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Private equity firms have bought up dozens of UK healthcare companies including ambulance fleets, eye-care clinics and diagnostics businesses over the past two years as they seek to cash in on spiralling NHS waiting lists.
Private equity firms have struck 150 deals for UK healthcare companies since 2021, according to consultancy LaingBuisson, with the past two years the highest in terms of volume since at least 2014.
Investment is tracking a similar level this year with 25 deals already agreed, defying a wider slowdown in mergers and acquisitions.
Tim Read, director of research at LaingBuisson, said private equity firms were increasingly buying up “organisations that are an integral part of healthcare delivery”.
“The pandemic has demonstrated the value of investing in healthcare services as it showed the resilience of operators which are underpinned by public funding.”
The recent influx of private equity money into UK healthcare companies demonstrates the growing influence of financial investors in the sector.
The private equity industry has previously been criticised for its lack of transparency, as well as for pursuing profits over good-quality healthcare provision.
Industry executives counter that they can run companies more efficiently, invest in better technology and play a vital role in helping the NHS tackle its problems.
The recent flurry of deals is part of a longer-term trend of the taxpayer-funded NHS buying healthcare services from private providers, which began in earnest under the last Labour government twenty years ago.
Subsequent governments significantly expanded the role non-NHS providers played, creating a stable environment that encouraged private investment.
The private sector argues it is an important source of extra capacity for the NHS as it struggles with staff shortages and a record waiting list of almost 7.6mn patients since the pandemic.
A quarter of mental health beds in England, for example, are from non-NHS providers, while private hospitals, many owned by private equity firms, have also been expanding. These account for an increasing number of routine operations, such as hip and knee replacements and cataract surgery.
More recently, buyout firms have moved into diagnostics and digital care, where long NHS waiting lists mean patients are often willing to pay fees themselves.
Jasper van Heesch, a director at advisory firm RSM, said private equity firms — which raise money from investors with a mandate to buy businesses, maximise profits and sell them on — were “drawn to the sector because of the unmet demand the NHS is experiencing. There is a nice recurring revenue profile and dependable demand that you can bet on and build your business case on.”
Among the big beneficiaries of the trend towards private sector involvement in the NHS is Practice Plus, which is owned by Bridgepoint, a UK private equity group that manages €38bn.
Practice Plus earns most of its revenues from the public sector, running services including NHS walk-in health centres, prison health services and the NHS 111 telephone advice service.
It is run by former senior civil servant Jim Easton, who was previously responsible for the development and running of the 111 service.
Practice Plus generated £460mn of revenue last year and its private equity owner took out more than £50mn in dividends.
A lucrative line of business for Practice Plus is providing healthcare services to more than 45 UK prisons and immigration removal centres, with the unit making more than £186mn in revenues and almost £20mn in earnings last year.
But its involvement in prison health services has not been without controversy. It has been referenced in a number of official reports on deaths in custody in recent years for failing to provide adequate healthcare to some prisoners. Bridgepoint and Practice Plus declined to comment.
“The lack of resource and funding for NHS mental health services means that we have become increasingly reliant on outsourcing services to private healthcare firms, as is often the case with prison healthcare,” said Andrew Molodynski, psychiatrist and mental health lead at the BMA.
Optegra is another company that has reaped rewards from the UK’s growing dependence on outsourced healthcare.
The company opened its first eye hospital in the Surrey commuter belt town of Guildford in 2008. Since then, it has opened more than a dozen clinics across the UK, providing eye surgery for more than 1mn patients.
Its growth has been boosted by the NHS turning to the private sector for routine operations such as cataract surgery. Research by The Royal College of Ophthalmologists found nearly half of all NHS-funded cataract procedures in 2021 were carried out by independent providers, up from 11 per cent just five years before.
This was accelerated by the pandemic, Optegra said in its latest accounts.
“The pandemic has significantly changed the behaviour of the NHS and how it interacts with the private healthcare market,” the company said. “More recently there has been a stronger need for private healthcare businesses to support the NHS.” The group’s revenues almost doubled last year, from £34mn to £67mn.
In February, €6bn European private equity firm MidEuropa bought Optegra from a smaller rival. It plans to expand the business across Europe.
The strain from the pandemic has only increased the attractiveness to potential investors of private companies that provide NHS services.
“They are making a judgment around these mega underlying trends,” said Tom King, a director and political risk adviser at Lodestone Communications. “You are now seeing generalist [private equity] funds entering frontline care and elective surgery, it was really specialists that had backgrounds in healthcare before. It’s now become so competitive and so popular.”
Michelle Tempest, analyst at consultancy Candesic, said private providers had brought “cost discipline, innovation and specialisation to health services” and that the NHS struggled with outdated infrastructure, legacy technology and low staff morale.
But not everyone is convinced that financial investors are good at delivering health services. Private equity has drawn scrutiny for its practice of loading debt on to the companies it buys and its lack of transparency, particularly where revenues come from the taxpayer.
A recent paper published in the British Medical Journal found that healthcare provided by private equity-backed companies was often more expensive and had “mixed to harmful impacts on quality”.
“We see this as a broader trend to the financialisation of healthcare, with private equity one part of the process,” said Joseph Bruch, an assistant professor at the University of Chicago and co-author of the paper. “A higher proportion of profits are being taken out of healthcare into the financial sector.”
In the UK, political parties are gearing up for a general election next year where the NHS is close to the top of voters’ concerns.
The Labour party, which is expected to win, is in favour of using private hospitals to reduce NHS waiting lists. “I don’t subscribe to the view that public equals good, private equals bad,” shadow health secretary Wes Streeting told the Financial Times in an interview this year.
Whatever the outcome of the next election, the private sector’s involvement in UK healthcare seems here to stay. “There is no major party advocating for a different model,” King said. “The trends are advanced and well established.”
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