Some investigative work by Private Eye has uncovered a worrying new development in the world of NHS privatisation. Private firms that are failing to turn a profit on NHS work are surviving thanks to the promise of further contracts, thus creating the potential for a huge equity bubble funded by taxpayers’ money.
Until now, we’d assumed that private companies would want to cherry-pick the easier, more profitable work. There’s more money to be had in minor surgery than in complex and unscheduled care, so companies would tend to build surgical centres rather than emergency departments and geriatric wards.
So why, then, are private firms taking on work that doesn’t pay? The answer is that the firms are in many cases owned by hedge funds who make large profits using the money given to the firms by the NHS. This can only continue as long as the firms continue to win new contracts – as the Eye puts it, “private companies losing money from NHS work survive entirely on funding secured on the promise of… yet more NHS work”.
Such a system sounds like a Ponzi scheme, but it also has all the hallmarks of a bubble. Firms desperate to be given more money will take whatever contracts they can get, growing their share of NHS work for as long as they can. If the bubble bursts early on, the firm goes bankrupt and the NHS is left to pick up the pieces. However, if the bubble grows for long enough, these private companies could become too big to fail, leaving the government to choose between a massive bailout and a healthcare collapse.
NHSpace has chosen not to name individual firms, for obvious reasons. You can read about the specifics on page 37 of the current edition of Private Eye (issue 1393).