In the last two years, private equity firms have acquired dozens of UK healthcare businesses including ambulance fleets as well as eye-care clinics, diagnostics companies and diagnostics. They are trying to take advantage of the soaring NHS waiting list.
According to LaingBuisson consultancy, private equity firms have made 150 deals with UK health care companies between 2021 and now, the volume has been at its highest since 2014.
The investment level is similar this year, with 25 deals already completed. This defies a general slowdown in mergers & acquisitions.
Tim Read, LaingBuisson’s director of research, said that private equity firms are increasingly buying “organisations which are integral to healthcare delivery”.
The pandemic showed the value of public funding in healthcare as well as the resilience of the operators.
Financial investors are increasingly influential in the UK healthcare sector, as evidenced by the recent influx of money from private equity funds.
The private-equity sector has been criticised in the past for its lack transparency and for prioritising profits over high-quality healthcare.
Industry executives argue that they are able to run their companies more efficiently and invest in better technologies. They also believe that they can play a crucial role in helping the NHS solve its problems.
The recent rush of deals is part a long-term trend whereby the NHS, funded by taxpayers, purchases healthcare services from private providers. This trend began in earnest during the previous Labour government 20 years ago.
The role of non-NHS providers was significantly increased by subsequent governments, creating an environment that encouraged private investments.
Private sector claims it can provide extra capacity to the NHS, which is struggling with staff shortages. It also has a waiting list that is almost 7,6 million patients long.
Private hospitals, including many that are owned by private equity companies, have been expanding. This is a growing number of routine surgeries, including hip replacements, cataract surgery and other types of knee and hip replacements.
Buyout firms have recently moved into diagnostics, digital care and other areas where patients often pay for their own services due to long NHS waiting list.
Jasper van Heesch is a director of advisory firm RSM. He said that private equity firms, which raise money through investors to buy businesses and maximise profits, then sell them, were “drawn” to the NHS sector due to the unmet demands. You can build your business plan on a dependable demand and a nice revenue profile.
Practice Plus is one of the biggest beneficiaries of the trend toward private sector involvement in NHS. It is owned by Bridgepoint – a UK private equity firm that manages €38bn.
Practice Plus’ revenues are largely derived from the public sector. It runs services such as NHS walk-in clinics, prison health services, and NHS 111 phone advice.
The service is managed by Jim Easton, a former senior civil servant who was responsible for the development of and running the 111 system.
Practice Plus’s private equity owner received more than £50mn as dividends last year.
Practice Plus’s lucrative business is to provide healthcare services in more than 45 UK prisons, immigration removal centers and other institutions. The unit generated more than £186mn of revenue and almost £20mn of earnings in the last financial year.
Its involvement in prison healthcare services is not without controversy. In recent years, it has been cited in several official reports about deaths in custody for not providing adequate healthcare to certain prisoners. Bridgepoint and Practice Plus refused to comment.
The lack of resources and funding for NHS Mental Health Services means we are increasingly dependent on outsourcing services to the private healthcare sector, as it is with prison healthcare, said Andrew Molodynski.
Optegra, another company that has profited from the UK’s increasing dependence on outsourcing healthcare, is another example.
In 2008, the company opened its first Eye Hospital in Guildford, a commuter town in Surrey. It has since opened over a dozen clinics in the UK and provided eye surgery to more than one million patients.
The NHS has turned to the private sector when it comes to routine operations like cataract surgery. This has boosted its growth. The Royal College of Ophthalmologists conducted a study that found in 2021, nearly half of the NHS-funded cataract surgeries would be performed by independent providers. This is up from just 11 percent five years ago.
Optegra’s latest financial reports stated that the pandemic had accelerated this trend.
The company stated that the pandemic had changed the behavior of the NHS, and the way it interacted with the private health care market. “More recent, there has been an increased need for private healthcare companies to support NHS. The group’s revenue almost doubled from £34mn last year to £67mn.
MidEuropa, a private equity company in Europe with a market capitalization of €6bn, bought Optegra (a smaller competitor) from them in February. It has plans to expand its business throughout Europe.
Private companies that offer NHS services are more attractive to investors because of the strain caused by the pandemic.
Tom King, director and political risk advisor at Lodestone Communications said: “They’re making a judgement around these mega-underlying trends.” “Now you are seeing generalist (private equity) funds enter frontline care and optive surgery. Before, healthcare was dominated by specialists. It has become a very popular and competitive industry.
Michelle Tempest is an analyst with consultancy Candesic. She said that private providers have brought “cost discipline and innovation to health services”, and the NHS struggles with outdated infrastructure, legacy technologies and low staff motivation.
Not everyone believes that financial investors can deliver quality health care. Private equity is under scrutiny because of its practice of putting debt on the companies that it purchases and for its lack of transparency.
The British Medical Journal published a recent article that found healthcare provided by companies backed by private equity was often more costly and had “mixed-to-harmful impacts on quality”.
Joseph Bruch is an assistant professor and co-author of this paper at the University of Chicago. He said, “We see it as a trend towards the financialisation of health care, with private equity being a part of that process.” “A greater proportion of profits is being transferred from the healthcare sector to the financial industry.”
The NHS is a major concern for voters in the UK as political parties prepare to hold a general elections next year.
Labour, the party that is expected to win in November, supports using private hospitals to cut down NHS waiting lists. In an interview , Wes Streeting, shadow health secretary at the time, said: “I do not subscribe to the belief that public = good and private = bad.”
The private sector seems to be here to stay, regardless of the results of the next elections. King stated that “there is no major political party promoting a different model.” “The trends have been well-established and are very advanced.”