The latest Private Acute Medical Care in Central London report from LaingBuisson points to a slowing of the growth enjoyed by central London’s private hospitals over the last decade. But, according to report author Ted Townsend that’s not putting off overseas investors

LaingBuisson Consultant and Report Author Ted Townsend

Growth for independent hospitals in the central London private acute market appears to be petering out, and may even go backwards in 2017, despite continued growth in NHS Private Patient Unit (PPU) revenues.
This split in fortunes is revealed in the latest figures from LaingBuisson, which show the total private acute medical care market in central London is estimated to have been worth £1.47bn in calendar year 2016, up just 2.8% on 2015.
This compares to revenue growth of 7.6% per annum over the ten years to 2016, a significant fall-off in expansion.
This softer revenue growth, combined with continuing increases in wages, had led to a drop in profit margins of roughly 6% on average over the past two years, ranging from 3% to 10% in some cases.
At the time of writing, HCA’s results for 2017 were not available, although LaingBuisson is actually estimating a fall in revenues for the past year, at least for the independent hospitals as a group.
As with results in 2015 and 2016, the main source of the decline appears to be the decrease in international patients coming to London, particularly from the Gulf states.
LaingBuisson estimates that revenues from this source have fallen dramatically in the last two years. However, international revenue for the NHS PPUs actually grew, in part due to apparent price competitiveness but also other factors such as specialisation.
Indeed, partly because of this, two of the top ten private hospitals in central London are NHS PPUs – the Royal Marsden and Great Ormond Street.

Flattening demand

Overall, patient numbers appeared to be broadly flat or declining in 2016, so any revenue growth would need to come from higher revenues per (UK-based) patient.
Historically, this has been done by moving ‘up the acuity’ ladder, although it is not clear how much more of this can be achieved, at least outside of cancer services.
One response has been to invest in outpatient and diagnostic facilities in a bid to catch patients further ‘up-stream’. However, it is not clear that these investments have brought in any more patients. HCA’s opening of the Shard in February 2016 appears to have had only a marginal benefit on the number of outpatients seen by the group, for example, so it will be interesting to watch their other openings in Elstree, Chiswick, and particularly Sydney Street.
Other factors also seem to be putting pressure on prices for the existing volume of patients.
PMI continues to be the main source of revenues and there was some small uptick in this source as hospitals try to work more closely with the insurers.
However, general efforts by insurers to push patients to outer London private hospitals or indeed central London NHS ones continue to grow across the specialties, together with a general push by insurers for day-surgery rather than overnight stays for patients.

Increased competition

Further price pressure in orthopaedics, for example, is likely to come from the opening of new surgical centres such Fortius in Bentinck Street in 2017, and the Schoen Clinic in Wigmore Street this year.
In cardiology, the Royal Brompton is expanding its private unit at Harefield which will increase capacity in cardiology and cardio-thoracic medicine.
And in oncology, the Royal Marsden’s planned opening of a unit in Harcourt House, Cavendish Square, W1, along with the recent £50m-plus to expand its Sutton cancer operation, suggests it will become a stronger competitor. Having said that, HCA’s opening of Private Care at Guy’s, as well as its investment in Leaders in Oncology Care, suggest it will be the largest independent oncology operator for some time.
There are also plans for a US-style day-surgery centre in Welbeck Street due to open in 2019, and likely focusing on gastroenterology and ophthalmology.
And all this before the planned opening of the 200-bed Cleveland Clinic in the second half of 2020.
As in other parts of the independent hospital market, self-pay continues to grow in central London, particularly in areas such as fertility and other specialties where either NHS waiting times are increasing or CCGs are withdrawing commissioning (eg cataract surgery). These specialties tend to be more outpatient/day-case surgery focused, so whether the larger hospital groups will be able to capture it all may be somewhat problematic.

Sizable market

The hospital-only central London revenues represents c. 40% of the national market for private patient revenues in independent hospitals and PPUs in the UK. With Outer London included, this rises to nearly 50%.
While most central London independent hospitals have traditionally eschewed NHS work, in part due to the perceived low tariffs, it will be interesting to watch if this changes as they seek to fill capacity. This differs significantly from independent hospitals outside London, where the NHS is a main source of customers, particularly through e-referral.
Aspen Healthcare’s London hospitals, for example, already have a high proportion of NHS work, so it may be they will seek to increase this in 2018 and beyond, particularly as the group prepares itself for a probable corporate sale.
Despite the recent downturn in the London market, it continues to attract interest from UK and overseas operators. In the latter case, companies such as Fresenius, NMC and Apollo have been mentioned.