Spire Healthcare: invest in the booming demand for private healthcare

The Darzi Report has exposed the dire state of the NHS. Ara Darzi, a former Labour minister and surgeon with more than 30 years of experience in the NHS, found the health service has suffered from decades of underinvestment in people and buildings. The lack of investment is not only leading to higher waiting lists but also thousands of premature deaths. 

Labour has promised to address the problems but has ruled out further cash infusions until the system reforms itself. Reform will almost certainly include greater involvement from the private sector, something both prime minister Keir Starmer and his health minister, Wes Streeting, have made clear.

Private healthcare: a growth market

NHS spending on the private sector has risen steadily over the past few years. According to the Nuffield Trust, NHS trusts spent around £1.7bn a year on private healthcare services before Covid, but that had doubled by the 2022/2023 financial year. The number of NHS patients treated in private hospitals rose from 5.6% to 7.5%. Meanwhile, the Private Healthcare Information Network (PHIN) recorded just under 900,000 admissions to private hospitals in 2023, more than in any year since 2016 (when records began). The figure recorded for 2022 rose by 7%. Growth was driven by increased public and private demand – demand from the NHS and more self-pay and private health insurance admissions. 

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Self-pay private healthcare admissions, where patients pay for their care out of their own pocket, reached a record high in 2023. A total of 72,300 self-pay admissions were registered in the first couple of months of 2023, a 40% jump on pre-Covid levels. 

In the health insurance market, 12% of the UK’s population is now covered by health insurance, a figure set to grow. Last year, the UK’s biggest general insurer, Aviva, said demand for health insurance had risen 41% in 2023 compared with the previous year. Attitudes to private healthcare are changing. It’s no longer considered taboo, especially among younger people. According to the latest data, younger people in the UK are more likely to choose private insurance than any other age group. Meanwhile, a poll found that 46% of Britain supports the NHS paying for private treatment, particularly in areas such as cancer treatment and dentistry. All of this means that private healthcare providers are set for a boon over the coming years. People will pay for private healthcare to avoid NHS waiting lists, and the NHS needs private sector capacity.

Spire Healthcare: a rare pure play

Most of the providers of private healthcare in the UK are either private, owned by a charity (in the case of Nuffield, one of the largest providers) or are UK arms of US giants. 

Spire Healthcare (LSE: SPI) is one of the only ways investors can gain access to the trend, aside from third-party plays such as healthcare real estate investment trusts (REITs). The FTSE-250 group is perfectly positioned to ride the private healthcare wave in the UK. The company’s first-half results, published last week, provide insight into how the private healthcare sector in the UK is evolving and the future opportunities. Overall, the group reported a 12.7% increase in revenue. Its hospital business saw a 5.4% increase compared with the same period last year as private medical insurance (PMI) revenue grew 9.7%. NHS revenue grew 5.2%, and the average revenue per case rose 4.7% to £3,495. Self-pay administrations declined 3%. Overall admissions remained stable at 140,657 for the period. 

The group’s top line was boosted by the recent acquisition of Vita Health Group, a market-leading provider of mental- and physical health services, which is on track to deliver 5% of the overall group’s earnings before interest, tax, deprecation and amortisation for the full year. Spire said it had seen a decline in self-pay admissions as patients were shifting to private medical insurance. At the same time, it has seen an increase in income from the NHS. The state healthcare provider agrees settlements annually with private providers for the cost of care and in the current financial year prices were increased by 0.6%. NHS revenue growth was powered by higher volumes as well as more referrals.

And the two public and private parties are collaborating in other areas as well. Spire sold one of its hospitals to the Maidstone and Tunbridge Wells NHS Trust at the end of March 2024 for £10m and has continued to run the hospital. It has also signed an agreement with the Sussex Health system to provide treatment to NHS patients via its Spire hospitals in the southeast. Management is plotting further growth. Ten new clinics are in the pipeline, and the company has outlined plans to spend between 6% and 7% a year on capital projects (spending totalled £52m in the first half). Notably, unlike the NHS, Spire is having no problems finding the staff for its facilities. In its half-year results, the company said “For the first time, we are now fully staffed at almost all sites in line with the group’s establishment models with colleague vacancies at a record low”. That’s helped the group cut spending on expensive agency staff.

The wind is blowing in the right direction for Spire, and the company is capitalising on the opportunities in the market. Analysts at Peel Hunt expect growth in profit before tax of 38% for the current year, followed by growth of 27% in 2025 and 20% in 2026. With Labour’s focus on boosting the private sector’s role in the UK’s healthcare system, those numbers could turn out to be conservative.

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