PRIVATE HEALTH SECTOR November 2015
CONTENTS OVERVIEW 2 MARKET SIZE 3 MARKET STRUCTURE 4 EMPLOYMENT 5 CURRENT TRENDS 5 FUTURE TRENDS 8 SWOT 9 Appleby Associates 2015 1
PRIVATE HEALTH SECTOR REPORT November 2015 Overview The Market Focus Report for the Private Healthcare and Voluntary Sector is based on the performance and market activity generated by 4000 key companies within the sector including BUPA, Southern Cross Healthcare Group, BMI Healthcare, Care UK, Oxfam and The British Heart Foundation. Companies and activities included in this sector are: Hospitals, the community and ancillary services Private healthcare service and suppliers Private medical insurance (PMI) services Voluntary sector charities, organisations and foundations Veterinary services Over the past accounting year, UK turnover in the Private Health Care & Voluntary sector has fallen by 2% to 49.5 billion. Profits have decreased by 10% to 1.9 billion, and employee numbers have decreased by 12% to 881,667 people. The last 3 years have shown a UK turnover decline of 24% and a decrease in employee numbers by 12%. Turnover Sector Private Health & Voluntary Sector UK Turnover th GBP - Accounting Year 2015 Sector UK Turnover th GBP - Accounting Year 2014 Year on Year Growth 49,298.5m 50,341.7m -2% Employees Sector Private Health & Voluntary Sector Number Employees - Year 2015 Sector Number of Employees - Year 2014 Year on Year Growth 881,667 1,000,956-12% Appleby Associates 2015 2
Profits Sector Private Health & Voluntary Sector Operating Profit th GBP - Accounting Year 2014 Sector Operating Profit th GBP - Accounting Year 2013 Year on Year Growth 1,542.9m 1,723.6m -10% The private healthcare and voluntary sector is one of the smaller sectors in the UK and responds significantly to changes in the NHS. UK public healthcare is undergoing a slow evolution from operation by the state to a system that in essence is one of state funding of quasi-private and private service delivery. Recently the delivery of NHS services has been in competition against continental European healthcare services that have shorter waiting lists and are based on social insurance schemes which offer genuine choice provided through public and private alternatives. They have a history of better funding and by many measures offer better health outcomes. This leads to huge potential for growth in the UK private healthcare sector. Market Size The UK market has been thriving with sectors such as mental health, elderly care homes and to some extent acute care benefiting from increased levels of public funding and a shift from public to private provision. However some areas of spending such as on non-cosmetic surgery for knees and hips have fallen by nearly 30 million to 345 million. Experts believe the current slowdown is probably down to the economic climate and NHS waiting lists. The NHS is in a period of transition and it is not yet clear how it will compare with its privately funded rival over the next few years. Waiting lists have been reduced and the quality of care is perceived to have improved in a number of areas of the service. This presents a very real threat to the future of the private healthcare market and could deter use of private treatment. In addition while sectors such as acute care have benefited from the NHS (commissioning of provision to cut waiting lists) this situation may not continue. Indeed over the next year to 2014 a clear and secure path to revenue growth is not evident. The independent hospital sector has also had to become more competitive and delivers greater cost efficiency in order to comply with the controlled tariffs imposed by the NHS. The entire acute care industry is likely to have to become more efficient, with pressure coming from the private medical insurance (PMI) industry, which is continually looking for ways to deliver cheaper and more attractive propositions to its consumers. The PMI industry itself is highly mature and a fall in membership levels over the past 5 years is currently being addressed with more competitive and perceptibly cheaper products on the market. Appleby Associates 2015 3
In terms of long-term care for both the elderly and the mentally ill, greater outsourcing by local authorities is the prevailing trend. But again a focus on costs and the need to deliver a lean and efficient business model to attract long-term commissioning appear to be pre-requisites. The same can be said for short-term acute provision for the mentally ill in the independent mental health hospital sector, which is currently burgeoning but which needs to stay cost-efficient and competitive. Consumers are ambivalent in their attitudes towards the private healthcare market. Consumer research reveals that the large majority of consumers are extremely loyal to the NHS more than 80% would prefer to use it if quality of care could be guaranteed. However at the same time almost half aspire to the privileged treatment afforded through the private system. This ambivalence presents opportunities for the industry: the future for the private healthcare industry may be one offering cheaper forms of healthcare and insurance packages which give patients benefits that the state system is unable to provide. Market Structure There are thousands of companies in the UK health sector, though only a very small percentage of these have over 10,000 employees. The majority are small or medium sized enterprises (SMEs). Accordingly, the private healthcare (service and suppliers) sub-sector is performing well, generating more turnover than its small size would suggest. This indicates that the smaller, less numerous companies are more efficiently structured either attracting staff that can perform to a higher standard or perhaps are just better positioned to respond to competitive changes. Nevertheless the hospitals, community and ancillary services sub-sector is the larger in terms of turnover and number of companies/employees which is a good indicator of the scale of the NHS as a major customer. Consequently the industry responds massively to changes in NHS purchasing strategy and other policy changes that affect its demand for products and services from private sector suppliers. Over the last decade there has been a 20% increase in NHS elective admissions, a 66% rise in MRI scans, a 50% increase in CT scans, and a 50% increase in heart operations. 