A year in review: why the future looks bright for independent health businesses

A year in review: why the future looks bright for independent health businesses

Dan Kiely, Consultant in our Private Healthcare & Life Sciences Practice looks back at 2018 and explains why the independent healthcare sector can expect a new lease of life

The independent health sector has been in the national news a lot lately, but rarely for the right reasons. Whether it was the news that leading home care provider Allied Healthcare was handing back care contracts to local authorities amid rumours of imminent collapse (the business was ultimately sold to new owners in an 11th hour deal) or the ongoing financial restructuring of care home giant Four Seasons Healthcare, casual observers would be forgiven for thinking that it is all doom & gloom out there. Indeed I have developed something of a nervous twitch which manifests itself whenever a colleague opens the FT or the BBC website, raises an eyebrow and says ‘isn’t this one of your clients?’

However, whilst it is certainly true that the operating environment remains challenging for virtually all independent healthcare providers, I have of late seen much to suggest that a level of cautious optimism is justified. For instance, most of the major private hospital groups have suffered badly from a steady decline in elective surgery referrals from the NHS, with the health service opting to divert funding elsewhere and let waiting lists for less urgent procedures grow. This does appear to have reached something of a tipping point, with the NHS coming under greater political pressure to clear waiting lists more quickly and to engage with the independent sector in order to do so. The first formal agreement of this nature was recently announced between University Hospitals Plymouth NHS Trust and Care UK; it would seem to be inevitable that similar arrangements will be reached elsewhere in the country.

The aforementioned examples notwithstanding, there is also some cause for cheer in the social care sector. This year I have had the pleasure of working with several smaller-scale, often private equity-backed care groups which specialise in the provision of complex care in the home. Whether ‘private pay’ or state-funded, the fee levels for these higher-acuity services tend to be more reasonable and the operators can therefore place their emphasis squarely on delivering high-quality, compassionate care. This means that carers/nurses can be better-compensated, staff turnover is lower and the business itself is more stable as a consequence.

Furthermore, there has undoubtedly been a visible increase in investor interest across the board. Private equity groups, trade buyers, overseas pension funds & REITs have all demonstrated a keen appetite for investment in the space, which has resulted in M&A taking place in businesses ranging from hospitals, mental health groups and care homes, to dentistry and veterinary services.

The uniting factor in all of these examples (and the reason for my involvement throughout) is a need for clear-eyed, forward-thinking leadership to deliver sustainable, long-term growth. Whether it is effectively managing large, geographically-dispersed workforces, wading through the morass of public procurement and commissioning processes, maintaining high quality services, keeping the regulators happy or ‘getting more for less’ through innovative use of technology and shared services, there are seemingly limitless challenges at hand to keep healthcare executives awake at night. The most successful leaders in the sector are able to strike a balance between the need to provide caring, safe services and the need to run a commercially-viable business.

It is perhaps for this reason that I have observed investors beginning to get very ‘hands on’ with the recruitment processes for their portfolio companies. There was a time when a PE backer would want to participate in the recruitment of portfolio Chairs, CEOs & CFOs and would leave the rest to the companies themselves. Those days, for now at least, appear to be behind us. I have filled a broad variety of senior interim requirements this year, across Finance, HR, Operations, Projects/ Programmes and Change/Transformation, in addition to a handful of Interim CEO/MD positions. In doing so, I have been surprised by the number of times that an investor has either led the recruitment process from the start, or has insisted on meeting and approving candidates after an initial screening. They know just how quickly a business can unravel in this sector with the wrong leadership and are increasingly insistent on getting it right first time, every time.

For my part, I continue to advocate bringing in new talent from outside of the sector wherever possible. After almost seven years spent recruiting in to the independent health space, my ‘in-sector’ network is particularly strong and it would be easy to take the path of least resistance when compiling shortlists. However some of my most successful interim placements in the last year have included CEOs, CFOs and HR Directors who were completely new to the sector. If healthcare providers are genuinely committed to innovation and new ways of working, then fresh pairs of eyes are critical to battling the kind of groupthink which can prevail on boards packed with ‘sector lifers’.

At the risk of concluding with a well-worn cliché – don’t believe everything you read. The press may paint a gloomy picture of the prospects for independent health businesses, but behind the scenes I see a sector which is beginning to show real signs of life, after a difficult few years.

Comments

bob menlove at 03/01/2019 14:45 said:

My Health experience suggests that Private and NHS have started and will seek to really build on technical / process improvements. Government and Private investment can make gains in Digital, Communication, Cloud, Blockchain, RPA. Hopefully through a sensible strong strategy that solves silo approaches.

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