Business is on the up

‘Growth is back’ appears to be the headline for the private acute healthcare market in London, according to latest research by LaingBuisson, conducted before the Covid-19 epidemic. And it seems consultants who can bring patients to a hospital have never been in higher demand, reports Ted Townsend.

After a few years of low to negative growth in revenue – at least in the independent sector – the overall value of the private healthcare market from a hospital perspective reached £1.59bn in 2018, a growth of 3.2% on 2017. 

LaingBuisson forecasts that this will have grown by another 5.5% in 2019.

Some hospitals such as The London Clinic are reported to have had over a year of consecutive month-on-month increases in revenue, and Bupa Cromwell is said to have had its best month ever in late 2019.

Meanwhile, revenue for private patient units as a group grew by c9% in 2018 (see ‘NHS trusts report a rosy future for PPUs’).

But these results far outstripped the results of the independent hospitals as a whole, at 1.7%, indicating the growth has not been across the board.

Embassy patients

The main reason for the upturn is the return of embassy patients to the city, almost by definition people requiring more complex care. Revenue from these sources for independent hospitals rose by nearly 30% in 2018.

While these clients bring with them higher revenues per patient, the overall number treated in London is broadly flat, suggesting a competitive market for attracting UK patients. 

Within the independent hospital sector, revenues from patients with private medical insurance were down around 3% in 2018, while self-pay saw only modest growth of circa 2%.

Despite the low growth in non-embassy patient revenues, central London is about to see a huge boost in hospital capacity, particularly from overseas operators offering different business models for working with consultants. 

It would seem consultants who can bring patients to a hospital have never been in higher demand.

New ways of working

For example, the LaingBuisson report highlights that the recently opened Schoen Clinic, which employs its consultants, gained an estimated 11% market share in orthopaedics within 16 months by the end of 2019.

And One Welbeck Health, where consultants can form single-specialty partnerships with a share in the profit generated by the partnership’s diagnostics and procedures, is starting to hit its stride, with reports of over 100 consultants signed up already. It is a path previously pioneered by Fortius in orthopaedics.

But these new ways of working could well be dwarfed by the opening of the Cleveland Clinic in the summer of 2021. The clinic has said it will have a mixed employment model for working with consultants, although it primarily uses an employed model in the US.

So it is interesting watching how the established leader HCA responds, as well as leading individual hospitals like The London Clinic and Bupa Cromwell, which collectively have followed the practising privileges model of working with consultants.

Expansion in capacity

On top of the Cleveland Clinic, this year and next will see further expansion in hospital capacity with the opening of new facilities at King Edward VII’s Hospital, expanded facilities at the Hospital of St John and St Elizabeth, plus a new Nuffield hospital at Barts.

This increase in capacity will likely affect hospital margins, already under severe pressure.

Nearly half the earnings before interest, taxes, depreciation, amort­isation and restructuring or rent costs (EBITDAR) available in the market in 2013 has now disappeared. The weighted average EBITDAR ratio as a percentage of sales has dropped from 22.3% in 2013 to 10% in 2018. 

Despite the recent increases in revenue, this does not appear to have helped the bottom line, as costs such as wages, governance and marketing all continue to go up.

Also going up are the costs of engaging with consultants. Whether this is through salaries and guaranteed bonuses or through other means such as splitting out portions of a hospital’s business and allowing consultants to co-invest, the different business models available from different, competing, hospitals suggest that the overall price of consultants will continue to go up, affecting hospital margins still further.

All of this points to some sort of industry consolidation or restructuring soon, according to Laing­Buisson.

Central London is now or will soon be home to three well-capitalised international medical groups in HCA, the Cleveland Clinic and Schoen. 

Circle’s acquisition of BMI adds a new twist, as does Nuffield’s entry at Barts. The competitive picture looks very different than it did a few years ago. 

Ted Townsend (right) is author of the LaingBuisson Private Acute Health­care Central London Market Report, 6th edition