Commercial activity - potential contribution to NHS finances

Context

NHS organisations collectively are facing their highest level of financial deficit.? The focus of most Cost Improvement Plans understandably relates to improving the efficiency of delivering NHS related care: reducing agency spend; improving? theatre efficiency etc.

This article explores the different ways in which some NHS acute organisations are generating financial surpluses from commercial activities.? Whilst potential opportunities are different for each acute trust, this article may provide a checklist for NHS leaders and stimulate options to generate additional income.

Although large teaching hospitals generally have more opportunity and typically generate more commercial income, the trust currently generating the largest commercial surplus is Northumbria Healthcare.

Our research shows wide variation in the scope and scale of commercial activity between even ostensibly similar organisations, as well as huge variation in the size of commercial teams, approaches to pricing and promoting similar services and the attitudes of different trusts.

Few trusts have capital or CDEL to invest in commercial activities, and we have highlighted opportunities which do not require capital and or where partnerships can be formed with private partners who will bring the required capital.

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Defining commercial revenue

For the purpose of this article, we define a commercial revenue as generating income from non-core activities, i.e. delivering a service other than NHS funded care.

Categories of commercial opportunities

We have categorised NHS commercial activity which we have seen, using the headings below.?

Clinical Services

·?????? Private Patient Services

·?????? Services to Private Hospitals

·?????? Other clinical support services

Intellectual property related

·?????? Commercialising intellectual property

·?????? Commercial Research

·?????? Commercialising data

·?????? Spin-ins

International activities

Commercial Training activities

Consultancy

Commercial FM and non-clinical support services

Property Related

·?????? Retail

·?????? Tech hubs

·?????? Advertising

Other

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?Latchmore’s Summary of each opportunity

Each trust should consider the potential of each opportunity in the context of their organisational capability and their local context.? We have listed some generic thoughts below.

Clinical Services

·?????? Private Patient Services

NHS PPUs generate c￡670m pa or 15% of the hospital value of private healthcare in the UK.? This has declined to c￡540m post Covid, as many trusts have used the capacity to reduce NHS waiting lists.? NHS private patient revenues are heavily skewed to London specialist hospitals, with Marsden Private Care alone accounting for over 25%.

Latchmore have separately estimated a c￡800m pa opportunity outside London for PPUs to provide services which small provincial private hospitals generally do not offer (procedures using specialist equipment or facilities such as cath labs, linacs and robotic surgery, and or high acuity patients).

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We have worked with a number of trusts to develop their PP strategy, as well as improve their terms with PMI, their billing processes and their marketing to patients and consultants.

Many trusts do not have spare capital to invest in PP activity, and don’t wish to ring-fence beds.? We have separately documented (report freely available on request) twelve partnerships where private providers have created partnerships with NHS Trusts.? The most successful of these is The Christie Clinic, which generates c￡14m profit on c￡50m revenues, shared between The Christie and HCA, with HCA having invested all of the capital.? Our associate team have been involved in over half of these partnerships.

·?????? Services to Private Hospitals

Most NHS Trusts provide a range of services to their local private hospitals.? These can include: histology wet lab services; other pathology tests; blood bank support; infection control services; access to MDTs; and statutory mandatory training.? NHS organisations often fail to charge or undercharge for these services.? We have supported two trusts to renegotiate these agreements, resulting in a total gain of over ￡500K pa.

·?????? Other clinical support services

Across the NHS we have seen a range of other commercial clinical activity provided by the NHS including: occupational health; prison health; and diagnostic support for vets, forensic medicine, clinical trials, and other sectors.

Intellectual property related

·?????? Commercialising intellectual property

The ‘dollars for docs’ website shows how much each US hospital makes from IP.? Many exceed $50m pa, with one having exceeded $400m pa from developing a range of cancer therapies.? Few NHS organisations exceed ￡1m pa, with most IP being created and commercialised in universities/ medical schools.? Most NHS organisations rely on AHSNs and or their partner medical school to commercialise any IP which is generated.? In our view, most miss opportunities, and those which have recruited a small IP team are seeing benefits within 2-3 years.

