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18 June 2018
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Graham davies
Graeme Davies writes for Investors Chronicle

13 February 2017 | Graeme Davies

The NHS has leapt back onto the front pages recently as the service creaks under the pressure of rising numbers of people seeking its services, which managers say they cannot meet, reports Graeme Davies.

The debate has also brought into focus the government’s plans for the NHS; it is aiming to make more than £20 billion in savings from the system by 2021. 

The private sector’s role in the NHS has been growing steadily, a trend that is likely to accelerate in years to come as the private sector moves on from roles such as FM into delivery of direct services to the public. 

Research for the Financial Times by Bain & Company shows that in the 12 months to August 2016 the number of private sector NHS tenders rose by 14 per cent compared with a year previously with a value of £5.9 billion. In the financial year to April 2016, private sector firms delivered £8.7bn worth of NHS services – just shy of 8 per cent of the total. The bulk remains in community and mental health but the trend towards combining social and healthcare budgets in many areas will see private sector involvement increase across the NHS. 

But is the NHS the gravy train for private firms that critics of privatisation claim? On one hand, companies can grab significant contracts to bolster their order books, but on the other, risks of failing to deliver are considerable – reputationally and financially. The big risk for companies taking on such work is the highly emotive nature of the NHS system, which means public scrutiny is far sharper than if a contractor were, say, building a trunk road, although both are funded by taxpayers. Witness the headlines that accompany high-profile failures such as Circle (the first private firm to manage a hospital) handing back the running of Hitchingbrooke Hospital in Cambridgeshire to the NHS as it was unable to run the deal profitably.  

And NHS budgets remain under pressure. Recently, private hospitals group Spire said the NHS tariff it charges for providing services to the public at its hospitals on behalf of the NHS would be 3.9 per cent lower in the year beginning April 2017. This compares with a 1.5 per cent uplift last year.  

But such issues have not put private FM players off targeting the NHS – witness VirginCare’s £700 million deal to provide community healthcare in Bath and North East Somerset – despite the obvious health warnings..

Graeme Davies writes for Investors Chronicle