The income of privately-run mental health hospitals fell by 3.3 per cent in 2011, driven by the start of the NHS’s unprecedented savings drive, according to a new report by market analysts Laing & Buisson.

The report puts the total market value of the sector at £1.08bn in 2011, down from £1.12bn the previous year. It marks the first fall in market value of the sector since Laing & Buisson’s records began.

“Until recently,” the Healthcare Market Review 2012-13 states, “this had been one of the fastest expanding segments of the independent healthcare sector, driven by NHS outsourcing, but the rate of growth of turnover has now slowed down and reversed, from double-digits in the mid-2000’s to high single figures in the late 2000’s, to just 2.4 per cent growth in 2010 and a 3.3 per cent fall in 2011.”

NHS-funded patients account for 87 per cent of private mental health hospital revenues, according to Laing & Buisson figures.

The “watershed” for the sector came around 2009-10, the analysts report, when the NHS began to respond to the prospect of zero real-terms funding growth from 2011-12 to 2014-15, and the introduction of its £20bn quality, innovation, productivity and prevention savings drive.

“During most of the first decade of the century, in a benign public spending environment, growth in independent mental health sector market value had been driven partly by rising capacity and occupancy fee inflation and extension of the range of services,” they write.

“Since 2010, however, mental health hospital providers have been reporting more erratic placement levels, efforts to accelerate patient transitions to the lower cost end of care pathways and like for like fee reductions as NHS commissioners have sought to bear down on prices in response to the QIPP agenda.”

They predict that the hitherto rapid growth in private mental health hospital capacity – which rose from 6,212 beds in 2003 to 9,865 beds in 2011 – is likely to slow down “in the near term”.

They add: “NHS investment in new capacity is also likely to slow down, since capital budgets are the first thing to be sacrificed when the NHS faces expenditure constraints.” They suggest this will have “particular relevance” for medium secure facilities, where both NHS and private providers have created “substantial new capacity in recent years”.

Development activity, they write, has moved away from secure provision as overcapacity has become evident in some regions, towards non-secure “step-down” services, where there is still a perceived capacity shortage in many areas. In the future, they suggest, some of this step-down capacity may itself be replaced with lower-cost care home or specialist non-residential services.

According to the report, the UK had a total of 34,900 mental health hospital beds. Some 70.5 per cent of this capacity was provided and funded by the NHS; 25.6 per cent was NHS funded and provided by the private sector.