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Annual integrated report 2011


Health policy and regulation: UK

Despite uncertain economic conditions, government austerity measures and the lack of clarity on the structural reorganisation of the NHS, there are still significant opportunities for GHG in the United Kingdom (UK) market.

Overview

Estimates1 indicate that 4% of the adult population have had surgery or other procedures in a private hospital in the last two years. By comparison, 12% of the population have had treatment and/ or surgery in an NHS hospital in the last two years.

The combined pressures of socio-demographic change and government austerity indicate that more NHS procedures will need to be undertaken by the private sector and the slowdown in private healthcare spend (through private medical insurance or selffunding) should reverse.

There has been no significant change in the key players in the private sector, with GHG remaining the largest private provider by scale and network. The four key private sector providers are noted in the table below.

Major hospital providers

  Hospitals   Beds
General Healthcare Group 64   3 038
Spire Healthcare2 45   1 658
Nuffield Hospitals3 30   1 353
Ramsay Health Care3 32   933

UK population trends by age, 2010 to 2035

Age 2010   2035
Under 16 19%   18%
16 – 64 64%   59%
Over 65 17%   23%
Total 100%   100%
Source: ONS/YouGov SixthSense estimates.

Key market drivers

Social trends1

One of the most significant social trends affecting UK healthcare is the country’s ageing population. This has profound implications for the healthcare system – with more people expected to live longer, demand for healthcare services will keep rising.

This demographic trend also has funding implications, since a lower percentage of people of working age will mean less tax revenue. Competition for healthcare resources is therefore expected to intensify and as a result the private and/or independent sector may be called on to take some of the strain off the NHS.

Looking ahead, people aged over 65 are forecast to comprise 23% of the UK population by 2035. In contrast, people aged between 16 and 64 are expected to decrease from 64% to 59% of the population from 2010 to 2035.

Source: BBC News.

The UK economy

GDP growth has slowed by approximately 0.6%4 over the last 12 months to 30 September 2011. This represents a significant slowdown from the 2.6% growth in the preceding 12 months4. In addition, the Bank of England recently announced that it was reducing its growth forecasts for the UK economy to 1% for 2012 from the 2% previously forecast.

The chancellor’s 2011/12 public sector net borrowing requirement target of £122 billion is based on economic growth of 1.7% in 2011 and 2.5% in 20125. The figures noted above will therefore place further pressure on public spending. In October 2011, the chancellor allowed the Bank of England to increase the scale of its quantitative easing (QE) programme from £200 billion to £275 billion, due to the deterioration in the economic outlook.

Unemployment has risen by 38 000 quarter-on-quarter with the unemployment rate rising to 7.9%, virtually unchanged compared to the second quarter of 2010.6 The government spending deficit has led to austerity measures such as staff redundancies and cuts in services.

Consumers have continued to feel the pressure of rising commodity prices, the increase in VAT to 20% and higher National Insurance Contributions from April 2011. Surveys show that around 26% of employers plan to freeze pay, while one in 10 are delaying their annual pay review.7

Following its formation, the coalition government announced a series of reforms to the UK healthcare system. This included the Health and Social Care Bill, which has been described as one of the most important regulatory developments in UK healthcare for some time.

This legislation has important implications for the UK private healthcare industry. Should the Bill be passed in its present form, it is likely that opportunities will emerge for private healthcare operators, especially in areas such as acute and primary care.

Impact of these factors on the private market

Private Medical Insurance8

The decline in the insured market, which began in 2010, continued into 2011. The fall in subscriptions initially lagged the economic recession as subscribers waited for their policies to come up for renewal before cancelling them.

The decline in the insured market, which began in 2010, continued into 2011. The fall in subscriptions initially lagged the economic recession as subscribers waited for their policies to come up for renewal before cancelling them.

As indicated in the table below, subscriber numbers for private medical cover (including medical insurance and self-insured medical expense schemes) were down 8.3% in 2010, while spending on Private Medical Insurance (PMI) decreased 0.6% in real terms (after adjusting for inflation).

Number of subscribers to health cover products and total UK spending on health cover products

Market Subscribers
at 1 January
2009
Thousands
  Subscribers
at 1 January
2011
Thousands
  Spending
in 2008
£ million
  Spending
in 2010
£ million
Private medical cover 4 321   3 962   4 173^   4 146^
Health cash plans* 2 887   2 652   509   482
Dental benefit plans 3 318   3 234   548   567
All health cover 10 526   9 848   5 230   5 195
  Growth   (6.4%)   Real growth   (4.6%)
^ Includes derived spending by companies that self-insure medical expenses.
* Includes a small amount of double counting from dental cover spending.

Shifts in demand for private medical cover confirm that of the 359 000 subscribers that dropped out of the sector in 2009 and 2010, 252 000 were company paid and 107 000 were individual paid, representing a 7.9% decline in company paid volumes and 9.5% decline in individual paid subscribers.

