Healthcare sector overview

The independent private sector continues to play an important role in the delivery of healthcare in the United Kingdom (UK). The National Health Service (NHS) provides both primary and secondary care, including accident and emergency services, and general practitioners (GPs) act as the gateway to both the NHS and independent hospitals for outpatient services, diagnostic testing and elective procedures. NHS expenditure in the year to April 2009 was approximately £120 billion, and expenditure in the private acute sector (including NHS spend) has been estimated at about £6.5 billion¹. Compared to many European countries the independent sector in the UK is relatively small and there is considerable opportunity for growth, particularly as NHS spending is constrained due to government financial pressures.

Consolidation in the independent sector continued in 2008/ 2009, with General Healthcare Group (GHG) acquiring two more hospitals, thereby extending its position as the leading private operator in the UK under the BMI Healthcare (BMI) brand.

Details² for the four major providers in the UK at mid 2009 are:

In the UK, most private medical services are procured through private medical insurance (PMI) or self-funded “Trust” schemes⁴, with an estimated 12.3%⁵ of the population covered. Despite significant increases in real terms in NHS expenditure since 2002 and material reductions in NHS waiting times for elective treatments, the PMI market has proven to be reasonably robust and has maintained coverage of above 12% of the population.

Direct patient payment (self-pay) and the NHS make up the balance of procured healthcare services in the independent sector. The NHS is progressing in its reforms to provide patients with a choice of hospital when they are referred for acute care by their GP. This is being achieved through the Choose and Book (C&B) programme, which is based on a standard tariff and includes any participating independent and NHS provider under the “Any Willing Provider” programme. While still in its infancy, C&B is viewed as the key to delivering efficiency and enhancing value for money in public healthcare provision.

Private medical insurance

The PMI market in the UK is dominated by Bupa and Axa PPP healthcare; together they cover over 65%⁶ of the market with a combination of insurance and self-insured corporate medical expense schemes. New entrants, such as Pru Health (part owned by Discovery Holdings) and Simply Health, are seen to be driving innovation in the sector. Pru Health has grown rapidly and now represents 2.5% of the market, demonstrating that new entrants are capable both of winning market share and growing the total market size.

Despite annual NHS expenditure increasing by £26.3 billion over the last four years, the wider PMI market has grown to cover approximately 7.5 million lives. In 2008, PMI revenues grew above the rate of inflation, rising by 7% to £3.6 billion, above the growth rates for the previous two years at 4.9% (2006) and 4.1% (2007).

NHS budget growth has significantly slowed over the last four years, from an average of 7% per annum in real terms to 4% in 2008. This decline provides the independent sector with an opportunity to fill the funding gap and despite macroeconomic uncertainties, the fundamentals of the healthcare sector remain positive for the PMI market. The demands of an ageing population and a declining NHS budget in real terms should counteract the impact of a slowing UK economy.

Self-pay

Although dwarfed by PMI expenditure, the self-pay market is important for the independent sector, which continues to differentiate its patient proposition from the NHS.

Increasingly, the NHS policy is to refer patients to a department as opposed to an individual consultant. The independent sector typically excels at providing paying patients with a choice of consultant and quicker, more convenient appointment times. While there has been significant improvement in NHS waiting times, a choice of consultant remains an important private sector differentiator.

The NHS has also experienced setbacks in service standards, for example in controlling hospital acquired infections (notably MRSA and Clostridium difficile), whereas the independent sector’s standards remain impressive, further differentiating our offering.

The self-pay market also has access to treatments that are not traditionally covered by medical insurance or adequately covered by the NHS, including cosmetic surgery, weight loss surgery and fertility treatment (IVF). Over half of IVF treatments in the UK are provided by the independent sector. Within this field, BMI is the market leader with these services offered in certain BMI hospitals and through a joint venture that offers dedicated IVF units.

NHS

A cornerstone of NHS reform is for GPs to provide patients with a choice of hospitals for elective treatments. This is facilitated by a national IT infrastructure and a standard procedure fee. The independent sector has been encouraged to join the C&B programme, and all BMI hospitals in England are now registered to participate. BMI is being selective in the work it is taking on from the NHS; we believe that active management will provide a real opportunity for further growth. However, BMI will continue to focus primarily on private PMI and self-pay patients.

Regulatory overview

The principal regulator for BMI hospitals in England is the newly formed Care Quality Commission (CQC). In April 2009, the CQC took over the regulation of all health and social care across both the independent and state sectors in England. There are parallel arrangements in place for GHG’s three hospitals in Scotland, through the Scottish Care Commission, and one hospital in Wales, through the Health Inspectorate for Wales.

In England, where most of BMI’s hospitals are located, the CQC has taken over the functions of the Healthcare Commission and the Commission for Social Care Inspection, and both commissions have now been dissolved. Formal regulation of the NHS by the CQC will commence in April 2010, and so currently, while the form of inspection visits and reporting is similar across both private and NHS hospitals, the standards against which compliance is measured are different. The CQC is working hard to develop a consistent approach across its inspectorate, but the regulatory regimes will only be converged in 2011.

Good working relations have already been established with the new regulator, and it seems that the constructive approach followed by CQC’s predecessor is being continued. A number of GHG staff are working on sector-wide initiatives with the CQC to help set performance standards, which will form the basis for the new regulatory regime to be applied from 2011. There is a shift to a regime based on self-regulation with a lower frequency of on-site inspections by the CQC.

The CQC will use a broad range of criteria to determine whether inspections are required. Risk assessments and scoring will be based on self-assessment submissions, self-inspection reports and quarterly submissions of clinical indicator data provided by the hospitals. Inspection reports by other regulators and any serious incidents or complaints received will also be considered. GHG requires that a programme of self-inspection is performed every six months; internal reviews are generated by a dedicated Quality and Risk team that report directly to the corporate office, and these are submitted to the CQC. The move to a more self-regulated environment plays to one of GHG hospitals’ key strengths – the high standards of quality and safety that we consistently achieve.

GHG has just published its first set of Quality Accounts. These will be mandatory from 2010, but management felt it important to move early on this initiative to demonstrate to the market the quality standards we have achieved. The Quality Accounts summarise BMI’s activities and successes against three quality domains: safety, effectiveness and patient experience.

At the same time, the healthcare sector is working closely with representatives from the NHS to develop standards for a range of measures of clinical performance, including clinical outcomes. Over the last year, agreement has been reached on a number of these indicators, a reporting structure has been negotiated and put in place, and data collection and transmission systems are being created. This is a long-term project, with initial reporting expected to begin in 2010.