US health giant Acadia Healthcare has said it could sell or close some Priory Group facilities as challenging trading conditions continue to erode UK margins.
Despite a 4.4% increase in same facility revenue for the third quarter of 2018, EBITDA margins fell 450 basis points on 2017 to 16.9% as NHS referrals softened and widespread staff shortages resulted in high agency costs. Although overall occupancy rates grew, this was not enough to absorb higher wages and other operating costs.
Chairman and chief executive Joey Jacobs said Acadia was in the process of identifying Priory sites for potential sale but was yet to make a final decision on their future.
‘We have more than 500 facilities [in the UK]. We’re looking at the lower number of performing facilities and what we can do with them. And worse-case scenario it would be we would close them and we are not adverse to doing that . If we decided, we could put 20 facilities together and maybe somebody would want them – we would look at that too but primarily, if we can’t turn around the lower performing facilities, then we will make a decision to close them,’ he said.
Acadia’s future ownership is itself under intense speculation as rumours circulate that private equity is circling the $3.8bn market cap Group. According to recent reports in the New York Post, KKR is the front-runner in an auction being run by Jefferies. TPG Capital and Bain Capital are also said to be in the running, but sources told the newspaper that KKR is close to securing a deal.
Jacobs declined to comment on the reports, but insisted the company remained committed to the UK market despite evidently tough trading conditions.
He said occupancy rates in the UK were forecast to recover – though not by much – as the NHS commissioned new services. Overall, however, Acadia expects difficulties resulting from the nursing shortage to continue for the foreseeable future.
‘Frankly, we are going to have to have some relief on the premiums we are paying nurse agencies. There’s got to be more nurses, more staff, more clinicians entering the system…so that has to be fixed – we can grow the census but it’s really the salary and wages that’s the issue,’ said Jacobs.