The news last weekend that outsourcing company Serco would be investigated by the Care Quality Commission after being accused of providing an “unsafe” out-of-hours GP service in Cornwall is only the latest example of the dangers the profit motive can bring to the operation and quality of ‘public’ healthcare services in the UK.
A couple of weeks earlier, Spire Healthcare released its annual report and accounts for 2011, and gave a reminder of the financial irrationality of private companies taking over healthcare provision. Spire, the second largest private hospital provider in the UK, is increasing its patient list as more people choose to pay for their treatment outside an NHS shrunken by £20 billion of cuts to its budget.
The company’s annual report says it is “enhancing” its relationship with GPs to convince them to pass more work its way, while chairman Gary Watts describes the “enormous opportunity” created by “pressures on the public purse”.
More bluntly, CEO Rob Rogers told the Financial Times: “If you are an individual over 40 and you have a hernia, you won’t be treated by the NHS, and that’s where our focus will be.”
This focus will presumably not include people who can’t afford the £3,000 Spire is charging for hernia repair. But with its revenues having increased by 5 per cent in 2011, the company doesn’t need to worry about them.
Spire is also looking to increase the amount of care it is paid by the NHS to provide, such as hip replacements and varicose vein surgery. Already 20 per cent of its revenue comes from the NHS and its annual report says it will be on hand to “tackle demand bottlenecks and reduce waiting lists” in the future, as further opportunities are opened up by the Health and Social Care Act.
Of all the healthcare tax dodgers exposed by Corporate Watch earlier this year, Spire stood out for the size and brazenness of its operation. Spire’s taxable UK profits are used to pay interest on a loan it has taken from a Luxembourg-based subsidiary of Cinven, its private equity owner. The money then goes from Luxembourg back to Cinven as dividends. Spire’s 2011 accounts show this scam has only increased in size, with £72 million going straight to Cinven, compared to £64 million the previous year, wiping out its UK tax bill.
It is not just tax avoidance that is draining UK healthcare. Spire’s accounts also show it is paying 8 per cent interest on the £1.2 billion debt Cinven has taken out to finance the business. So £100 million goes straight to the banks that loaned the money.
Spire is not alone in paying far higher interest rates than those a public service would pay. Earlier this week Circle Health went to investors to raise money, partly to help pay off £14 million it had borrowed from hedge fund James Caird Asset Management, at a staggering interest rate of 25 per cent. Care UK is paying almost 10 per cent interest on the bond it was forced to issue when it was taken over by private equity firm Bridgepoint in 2010. Ramsay Healthcare is paying 6 to 7 per cent on its loans.
These interest rates are high partly because the lenders think these businesses are risky. And in many cases, the banks’ judgment appears sound. General Healthcare Group, the largest private hospital group in the UK through its ownership of BMI Healthcare, is, according to the Finanical Times, “teetering on the brink”, again due to the huge debt load incurred when it was taken over by a consortium of investors in 2006. The FT called it “an unwelcome reminder of the recent collapse of Southern Cross”.
Southern Cross’s troubles started when its private equity owner Blackstone sold its care homes to property companies, then rented them back. When this rent became unsustainable, Southern Cross went down and the government had to guarantee 30,000 elderly people wouldn’t be thrown out onto the streets.
Regardless of the Southern Cross experience, Spire is looking to sell, and then lease back, a third of its hospitals to reduce its debt as Cinven looks for a major payday by floating the company on the stock market.
Compare all this to the 2 per cent interest the government is paying on the bonds it is currently issuing, and getting private companies in to make the NHS more financially efficient doesn’t make as much sense as the government likes to pretend. Nor is it rational to cut £20 billion only to force people to reach into their own pockets to pay for Spire’s financing.
The government talks about the NHS’s lack of efficiency and the need to make money go further. But with companies like Spire involved, money is disappearing to satisfy the demands of financiers. Add on the profits and dividends that go to owners and shareholders, and that’s a huge amount of money gone that could have been spent on public healthcare.
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