In the first session of oral evidence, questions were asked regarding whether the private sector is competitive on price with the public sector and why there is such an apparent disparity between the pricing of hearing aids in the private and public sectors.

  While I attempted to answer these questions in my oral evidence, this is a complex area with many variables involved, not all of which I could adequately cover in the time available. Having sought advice from your Committee Clerk, I am therefore writing briefly to clarify the position, from my company's perspective, on the two themes of questioning that arose in this area.

Is the private sector able to supply NHS patients at similar cost to the public sector?

  The answer to this is an unqualified "yes". Statements given in written evidence by others have suggested that the cost to the NHS of private sector provision might be double, or more, that of public sector provision. However, these statements tend to compare only the marginal cost of NHS provision (or sometimes only the cost of the device itself) with the full economic cost of private sector provision. The quoted costs of internal provision, therefore, often exclude the cost of buildings, support services and other overheads—all of which are real costs to the NHS, even if they cannot be readily allocated to hearing aid provision under current accounting systems. In order to be clear on this important point, for a valid comparison of the cost of NHS hearing aid provision to be made with that of the private sector, both must contain the same cost elements.

  In support of this, the general comparability of public and private sector costs was confirmed in the oral evidence given by the Minister which indicated that the emerging "tariff" was not dissimilar to the costs charged by the private sector for NHS patients in the current PPP. A point of view also made by the RNID representative in oral evidence.

Why are hearing aids for private patients so much more expensive than NHS hearing aids?

  I understand that evidence submitted by others, as referenced at the oral evidence session, has compared the £40 [sic] cost of an NHS hearing aid with the £2,000 [sic] cost of a private one. I would contend that both figures are incorrect.

  It would appear that the £40 figure quoted relates to the price to the NHS of the device itself. Firstly, it is my understanding that the average cost to the NHS of digital hearing aids is £70 excluding the cost of individually made earmoulds. Secondly, it does not include the cost of all the services associated with hearing assessment of the individual, the fitting and validation of the device, as well as the overhead costs referred to above and long term after-care services.

  There does not appear to be any current definitive information regarding the actual full economic cost of NHS hearing aid provision. The closest proxy is probably the figure of £270 plus the hearing aid cost which was given by the Minister in oral evidence as the emerging "tariff" cost. However, even that cost possibly does not include all overheads and it certainly does not include after-care costs.

  The figure of £2,000 quoted as being typical for private sector hearing aids is also incorrect. I cannot comment upon the prices of other suppliers but the hearing aids provided to private clients by my own company, over the last 12 months, have an average price of £1,155 including VAT. However, I would emphasise that the prices paid by private sector clients include not only the hearing aid system itself but also all professional and aftercare services for the lifetime of the hearing aid system and VAT.

  I would therefore respectfully suggest that, rather than comparing £40 with £2,000, the nearest comparison which is possible, between NHS and private provision, is £270 (plus hearing aid cost) and £1,155 (including hearing aid cost).

  This still represents a discrepancy, which can be accounted for by the following five main elements:

1.   Scope of Service

  The NHS cost, as with the contracted PPP service, comprises the device and a patient journey of three sessions. By comparison, our private patient service comprises the device, typically six sessions during the first year and an open-ended after-care service typically comprising two sessions per annum for the lifetime of the device, all included in the price.

2.   Cost of Device

  The NHS is the largest purchaser of hearing aids in the world. They are able to secure prices from their suppliers that are a fraction of the price that the much smaller, and fragmented, private sector can achieve. Typically, for our private customers, we pay three times the price that the NHS pays for equivalent devices (although NHS patients benefited from NHS pricing under the PPP).

3.   Economies of Scale

  As the dominant provider of hearing aids, the NHS has much higher patient throughput and can potentially organise itself to achieve economies of scale that are not available to the private sector for their private patients. A properly structured, large-scale PPP would enable the private sector to achieve similar economies for NHS patient provision.

4.   Flexibility of Service

  The private sector typically offers services over a longer working day, often into the evening, and on Saturdays. This involves staff rostering arrangements which add cost but benefit our clients.

5.   Commercial Overheads

  Like all providers of private services, we need to promote those services within a competitive market place to attract clients. We have advertising and additional marketing costs that do not apply to the public sector and would not apply to private sector provision to NHS patients.

  I trust that the above provides additional clarity which I hope will be of use to the Committee. I would conclude by remarking that private sector hearing aid provision is a competitive industry, with recent new entrants adding additional competition. This is driving down prices and will continue to do so. The current PPP and any future PPP will also be competed heavily and will ensure the most competitive pricing for NHS patients comparable, we believe, with the true cost of in-house NHS provision.

Jeff Murphy

Chief Executive, Ultravox UK