Confidence in companies providing healthcare services has been shaken after a government decision to cut costs and discard plans for six private sector healthcare clinics, which included one that was already up and running.
Shares in the healthcare sector plunged, but none more than Nestor Healthcare and Care UK after they both issued profit warnings.
The decisions were the result of pressure on the National Health Service in the wake of its deficit of £547m in the 2005/06 fiscal year. But since then the situation has changed considerably with the restrictions on spending within the NHS leading to a surplus this year. Up to £1.8bn (approximately 2 per cent of its budget) will be left unspent this year, according to the Department of Health.
Tightening the pursestrings further could well have negative consequences, with a growing belief that patients are receiving poorer quality care. The issue of the “postcode lottery” could rear its head. The NHS is vulnerable to accusations that the quality of healthcare service doesn’t depend upon factors such as age and health, but upon where you live.
Where does this leave health care companies when the NHS’s finances surge between deficits and surpluses depending upon the political climate?
As we have said before, healthcare companies are far from homogenous. Some such as Southern Cross Healthcare, Nestor Healthcare and Care UK provide clinical services. Others provide support services. For example Bioquell assists the NHS with decontaminating hospitals. Another company in this category is Synergy Healthcare.
We favour the latter because their services are not in competition with existing public providers, but there is no doubt that the ability for all companies to plan and respond to budgetary constraints and loosening is a challenge.
