Private concerns

A block-booked NHS deal, a drop in privately funded care, and the potential to cut NHS waiting lists are just some of the factors shaping the future of independent hospitals. Kathy Oxtoby reports on how they fared during the pandemic, the challenges they face, and their prospects in the coming months and years

The NHS and the private hospital sector have always worked closely together. Then came Covid-19, which led to the two sectors forging even closer connections through an historic deal.

This March saw independent hospitals putting virtually all their capacity at the disposal of the NHS, as well as an agreement for all independent sector CT scanning capacity to be used by the NHS to support the accurate diagnosis of the virus.

More than 8,000 private beds at 600 private healthcare outlets were bought in March at an estimated cost of reportedly £2.4 million a day, with the expectation that NHS hospitals would be overwhelmed.

Right for the sector to respond Commenting on the deal, David Furness, policy director, Independent Healthcare Provider Network (IHPN), the membership body for the independent sector, says: “We were facing a huge global health emergency. There was a real prospect of the health system being overwhelmed by Covid-19 and it was right for the sector to respond by making its facilities, staff, and equipment available to the NHS.”

But the health service’s intensive care wards were not swamped during the height of the pandemic, and it was reported that most of the private beds went unused, prompting criticism and concern from healthcare professionals and patients about operations and procedures being cancelled.

However, Furness says that “it’s wrong to say that because some beds were empty ‘this wasn’t quite what everyone signed up for’”.

“The NHS was looking to secure the maximum number of beds because nobody was sure what level of demand we would see.”

He says that “independent sector providers were “absolutely central to maintaining essential services over the Covid emergency period, whether that be private care – where cancer surgery has continued – or NHS care”, and that “hundreds and thousands of NHS patients have benefited from this deal”.

In addition to the NHS-private hospital deal, another immediate effect of Covid-19 on the sector was that “patients shied away from attending hospitals in fear of the infection risk and then as the lucrative health tourists disappeared”, says Nick Hood, business risk adviser at Opus Restructuring.

Private care fall and rise The sector also saw “an initial and dramatic fall in the use of private hospitals by the NHS, as it became totally focussed on combating the rapidly spiralling ICU and aftercare demands of victims of the virus”, Hood says.

The Covid-19 pandemic led to a “dramatic fall” in privately funded healthcare in the UK in April (86%) and May (87%) – when the country was in lockdown, according to data from The Private Healthcare Information Network (PHIN). However, June and July saw a steady increase, with July seeing an estimate 32,000 private admissions. This is about half of 2019 activity, but up significantly from 8,400 in May this year.

During the pandemic there was a continuing baseline of urgent activity, such as medical oncology, which grew from a relative low of 3,800 in May to an estimated 6,900 in July, with 21% of market share by activity.

Dr Jon Fistein, PHIN’s chief medical officer, says: “As hospitals diverted their resources to support the NHS effort private care took a back seat,” but that “it is reassuring to see that urgent care – such as medical oncology – continued to be provided during the height of the pandemic.

“Over the last few months we have begun to see private care rise again. It’s perhaps too early to say when or whether it will return to previous levels. but we will be keeping an eye on the situation and what happens over the coming weeks and months.” ▶

▶ Rapid response to NHS needs

The private hospital sector’s initial performance during

Covid-19 has shown that it is able to respond rapidly to NHS needs during the most challenging of times. “The private sector scrambled incredibly well to deal with Covid-19.

Frankly, given how shambolic the government was in providing Covid-19 guidelines, testing kit and PPE provision, you’d have to say the private sector performed brilliantly well,” says Julian Evans, head of healthcare at Knight Frank.

“In a matter of days we saw a transformation [in the sector] with virtually all of that capacity being made available to the NHS,” says Furness.

He says there have been “some inspiring examples of independent hospitals rapidly changing what they were doing to care for patients, being flexible and innovative, and really showing the best of what the sector is all about”.

The pandemic highlighted that collaboration is one of the sector’s strengths, says Furness. “The independent sector and the NHS sometimes are seen as being on almost opposite banks of a river, but we’ve built a bridge across it.

“It’s clear we are all part of one system and that system needs to work as effectively as possible for both NHS and private patients. There’s an important opportunity here to break down barriers and build on those partnerships in the future,” says Furness.

Working in partnership The March deal to boost capacity during the pandemic highlights “more strategic partnering between local NHS systems and the private sector”, says Helen Buckingham, director of strategy and operations at independent think tank the Nuffield Trust.

“Too often in the past the private sector has been seen as a fall back in winter, or at times when waiting lists were rising.

“Now, as we move to more local commissioning, there will be a greater recognition of some of the benefits of working in partnership and, I would hope, a more strategic approach to doing that,” says Buckingham.

