Private patient units – often misunderstood and unloved, but they are a potential £1bn opportunity for the NHS, argues Hugh Risebrow.
There is a silver cloud to post-Covid NHS waiting lists – it is the growth in private patient activity.
Things were broadly flat in real terms from 2012 to 2019 and any growth in private hospitals – at least outside London – was driven by treating NHS-funded patients.
2022-23 estimates are 25-30% above 2019, with a market now worth c£5bn-c£7bn to hospitals and c£2bn to consultants.
The UK private hospital market is, relative to most international markets, consolidated with five large groups accounting for c75% and few independents outside London. These groups – Spire, Circle, HCA, Nuffield and Ramsay – are well known by consultants and patients.
NHS private patient units (PPUs) collectively account for around 15% of the market and would be number four in the market if they worked as a single entity.
Opportunities and challenges
PPUs are all run as individual units by their respective trusts and are heterogenous. This article sets out some data and observations about PPUs, as well as the opportunities and challenges which they present for the NHS and consultants.
Firstly, there are major differences between London and outside London. Unsurprisingly. London, with only 15% of the UK population, accounts for around a third of private healthcare.
Affluence and high employer-funded private medical insurance mean that there are a range of sophisticated private hospitals, including new entrants such as Cleveland, ASI and Schoen.
PPUs in London have a c25% share of this market and the largest ten units are all in London and in 2019 collectively had more than £400m in revenues. The Marsden is by far the largest and thought to be approaching £150m.
Some of the larger London PPUs have made substantial investments. Marsden, Brompton – since merged with Guy’s – and Moorfields have collectively invested £15-20m over the past few years in satellite sites in the Harley Street district. This level of investment in PPUs is the exception rather than the rule.
Outside London, PPUs have only 8% of the market. Over 80 NHS organisations have more than £1m in private patient revenues, but there is a very long tail of very small PPUs. We would question whether many are profitable, but equally, we see most of the potential opportunity for PPUs as outside London.
With a few exceptions such as Manchester, Leeds, Bristol and Southampton, private hospitals outside London are small – two to three theatres – and have no or very limited HDU/CCU facilities.
They are geared up to provide a superb service for orthopods performing joint replacements on ASA1-2 patients, as well as a limited range of other high-volume specialties.
But, in most areas, there is insufficient private demand to justify investment in equipment, breadth of staff skills and, for example, HDU and CCU to support low-volume, high-acuity or high-complexity cases.
By contrast, PPUs should be perfectly placed to meet these needs. Many trusts have invested in all manner of specialist equipment for each specialty – robots, Linacs and hybrid theatres, to name but a few – and have ICU and a range of subspecialised nurses, therapists, pharmacists and other support staff.
Having made the investment in these assets and fixed costs in order to meet their primary objective – treating NHS patients – they should be able to make some capacity available for private patients and make significant financial surpluses which will fund improvements to NHS care.
My company, Latchmore Healthcare Associates, has worked with 16 PPUs and undertaken one-to-one interviews with around 300 consultants about their private practice since 2015. See some of our key findings in the box below.
So why don’t PPUs, especially outside London, achieve more? We have developed the schematic (see below) for the factors driving a successful PPU.
In our experience, the following factors mitigate against PPU success, especially outside London:
Having been an executive director at an NHS trust, as well as chief executive of four private healthcare businesses, I would describe NHS management as a tough gig.
Targets and pressure from regional and central offices are relentless and there is limited bandwidth outside big London trusts to think about private patients.
Trust execs are keen to avoid adverse publicity. There are plenty of critics, internally and externally, arguing that PPUs are immoral and take capacity from NHS patients.
My view is that clinician time rather than physical capacity is the bottleneck. Once NHS clinicians have performed their allotted time, they are free to work in the local private hospital or do whatever they want, so why not give them the opportunity to work in the PPU?
PPU management bandwidth
The bigger PPUs have management teams of similar calibre to private hospitals.
Smaller PPUs often have highly motivated individuals, but they are expected to combine operational management, with consultant relations, private medical insurer negotiations, billing management and the work of seven departments in a private hospital group.
Limited commercial negotiating power and skills
PPUs typically realise prices from private medical insurers 10-20% below private hospital groups. Billing insurers requires specialist skills and our audits have shown underbilling of 10-20+ %
Lack of capital
PPUs really only need capital for private day pods/rooms and consultation rooms, if other facilities are shared with NHS services. Nonetheless, NHS trusts, except the large London ones described above, inevitably prioritise investment in NHS services.
NHS access targets
One of the reasons that NHS management is difficult is that ministerial/political targets to reduce waiting lists translate through layers of apparatchiks into a brutal performance regime.
An element of trust funding is dependent upon hitting 104% of 2019 activity, while many beds are blocked by medically fit patients. Many PPU beds have been handed to NHS patients.
If – and it is a big if – trusts can overcome these challenges, they could potentially dramatically grow their share of private patient activity.
Some trusts have recognised the benefits of PPUs, but realising that they lack the capital, have created partnerships with private providers. A list of the key partnerships is shown in the box below.
Many attempts to create these partnerships have failed – we have a list, but I have chosen not to include it – due to internal resistance, management changes and lack of suitable sites within the trust, and private operators are inherently sceptical.
Some have done fantastically well. In 2010, The Christie was generating £10m of private patient income with profits unknown. It created a partnership with HCA, who invested all of the capital (c£25m) to create a business which in 2019 made c£13m profit on almost £50m of revenues, with The Christie receiving 49%.
Hugh Risebrow (right) is chief executive of Latchmore Healthcare Associates LLP, a specialist healthcare advisory company which has advised 16 NHS trusts and NHS England on aspects of private patient strategy. He was previously commercial director at Guy’s and St Thomas’ NHS Trust, where he initiated the strategy to partner with HCA to deliver private cancer services