ACQ – June 2010

« Consultancy

LCS International is a leading research and buy-side analyst firm in health care and related sec­tors. LCS has a multi-disciplinary team of sen­ior consultants plus research and support staff, drawn from the fields of health care provider services, health economics and professional valuation.

Paul Saper is Managing Director at the firm.

What effects have you noticed on the Healthcare sector from the economic crisis?

In our view the economic downturn will affect the healthcare industry in the UK and elsewhere in sig­nificant ways, despite assurances about ring-fenced funding. The effects will be seen over the whole of the next decade.

Firstly, ring-fencing provides only for current levels of expenditure to be maintained and little more, while demand (due to demographics et al), will continue to grow. Secondly, ring –fencing is guaranteed only until 2014, while the aftermath of the economic ca­tastrophe will be with us for at least a further seven lean years.

Thirdly, the lines between social care and healthcare are not distinct and the former is not immune from spending reviews.

While this will lead to inevitable cut backs, LCS be­lieves that there will be interesting investment oppor­tunities as value for money alternatives and greater productivity across the board continue to be sought. Among these will be:

• more investment in preventative care - delay­ing the onset of long-term conditions, even for a matter of months is a major saving in the longer term;

• more step-down care to free up acute settings more quickly;

• less institutional care and better healthcare and social care at home;

• reconsideration of the role of children’s homes in specialist children’s services;

• increase in the range of care in primary care settings;

• continued change on the behavioural medicine side. Fewer spot contracts and increase in block contracts. Also further increases in supported living;

• greater emphasis on measurement of outcomes and providing better quality care. Reduced re-admission is a key objective.

• changes in care-pathways with new opportuni­ties for the independent sector.

• more expert tendering and more competition. Clear objective is more product for less cost.

What effect has this had on deal activity recently?

LCS is seeing an increasing number of deals in second quarter 2010 as banks sort out their loan portfolios and as management teams and investors look again at refinancing options. Vendors’ expectations are be­coming more realistic.

Looking towards 2011, more particularly to the sec­ond half, LCS expects that the new direction of gov­ernment will be increasingly felt in the market. The top end of the UK private hospital sector could also do particularly well given the weakness of sterling.