450,000 more operations are carried out a year than in 2000, there are 860,000 more elective admissions, and 187,000 fewer patients waiting for treatment, with corresponding increases in surgical equipment and aftercare facilities, among other aspects of pre- and post-op care. About 300 primary care trusts sit under the 30 or so strategic health authorities. They are responsible for hospitals and general practitioners as well as other health provision. They were intended to decentralise care further and are responsible for improving the health of local populations, developing primary care and community services, and commissioning secondary care and services. Based on performance their capacity and management leave scope for improvement and they could benefit from greater cross-fertilisation and creative thinking by more recruitment from the private sector. Appleby Associates 2015 4
The NHS spends 11 billion a year on procurement, from private finance initiative hospitals to medical supplies. However there is a new drive to add a chain of privately run diagnostic centres to the 40 or so treatment centres for which the NHS is now signing contracts, with most of that work having gone to overseas providers. Thousands of operations a year to reduce health service waiting lists are being sought by the Government in bulk-buying negotiations with private hospitals. The initiative is seen as the only way to cut waiting lists in the short term. The contracts allow the negotiation of reduced private prices. Employment There are more than 870,000 people employed in the UK private healthcare industry. The sector has seen a reduction in the number of employees during the economic recession as many companies have tried to cut costs by reducing employee numbers. Most staff coming into the private healthcare sector will have had previous experience within the National Health Service and often have a fair knowledge of the NHS services in their region. The benefits of working in the private health sector include working in a smaller, less bureaucratic environment. Anyone working in the healthcare sector will be required to have a Criminal Records Bureau (CRB) check carried out due to the likelihood of having access to vulnerable adults and children. Most private employment staff receive their own private medical insurance as part of their employment package. It is not unusual for private hospitals to use agency staff as they are in a better financial position than the NHS to do this most of the time. Staff that work in private hospitals with an agency often find they work in the same department for quite a long period of time. As departments will be looking for people familiar with the environment and to ensure smooth running departments, agency staff are likely to find themselves requested for work on a frequent basis if they fit in well. Agency staff are also often in a good position to apply for permanent posts as they will already be a 'known' factor and will have significant knowledge and understand the needs of the department. Last year nursing and healthcare was the only jobs sector to demonstrate growth. However nurses are increasingly feeling the effect of the credit crunch with partners being made redundant and the general cost of living rising. The number of nurses contacting the RCN for financial advice has doubled in recent months. Current Trends Current trends identifies the key factors that impact the sector at present and focuses on current and recent issues. Appleby Associates 2015 5
Despite the recession British consumers are increasingly turning to private insurance for their healthcare needs with numbers increasing 2.7% through 2012 and into 2013. Over 6.2 million people are paying for private health insurance with another 1.1 million covered through arrangements with the healthcare trust. Many argue that the PMI (Private Medical Insurance) is good for both companies and the economy as it enables people to get back to work after injury or sickness as soon as possible. With the current demanding environment, people increasingly expect instant access to healthcare rather than being placed on the NHS waiting list. It would appear that many now see private health cover as a necessity rather than a luxury. However there is some indication that extra funding put in by the UK government is increasing people s confidence in the NHS system. The ability of patients to choose NHS funded care in hospitals run by the private sector, rather than in NHS hospitals has created business for the private sector. If this continues, over the next few years private hospitals can expect to receive around 100 million per annum. Despite the World Bank's support for private sector investment in healthcare provision it has come under fire from charities including Oxfam who claim that this has eroded funding for the public healthcare sector which they claim is necessary to care for poorer people. Around 20% of all the income in the private sector comes from the NHS. This trend is likely to continue as the NHS continues to be pressurised by the needs of an ageing population and by increasingly difficult-to-meet targets imposed by the government. There has been concern expressed about private health services that bypass the need for GPs through provisions such as DNA profiling and "body MOT" scans. Whilst there are advantages to cutting out the GP, the amount of regulation of these services is very limited and people may be getting information that causes more harm than good. Another area likely to be investigated is the sale of drugs over the internet which is unregulated. Results of a tendering process showed that a quarter of the contracts to run the new wave of polyclinics being rolled out across England had been won by private sector companies. This represents a significant expansion