NYSE-listed Centene has launched a sale process for its chain of nearly 60 Operose GP surgeries in the UK, with a deal expected before Christmas, said three people close to the process.

The business, which had revenues of £89mn in 2021, could sell for about eight times ebitda, or £51.2mn, analysts estimated.

The move comes days after Centene announced a $1.2bn sale of its Circle/BMI UK hospital chain.

The twin disposals signal an abandonment of Centene’s UK strategy, which was meant to create a seamless pathway to private healthcare by buying up taxpayer-funded GP services and encouraging doctors to refer patients to its chain of 53 Circle/BMI hospitals in England, those people said.

Centene’s purchase of Operose GP surgeries in 2021 faced court challenges by anti-privatisation campaigners. Although their case was not upheld, activists viewed the purchase as a sign of the increasing privatisation of the NHS.

Centene also found it difficult because its GP practices in north London were not near any Circle/BMI hospitals, and Centene found it hard to incentivise doctors, according to analysts.

“Centene has found it difficult to make Operose profitable because many Operose sites are in generally less affluent areas where recruiting GPs has been difficult,” said Victor Chua of Mansfield Advisors, a healthcare consultancy. “There was no natural cross-sell between the Operose GPs and the Circle Hospitals, which serve a different demographic and where the geographic overlaps are limited.”

Centene has also decided to focus on the US market after finding that other countries were more profitable than the UK, where it faced increasing operating costs such as staffing, said people close to the company. Last year it sold its Ribera chain of private hospitals in Spain.

Centene provides low-cost care for uninsured and underinsured individuals largely through government-sponsored programmes such as Medicaid and Medicare in the US, the schemes that provide insurance for low-income households and retirees respectively. However, the company has faced allegations that it overbilled Medicaid for pharmacy services and has paid millions of dollars to settle the accusations.

Centene said in a statement that it had been focusing “on its three core lines of business in the United States”, including Medicaid and Medicare.

“Part of this strategy has included a portfolio review and the decision to divest assets that fall outside this core focus in the United States and ex-United States,” the company said.

Centene on Monday said it would sell its Circle/BMI hospitals to Abu Dhabi-owned PureHealth for an enterprise value of $1.2bn, including debt. PureHealth will take over Circle’s portfolio, including the UK’s first purpose-built rehabilitation hospital early next year.

US providers have been making inroads into the British healthcare market in recent years, with the Mayo Clinic, Cleveland Clinic and HCA Healthcare all opening new clinics.

However, Chua said US operators often struggled.

“Lots of US providers have come into the UK thinking it will be an easy market to crack but find it harder than they thought,” he said.

Private hospitals benefited from a deal during the Covid-19 pandemic that included the UK government paying all their costs, including staffing, interest and rent. They are now gaining from long NHS waiting lists, which have increased the number of patients they receive — some of whom are self-funded, and some of whom are paid for with insurance or by the NHS.

Just 14 per cent of hospitals in England are in private hands, with the remainder owned by the NHS, which outsources work to the private hospitals — chiefly hip and knee surgery and ophthalmology.

This story originally appeared on: Financial Times - Author:Gill Plimmer

Private equity firms have struck 150 deals for UK healthcare companies since 2021, according to consultancy LaingBuisson, with the past two years the highest in terms of volume since at least 2014.

Investment is tracking a similar level this year with 25 deals already agreed, defying a wider slowdown in mergers and acquisitions.

Tim Read, director of research at LaingBuisson, said private equity firms were increasingly buying up “organisations that are an integral part of healthcare delivery”.

“The pandemic has demonstrated the value of investing in healthcare services as it showed the resilience of operators which are underpinned by public funding.”

The recent influx of private equity money into UK healthcare companies demonstrates the growing influence of financial investors in the sector.

The private equity industry has previously been criticised for its lack of transparency, as well as for pursuing profits over good-quality healthcare provision.

Industry executives counter that they can run companies more efficiently, invest in better technology and play a vital role in helping the NHS tackle its problems.

The recent flurry of deals is part of a longer-term trend of the taxpayer-funded NHS buying healthcare services from private providers, which began in earnest under the last Labour government twenty years ago.

Subsequent governments significantly expanded the role non-NHS providers played, creating a stable environment that encouraged private investment.

The private sector argues it is an important source of extra capacity for the NHS as it struggles with staff shortages and a record waiting list of almost 7.6mn patients since the pandemic.

A quarter of mental health beds in England, for example, are from non-NHS providers, while private hospitals, many owned by private equity firms, have also been expanding. These account for an increasing number of routine operations, such as hip and knee replacements and cataract surgery.

More recently, buyout firms have moved into diagnostics and digital care, where long NHS waiting lists mean patients are often willing to pay fees themselves.

Jasper van Heesch, a director at advisory firm RSM, said private equity firms — which raise money from investors with a mandate to buy businesses, maximise profits and sell them on — were “drawn to the sector because of the unmet demand the NHS is experiencing. There is a nice recurring revenue profile and dependable demand that you can bet on and build your business case on.”

Among the big beneficiaries of the trend towards private sector involvement in the NHS is Practice Plus, which is owned by Bridgepoint, a UK private equity group that manages €38bn.

Practice Plus earns most of its revenues from the public sector, running services including NHS walk-in health centres, prison health services and the NHS 111 telephone advice service.

It is run by former senior civil servant Jim Easton, who was previously responsible for the development and running of the 111 service.

Practice Plus generated £460mn of revenue last year and its private equity owner took out more than £50mn in dividends.

