Health sector to offer more scope for FM

8 December 2011

by Graeme Davies

The Health Service remains one of the most emotive of political subjects, but it is also a huge element of the government’s overall budget. And despite protestations to the contrary, the Coalition government is trying its hardest to reduce the economic burden on the government’s coffers by introducing private sector providers in an effort to improve efficiency and cut costs.

The private sector has been playing a part in the NHS for years and many service providers have built up decent businesses on the back of the slow creep of outsourced services over time. Now a quantum leap could be upon us, but does it represent an opportunity for more mainstream outsourcing and FM providers to pick up contracts with wider scope and will it tempt larger players to try to buy their way into the sector through the acquisition of specialist providers?

A target of £20bn in efficiency savings over the coming five years suggests that outsourcing will have to grow rapidly. Indeed, a landmark was reached recently when private health company Circle took over the running of the Hitchingbrooke hospital in Cambridgeshire after having won its spurs running a smaller scale NHS treatment centre in Nottingham, where productivity is said to have increased by 
18 per cent since it took over.

Healthy competition
Health remains a specialised area, which is why the main outsourcing providers so far have been the likes of equipment procurement specialist Asteral or sterilisation services provider Synergy Health or back office service providers such as Capita and Serco, whereas plain vanilla FM businesses have done well out of outsourcing buildings services.

But with major changes afoot to NHS procurement with the government proposing a shift to clinical commissioning groups led by GPs, the private sector’s role could expand much further. Indeed, doctor’s group the British Medical Association, has recently expressed its concerns over the plans, saying they favoured private sector operators too much. Indeed, the expectation that many NHS workers would opt out of the service and form their own mutuals with which to offer back the same services to their former employers has yet to take off in a significant way. Last August, 21 such ‘Pathfinder mutuals’ were formed and, since then, a mutuals taskforce has also been established in order to further encourage the development of this sector.

But it is doubtful that, in the long run, mutuals will be able 
to compete sufficiently in what 
is a very competitive market, where big players such as 
Virgin Healthcare are already winning contracts.

Mainstream FM operators are also believed to be looking at expanding into the healthcare sector, such are the opportunities to be targeted. Mitie recently admitted it wanted a bigger slice of the action and others who are already doing some work in the health sector are believed to be keen to expand their reach. This can be done organically, but it might be quicker to do so through acquisition, which can have the double advantage of bringing in contracts and expertise. Without this, it would be a long slog to build up specialist skills organically.

NHS change feels inevitable, although its passage will not be smooth. The government’s planned clinical commissioning groups could be in place by 2013 and well established by the time of the next election in 2015, during which the NHS will once again be one of the trickiest political hot potatoes.

Graeme Davies writes for Investors Chronicle