of private sector primary care provision. However local GPs also performed strongly in the tendering process, with GP-led consortiums winning 30% of contracts and a further 7% being awarded to individual practices. Despite this trend the Chair of the British Medical Association (BMA) stated that despite the government taking banks into public ownership, they seemed to be set on selling parts of the NHS to the private sector and he pledged to fight this trend. The Co-operation and Competition for NHS Services Panel is thought to be considering expanding the number of contracts that are available to the private sector for providing services to the NHS. It is thought that if this were to happen the value of these contracts could be worth 10 billion, 30 times what is currently spent on private health support. The contracts include services such as GP surgery and hospital laundry, out of hours doctors, hospital ward decontamination and care home management. Appleby Associates 2015 6
Over 150 private hospitals are now on an accredited list from which NHS patients are allowed to choose. These hospitals received just over 16,000 people booking in for treatment. Whilst there are advantages to the private sector to take on NHS funded contracts such as high volume and regularity, these services must be offered 'at tariff' which means the cost is lower to a NHS patient than it would be to a privately insured one. Currently 'at tariff' treatments tend to be more routine procedures rather than specialised therapy. Although some private health providers have been quite choosy in the past taking on NHS work that is less profitable at the expense of higher-paying private patients, as the recession continues, they may be faced with increased pressure from the government. Although the NHS also benefits from putting work out to tender, as it takes some of the workload off whilst also allowing them to hit government imposed targets, there is a dangerous risk to the NHS that the same patients may well, in future, opt for private healthcare if they feel a much improved service was received. Last year it was announced that patients would be able to access private healthcare including buying medicines without losing what they would be entitled to under the NHS. In Scotland business leaders have criticised the SNP for refusing to countenance the greater use of the private sector in providing primary healthcare in Scotland due to their belief that it would put profit before patients. It appears that the NHS is also increasing its private healthcare spend, with NHS Leeds recently announcing an increase of 7 million from the 13 million it had budgeted for to an expected spend of 20 million. In a survey by BUPA eight out of ten people currently using private healthcare said that even if the NHS were to meet its targets they would not cancel their private schemes as the NHS was too complex and may also mean them having to travel long distances to the hospital or their consultant of choice. Another factor often mentioned is the 'superbug' issue, with people pointing out that confidence is only high if you are a healthy patient in a decent hospital. It appears that a large percentage of people are concerned about this issue, with hospital cleanliness being cited as the main reason for people switching to private healthcare. The budget for medical research and NHS research and development into new treatments and cures has risen to 1.2 billion a year. The scope of this spending included the Medical Research Council and a new National Clinical Research Network to bring together private firms, the NHS and medical charities covering a wide range of diseases. Modelled on the National Cancer Research Institute the new network involves more patients in trials for new treatments. Appleby Associates 2015 7
Future Trends Future trends identifies the key factors that are likely to impact the sector in the UK in the future. The increased use of private sector services by the NHS is now well established and is likely to increase further during 2013 and into 2014. However, doctors may hope that some constraints and control will be applied so that the treatment of patients is improved but their choices do not become limited by the disappearance of NHS services. Whilst the NHS is in a period of transition, and it is not yet clear how it will fare over the next few years, both waiting lists and quality of care have improved. It is a possibility that this success, if it continues, may yet draw people back towards the NHS from the private sector. If waiting lists continue to fall and care improves there will be less impetus for the NHS to contract work out to the private sector. The independent hospital sector will need to become more competitive and deliver greater cost efficiency in order to comply with controlled tariffs imposed by the NHS. The acute care industry in general will need to become more efficient, with pressure coming from the private medical insurance (PMI) industry, which is continually looking for ways to deliver a cheaper and more attractive proposition to its consumers. The PMI industry has seen a fall in membership over the last five years and this is being addressed with the introduction of more competitive and cheaper products on the market. Long-term care for both the elderly and the mentally ill is increasingly being outsourced by local authorities but a focus on costs and the need to deliver an efficient business model to attract longterm commissioning appear to be critical. Similar can be said for short-term acute provision for the mentally ill in the independent mental health hospital sector, which is currently thriving, but which needs to stay cost-efficient and competitive. Research has shown a great loyalty to the NHS by the British public with around 80% preferring to use it if quality of care could be guaranteed. Equally however approximately half appear to aspire to the perceived 'privilege' of private healthcare. This aspiration does appear to provide an opportunity for the industry and its future may well be one offering cheaper forms of healthcare and insurance packages which give patients benefits that the state system is currently unable to provide. The use of the Internet has grown significantly in recent years and is likely to continue. It is envisaged that Web 2.0 applications, that facilitate interactive information sharing and interoperability on the World Wide Web, will increasingly be used in order to capture the next generation who are likely to be far more discerning in their choice of health insurance provider than ever before. It is felt that start ups that capitalise on Web 2.0 will lead the field and that businesses recognising that their offerings will be assessed through new media will benefit from targeting their services accordingly. The ability of businesses to innovate will determine their ability to engage with a new generation of consumers. Appleby Associates 2015 8
