£20 billion opportunity ahead for the private sector

Ageing population and significant public funding pressures means that the private sector is becoming more involved in delivering healthcare services according to the latest Catalyst Finance report

The latest Catalyst Finance healthcare report outlines how private sector currently delivers a very small proportion of primary and secondary care. However, if the government is to manage funding pressures and achieve improved outcomes for patients this will need to increase.

The government will need to access the capital investment potential of the private sector and make use of alternative models of healthcare delivery which focus on the community and home and away from hospital care. This is an opportunity for financial investors to invest in the earliest stages of this shift.

Areas such as primary care, community health services and commissioning support services are potentially worth billions of pounds.

Primary care

The NHS spent £8.3 billion on GP services in England in 2009-2010, currently dominated by small general practices. However, operators such as multi-practice groups like The Practice or Virgin Care are growing and private providers are estimated to be generating annual revenues of £185 million, currently 2.2% of the addressable market.

Nevertheless, there are significant challenges to increased penetration, fundamentally around ownership structure and access to pension entitlements.

Community Health Services

Reforms across the NHS combined with the need for greater efficiencies represent increased opportunities for the private sector to provide more NHS funded services. The desire to move services from acute hospitals into the community often linked with using the Any Qualified Provider model), increased use of the private sector in joint ventures/outsourcing for services such as pathology and the potential to provide commissioning support services to CCGs are just some examples” Robert Breedon, Partner, Wragge & Co

Moving secondary healthcare services into community-based setting s is estimated to be worth £8-£8.5 billion in England. Catalyst believe the private sector could deliver up to 20%, or around £2 billion, by 2020.

Signs that the private sector is being recognised as capable of delivering services in this area are apparent with major contract wins by Circle, Virgin Care and Serco worth over £700 million.

Other specialist services like pathology are also in focus. South West Pathology Services (the joint venture between Taunton and Somerset and Yeovil NHS Foundation Trusts and Integrated Pathology Partnerships, founded by Sodexo and Labco) and NHS Midlands and East’s tender for a five-year £500 million contract which is open to private providers, are examples of the restructuring of pathology services into efficient, scalable networks.

Commissioning support services

From April 2013, Clinical Commissioning Groups (CCGs) will assume responsibility for £80 billion of NHS services in England and will start buying commissioning support services worth an estimated £1.3 billion.

With further regulation and guidance relating to commissioning expected over the coming months, the impact of the Health & Social Care Act on procurement, delivery channels and models is unclear. Nevertheless, the role of the private sector is increasing. If this is combined with the removal of barriers to higher participation, such as in primary care removing practice boundaries and goodwill on GP practices, investment would be boosted and the opportunity for the private sector to build business with scale will be considerable.

Serco

In March 2012 Serco was awarded a three-year £140 million contract to provide community health services for NHS Suffolk. Serco is an example of a company from a different sector (facilities management) using its reputation for supplying to the public sector to take advantage of the opportunity to expand into the healthcare services market.

Companies