PPP hospitals are the financially healthy choice

Specialist healthcare lawyers are playing an increasing and fundamental role in solving a critical issue – the NHS funding crisis.

Despite the political rhetoric, the view of industry operators and commentators is that state expenditure on the NHS will be much reduced over the next few years. Although this seems a rather negative message, this is actually an exciting time for private ­operators and their advisers.

The public market will open up to the private sector. There will be more investment of private funds, more joint ventures (JVs) between public and private sector operators and also more acquisitions of NHS hospitals by ­private companies.

There has been an increased role for private players in the NHS recently. Now their role is more critical.The UK population is growing, we are all getting older and yet public funding is to be cut.

There are 20-30 NHS hospitals that are failing economically and bordering on ’insolvency’. The only answer is an injection of private cash and the utilisation of the commercial expertise of private operators. And yet signs of protest throughout the London Borough of Islington declare
“Stop the closure of Whittingdon A&E” or “Stop privatisation of the NHS”.

The two are mutually exclusive. JVs and other partnerships with private operators with deep pockets and experienced, commercial individuals are absolutely necessary to ensure that the NHS can survive.

The types of PPPs envisaged require highly specialised advice. The best current example is the approach taken with Hinchingbrooke NHS Hospital. The hospital is having serious financial difficulties and private bidders have been invited by the Strategic Health Authority to take a ’franchise’ of the hospital for five, seven or 10 years. The turnover is around £100m per year. The transaction process is governed strictly by the various rules on procurement – which is where specialist lawyers come in.

Regarding JVs, the difference in quality standards is a major impediment. But the view of the market will change as a result of the financial crisis. As for acquisitions, the Department of Health (DoH) has created its own manual, which provides details of how to conduct M&A transactions.

Mergers between NHS hospitals are common, but it is widely anticipated that mergers between private and public hospitals will take place. Private hospitals may acquire public hospitals outright.

On hospital acquisitions, private ­medical insurance agreements, contracts firm MRI scans, arrangements relating to diagnostics and the supply of blood and drugs, the technical knowledge of healthcare lawyers is required.

Then there is competition. The Office of Fair Trading looks at the area within 30 minutes’ drive of a hospital and will become concerned if the number of operators declines as a result of an acquisition. Careful analysis will be required when private operators acquire NHS hospitals.

The politicians also need to be careful.

Health Secretary Andy Burnham said last year that the NHS should be the “preferred provider” of healthcare services to primary care trusts. This is anticompetitive and the DoH has issued new guidance, the effect of which is that there is no preferred provider.

The importance of PPPs in health extends beyond hospitals. The recent white paper ­proposing the long overdue National Care Service states expressly the need to work with private organisations to ensure delivery of high-quality and fair service.

Whether their specialism is corporate, regulatory, competition or procurement, this is a very exciting time for healthcare lawyers.

Such advisers will be called upon to ensure that new laws can be made and new delivery channels properly ­structured so that UK plc can treat its ageing population to a standard commensurate with its status.