New technologies in healthcare that are expected to make significant progress in the near future include genetic diagnostics, telemedicine, implants, and body and brain imaging. At present these technologies are developing rapidly are expected to do so over the next five years into 2015. With an increasing number of older people saying that they want to be cared for in their own homes as they grow older, the demand for intensive home care is increasing and many councils are expected to cut back on care homes in favour of in-home care. Extra care housing provides older people with their own front door, access to meals, domestic support, leisure and recreation facilities with 24-hour security and support from social care and health teams where necessary. Extra care housing is becoming an increasingly attractive choice for older people as an alternative to residential care. Health tourism is a growing trend, with UK citizens opting to go abroad for treatments ranging from surgery to dentistry. Popular destinations for health tourism include France, Poland and Hungary, among many other destinations. SWOT The private health sector is one of the most stable sectors in the UK economy, supported as it is by the NHS (National Health Service). Consequently the sector responds significantly to changes in the NHS. Furthermore UK public healthcare is undergoing a slow and painful evolution from operation by the state to a system that in essence is one of state funding of quasi-private and private service delivery. Strengths The sector is supported by the NHS. Areas such as mental health, elderly care homes and to some extent acute care have benefited from increased levels of public funding and a shift from public to private provision. The sector generates more turnover than its small size would suggest. Thousands of operations a year to reduce health service waiting lists are being sought by the Government in bulk-buying negotiations with private hospitals. Most staff coming into the private healthcare sector will have had previous experience within the NHS. Nursing and healthcare are the only jobs area to demonstrate growth. Over 6.2 million people were paying for private health insurance with another 1.1 million covered through arrangements with the healthcare trust. The ability of patients to choose NHS funded care in hospitals run by the private sector rather than in NHS hospitals has created business for the private sector to the tune of 9.5 million. Around 20% of all the income in the private sector comes from the NHS. Quarter of contracts to run new wave of polyclinics being rolled out across England won by private sector. Appleby Associates 2015 9
Weaknesses Nurses are increasingly feeling the effect of the credit crunch with partners being made redundant and the general cost of living rising. Extra funding put in by the UK government is increasing people s confidence in the NHS system, drawing them back from private healthcare. NHS contracts have to be charged 'at tariff' meaning these are offered at a lower cost to NHS patients than private. These tend to be the more routine treatments. Taking on NHS contracts reduces waiting times and efficiency within the NHS which may draw private patients back to the public sector. In Scotland the SNP refuses to countenance the greater use of the private sector in providing primary healthcare in Scotland as it could put profit before patients. Opportunities Private healthcare is seen as a aspirational lifestyle choice. There is an opportunity to offer cheaper forms of healthcare and insurance packages which give patients benefits that the state system is unable to provide. British consumers are increasingly turning to private insurance for their healthcare needs with numbers increasing 2.7%. The Co-operation and Competition for NHS Services panel is thought to be considering expanding the number of contracts that are available to the private sector for providing services to the NHS. Patients are now able to access private healthcare, including buying medicines, without losing what they would be entitled to under the NHS. The NHS is also increasing its private healthcare spend. Threats Spending on procedures including non-cosmetic surgery for knees and hips has fallen by nearly 30 million to 345 million. Economic climate and the ever-shortening NHS waiting lists leading to a slowdown. Quality of care and shortening waiting lists mean that the private healthcare sector may soon be better rivalled than at present. Acute care has recently benefited from the NHS commissioning of provision to cut waiting lists, this situation may not continue. From 2009 to 2013 a clear and secure path to revenue growth is not evident. PMI (private medical insurance) industry is continually looking for ways to deliver a cheaper and more attractive proposition to its consumers. Consumers are ambivalent in their attitudes towards the private healthcare market and many would return to NHS once it has been improved. Concern about private health services that bypass the need for GPs with little regulation. Chair of the BMA (British Medical Association) has pledged to fight trend of selling NHS services to the private health sector. Appleby Associates 2015 10