Britain's population is both growing and ageing. The result has been unprecedented demand for health care, which has forced the UK Hospitals industry to expand. Enterprise and establishment numbers have risen consistently in recent years, but this growth has not been particularly rewarding for the industry because public health-care budgets have failed to keep pace with ballooning demand. Industry revenue is expected to rise by 1.5% to £70.6 billion in 2015-16. This mimics the wider trend of modest industry growth, which is reflected in the compound annual revenue expansion of 1.1% expected over the five years.
Private operations are estimated to account for approximately 10% of the industry. Public NHS hospitals, which treat patients for free at the point of service, provide the vast majority of health-care coverage in the United Kingdom. Their expenses are covered by central government from tax receipts. This control over NHS budgets gives the authorities immense power over the Hospitals industry. As NHS budgets come under pressure from the squeeze on government expenditure, industry revenue growth is limited. This has been the dominant trend over the past five years. Government cutbacks have reduced the rate at which NHS budgets have risen. These budgetary limitations were implemented in 2010-11 due to the burgeoning public deficit. The result has been stunted industry growth in the face of unparalleled demand.
The youngest of the baby boomers, born in the immediate aftermath of World War II, have now reached their 50s and older members of the group have already joined the cohort of those over 65. It is estimated that one in six UK residents are at least 65 years old, and this figure is expected to grow over the coming years. Many health problems are associated with old age and are particularly prevalent in those aged 65 or over. Thus, as the number of people over 65 years of age grows, demand for hospital services is likely to rise.
However, younger generations are also contributing to mounting demand for the industry's services. The UK population has been steadily expanding since 2003, predominantly due to a higher birth rate. As much as 3% of the NHS budget is spent on maternity wards. High birth rates mean hospitals will require significant funding for maternity care into the future.
The private sector has increased its prominence in recent years as the NHS grapples with strong demand. As NHS waiting lists have grown, more people have turned to private hospitals for their health care. This is good news for the UK Hospitals industry. Private service offerings tend to be more lucrative for operators than cost-controlled NHS services. A growing private sector, then, should bring expanding industry revenue and profit margins. However, private-sector growth has been limited by household budgets.
The funding model
Although the industry has grown considerably, the predominance of the public sector has kept profit margins narrow. NHS financing means there is little incentive to seek cost savings. The NHS distributes public money to Clinical Commissioning Groups (CCGs), which administer services on behalf of the national health-care body. If these groups fail to spend their allocations, excess funds are not carried over into the following financial year, but withdrawn and redistributed elsewhere. The system removes any incentive to introduce efficiency measures unless absolutely necessary. Without the profit incentive of the private sector, NHS hospitals tend to spend all funds allotted to them, with a number going into deficit due to the safety net provided by central funding.
Westminster recently took drastic measures to curb expenditure on health care and streamline hospital services through the Health and Social Care Act 2012. Wide-ranging reforms aimed at shifting more of the health-care burden from the NHS to the private sector were rolled out in April 2013. The shake-up sought to liberalise national health care by opening more public contracts to private tender. Reform was also aimed at boosting NHS efficiencies to cut costs and ease budgetary strain. A slight increase in tendering to private contractors has been noted thus far, although the full effect of the new law will not be realised for a number of years.
Staffing issues are a constant concern for hospitals due to the direct impact staffing has on the quality of service provided. Rapid industry growth has induced fears of an imminent nursing shortage. Any such shortage could inflate labour costs in an industry where they are already high, as operators often raise salaries in order to retain employees. Many hospital trusts have had to increase their hiring of foreign nurses due to the shortage, which has been exacerbated by cuts in training places. Although training places have been increased somewhat, the time lag caused by training is a concern, especially as there is always the possibility that many of the foreign nurses could decide to return to their home countries.