There are a number of growth opportunities for private healthcare

A look back at 2022

Our healthcare clients performed well in 2022, despite the lingering impact of Covid-19, which continued to bring disruption where there were outbreaks and hit staffing levels. Inflationary pressures also meant rapidly increasing energy bills for hospitals and care homes. 

Staff absenteeism due to Covid-19 added to the ongoing general labour shortage in healthcare, a problem exacerbated by Brexit, with employees still being lost to better-paying sectors like retail & hospitality, and the loss of social care workers who objected to mandatory Covid vaccination, a requirement which has since been dropped. 

To tackle the staffing crisis, many businesses responded through overseas recruitment from countries like India, the Philippines and Sri Lanka. The government’s decision to extend a 12-month work visa scheme to cover foreign healthcare workers certainly helped in this regard.

Challenges ahead

Looking to 2023, there are continuing economic challenges. For some, there is concern about long-term government spending on social care and the knock-on effect on care home residents funded by local authorities. 

Changes to the way the Care Quality Commission assesses care homes and social care providers will be another challenge to meet towards the end of 2023. As well as physical inspections, there will be a greater focus on ongoing monitoring that utilises data provided by care providers on care and medicine plans, plus feedback from family members, GPs and local authorities.

There’s also lots of pent-up demand for moving patients out of NHS hospital wards (known as ‘bed blocking’) into care homes but, again, care home providers will have to ensure they have enough staff to cope with the influx.  Many care home operators simply believe that the underlying demand exists already and if they can get the staff then a growth in occupancy will follow.

While I am hopeful for some improvement in the sector’s staffing shortage, healthcare remains a phenomenally people-heavy industry – a fundamental issue that can probably only really be changed in the short term by investing in recruitment from overseas and potentially in the long term by embracing technology.

Another consideration for healthcare providers is the latest Government energy support package. This will see the Q1 price cap removed for businesses in England, Scotland and Wales, and a potential discount applied based on a ‘government supported price’. For Healthcare providers with high energy consumption, this development may lead to rising bills and a stretch on operational costs. In the short term, businesses may look to squeeze margins, reduce staffing costs, or even look for alternative ways to lower their energy use. Whilst investment in longer term solutions may hit providers as an extra cost in the immediate future, it might also be imperative for businesses to look at how they can future-proof their running costs by developing a more sustainable, renewable approach to their energy consumption. 

With sustainability high on the agenda for many businesses, it is important that the cost of doing business does not overshadow this important transition. How progressive care providers are meeting these challenges and making the transition to more sustainable business models is the subject of a thought leadership paper I released recently.

Optimism about growth opportunities

Nevertheless, many of the healthcare companies I speak to say they are more optimistic than they were six months ago. This is largely a reflection of the significant underlying opportunities for growth stemming from private hospitals directly taking on NHS-funded procedures and minor operations or indirectly through individuals who decide they won’t wait any longer and can afford to go private. All of this assumes of course that private providers can find the appropriate staff. 

In challenging economic times people are perhaps less likely to go private for an operation and any drop in property values could impact those people who plan to pay care home costs through the sale of their homes. Yet, even in a recession, people are likely to prioritise healthcare spending above discretionary purchases.

Demographics make healthcare attractive to investors

Among many unknowns and unforeseen political and macro-economic factors, the wider societal picture shows us that demographics in the UK remain unchanged and point towards an older population – the number of people aged 85 years and over is projected to almost double in the next 25 years, from 1.7 million in 2020 to 3.1 million by 2045. 

Growing demand from a population with increasing numbers of people needing medical treatment and/or residential care will inevitably see increasing investment in private healthcare.

M&A activity was strong in 2022 before the market cooled in Q4 in the face of the rising inflation and interest rates that have helped to take us into recession. However, I expect we’ll see an acceleration in M&A activity for 2023 with both real estate funds and equity investors looking for deals. I think a key question is whether sellers are willing to accept a lower price for assets given the higher cost of borrowing – this remains to be seen.

Overall, there’s good reason to feel positive about the healthcare sector in 2023 – hopefully recruitment efforts will reap benefits and assisting the under-pressure NHS will present numerous opportunities for private healthcare providers. We look forward to supporting businesses to grow and capture new opportunities in the coming year. 

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