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TABLE OF CONTENTS

1. INTRODUCTION 7

2. SUMMARY 8

3. ECONOMIC ENVIRONMENT 13

4. THE NATIONAL HEALTH SERVICE 16

4.1 NHS Structure

4.2 NHS Trusts

4.3 NHS Expenditure

4.4 Bed Provision in the NHS

4.5 The NHS Estate

4.6 The Private Finance Initiative

4.7 Private Healthcare within the NHS

4.8 NHS Supplies

5. PRIVATE HEALTHCARE MARKET AND OTHER 41 HEALTHCARE PROVISION

5.1 Private Acute Hospital Stock

5.2 Mix of Ownership of Private Acute Hospitals

5.3 Companies and Charitable Organisations Operating in the Private Acute Sector

5.4 Private Psychiatric Hospitals

5.5 Hospices

5.6 Nursing and Residential Homes

6. PRODUCT USAGE 64

6.1 Introduction

6.2 Overall Product Usage

6.3 Bathroom and Shower Products

6.4 Furniture, Furnishings and Wallcoverings

6.5 Floorcoverings

6.6 Heating, Ventilation and Air Conditioning

6.7 Lighting

6.8 Other Products

7. BUYING AND SPECIFICATION PROCESS FOR 84 NON-MEDICAL EQUIPMENT

7.1 Introduction

7.2 Initiation of Refurbishment and Extension Projects

7.3 Specification Process

7.4 Responsibility for Purchase

7.5 Source of Supply

7.6 Implication of the PFI for the Buying and Specification Process in NHS Trusts

7.7 Implications of the Buying Process for Suppliers

8. KEY MARKET INFLUENCES 105

9. FUTURE PROSPECTS 112

LIST OF TABLES AND CHARTS

Chart 1: Organisational Structure of the National Health Service.

Table 2: Number of NHS Trusts 1991-1995.

Table 3: Central Government Expenditure on the NHS 1988-1997.

Chart 4: Mix of Total NHS Expenditure in England, Scotland, Wales and Northern Ireland.

Table 5: Expenditure by Health Authorities and NHS Trusts 1990-1994.

Chart 6: Mix of Expenditure by Health Authorities and Trusts 1994.

Table 7: Average Daily Available Hospital Beds 1990/91 - 1994/95.

Chart 8: Number of Hospital Beds by Broad Speciality Group.

Chart 9: Geographical Distribution of Bed Provision in the UK - 1994/95.

Table 10: Expenditure on Premises and Fixed Plant 1990-1994.

Chart 11: Mix of Expenditure on Premises and Fixed Plant.

Chart 12: Mix of Expenditure on Capital Additions.

Table 13: NHS Supplies Influence on Total NHS Non-Pay Expenditure.

Table 14: Number of Private Acute Care Hospitals and Beds UK - 1980-1995.

Chart 15: Average Number of Beds per Hospital (Private Acute Sector) 1980-1995.

Table 16: Mix of Ownership of Private Acute Hospitals 1995.

Table 17: Hospital Stock of Leading Private Hospital Groups 1995.

Chart 18: Number of Private Psyciatric Hospitals 1987 and 1995.

Chart 19: Mix of Ownership of Private Psychiatric Hospitals 1995.

Table 20: Ownership of Private Psychiatric Hospitals by Commercial Groups 1995.

Table 21: Number of Hospices by Provider 1996.

Chart 22: Mix of Nursing and Residential Care Home Places.

Table 23: Ownership of Long-Term Care Homes by Groups 1996.

Chart 24: Mix of Non-Medical Equipment Usage by Value.

Chart 25: Mix of Expenditure on Furniture, Furnishings and Wallcoverings.

Table 26: Average Replacement Cycles for Furniture and Furnishings within Hospitals.

Table 27: Key Influencers in Defining the Need for Refurbishment and Extensions.

Table 28: Key Influencers on Type of Product Used.

Table 29: Key Influencers on Brand of Products Used.

Table 30: Information Sources Used when Identifying Non-Medical Equipment.

Table 31: Person Responsible for Purchasing.

Table 32: Source of Supply for Non-Medical Equipment.

Table 33: Factors Considered to be Important in Influencing Choice of Supplier.

Table 34: Age Distribution of Resident UK Population.

Chart 35: Expectation of Life at Birth.

Chart 36: Health Spending per Capita 1993/94.

Chart 37: The UK Private Health Insurance Market 1988-2000.

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EXECUTIVE SUMMARY

In 1995, the total UK expenditure on Healthcare provision (excluding nursing and residential care) was in excess of £40bn, of which 97 percent was accounted for by the National Health Service and the remainder by the private sector.

Expenditure on healthcare has increased consistently ahead of inflation over the last 10 years, with good growth in both the public and private sectors. It now accounts for around 7 percent of GDP, and although this percentage has grown, it remains below the levels of expenditure seen in the majority of other developed countries.

The National Health Service has undergone a radical change in its structure due to a number of reforms introduced by the Government in 1991.

The changes, designed to result in a market-type mechanism for public health service delivery, have divided the NHS into two distinct groups, the providers of health services (NHS Trusts) and the purchasers (GP Fundholders and Integrated District Health Authorities/Family Health Service Authorities).

Almost all NHS Hospitals have achieved Trust Status, operating as non-profit making, self-managed organisations with direct accountability to the Secretary of State. Each Trust owns it assets, land, buildings and other property and is expected to manage these to maximise their potential.