Hood says that as long as the NHS remains a state-run service, which is available to all and free at the point of use, “the private hospital sector can be differentiated as a premium provider capable of generating a good return for its investors”.

In contrast, other healthcare sectors, particularly care homes and domiciliary care, are “virtually entirely in private hands and are negatively affected by government underfunding”.

Level of uncertainty While the private hospital sector has performed well during Covid-19, it has faced challenges. As the sector “went into the crisis”, the UK’s ten largest private hospital groups were loss making overall and many of the major unlisted private companies had been unprofitable for some years, says Hood.

Debt was another major issue, he says, with some of the largest private hospital providers accounts showing “stratospheric gearing ratios of over 300%”.

“This made them heavily reliant on debt to finance their businesses and potentially vulnerable to a prolonged period of low or non-existent demand and revenue flow interruption,” says Hood.

He suggests Covid-19 created “not just precisely that business interruption, but a level of uncertainty greater than ever seen before”.

“Without the NHS deal, it is probable that a number of private hospital groups would have been forced into major restructurings with consequential damage investor value.

“Investment in any sector thrives on certainty, so inevitably there has been a pause on new project investment, as well as on strategic investment activity of the like seen in 2019 when healthcare real estate activity doubled to £3 billion”, says Hood.

Covid-19 has exposed some weaknesses in the private healthcare provider sector relating to digital adoption. Most interactions in the private hospital sector have traditionally been face to face and paper based. But the pandemic has “forced digital adoption on a massive scale – for both doctors and their patients”, says Ashish Goel, health lead for Accenture in the UK.

“Digital and physical journeys don’t always end at the hospital, which creates further opportunities for the private healthcare providers to refresh their digital strategies to create richer citizen experiences,” says Goel.

Backlog of NHS cases Now that the initial Covid-19 peak has passed, Furness says a challenge for the sector will be to help put the health system back on a normal footing again, by dealing with the backlog of NHS cases that built up during that time and restoring access to private care.

“We know there’s going to be huge demand for independent healthcare provision, whether that’s from people who are self-paying or insured, and from NHS patients too.”

He predicts the NHS waiting list could hit the 10 million mark by the end of the year “so the focus will be on how to utilise independent sector provision alongside the NHS, and on the return to normal of private care where we know there’s lots of pent up demand.

In an effort to cut waiting lists fuelled by coronavirus, this August the Government published a prior information notice (PIN), which sets out a potential spend of £10 billion on independent sector provision to deal with waiting lists, with a contract start date of 30 November 2020, ending December 2022.

The services in scope are NHS inpatient and outpatient, (including full supporting pathology and imaging services) and urgent elective care and cancer treatment to service users in line with nationally set criteria, and NHS inpatient non-elective care (either direct admission or transfer from an NHS organisation).

The President of the Royal College of Surgeons of England, Prof Derek Alderson, has estimated that the NHS will need at least five years to address the backlog of elective surgeries. “This will be a huge undertaking, requiring theatre capacity and surgical capacity optimisation, co-operative working across organisations, sectors and regions, alongside increased

Helen Buckingham, Nuffield Trust

staffing wherever possible,” says Vikas Yadav, senior vice president, UK and Europe Healthcare Advisory, the Marwood Group, and author of its recent report, ‘Europe’s elective surgery backlog – a boom for private clinics?’ Further information about the report here.

“This presents a unique opportunity for the private sector to leverage its capacity and staff not engaged in pandemic efforts and help the NHS deliver its targets,” Yadav says.

The surge in waiting lists is also a chance for the private sector to “recruit and retain a patient base which may never have considered private care prior to Covid-19”, he suggests.

Boosting investment appeal By assisting in the drive to cut waiting lists, the sector also has an opportunity to boost its investment appeal. Hood notes that “the talk in the private healthcare investment market is now turning from the short-term financial impact of the pandemic to the medium and longer-term opportunity represented by the backlog of private patients and the need for the government to be seen to get NHS waiting lists back under some sort of control.

“This is generating an element of optimism, for example prompting one source to upgrade the shares of one listed provider to ‘buy’ after rating them as only a ‘hold’ for the past three years.

The sector will need to consider its investors when looking at the long-term consequences of working with the NHS to address the backlog of patient cases, Buckingham says. “My sense is negotiations will probably be more challenging because the independent sector will continue to want to support the NHS and want to be seen to be doing that. But it won’t be able to sustain this with no return for investors over a prolonged period.”

She predicts: “There are going to be some genuine discussions about what level of capacity is actually needed, what the NHS is prepared and able to pay, and how much the sector can balance supporting the NHS with returning to ‘normal’ and treating private patients.”

