Top 10 considerations when expanding an NHS private patient unit

Key considerations for expanding a private patient unit (PPU) will often depend on a number of factors.

This includes whether it will involve working with a partner – which may be structured in various ways – building a new private hospital or carrying out any construction works. 

There are, however, some common themes, as set out here.

1. Estates and construction – is a new building required?

Depending on whether there is a construction element or new building as part of the expansion, and whether the trust owns the site where the services are to be provided, there will be different issues to work through in respect of real estate.

How the project is structured (especially whether it is with a partner or not) will also have a big impact on property matters. This should include considering issues such as how the lease chain works if there are funders and developers involved, and whether or not the project is structured as a “land transaction” (like with the UHB/HCA Harborne Hospital project).

Who will the facility revert to at the end of the term if working in partnership with a private provider?

There may also be considerations, such as interface with a private finance initiative (PFI) hospital estate.

If works are seen to be being “procured” by the trust this obviously triggers a procurement process.

Again, this depends on whether or not a partner is involved and what each party’s role in the project is.

2. Partnering or not?

Does the trust want to expand its PPU alone or with a partner? There are obviously pros and cons to both options, and various different ways this can be done. 

These range from working with a partner in relation to certain limited services only, to having a full corporate joint venture arrangement where both parties form a new corporate vehicle to build a new private patient hospital (or expand a current one) and run the private patient services moving forwards.

Expanding your own PPU

Pros: 

• Complete control over the expansion process and can make decisions independently.
• Retention of all profits generated from the expansion.
• Maintain own brand identity and reputation.

Cons: 

• Limited resources and expertise to expand on your own?
• Higher financial risks?
• More competition from other healthcare providers?

Working with a partner on the PPU

Pros:

• Benefit from the expertise and resources of the partner.
• Share the financial risks and costs of the expansion.
• Benefit from the partner’s existing brand identity and reputation.
• Brings in more patients.
• Better deals with insurers?

Cons: 

• Less control over the expansion process and decision-making.
• Share profits generated from the private patient activity.
• Challenges with integrating with the partner’s existing systems and processes?
• Cost and timing required to carry out transaction.

3. Procurement

Whether or not procurement is an issue will depend on the trust’s plans for expansion and whether anything is actually being “procured”. 

This could be works as mentioned above or services. Forming a joint venture/partnership arrangement with a partner in and of itself will not trigger the need for a procurement but each situation will need to be analysed to consider whether there are any procurement issues to be aware of.

It’s important for trusts to identify these considerations early on and factor into plans to ensure the expansion is structured in a way that is beneficial for all parties involved.

4. Employment

Employment matters and Transfer of Undertakings (Protection of Employment) considerations will be different depending on whether or not a partnership is being entered into, and whether there is a new legal entity formed to run the private services and/or who will employ the staff working in the expanded private patient offering. The issues will be different depending on the scenario.

5. Legal documentation required

The documentation that will be needed will depend on your expansion plans. If you are entering into a partnership, is this a contractual arrangement or are you incorporating a legal vehicle which you will own with your partner? 

Who is doing what in terms of the services and contributions? What will the property arrangements be if a new building is part of the expansion? The documentation will be tailored to your needs.

6. Competition and subsidy control

Where there is a partnership being put in place to support the trust’s expansion plans, subsidy control rules, competition laws, merger control laws and the Private Healthcare Market Investigation Order will all need to be considered to ensure there are no issues arising and to understand any notifications that are required. 

7. Governance and approvals

Your internal approvals procedures and board dates will need to be mapped out depending on the internal approvals needed in relation to your plans. 

Consideration should also be given to governors and any communications that may be needed with them if relevant.

Outside of the trust, external stakeholders will also need to be managed, mainly NHS England (which will need to approve any sort of partnership/joint venture approach under the subsidiaries/transactions guidance).

8. Commercials

Again, the considerations around commerciality will be very different depending on how you are planning to expand. If you are bringing a partner onboard you will need to think about things like:

• What are the capital contributions of each party – what does each bring (monetary or otherwise)?
• What is the percentage split of shareholding or membership profits and losses?
• Are there any preferential returns to either party ahead of reverting to the percentages agreed? (For example, if one party puts in more cash it may get that paid back ahead of profit shares in the agreed percentages).
• When can distributions be made (and to where) and what must be left in the business?
• How will future capital requirements be funded as between the parties?

9. Data

If working in partnership, the trust needs to consider how it shares data and how personal data and patient data is kept safe and secure.

10. Insurance arrangements

What are your arrangements and rates with insurers for your private patient business and can these be improved? 

Partnering with a private provider may enable better terms and rates to be negotiated with the insurers.

For more information

If you would like to discuss any of these issues or anything else relating to your existing or future private patient activity or expansion, please get in touch and we would be very happy to arrange a one-hour free sounding board advice meeting.