Can private operators beat not-for-profits on their turf?
When it comes to competition between the public sector and private operators in healthcare, the playing field is seldom even. Interestingly, however, the roles of David and Goliath in this particular matchup are often reversed depending on which country you look at, the extent to which public services are state-funded, and whether legislation is a help or a hindrance. Public and private are not, however, the only options.
Private operators looking to find a sweet spot in any given market also have another group to contend with – not-for-profits – and they can play by different rules altogether.
Recently we spoke to the CEO of Cleveland Clinic London. He was remarkably relaxed about when the American giant’s London venture – an eight-story hospital set to open in 2021 – might break even, saying “it will be many years”.
Similarly, he felt untroubled by the usual PE timescales that would put pressure on him to sell up and profit in five to six years. “We have a 50-75 year timescale,” he says.
How then do operators compete with a company which doesn’t seem to need to make a profit, is under no pressure to sell, and has a timeframe seemingly 10 times longer than most investors? And can organisations like Cleveland Clinic make losses without consequence?
It’s worth looking at what the group is also doing in Abu Dhabi where, we hear, money is currently being lost (the group has not said either way).
With a reported cost to the Emirates government of between $1bn-$1.5bn, the work Cleveland does isn’t cheap – but it’s complex and we hear has low to no margin.
So how do you private operators take the likes of Cleveland on?
The answer may well be – in certain geographies and certain specialities – they cannot.
On the one hand, you could argue that’s bad for competition. But as a consumer as well as public payor, if a not-for-profit can fill a gap in an otherwise unattractive (loss-making or hard-to-eke-out profit) area, and afford to take the hit whilst training and educating, which is part of Cleveland’s brief – then that has to be a good thing. And for-profit operators seem, on the whole, perfectly content to remain elective sausage machines.
We would welcome your thoughts on this story. Email your views to David Farbrother or call 0207 183 3779.
