NHS private sector tenders could be worth up to £20bn, according to new report

Out-Law News | 18 Sep 2012 | 12:59 pm | 2 min. read

Opportunities for private healthcare companies to provide services to the NHS could be worth up to £20 billion as a result of changes in healthcare policy and increasing pressure on public finances, according to a new report.

Corporate finance consultancy Catalyst said that major contracts awarded to providers including Circle, Virgin Care and Serco in recent years demonstrated "increasing recognition" from the public sector of the private sector's ability to reduce costs and improve care through more efficient delivery models and the ability to invest. Its report (8-page / 1.8MB PDF) also indicated an upwards trend in mergers and acquisitions (M&A) within the healthcare sector.

"Despite many challenges, the private sector is increasingly providing healthcare services whether paid for by the taxpayer or directly by consumers at the point of use," said Justin Crowther, one of the authors of the report. "Whether this is to turn around underperforming hospitals, operate GP surgeries, deliver community services or create centres of excellence in areas such as pathology, NHS commissioners are increasingly using the skills and capital of the private sector."

Private sector delivery of primary and secondary care services is at its "earliest stages", according to the report, although Catalyst predicts that delivery of these services by the private sector will increase between 20% and 40% by 2020. The report points out that the private sector already dominates in the provision of home care, care for the elderly and services for those with mental health issues or learning difficulties.

Primary care services, such as those provided by general practitioners (GPs), are currently dominated by small general practices, according to the report. The NHS spent £8.3bn on GP services in England in 2009-10.

Multi-practice groups managed by private providers such as The Practice and Virgin Care are growing, it said, with estimated annual revenues of £185 million or 2.2% of the addressable market; however, it said that there were "significant challenges" to increasing this share, particularly in relation to ownership structure and access to pension entitlements.

Catalyst said that the private sector could deliver up to 20% of the £8-8.5bn worth of secondary healthcare services, such as those provided by hospitals and other specialists, by 2020. The private sector is "already being recognised as capable of delivering services in this area," Catalyst said, with contract wins worth over £700m by Circle, Virgin Care and Serco during 2012.

Other specialist services including pathology are being increasingly outsourced, while the move from primary care trusts to Clinical Commissioning Groups (CCGs) from April 2013 create up to £1.3bn of support services opportunities.

Circle became the first ever non-state provider to deliver a full range of NHS district general hospital services in February this year as part of a 10 year contract to run Hinchingbrooke Healthcare NHS Trust. Staff at the Trust will continue to be employed by the NHS, retaining NHS terms and conditions and pensions. Virgin Care was awarded a £500m five-year contract in March to deliver community and other health services in Surrey, while that same month Serco was awarded a three-year £140m contract to provide community health services for NHS Suffolk.

"We have worked on a number of these transactions and can see real benefit in extending this approach," said healthcare and infrastructure law expert Barry Francis of Pinsent Masons, the law firm behind Out-Law.com. "The contracts create real opportunities for benefitting from new ideas and investment from specialist private and other independent sector organisations. At the same time they impose contract discipline on specifying what is needed and setting a regime for monitoring, encouraging and improving performance."