A lucrative line of business for Practice Plus is providing healthcare services to more than 45 UK prisons and immigration removal centres, with the unit making more than £186mn in revenues and almost £20mn in earnings last year. 

But its involvement in prison health services has not been without controversy. It has been referenced in a number of official reports on deaths in custody in recent years for failing to provide adequate healthcare to some prisoners. Bridgepoint and Practice Plus declined to comment.

“The lack of resource and funding for NHS mental health services means that we have become increasingly reliant on outsourcing services to private healthcare firms, as is often the case with prison healthcare,” said Andrew Molodynski, psychiatrist and mental health lead at the BMA.

Optegra is another company that has reaped rewards from the UK’s growing dependence on outsourced healthcare.

The company opened its first eye hospital in the Surrey commuter belt town of Guildford in 2008. Since then, it has opened more than a dozen clinics across the UK, providing eye surgery for more than 1mn patients.

Its growth has been boosted by the NHS turning to the private sector for routine operations such as cataract surgery. Research by The Royal College of Ophthalmologists found nearly half of all NHS-funded cataract procedures in 2021 were carried out by independent providers, up from 11 per cent just five years before. 

This was accelerated by the pandemic, Optegra said in its latest accounts. 

“The pandemic has significantly changed the behaviour of the NHS and how it interacts with the private healthcare market,” the company said. “More recently there has been a stronger need for private healthcare businesses to support the NHS.” The group’s revenues almost doubled last year, from £34mn to £67mn. 

In February, €6bn European private equity firm MidEuropa bought Optegra from a smaller rival. It plans to expand the business across Europe. 

The strain from the pandemic has only increased the attractiveness to potential investors of private companies that provide NHS services. 

“They are making a judgment around these mega underlying trends,” said Tom King, a director and political risk adviser at Lodestone Communications. “You are now seeing generalist [private equity] funds entering frontline care and elective surgery, it was really specialists that had backgrounds in healthcare before. It’s now become so competitive and so popular.”

Michelle Tempest, analyst at consultancy Candesic, said private providers had brought “cost discipline, innovation and specialisation to health services” and that the NHS struggled with outdated infrastructure, legacy technology and low staff morale.

But not everyone is convinced that financial investors are good at delivering health services. Private equity has drawn scrutiny for its practice of loading debt on to the companies it buys and its lack of transparency, particularly where revenues come from the taxpayer.

A recent paper published in the British Medical Journal found that healthcare provided by private equity-backed companies was often more expensive and had “mixed to harmful impacts on quality”.

“We see this as a broader trend to the financialisation of healthcare, with private equity one part of the process,” said Joseph Bruch, an assistant professor at the University of Chicago and co-author of the paper. “A higher proportion of profits are being taken out of healthcare into the financial sector.”

In the UK, political parties are gearing up for a general election next year where the NHS is close to the top of voters’ concerns. 

The Labour party, which is expected to win, is in favour of using private hospitals to reduce NHS waiting lists. “I don’t subscribe to the view that public equals good, private equals bad,” shadow health secretary Wes Streeting told the Financial Times in an interview this year. 

Whatever the outcome of the next election, the private sector’s involvement in UK healthcare seems here to stay. “There is no major party advocating for a different model,” King said. “The trends are advanced and well established.”

This story originally appeared on: Financial Times - Author:Gill Plimmer

UK-based Medinet, which markets itself as helping NHS organisations to reduce waiting times, has been sold by Volpi Capital to Fremman Capital for an undisclosed sum.

Private equity has growing reach in the UK health system, having expanded into private hospitals, recruitment agencies, child and elderly care, foster and mental health services. Volpi and Fremman did not respond to requests for comment. 

The Medinet deal comes amid an acute staff shortage in the NHS and a wave of industrial action by employees demanding higher pay. Nearly 48,000 junior doctors are planning the longest ever walkout with a five-day strike from July 13.

Medinet is one of about 20 providers of “insourcing”, which involves agencies signing up NHS staff and finding them work outside their regular hours to treat patients on NHS premises. One of Medinet’s competitors, 18 Week Support, was bought by US private equity firm Summit Partners last year.

Michelle Tempest, analyst at consultancy Candesic, said that insourcing and outsourcing by NHS trusts “had been increasing and would grow further as NHS trusts sought quick solutions to staff shortages”.

The NHS spent £55mn employing its own staff to do extra work through specialist agencies in 2022, down from £62mn the previous year, according to freedom of information requests by Candesic, a consultancy. General surgery, gastroenterology and endoscopy departments were the biggest users of insourced services last year.

The practice has been criticised by NHS England, which leads the service in the country. It has said it “discourages” the use of insourcing because it “doesn’t provide any additional staff”. 

Agency workers were also paid higher rates, which has a “ripple effect”, forcing other departments and trusts to raise pay, NHS England said.

Medinet posted revenues of £58.9mn last year, a 93 per cent increase on the year before, according to Companies House filings. 

“Waiting times in the NHS across the UK continue to grow and therefore demand for the business’ services will likely increase,” the company said in its annual accounts. 

Last summer, it had record demand for its services as the NHS is still dealing with a backlog of appointments that were cancelled during the pandemic. 

In April, about 371,000 patients had been waiting for more than a year for treatment, according to NHS data.

Fremman Capital was set up in 2020 by former executives from French private equity firm PAI Partners and a former Merrill Lynch banker. The firm has offices across Europe and owns companies including Kids Planet, one of the UK’s largest nursery operators.

Additional reporting by Sarah Neville in London

This story originally appeared on: Financial Times - Author:Gill Plimmer