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Sector Insights self-pay, private healthcare

by Suhail Mirza


Self-Pay: Hope For Private Hospital Providers?

Recent results from among the largest private acute hospital providers indicate a renaissance if not resurgence within the self-pay element of their case mix. This is within the context of prospects for PMI revenues remaining in a steady state and (in the short term at least) NHS revenue streams are mired in some uncertainty, notwithstanding the ‘reprieve’ in respect of the NHS tariff.

Spire for example, in its pre-close trading update in January 2016 re-iterated its guidance for 2015 affirming that it expected continued strong growth in the self-pay market. BMI, reporting its financials for the year ending 30 September 2015, confirmed an upturn in self-pay that amounted to growth of 3.5% for the year. Rob Roger, chief executive of Spire, states: ‘We have a clear and focused plan to grow our business from each of our three pay or groups and our recent growth within self-pay is set to continue as people are increasingly choosing to pay for their own treatment.’

The UK Self-Pay Market

The self-pay element of the triad of the sector’s revenue streams has been a key component of growth although its relative importance has varied. 
According to Laing Buisson’s Private Acute Medical Care UK Market Report (3rd edition 2015) the independent acute medical hospital sector (including clinics and diagnostics) was worth £4.56bn in 2013. A further £476m was generated from PPUs in NHS Trusts. 72% of the revenue was from private patients and whilst the majority was from PMI sources, 16.5% came from UK self-pay patients and 5.5% from international self-pay patients. The balance, 28%, came from NHS funded work.

Before exploring the prospects of UK self-pay market growth, it is critical to distinguish the central London market from the UK market as a whole. Within central London, the private acute hospital market was worth £1.4bn in 2014 and Laing Buisson estimates it will be worth £1.6bn in 2016. Here, some 19% of revenue comes from UK self-payers and 23% from international self-payers. The NHS funded work comprises just 1%, and the balance comes from PMI. HCA is the dominant player in this market, which is clearly a distinct market whose drivers for growth will fall outside this analysis.

Taking the UK as a whole the last four years 2010-13 has seen a slowdown in the growth of the self-pay market compared to the strong historical expansion between the late 1990s and early 2000’s; for example, it grew 8% in real terms between 1998 and 2005.

Circle chief executive Steve Melton says: ‘Self-pay is, for obvious reasons, accessible for affluent patients. But it’s a surprisingly broad mix. As soon as people think about what they’re prepared to spend on cars, houses etc. then investing in their own health starts to look like good value.’

Rob Roger concurs and highlights that self-pay patients are now using the private sector for higher acuity treatments. ‘Those with higher disposal income place discretionary spending in the context of other goods they pay for; in addition we are seeing more self-pay patients using the private sector for more complex treatment such as cancer and cardiology,’ he says.

Whilst disposable incomes and affluence levels are clearly affected by broader UK economic performance, it is clear that the growth of UK self-pay patient revenue is also tied to non-economic factors.

Within Quantum Physics, the Heisenberg Uncertainty Principle states, in essence, that one must have cognisance of simultaneous factors when determining the path of a sub-atomic particle. Similarly, within the private acute hospital market it is impossible to understand the likely path of the self-pay market without understanding the impact of both the performance and perception of the NHS.

‘Because of NHS rationing [of treatments] and growing waiting lists, the prospects for self-pay are positive for us and the sector. In a December 2015 survey, 94% of NHS doctors said rationing was ‘inevitable’ and 64% said this would force patients to go private. In terms of waiting lists, 25% of over 50s consider paying for treatment to avoid NHS queues,’ says Mr Roger.

Mr Melton at Circle adds: ‘It’s hard to see public expectations diminishing any time soon or the NHS suddenly coming under less pressure.’

Indeed, the Kings Fund in its February 2016 Quarterly Monitoring Report found that 8.2% of patients were still waiting for a planned hospital admission after 18 weeks in December – the first time the target has been missed since it was introduced in April 2012. Furthermore, it reports that 53% of finance directors believe that quality of care in their local area has worsened in the past year.

This may impact a second non–economic factor (in addition to NHS performance)
that potentially could drive growth in the UK self-pay patient market; namely a shift in attitudes towards use of private hospitals for healthcare needs.

‘People are increasingly comfortable with private treatment and demonstrate that social attitudes to UK healthcare provision are changing. 72% British adults in a recent poll said the NHS should use independent sector providers to reduce pressure on the NHS,’ says Mr Roger.

Mr Melton agrees: ‘The immediate context for the private acute sector is that for many patients who aren’t insured, self-paying looks attractive compared to NHS treatment in both waiting times and the overall patient experience.’

Private acute providers are accordingly using ever more focused marketing resources to highlight the benefit of private treatment and are also providing packaged product offerings to mitigate cost concerns UK patients may have.

Mr Roger says: ‘Spire has crafted a simple, transparent message around the affordability of our fixed price proposition for our top 70 self-pay procedures.’

Some also see the role PHIN, as the independent information organisation, as being important for attracting more people into the UK self-pay patient market. Given its mandate to collect and publish (by April 2017) quality and safety information on private episodes of care, chief executive Matt James, is confident that ‘for the first time patients considering private treatment will have a single source of clear and comparable information at both hospital and consultant level’.

Mr Roger supports this idea. ‘This comparable information will allow patients to make informed choices about where they want to have their healthcare provided. It will also demonstrate that those providers who have invested sufficiently to provide the best service delivery for patients are likely to thrive.’

These three non-economic factors (NHS performance, social attitudes to private care and marketing and information mix) together with economic drivers seem to bode well for private providers seeking to grow their UK self-pay patient revenue.

The consensus seems to be that PMI revenue flows are unlikely to see dramatic growth in the short term (notwithstanding a plethora of new lower cost products appearing in the market recently) and that over time there will be growth in NHS funded work for the private sector as the NHS struggles to juggle balancing budgets at a time of austerity with rising patient expectations and the new models of care demanded by the Five Year Forward View.

Over the longer term there are a couple of factors that may add to uncertainty for the incumbent private acute hospital provider sector. One, albeit unlikely to impact UK-wide in the short term, comes from the growth of ‘super speciality’ clinics, which offer new models of care and seek greater control of the patient pathway (HMn December2015/January 2016).

Another arises from technology-enabled consumers of healthcare that may seek variegated treatment pathways.

Mr Melton says: ‘People have been talking about consumerisation and informed active choice for healthcare consumers for years; now it might actually be happening. With other products people are used to shopping around and paying for instantly available services. Whilst healthcare has traditionally been the exception, that may be changing and in that context self-pay solutions might feel like a neater, simpler solution.’

Matt James from PHIN makes a similar point: ‘With the plethora of new consumer focused websites such as Doctify and FindmeHealth, people considering private healthcare will be better prepared than ever before,’ he says.

As ever, private acute hospital providers will face a changing case mix and within the self-pay market will likely need to develop ever more innovative solutions and means to communicate them within a highly competitive and evolving market.

What do you think? We would be interested to here your views if you operate in healthcare, whether in the private sector or in the NHS. Please leave a comment below.


About the Author

Suhail Mirza

Suhail brings a unique level of insight and business experience to the challenging health and health care market. This insight and Alium's ability to source the best people this industry and wider will help enable the many changes needed across this industry. Suhail works with leading healthcare providers across both the NHS and private health market, delivering the right experts and team resources by accessing our comprehensive health talent pool.

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