The overall NHS Estate is substantial costing around £1.5bn to run, accounting for 6.5 percent of all expenditure by Health Authorities and Trusts. In addition, a further £1.5bn is invested annually in new developments.

To date, the majority of new build and refurbishment projects within the NHS, have been financed by the Treasury. However in 1992, the Government launched the Private Finance Initiative with the aim of encouraging public sector departments to exploit the financial and project management resources of the private sector for capital projects. It is now a requirement of the NHS Management Executive that private financing options are sought for all capital investment schemes before a loan is made for public funds.

Until recently, few contracts had been issued under the PFI, however the declining availability of Treasury funds make it likely that an increasing number of projects will be financed by the private sector in future, with significant implications for suppliers of non-medical equipment.

It is anticipated that the structure of most PFI schemes will involve the Trust in granting a lease to a private sector investor, who would develop the building and then lease it back to the Trust. In addition, the developer would have a contract for the operation and maintenance of the property.

The private healthcare market is substantial with a value in excess of £1400m. There are approaching 14,500 beds provided by privately owned hospitals, representing some 5 percent of the total bed provision in the UK. In addition, there are a further 3000 beds within NHS hospitals of which around half are located in dedicated pay bed units.

The sector has shown good growth over the last 15 years reflecting a number of factors including growing dissatisfaction with the NHS due to a perception of declining standards, increasing consumer expectations and consultants preference. This has resulted in considerable investment in new developments with 147 new acute hospitals opened between 1980 and 1995, although there have been 56 hospital closures during this period, usually of older properties. In addition, a number of existing hospitals have been extended with a total net increase in the bed provision of 75 percent.

The private acute hospitals sector is dominated by 3 groups, BUPA Hospitals Ltd, General Healthcare Group Plc and Nuffield Hospitals who together account for 43 percent of the bed provision in the private acute sector. Profit making groups account for 53 percent of all beds, with the remainder provided by charitable groups (15 percent) profit making independents (10 percent), charitable independents (13 percent) and religious organisations (9 percent).

In addition to private acute hospitals, there are 68 acute psychiatry units providing 2800 beds. This sector has shown steady growth over the last decade, stimulated recently by the reduction of the psychiatric provision within the NHS. Some 46 percent of beds are provided by four groups, Priory Hospitals Group, Partnerships in Care Ltd, Cygnet Health Care Plc, Charter Medical Ltd.

Overall, the demand for private healthcare is expected to show good growth in future, leading to further developments of new facilities. However, private sector providers are expected to face increasing competition from the public sector, as NHS Trusts develop pay-bed units in order to generate additional revenue.

The market for non-medical equipment within the healthcare sector (excluding building and infrastructure products) is estimated at £550m. Major product sectors include Heating, Ventilation & Air Conditioning and Furniture, as well as Lighting, Floorcoverings, Furnishings, Wallcoverings and Bathroom Products.

Many of the products used within the healthcare sector are specialist in nature to reflect the specific needs of patients, with safety, hygiene and functionality all key issues. Product features such as style, appearance and quality have always been considered important in the private sector, however the recent changes in the NHS have resulted in greater emphasis on quality, durability and aesthetics.

Within NHS Trusts, the Estates Department play a key role in the buying and specification process for all estates-related products. The Department have wide ranging responsibilities, dealing with major capital projects as well as annual maintenance budgets, and will be headed by an Estates Director or Manager.

Other key influencers on the specification process include the User Department, who will generally be involved in the specification of medical equipment and other task-related products.

External consultants such as architects and interior designers will often be employed on major capital projects. Commonly companies with considerable experience of the healthcare environment, they may also be involved in the specification process.

The NHS Supplies Authority, which was established in 1991 to enable the NHS to achieve the 'best value for money' on all medical and non-medical products required to delivery healthcare, represents a significant source of supply. The Authority influences around 60 percent of estates related purchases, supplying a limited range of brands based on annual or biannual contracts.

Whilst to date few contracts have been issued under the PFI, this may have a significant influence on the buying and specification process in future. Although Trusts may continue to set the specification standards, the subsequent buying and specification process is likely to be the responsibility of the developer. In addition, the associated maintenance contracts will transfer responsibility for replacement purchases to the private sector investor.

In the private healthcare sector the buying and specification process differs considerably depending upon whether the hospital is part of a group or an independent.

Many of the hospital groups have a specification manual, developed by the property department within head office. This clearly defines the type and brand of product to be used and is intended to ensure that a corporate style is achieved.

In independent private hospitals, the Hospital Manager is generally a key influencer on the specification process, with other influencers including external consultants and the hospital board.

Within groups and independents, purchasing is usually the responsibility of either the Hospital Manager or a Supplies department. Products are commonly sourced locally, although specialist products may be purchased direct from the manufacturer.

The future prospects for the healthcare sector are uncertain, being largely dependent on the outcome of the forthcoming general election.

Whilst the election of a Conservative majority would result in a continuation of current policies, the Labour Party are committed to a number of changes to the NHS structure, with the prospects for some policies such as PFI currently uncertain.

The other major influence on the future prospects for healthcare in the UK is the growing number of elderly, who will produce a greater requirement for geriatric facilities and products. They will place an increasing burden on the public healthcare system, reducing its capacity to provide unlimited free healthcare for all, which is likely to result in growth of the private healthcare market in the longer term.

This comprehensive report represents a detailed assessment of the market, reviewing major trends, key factors influencing developments and future prospects for the sector. Analysis is both quantitative and qualitative, based on our substantial experience of the building and home improvement markets.

Text © 1996 AMA Research

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