Ashish Goel, Accenture

Retaining referred patients With a new ‘normal’ starting to emerge, Lewis Cone, senior B2B analyst, Mintel, and author of the UK Private Healthcare Inc Impact Of COVID-19 Market Report, envisages private healthcare will continue to provide “an alternative to the NHS that will remain financially and resource-burdened unless there is a significant shift in its operating model.

“On the other hand, the private healthcare industry will need to combat usage barriers such as affordability”.

Longer-term, “the real benefit to the sector would come from retaining referred patients, as opposed to the current scenario where patients referred from the NHS for surgical intervention revert to the NHS for post-operative care and follow up,” says the Marwood Group report.

“Operators who can find an economic model to serve and retain these patients within their ecosystem through rebates on follow up or creative incentives to remain in their system are likely to be able to extract more lifetime value per consumer,” the report suggests.

Broader church of capital Having proven “once again to be a highly defensive asset class”, Evans predicts “you’ll see a broader church of both domestic and overseas capital looking to invest into the sector.

He suggests, “the accelerated decline in retail and vulnerability of other asset backed sectors such as hotels and leisure means institutions will need to de-risk out of those sectors and invest into healthcare”.

The degree to which Telemedicine has become accepted by patients after GP surgeries effectively closed their doors to visitors provides another opportunity. “The private hospital sector can lead the way in the use of technology to enhance this patient experience. Virtual physiotherapy has been an unexpectedly successful development, which can be expanded,” says Hood. ▶

▶While there are numerous opportunities for independent healthcare providers, Buckingham points out that the flip side for the sector is that when the economy is hit hard, and there are job losses, private health insurance is one of the first costs to be cut.

With the devastating impact of the pandemic on the economy and the impending surge back to unemployment rates not seen for decades, the sector can no longer rely on self-funding as “an engine for future growth and profit generation,” says Hood.

He says the pandemic has also served to increase political speculation about the future of the NHS, “not just because of its disruptive effect on primary care, but how it has highlighted the parlous state of every part of the social care system”. “In theory any radical changes to UK health and social care should increase investment opportunities, but as always in these areas, the devil is in both the detail and in the funding.

“Simply shifting responsibility to the private sector without also guaranteeing adequate funding through some form of health and care insurance arrangements will make sensible investors rightly very wary,” Hood says.

There are many unknown factors and uncertainties in the current climate, including the prospect of a second and even third wave. Another wave would be “devastating” if it stoked demand levels within the NHS and reduced it in private hospitals to the same or greater effect than the initial shock”, Hood believes. He says current indications are that recent localised case increases are amongst younger and fitter victims, “but with winter coming, nothing can be taken for granted”.

What seems certain is that NHS waiting lists are unlikely to go away any time soon “so despite the push back from treasury, the opportunity to partner with the NHS will continue to exist as long as the private providers can bring in imaginative thinking and richer, inclusive value propositions for the NHS and citizens,” says Goel.

Interesting sector to watch With private healthcare services deemed to be somewhat of a ‘luxury’ investment prior to the Covid-19 outbreak, Cone says potential users of the private healthcare sector will still need to be convinced of the high-quality treatment for the relative higher cost.

He says that despite the reduction in those with PMI, the number of ‘self-pay’ patients has risen in the industry, “so this could still be an avenue for hospital operators and insurers to explore, in the form of diversifying products”.

The Marwood Group report notes that “those who manage to build deep local relationships are likely to continue to be seen as partners in demand management rather than as cherry-picking profiteers, an image that has traditionally attached itself to them”. And the report adds: “Riding the positive tailwinds of the pandemic make this an interesting sector to watch for investors and operators alike.”

As “the NHS doesn’t have the capacity to deal with the burgeoning ageing population and mental health tsunami

Lewis Cone, Mintel

we are facing and as we race into recession”, Evans believes the private sector will remain in high demand through NHS contracts, PMI and elective surgery.

And he says Government will also need to look at “more nuanced and strategic partnerships” with the private sector, such as virology and pathologies.

While it is hard to predict exactly where the sector is heading, at least not until there is some sort of long-term resolution to the virus, Furness believes it will continue to be “a crucial part of the UK health system, and will play a major role in recovery efforts over the months and years ahead”.

Signs are that close relationships will continue to be built. As Evans says: The Government desperately needs the private hospital sector and it will be a flight to quality for investors too.” n

For case studies of how independent providers are supporting the NHS during Covid-19 visit the IHPN website: ihpn.org. uk/resources/case-studies/

PRIVATE SECTOR ACHIEVEMENTS BY NUMBERS

8,000 hospital beds across England

Nearly 1,200 more ventilators

33 more scanners

More than 10,000 nurses, over 700 doctors and over 8,000 other clinical staff

In London over 2,000 hospital beds

Source: NHS