While there are undoubtedly opportunities for private patient units, careful market due diligence needs to be undertaken and the optimal strategy needs to be considered to make them more lucrative. By Hugh Risebrow
Having exhausted low hanging cost savings, many trusts are considering revenue growth including private patients as a contributor to balancing the books. How realistic is this, and what are the opportunities for trusts?
Colin Leys’ recent article for HSJ reviews Sarah Walpole’s report for CHPI, and suggests that an independent review is needed into whether Private Patient Units do actually make a net contribution to NHS finances, and whether they reduce capacity to treat NHS patients. Without wishing to embark upon a critique of NHS management accounting, NHS organisations should understand the cost (and the value!) of each service line as well as its net contribution or deficit.
Having reviewed private patient strategy at a number of trusts, the intentions at least are invariably to create additional capacity for private patients, and to generate surpluses from private patients which will benefit NHS patients.
According to Laing Buisson, the hospital value of the UK private patient market (excluding consultant fees and NHS funded activity in private hospitals) was £4.2 billion in 2016, with NHS PPUs accounting for only 14 per cent of this.
Having spoken with 150 consultants across nine trusts and a range of specialties about their private practice in the past two years, a majority would say that all things being equal they would prefer to undertake private practice in a PPU for a combination of reasons: access to specialist equipment and clinical skills; greater convenience particularly for daily inpatient visits; and, contributing financially to their NHS employer.
The top 10 PPUs by revenue are all in central London, with single specialty hospitals punching above their weight. Not all London trusts have significant PPU revenues, for example Barts and St George’s
So, if NHS trusts can create a PPU proposition to consultants which is equal to nearby private hospitals, they should be able to significantly grow their 14 per cent share?
Some trusts have, particularly in London. The central London market is very different for the UK.
Again, Laing Buisson figures show that in 2016 this was worth over £1.4bn or 35 per cent of the UK total. London attracts most of the embassy funded overseas patients that come to the UK, as well as many patients from outside London seeking specialist treatment.
There are several large private hospitals in London with ICU and tertiary capabilities which allow them to offer most of the treatments available in teaching hospitals. Nonetheless, PPUs in central London have around 27 per cent of the market, led by The Marsden, whose PPU revenues are approaching £100 million per annum.
The top 10 PPUs by revenue are all in central London, with single specialty hospitals punching above their weight. Not all London trusts have significant PPU revenues, for example Barts and St George’s.
Outside London is a very different picture, and perhaps where a greater opportunity for PPU growth lies. PPUs in trusts outside central London have combined revenues of £235m, or 8 per cent of the outside London private market. Only Frimley, Oxford and Royal Papworth state revenues of between £8-10million per annum, with 68 others averaging £3million.
Private hospitals outside London are typically much smaller than those inside London, with limited ICU/CCU. Whereas central London private hospitals undertake very little NHS funded treatment, this now accounts for £1.6bn or 40 per cent of revenues (and over 50 per cent of activity) in private hospitals outside London.
These hospitals generally serve consultants in high volume specialties such as orthopaedics and ophthalmology very well. However, as surgery becomes more sub-specialised and complex, some consultants in other specialties are unable or reluctant to undertake less common procedures in smaller private hospitals, which may lack the equipment, or where nurses and therapists may lack familiarity with the procedure.
In some health economies which we have researched, particularly around regional teaching hospitals, as many as 30 per cent of potentially private patients are treated as NHS patients due to lack of private facilities. Whilst insurers will require a distinct private pathway with quality outpatient facilities and rooms, a PPU can nonetheless leverage NHS operating theatres, equipment and specialist nursing and therapy staff.
Not only will this generate surpluses for the trust, converting patients from NHS to private will also save clinical commissioning groups and sustainability and transformation partnerships money.
The central London market has attracted a number of new entrants, including Cleveland Clinic, Schoen Clinic, and Amsurg, together with major expansions at several other private hospitals, and a new PPU being planned at Bart’s
Many NHS PPUs have, however, underperformed. Typically this is for a combination of the following reasons: lack of investment in facilities; lack of guaranteed access to theatre time; beds not ring-fenced/used by NHS overflow; administrative processes which make it inconvenient for consultants; consultants not confident in trust’s commitment to private patients; cultural antipathy to private practice; and, a lack of relevant commercial skills.
Trusts such as The Royal Marsden and Royal Brompton have proven that all things being equal, consultants prefer PPUs, but sadly many trusts have failed to develop their potential. Another option for these trusts is to partner with a private operators, who will typically bring resources and skills which are complementary to the trust’s: investment capital; commercial and marketing skills; and, higher prices with insurers.
The contractual ring-fencing of private capacity should boost consultant’s confidence.
This option is by no means right for every trust, but is worth considering. Commercially this may involve an arms length arrangement whereby the trust receives a rent, a revenue/profit share, and some income for support services, or it may involve a more integrated joint venture. The Christie and Clatterbridge are examples of trusts which have dramatically grown private revenues in partnership with private operators, with The Christie’s profit share exceeding £5 million per annum.
To end on a cautionary note, the private patient market has flattened recently, with central London declining 5 per cent due to oil prices causing a significant drop in embassy funded patients from The Gulf (although PPUs volumes of these patients have held up, whilst more expensive private hospitals have been hit hard).
The central London market has attracted a number of new entrants, including Cleveland Clinic, Schoen Clinic, and Amsurg, together with major expansions at several other private hospitals, and a new PPU being planned at Bart’s. Furthermore, a number of operators have stretched balance sheets, have seen margins decline recently, and may be reluctant to invest in PPU partnerships.
Whilst there are undoubtedly opportunities for PPUs, careful market due diligence needs to be undertaken and the optimal strategy needs to be considered. The once lucrative private market is no longer an automatic route to riches.
- BARTS HEALTH TRUST
- FRIMLEY HEALTH NHS FOUNDATION TRUST
- Oxford University Hospitals NHS Foundation Trust
- Private sector
- Royal Brompton & Harefield NHS Foundation Trust
- ROYAL PAPWORTH HOSPITAL NHS FOUNDATION TRUST
- St George’s University Hospitals NHS Foundation Trust
- The Christie NHS Foundation Trust
- THE CLATTERBRIDGE CANCER CENTRE NHS FOUNDATION TRUST
- THE ROYAL MARSDEN NHS FOUNDATION TRUST