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Annual integrated report 2011


Hospital operating review: UK

Netcare owns a controlling 52.6% effective stake in GHG, the largest provider of private acute care in the UK.

Introduction

Under the BMI Healthcare brand, GHG operates a national network of 64 hospitals across the UK, comprising 3 038 beds, 192 operating theatres and 50 in-house pharmacies.

GHG’s service offering includes imaging services, physiotherapy, pathology services, cosmetic surgery, as well as weight loss, fertility and women’s health services.

Business performance

GHG experienced a difficult trading year due to continued economic uncertainty in the UK, constrained NHS spending and a further decline in the number of insured lives.

Rising unemployment, reduced levels of policy cover and diminishing disposable income continued to drive a decline in the number and nature of insured lives. While these economic factors also negatively impacted the self-pay market, there are positive signs of a recovery in this segment with year-on-year growth recorded in response to specific GHG initiatives and longer NHS waiting times.

GHG’s partnership with the NHS to deliver care through Choose & Book (C&B) faced uncertainty in the year due to financial constraints and regulatory changes in the healthcare sector. The Health and Social Care Bill was delayed, contractual relationships according to the Any Qualified Provider framework were decentralised and Primary Care Trusts (PCTs) were disbanded in favour of GP-led commissioning bodies. These changes come at a time when the NHS aims to save between £16 billion and £20 billion by 2014 (equating to 6% of the national healthcare budget).

Despite these challenges, GHG remains an important provider to the NHS under the C&B programme. GHG has grown its market share in this area faster than any of its competitors over the last two years.

GHG has renewed its focus on partnering with the NHS and has invested time and resources in preparing for the new NHS contracting environment. This has involved creating a strong NHS-facing infrastructure by developing the people and processes required to maximise opportunities in the NHS and meet the needs of the business.

GHG’s overall caseload grew by 4.2% and revenue rose by 3.8% to £887.6 million. GHG’s earnings before interest, taxation, depreciation and amortisation (EBITDA), however, declined by 11.4% to £196.2 million. The decline was due to:

  • Continued reduction in insured volumes;
  • Increased external rent charges from the sale of BMI The Duchy and BMI The Harbour hospitals;
  • VAT increasing to 20%, which added to GHG’s cost base as it cannot claim input VAT; and
  • The winding down of NHS Independent Sector Treatment Centres (ISTC).

The EBITDA margin declined to 22.1% (2010: 25.9%), mainly as a result of the continued shift from private patient volumes to lower-margin NHS cases, as well as the impact of OpCo businesses acquired in prior years, which are EBITDA accretive but have lower margins.

Net financial income and expenses were positively impacted by a credit of £2.8 million relating to the ineffective portion of the mark-to-market movement in interest rate swaps, compared to an £8.7 million charge in the prior year. A tax credit of £27.5 million (2010: £13.7 million) was recognised following a further 2% reduction in the UK company tax rate to 25%. As a result, profit after tax was £41.6 million (2010: £31.5 million).

Working capital was tightly controlled and improved during the year despite the shift to higher NHS caseload and the longer payment cycles associated with it. GHG increased its year-end cash balances to £130.6 million (2010: £79.8 million) and reduced net debt by £89.8 million to £1 785.4 million. The reduction in net debt was aided by £35.4 million of funds generated from the sale and leaseback of BMI The Duchy Hospital in January 2011 and BMI The Harbour Hospital in July 2011, with the accompanying repayment of debt and associated swap obligations. GHG continues to meet all financial covenants on both the OpCo and PropCo debt facilities, which are ring-fenced from each other and without recourse to the SA operations.

Investment in infrastructure and facilities

Hospitals

GHG continued to invest in its infrastructure and facilities, with capital expenditure (including intangible assets) amounting to £43.9 million (2010: £47.4 million). This included the following:

  • Refurbishing BMI The Park Hospital in Nottingham, with a major extension to the existing building including a new intensive treatment units department, new endoscopy suite and new theatre, and the refurbishment of three existing theatres;
  • Refurbishing seven theatre suites and three existing wards, and building new oncology and paediatric wards at BMI The Alexandra Hospital in Manchester;
  • New operating theatres and refurbishments at BMI The Ridgeway Hospital in Swindon;
  • Refurbishing BMI Fawkham Manor Hospital in Dartford;
  • Creating a new imaging department at BMI The Hampshire clinic in Basingstoke;
  • A new fertility clinic at BMI The Winterbourne Hospital in Dorchester;
  • Installation of new equipment in several hospitals, including a new CT scanner at BMI The Chiltern Hospital, Great Missenden;
  • BMI The London Independent Hospital and BMI The Cavell Hospital, Enfield, launched new day surgical units;
  • BMI Goring Hall Hospital, Goring-By-Sea opened a new oncology unit; and
  • Refurbishing the reception area and patient rooms at BMI Coombe Wing in Kingston.
The UK’s first cryotherapy unit

In a first for the UK, a new cryotherapy unit has been launched at BMI The Garden Hospital in Hendon, providing alternative treatment for inflammation and pain relief. Cryotherapy uses extreme cold temperatures to stimulate the body, decreasing inflammation, pain, and spasms. Cryotherapy is used in sports medicine, orthopaedics and trauma surgery. Such units are used in Europe by big sporting teams to treat tendonitis and rheumatoid arthritis, and to promote rapid muscle and joint recovery from injury and fatigue.

