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The Perfect Storm – predictions for 2016

14 October 2015

The embarrassment of the pollsters in May’s General Election proved just how difficult it is to be in the business of making predictions. Or, as the physicist Niels Bohr used to say, ‘prediction is very difficult, especially if it's about the future’. It is therefore with trepidation that I have decided to issue my latest ‘state of the market’ blog in the form of three predictions – my guesses as to the three biggest news stories heading towards the independent health sector throughout the remainder of 2015 and in to 2016.

I spend a lot of time meeting with the CEOs and Exec Directors of health sector businesses and it never fails to astonish me that the issues they face are broadly the same. This is irrespective of whether they run private hospitals, care homes, mental health or learning disability services, domiciliary care, primary or secondary care businesses. This brings me to my first forecast for the market:

The implementation of the Living Wage will not be the cataclysmic event that many believe it will be.

Back in the mid-1800’s, Charles Darwin was talking about the ability of embattled species to adapt in order to survive; this is as true of healthcare businesses today as it was of the tawny owl or the sockeye salmon back then. The most encouraging conversations I’ve had with healthcare CEOs or MDs are those who are tackling the living wage head on by embracing the change and adapting their organisations to turn the new legislation in to a positive. For many businesses, the implementation will mean adding six, seven or even eight figures to their annual wage bill, with little-to-no discernible uplift in output or productivity. The most forward-thinking businesses will act to turn this potential crisis in to an opportunity.

Firstly, those businesses without the profit headroom to simply add the cost to their bottom line will need to reduce costs elsewhere. I’ve heard a lot of talk of taking costs out of the back office, introducing shared services, being more selective about contract bids and pushing those savings forward to the front line. This is by no means a bad thing and, done correctly, could provide a useful blueprint for our rather top-heavy NHS. The sharpest leaders will use the introduction of the living wage as a means of engaging and galvanising large and arguably somewhat disenfranchised workforces. Make no mistake; this is a huge opportunity for employee engagement. In my world, interim managers specialising in a) cost reduction/transformation, or b) employee communications & development are primed to assist healthcare businesses capitalise upon this.

Some economists promised complete societal meltdown when the minimum wage was originally introduced in April 1999. It didn’t happen. The best businesses adapted and thrived – the same will be true of next year’s legislation.

That said…

At least one major provider will fail in 2016

The downside of the ‘adapt or die’ theory is that some businesses cannot adapt and are therefore left with only one remaining option. There are major operators in the sector whose problems extend way beyond the living wage. For years, care home businesses in particular have struggled with a perfect storm of rising rents & ancillary costs, a severe drop in fees from local authority contracts (17% in real terms over the last five years, according to the King’s Fund), huge historical debts and an ever-increasing reliance on agency staff. Those teetering on the brink are now, I’m told, in grave danger of finally toppling over. This is a national news story waiting to happen.

The country’s five largest care home operators recently wrote to George Osborne to warn that without additional funding, a major provider will collapse ‘within two years’. I’d say the problem is more urgent than even that statement suggests. My prediction is that 2016 will see the break-up or collapse of at least one of the care sector’s most recognisable brands.

It isn’t all doom & gloom however. My final prediction is that…

The NHS and care sector crises will result in revolutionary innovation in the delivery of care

One of the few ‘common ground’ policies between the two major political parties pre-election was the ‘integration of health & social care’. We are reaching a point in both the NHS and across social care where the time for talking is over and action is sorely needed. The necessary innovation is highly unlikely to come from the public sector, least of all at a time when the NHS is stretched to bursting point. This represents a huge opportunity for independent sector businesses capable of seizing the initiative and developing cost-effective models which break down the barriers between primary, hospital and community care.

There are several private equity-backed businesses (of varying sizes) with whom I have placed interim managers and consultants in the last twelve months. These businesses are at the forefront of developing new and innovative models of care which, if implemented correctly, could answer many of the questions posed by Simon Stevens’ Five Year Forward View. I believe that we will see at least one of these businesses collaborating with the NHS to introduce a game-changing care model in 2016.

Increasingly my innovation-hungry independent health sector clients are imploring me to look outside of ‘the usual suspects’ from the sector’s own talent merry-go-round and are utilising interim managers to inject fresh, commercial thinking in to their businesses. This is a trend which I firmly believe is to the benefit of the sector as a whole. In the last twelve months alone I have successfully introduced interim professionals from sectors such as Financial Services, Hotels/Leisure, Retail and Pharmaceuticals in to Programme Director, Property, Marketing, IT, Transformation, HR and People Development assignments. This is one trend which I would not be at all disappointed to see continuing in to 2016 and beyond.

Dan Kiely, Consultant

Dan is a Consultant in the Healthcare practice, read Dan's profile


Categories: Healthcare

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