Though positive economic growth is expected to deliver a modest real increase in health cover spending in 2012, it is unlikely that the recent downward trend in subscriber volumes can be fully stemmed next year. In the longer term, a return to reasonable growth of around 2.5% by 2013 is projected, and stable growth is expected to follow, along with a stronger labour market. This may underpin a gradual recovery in health cover demand. The strength of the recovery will depend on a number of factors including NHS performance, employers’ preferences for health benefits, and the opportunities and threats for health cover in a more mixed healthcare economy.

Self-pay patients

GHG has seen an increase in the self-pay market during the second half of the 2011 financial year compared to the previous year. While the adverse economic climate has made trading conditions challenging, there have been some encouraging signs with more patients willing to pay for their own treatment when they are not covered by PMI, or when they are faced with restricted NHS procedures or longer NHS waiting lists.

NHS waiting lists are likely to continue increasing as the NHS comes under greater financial pressure. The monthly referral to treatment statistics9, published by the Department of Health, shows that in August 2011 there were 301 245 inpatients whose “pathways” were completed in hospital and 90.4% who had been seen within 18 weeks. However, analysis shows that the number who had waited longer stood at 28 919, some 48% higher than the 19 547 recorded for the same period in 2010.

The National Health Service

The NHS and its future was a key issue during the general election held in 2010. Given the worsening economic situation, most of the major UK parties agreed that some form of budget cut would be unavoidable, although there was considerable political pressure to ‘ringfence’ certain areas of the NHS, especially to protect frontline health services.

Almost a year before the election was called, the NHS Chief Executive had stated that NHS trusts should deliver savings of between £15 billion and £20 billion between 2011 and 2014, equivalent to nearly 6% of the overall NHS budget.

The principal aim behind many of the proposals to reform the UK healthcare system was to increase patient choice. The Health and Social Care Bill, which was widely anticipated to provide more opportunities for private healthcare to support the NHS, was subject to a ‘pause’ and ‘listening exercise’ that led to greater uncertainty.

In addition, contractual arrangements between the public and private sectors were decentralised, with commissioning arrangements now made with individual Primary Care Trusts (PCTs). Commissioning responsibilities will move from PCTs to Clinical Commissioning Groups by April 2013, which means more responsibility will devolve to GPs.

Despite the resistance to the Bill, public sentiment appears to favour private sector involvement in the NHS. A YouGov survey of 5 142 adults aged 16 and above indicated that:

  • 53% agreed with the government’s current policy of using private hospitals to treat NHS patients. A further 24% had no opinion;
  • 55% agreed with the statement ‘The private sector has a role to play in reducing NHS waiting lists’. A further 18% ‘neither agreed nor disagreed’ and 4% ‘don’t know’; and
  • 57% agreed with the statement ‘Private healthcare is a necessity to remove some of the burden from the NHS’. A further 24% ‘neither agree nor disagree’ and 3% don’t know’.

Regulatory overview

The principal regulator for GHG in England is the Care Quality Commission (CQC). Legislation for the regulation of healthcare services changed from the Care Standards Act 2000 to the Health & Social Care Act 2008. Under this Act, GHG and the legal entities of the managed sites have registered as providers with the CQC. Each site is registered as a location providing regulated services which may include:

  • Treatment of disease and disorder;
  • Surgical procedures; and
  • Diagnostic and screening.

In the transition application, all sites declared compliance with the outcomes for the 16 key essential standards, which are directly related to the quality and safety of care. For the first time all NHS providers now have to be registered and the same regulations apply to all providers. The focus is on healthcare outcomes rather than process and the key requirement is to provide evidence of these and not merely to produce the ‘policy’.

There has also been a change in regulation in Scotland with Healthcare Improvement Scotland (HIS), a health body formed on 1 April 2011. HIS was created by the Public Services Reform (Scotland) Act 2010 and marks a change in the way the quality of healthcare in Scotland will be supported nationally. HIS regulates independent healthcare and the NHS by inspecting services to ensure they comply with standards and regulations, and providing public assurance on the quality and safety of healthcare.

In Wales, the Healthcare Inspectorate Wales (HIW) is the independent inspectorate and regulator of all healthcare and has an equivalent core role to CQC and HIS.

It is essential that GHG maintains a high level of self-regulation. This ensures a high standard of care and also supports our reputation as regulator reviews are made public and are a tool that patients, consultants and commissioners of care use to select providers. GHG continues to manage its response to regulation through a robust governance framework and a programme of self-inspection.

1 Source: YouGov report: NHS Choice & Private Sector Dynamics, 2011.
2 Source: Laing & Buisson Healthcare Market News, October 2011.
3 Keynote Market Report 2011, Private Healthcare.

4 Office for National Statistics.
5 Howard Archer, Chief UK & European Economist for HIS Global Insight.
6 Part of GDP and the Labour Market, 2011 Q2 – August Labour Market update Release Office for National Statistics.
7 Chartered Institute of Personnel and Development’s annual reward survey, May 2011.
8 Source: UK Health Cover 2011, Laing & Buisson.
9 National statistics on NHS referral to treatment waiting times, 13 October 2011.