Restructuring in the healthcare sector: what does the future hold?
Restructuring in the healthcare sector
Which sub-sectors are proving resilient?
What is the current state of play?
National occupancy rates in elderly care homes across the UK are currently just over 79 per cent, a fall from the pre-pandemic average of 87 per cent, according to research by social care consultancy Carterwood. Since the start of the pandemic, the ONS has recorded more than 42,000 deaths of care home residents in England and Wales involving COVID-19, and where care is a choice, especially amongst private payers, many families are choosing to care for relatives at home, as evolving working patterns has meant an increase in home working, with relatives now willing and able to provide more unpaid care. However, this means there are fewer new residents placed into care homes. As adult social care providers rely on new residents entering the sector, this reduction in private payers is causing additional pressure with even further tension building due to delays in local authority admissions as service users are moved along the care continuum. When they enter a home, their care needs are often more acute, and as a result, their stay is unfortunately much shorter. The rate of new monthly admissions needed is therefore much greater to compensate for the higher rate of turnover. The downturn in occupancy levels is causing a ripple effect phenomenon, with higher-quality homes admitting residents on lower fees than they would ordinarily consider, simply to fill beds. This has a negative effect on driving overall pricing down, impacting all homes throughout the care quality spectrum and creating scarcity of admissions at the lower end as well as greater financial pressure in an already challenging trading environment. Staff quality and retention remains a critical issue in the adult social care sector. The ability to attract and retain committed staff with the right skills is constrained by low pay levels, negative press, and a lack of a defined career path. The annual rise in the national minimum wage has increased operational costs for providers. Set against low fee increases from local authorities and reduced occupancy levels, this means there is growing financial pressures for all providers. We are currently seeing some insurers not willing to renew cover for some providers, or have increased premiums exponentially to accommodate the perceived higher level of risk, thereby exacerbating this pressure further. Some providers may find it difficult to procure business, clinical and public liability insurance over the coming months, or at least at a cost that they are able to absorb. Many funders are more cautious in their lending criteria in response to the challenges the care sector is facing, particularly where performance is poor. Transactions are taking longer to progress and complete and options remain limited for those providers with facilities at the end of term, who will have to refinance over the coming 12 months.
The healthcare sector acts as a cornerstone for daily life in the UK, and it has occupied a unique position on the frontline of the COVID-19 pandemic. Healthcare in the UK is a vast sector, encompassing everything from primary care to life sciences businesses and the bio-economy, with a range of manufacturing and supply chain companies also feeding into the industry. The NHS alone employs around 1.4 million people in the UK, and is the country’s largest employer. Before the pandemic, it treated more than a million patients every 36 hours. In 2020, total healthcare expenditure in the UK was £269 billion, according to the Office of National Statistics (ONS) – an increase in nominal-terms of 20 per cent on 2019’s spending. In March 2021, the Government announced £6.6 billion of new funding for health and care services to support the next phase of the NHS response to COVID-19, taking the total package of additional Government support for health services during the pandemic to £92 billion. With such a diverse mix of sub-sectors, the effects of the pandemic have been vastly different for each. While many businesses are experiencing strong growth, with an uplift in demand driven by the pandemic, many others continue to face considerable, long-term turbulence.
High-growth areas such as research and development, medical device specialists and specialist care providers are prospering, particularly given the significant scientific breakthroughs in response to the pandemic. Organisations providing high acuity of care, such as those providers of specialist mental health and learning disabilities services, have proven to be resilient to the challenges. There’s a notable uptick in interest from private equity investors in robust businesses in this area, which is proving to be a big driver of M&A activity. Another sub-sector proving to have a track record for stability is the medical consumables and devices arena. The increase in interest in these sectors from investors, coupled with a shortfall of attractive investment opportunities in other sectors hit by the pandemic, has led to strong valuations for robust, growing healthcare assets. The UK’s life sciences sector is globally renowned, and has proven itself to be a fundamental pillar of the UK economy. The sector generated almost £81 billion in annual turnover in 2019 and employed over a quarter of a million people across the country. With the Government focusing on transforming the nation into a life sciences superpower, growth in this sector is expected to surge in the years ahead. The immediate challenges for businesses facing financial difficulties will be funding the working capital they need to continue while managing ongoing liabilities. Over the coming months, businesses that have taken out Government support through the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS) will need to start making repayments. Added to this, many providers will be facing the repayment of deferred taxes, and any other deferred payment plans reached with trade suppliers and landlords. Meanwhile, expectations around performance and efficiencies by external parties, such as the Care Quality Commission, and local authorities continue to increase, meaning there is greater pressure for health and social care providers to achieve greater results with reduced resources. This uncertainty will make it difficult for businesses to plan their working capital needs with clarity. What challenges will healthcare businesses need to face in the future?
269
Billion pounds in expenditure spent on healthcare in the UK during 2020 81 Billion pounds generated from the life sciences industry in 2019 Million people employed by the UK’s NHS 1.4
How has COVID-19 impacted the sector?
Although the pandemic has created opportunities for the healthcare sector, COVID-19 has also brought unprecedented challenges, and placed increased demands on the NHS. Many hospital trusts and GP surgeries face a backlog of non-urgent operations and treatment, combined with limited resources, staff and bed availability. The adult social care sector, which employed an estimated 1.52 million people in England prior to the pandemic, has faced similar frontline challenges this year, and a perfect storm is building as a result. Many providers and staff are severely fatigued from the physical and emotional challenges from the onset of the pandemic, and there is uncertainty on the road ahead in terms of occupancy recovery, Government policy reform and financial support, personal protective equipment (PPE) and other rising operational costs, as well as the accessibility of business insurance.
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