IP opportunities are not limited to large teaching hospitals.? Salisbury for example have commercialised neurology related products and a range of skin care products.

·?????? Commercial Research

Most teaching hospitals receive research income from NIHR or public bodies.? Other than clinical trials income, they often miss opportunities for research income from pharma, medical device, AI and IT companies.

·?????? Commercialising data

This is controversial since highly publicised Care.data and google deep mind.? Equally, there is enormous potential to improve care by applying AI to care records and using pathology, radiology, and other data to train AI.? In our view this will become very significant once society accepts that the data will be used appropriately and for the benefit of patients.

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·?????? Spin-ins

Several trusts now use this term to describe opportunities where a third party has created an innovation (medical device, IT, or new service) but needs to beta test this in a clinical situation.? Trusts willing to work with the innovator can realise a financial benefit through a combination of royalties, equity and reduced prices when the product is launched

International activities

Some trusts have created international activities, in part encouraged by Healthcare UK.? King’s College Hospital are working with an international infrastructure private equity fund to build and manage a number of hospitals in the GCC, Africa and Asia.? Other have been involved in consulting training and advisory projects.? In our view, this market is competitive, few international opportunities generate significant surpluses, and it can become a distraction unless undertaken at scale with a dedicated team.

(Some trusts with large international private patient revenues, have created clinical links and partnerships with referring hospitals which can generate significant returns)?

Commercial Training activities

Trusts have undertaken a wide range of training activities.? These include:

-????????? Extending mandatory statutory training activities to local private hospitals, nursing homes and other NHS providers

-????????? Running specialist courses which provide CPD points

-????????? International fellowships and training partnerships

-????????? Training materials (eg The Marsden Nursing manual) which are increasingly online

Consultancy

Some trusts and CSUs have established consultancy businesses.? Whilst eg Virginia Mason have been successful selling to the NHS, consultancy is a competitive market, and it is difficult to see how a public sector entity can create the same culture and work ethos which is required in a successful consultancy.

FM and non-clinical support services

There are a number of instances of trusts creating businesses which sell services to other NHS and private clients in a range of areas including:

-????????? FM/ property management services (eg East Kent, Guy’s. Kings, Royal Free)

-????????? CSSD (eg Royal Free)

-????????? Laundry (eg Salisbury)

-????????? Catering and food preparation

-????????? IT/ back office/ finance (eg NE Patches owned by Northumbria Healthcare)

These ventures can be a way to create economies of scale to share investment and cost across multiple organisations.

There may be opportunities to create partnerships with private providers.? Latchmore advised a client who needed to create new CSSD facilities, and they secured a deal with a private operator (who was seeking a critical mass of revenue to open a new facility) who: invested all the capital for the off-site facility; will provide the service at a lower cost through investing in automation and applying expertise; and pay a share of third party revenues.

Property Related

Most trusts have property related opportunities

·?????? Retail

Hospitals generally have coffee shops and gift shops.? Is running these really core business?? A well structured minimum rent guarantee contract with an established operator will usually be financially beneficial and arguably provide a better service to clients

·?????? Tech hubs

Trusts may have surplus land and or buildings.? Med tech, biotech and pharma companies will often pay premium rents to locate close to teaching hospitals.? Cambridge, Manchester and Newcastle are good examples of this.

·?????? Advertising

Advertising companies will pay to have digital displays in waiting areas, and dependent upon the location, large displays on the edge of trust land.? They will invest all of the capital and give the trust the right to veto inappropriate advertising.

There may be other context specific property related opportunities, for example Guy’s generates significant annual rent from a range of organisations locating aerials on their 30 storey tower.

Other

There are a range of other commercial enterprises which have been created by NHS organisations.? Northumbria Healthcare for example manages the car and white goods scheme for a number of NHS organisations, and has created a PPE manufacturing facility in a disused factory.? A number of trusts have unlicensed pharmacy manufacturing units, although Moorfields and more recently Torbay have divested these.