Longer life, more therapies, and a greater knowledge of disease: it's certainly tough to argue against the benefits of medical advancement in recent years. But, ultimately, these improvements are piling on the pressure at the NHS, which is straining under the weight of an ageing population, patients' desire for the best new drugs and the increasing burden of chronic disease. Additionally, there are calls for a seven day service as well as better pay for medical professionals.
In Britain we have become pretty demanding of our beloved, free health service - after all, she is an old lady. Born out of a post-war labour government, the NHS is now serving almost a third more people than it was in its founding year. And yet at its core it remains much the same as it did back then, so relied upon that governments have been unable (or unwilling) to make any radical changes.
And so, unsurprisingly, the cracks are starting to show. NHS providers and commissioners ended the 2015-16 financial year with a deficit of £1.85bn - the largest aggregate deficit in NHS history.
Efforts to resuscitate funds and day-to-day management have led to an increasing amount of NHS outsourcing to private companies - action that has been increasingly seized upon as a political tool with both Labour leader hopefuls repeatedly damming the "privatisation of the NHS".
Free healthcare provision is something that the British are right to feel proud of and something that should be protected at all costs. But how can all healthcare continue to be provided free to the public when there are more expensive treatment options than ever before and more people to treat?
Private perks
It's a conundrum, but one that is playing nicely into the hands of private healthcare providers. Department of Health figures show that the amount of its funding that has gone to "independent sector providers" more than doubled from £4.1bn in 2009-10, to £8.7bn in 2015-16.
Aim-traded Circle (CIRC) was the first private company to win a contract with an NHS clinical commissioning group (CCG) when in 2011 it was selected to open and run the hospital services at Hinchingbrooke in Cambridgeshire. Things did not go smoothly and in January 2015 Circle was forced to terminate the 10-year contract citing it was "no longer sustainable". Subsequently, the Care Quality Commission published a report on the hospital which highlighted "significant failings" and rated it "inadequate". But Circle has remained in the public sector good books and was recently selected to provide the musculoskeletal services at the CCG in Greenwich. The contract is valued at £73.7m and is expected to deliver approximately £12m of cost savings over the initial five-year term.
Spire (SPI) has also been benefiting from NHS woes. Although the amount of local contract work offered to the group has been falling in recent months, Spire has seen a big increase in the number of NHS patient referrals. Additionally, the number of patients opting to pay for themselves to go private has been on the rise, something that chief executive Garry Watts attributes to the fact that patients are getting fed up with the increasingly long NHS waiting lists. Commenting on the group's recent half-year results, David Cox, healthcare analyst at Panmure Gordon, suggested that the company "is well positioned to exploit the NHS's many needs and failings".
So if the number of patients opting to go private is on the rise, would it be fair to assume that the number of people signing up to private health insurance will increase, too?
At present there's little evidence to support the theory. In Spire's half-year results, the one business division that didn't see a substantial rise in revenue was healthcare insurance. Saga (SAGA) - which specialises in services tailored to the over 50s - has also not reported any upswing in the number of people taking up private health insurance and has in fact recently sold a segment of its health insurance business.
But Aviva (AV.) is ready to capitalise on the need for more healthcare funding options. In late 2015 the insurance giant expanded its healthcare arm to target low-cost cover for diseases such as cancer, for which there are many treatments not covered by the NHS.
Funding gap
Aside from outsourcing to the private sector, help to balance the books has come in the form of a big cash injection from the treasury. The £1.8bn of extra funding awarded in last autumn's Budget has done some good in helping to get NHS finances back on track. In the first quarter of the new financial year a deficit of £461m was accrued compared with over £900m in 2015-16 and, according to NHS leaders, this was thanks to the cash from the 'bailout pot'.
But despite this upturn in financial performance, health bosses are still warning that the NHS is in a precarious position. Recently it has been reported that in order to balance the books more cuts are being planned across certain areas of healthcare. Sustainability and transformation plans have been drawn up which propose ward closures, culling bed numbers and changes to emergency services and GP care in 44 areas.
Cuts have historically been controversial measures when it comes to curbing the NHS deficit. Earlier this year the care home sector repeatedly grabbed headlines as many social, elderly and mental care operators reported financial difficulties due to a waning level of funding from the public sector. According to charity Age UK, government funding for care home operators fell by more than 20 per cent between 2010 and 2014. Four Seasons, the largest operator in Britain, reported a £200m increase in operating losses in its 2015 financial year, citing a big reduction in state funding as the main cause of the problem. London-listed Cambian (CMBN) has been in similar difficulties and widening losses have left the group in breach of its banking covenants.
Fellow listed group CareTech (CTH) isn't feeling such a strain, though. In fact the mental healthcare specialist is said to be a potential bidder for a division of The Priory, which is currently up for sale from its American owner Acadia.
Help at hand
So as gaps widen, there are an ever increasing number of opportunities for private companies and publicly traded companies aiming to relieve the pressure on the NHS.
Aim-traded Totally (TLY) provides out-of-hospital care to help individuals manage their health. On average 50 per cent of all GP appointments are taken up by people with long-term health problems and Totally aims to alleviate this pressure by helping promote lifestyle changes in people with long-term health problems such as obesity, type two diabetes and asthma. Although still an early-stage venture, Totally is signing up an increasing number of patients to its health classes, and has recorded a 59 per cent decrease in the number of GP appointments taken up by its clients.
Aim stalwart EMIS (EMIS) offers technology solutions to many NHS trusts. Spending on IT within the NHS is very fragmented - for example, 29 separate payments of over £25,000 were made to BT in the final quarter of the 2015-16 financial year - and so streamlining technology services could be an excellent solution to cutting costs.
Many NHS trusts have taken up the EMIS technology and now over 10,000 organisations use the software, although recent funding concerns have seen a slowdown in the number of NHS procurement contracts awarded. But EMIS's technology should be beneficial to the NHS. The software is used to share patient information and therefore raises the efficiency of individual NHS trusts and streamlines the IT systems for the whole organisation.
We get constant reminders that the NHS is in deep water; from doctors' strikes to HIV drugs provision, it's rare to go even a week without news of further NHS difficulties. And while this is concerning to many and harrowing for some, for investors there could be ways to benefit.
Favourites
Spire remains a firm favourite, not only for its strong position in a favourable marketplace but also for the opportunity for consolidation. South African hospital provider Mediclinic, which owns a 30 per cent stake in Spire, has been on the acquisition hunt and in February bought out Middle Eastern hospital group Al Noor. Should the company wish to continue to expand its horizons further, Spire looks like a good bet. We rate the shares a buy.
We also like EMIS for its strong market position and opportunities in an organisation that really needs some help. At present, funding concerns due to political uncertainty make this quite a risky stock, but it is one to keep an eye on.
Outsiders
On the back foot is Cambian which has not only been hampered by low public spending, but also inefficient management. Fellow care home operator CareTech shows that it is possible to weather the storm, but Cambian has certainly not succeeded.
We are also sceptical about the future of Circle. Although the Department of Health seems to have forgiven its past failings, we remain concerned about the group's ability to manage big projects. Stephen Melton, chief executive, told the Financial Times that Circle's troubles have everything to do with being a start up in an industry driven by politics. But these problems are likely to endure until Circle grows in size, and with the way the share price is going (down two-thirds in the last year), that is likely to be a long time coming.
