example, they wanted to charge a fixed price for drugs in the operating theatre regardless of what was actually used. We insisted on fully itemised bills, being charged only for the drugs and services our members had required. Overall we reduced the bills by 35 per cent, with reductions of over 50 per cent in some cases.'

Where Exeter does accept fixed prices, it negotiates hard to reduce the price charged. Two hospitals in the south-east wanted to charge pounds 65 a day as a fixed price per day for drugs given to patients. Initially, Exeter refused to include the hospitals on its approved list, and only put them back on after negotiating a reduction of around 50 per cent.

They also insist on meeting only 'reasonable and customary charges' - not prepared to accept an inflated price simply because a surgeon thinks he is worth more than his colleagues. 'It often only takes one letter saying that the price is out of line to get it pegged back,' said Mrs Stevens.

The final way in which costs are reduced is to build up a good relationship with the hospitals. In particular, Exeter prides itself on paying claims quickly.

'Provided there is no query about a claim, our cheque will normally go out in the post to the hospital within two days of the bill being received,' said Mrs Stevens. Because the hospitals know this, they are more prepared to keep their prices low for the society.

Mrs Stevens does not believe that costs here will reach the levels of North America - 'now so high that the society refuses to cover members for treatment there even if they are only on holiday. But in the UK the influence of the NHS Trust hospitals is likely to keep prices down,' she said.

'The Trust hospitals offer first class medical treatment at a reasonable price. They have not yet really woken up to the opportunities in private medicine, but once they do I think they will become an important part of the market. The competition that private hospitals will then face should force them to reduce their prices.' If she is right, it is good news for insurers and their customers.

The author writes for 'Update', a monthly newsletter for accountants published by Accountancy Books (0908-248000)

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