Decontamination centres

We have also completed the transfer of decontamination services from half of the BMI hospitals to specialist hubs that we own and operate, having acquired these at the end of 2009. A fourth decontamination hub in Maidstone was acquired as part of a strategy to become a supplier of top quality decontamination and instrument tracking services to internal and external customers.

IT systems

The Medax IT system is being replaced by a more flexible PeopleSoft solution with 14 modules covering patient administration, charging and billing, pharmacy dispensing, stock control, ward and theatre management, and procurement and financials. As part of the rollout, PeopleSoft will also interface with other systems. The system is already demonstrating increased reliability, user-friendly web functionality, convenient on-screen links to other systems and reduced risk of error.

Relationships with doctors

Building good relationships with consultants and local GPs is essential to GHG’s business model. GP issues were addressed by a team of dedicated primary care managers through regular visits and a series of presentations and clinical conferences around the country throughout the year, to update GPs on developments. A number of consultant engagement forums were developed to provide feedback to management. We plan to develop these forums so that consultants are more actively involved in decisions relating to our business.

Investing in our people

A renewed focus on staff engagement resulted in an increase in line management briefings, the launch of a package of non-financial benefits, and greater participation in the Night of the Stars awards for team and personal achievement.

98 For further details refer to the Our People report.

Looking ahead

With global economic uncertainty persisting, budgetary and structural uncertainties in the NHS and the impact of austerity measures on the UK economy, the next 12 months are anticipated to remain very challenging for GHG. Private caseload is likely to continue to be constrained, while NHS volumes will depend on which areas are targeted for budget savings. Nevertheless, the strategies and improvements implemented during the year should position GHG to address these challenges.

United Kingdom hospitals

  Registered beds
Hospital 2011   2010
Northern Region 807   807
Albyn Hospital 44   44
The Alexandra Hospital 170   170
The Beardwood Hospital 31   31
The Beaumont Hospital 34   34
Carrick Glen Hospital1 19   19
The Duchy Hospital1 27   27
Fernbrae Hospital 20   20
Gisburne Park Hospital1 35   35
The Highfield Hospital 57   57
The Huddersfield Hospital 29   29
King's Park Hospital1 23   23
The Lancaster Hospital 27   27
Ross Hall Hospital 101   101
Sefton Hospital1 23   23
The South Cheshire Private      
Hospital1 32   32
Thornbury Hospital 77   77
Transform Pines Hospital 20   20
Woodlands Hospital1 38   38
Central Region 722   755
Chatsworth Suite     16
The Chiltern Hospital 66   66
The Droitwich Private Hospital 46   46
The Edgbaston Hospital 55   55
The Foscote Hospital2 16   16
The Lincoln Hospital 32   32
The Manchester Lifestyle      
Hospital     17
The Manor Hospital 23   23
The Meriden Hospital3 52   52
The Oxford Clinic1 22   22
The Park Hospital 92   92
The Priory Hospital 118   118
The Sandringham Hospital3 35   35
The Saxon Clinic 40   40
The Shelburne Hospital3 31   31
St Edmunds Hospital 40   40
Three Shires Hospital2 54   54
 
  Registered beds
Hospital 2011   2010
London Region 664   664
Bishops Wood Hospital3 42   42
The Blackheath Hospital 69   69
The Cavell Hospital 45   45
Chelsfield Park Hospital 50   50
The Clementine Churchill      
Hospital 141   141
Coombe Wing1 22   22
Fitzroy Square Hospital1 17   17
The Garden Hospital 30   30
The Kings Oak Hospital3 52   52
The London Independent      
Hospital 80   80
The Riverside Hospital 14   14
Shirley Oaks Hospital 50   50
The Sloane Hospital 32   32
Southend Private Hospital1 3   3
Weymouth Hospital 17   17
Southern Region 845   845
The Bath Clinic 75   75
The Chaucer Hospital 60   60
The Esperance Private Hospital 50   50
Fawkham Manor Hospital 39   39
Goring Hall Hospital 52   52
The Hampshire Clinic 65   65
The Harbour Hospital1 40   40
McIndoe Surgical Centre2 30   30
The Mount Alvernia Hospital 90   90
The Princess Margaret      
Hospital 80   80
The Ridgeway Hospital 50   50
The Runnymede Hospital3 52   52
Sarum Road Hospital 48   48
The Somerfield Hospital 48   48
Werndale Private Hospital 28   28
The Winterbourne Hospital 38   38
Total 3 038   3 071
1 Core hospitals held under long-term lease.
2 Hospitals operated under management contract.
3 NHS partnership hospitals.