NHS Outsourcing Deal with Private Provider Set to Expand Orthopedic Market

Starting in November 2018, patients requiring elective orthopedic surgery in Plymouth, West Devon, and South East Cornwall in England will receive treatment at a private Care UK facility rather than the University Hospitals Plymouth NHS Trust’s Derriford Hospital. This is a result of a recent deal between the NHS Trust and Care UK to avoid long wait times and reduce pressure on the NHS hospital during the winter—in January 2018, a large number of planned, non-emergency procedures were cancelled due to a bed shortage, which, combined with steadily increasing pressure on the NHS hospital, provided the impetus for this arrangement.

Though unprecedented in scope—in that it revolves around all elective orthopedic work and patients no longer get a choice in where to receive treatment—this arrangement falls in line with a trend of increasingly privatized NHS services over the past decade; in fact, Care UK itself has received a number of NHS contracts in the past few years, and the organization remains one of the largest care home providers in the UK, as well as the largest health care provider in British prisons.

A notable proportion of NHS-funded knee and hip replacements—a third and a fifth, respectively—are already conducted by private health care providers due to legislation that allows patients to opt for NHS-funded treatment at a private facility. Moreover, private health care providers have been used to offer more options and increase competition in the UK for many years; the concept of the NHS as a free market for health care provision became more clearly established in March 2012, when the Health and Social Care Act 2012 received Royal Assent; this legislation further enabled private service providers to bid for and receive NHS contracts, and is considered to be the most significant change to the NHS since its inception in 1948.

Given the unique nature of this recent arrangement and the potential for its replication for other NHS Trusts (the Department of Health is already discussing similar deals with other NHS hospitals), DRG’s Orthopedic market analysts Mohith Unny and Monica Lin are keeping a close eye on developments and already foresee a number of implications for the UK orthopedic device market.

 

This deal will shorten waiting times and increase bed capacity, which will allow elective orthopedic procedure volumes in the UK to expand. Similar arrangements going forward will support revenues in the UK orthopedic device market. Do you agree?

Mohith: I completely agree…going forward, increased outsourcing will definitely support orthopedic procedure volumes. More outsourcing also means greater optimization of both clinical and non-clinical services and cost reductions, which will impact product prices.

Monica: While I agree with Mohith that there will be cost reduction on the providers’ side, I don’t think this necessarily affects product prices. Since facilities are able to reduce cost elsewhere, they should be able to afford the implants at the current price even more so than before. Also, while the increase in supply does imply a reduction in prices, I don’t think the reduction will be large enough to outweigh the effects of the procedure growth. Overall, I do think the orthopedic device market in the UK will grow.

 

Such outsourcing deals will not be able to properly manage some of complexities of elective orthopedic service sector, such as the need for multiple episodes of care or litigation surrounding failed operations, which will discourage some patients from receiving elective treatments at private facilities. Do you think that is a possibility?

Mohith: I do not think increased outsourcing will lead to a decline in elective orthopedic procedures; as I state above, I believe that increased service optimization will allow for a larger volume of procedures to be performed, despite challenges faced by a small number of patients; however, I am still unsure how legal issues will be handled in such a unique deal (where the NHS hospital and Care UK operate as a joint entity). So while I don’t think patients will be discouraged from receiving elective treatments at these facilities, there are still a lot of complexities that need to be sorted out going forward.

Monica: I do suspect that patients with complex pathologies will most likely continue to be treated at NHS hospitals, but I don’t think this will discourage patients from seeking out elective treatment. On the contrary, I think that these deals in the foreseeable future will allow the NHS to outsource noncomplex procedures, in particular, to private care providers, which will free up capacity at NHS hospitals for more complex cases. Subsequently, I would expect to see faster treatment for both simple and complex procedures, in both the hospital setting and at the center providing outsourced services.

 

In the future, replicating a similar model for other orthopedic work will successfully reduce pressure on NHS hospitals and encourage complete outsourcing of orthopedic procedures with the exception of high-risk emergency work. Do you agree with this statement?

Mohith:  I wouldn’t say that there will be “complete” outsourcing in the future because that would translate into job losses in the public sector. I think that some (or all) NHS trusts will only outsource to meet patient demand and ease pressures on their own facilities. I also don’t think this model will be implemented only for elective procedures; if this model is proven to be successful, emergency procedures like trauma cases (or even stroke cases in cardiovascular care) can also be outsourced, at the very least for initial stabilization, at which point patients can be shifted to a public hospital setting if deemed necessary.

Emergency cases should ideally be treated at the closest possible care center—if that is a private center, then so be it—which is why the NHS is banking on this model of service and delivery to work. Obviously, in the short term, such outsourcing models will be implemented only for elective procedures because these are associated with lower risks and higher costs. This provides a safety net while the model is being explored because any failures will not result in serious harm to patients, and effective model implementation will generate considerable cost savings, with both outcomes showcasing the effectiveness and merits of measured outsourcing.

 

Do you believe that in the long run, increased outsourcing of orthopedic procedures will harm accessibility to affordable and timely treatment, both elective and nonelective?

Mohith: I don't feel outsourcing will be detrimental because having more facilities and more efficiency and cost savings in the service delivery chain will only increase the affordability of and accessibility to procedures. A lot of the non-clinical work (such as database management, procurement…etc.) is already being outsourced to third parties and has resulted in considerable cost savings for the NHS. One example of this is the Mid Essex Hospital Services NHS Trust, which outsourced its orthopedic procurement to a private company called INVERTO. In the first three months alone, INVERTO saved nearly £300k strictly from hip implants, representing an expense reduction of almost 28%. If we consider all upper- and lower-limb implants and other orthopedic products, overall savings would amount to around £500k.

Monica: No. I think the core purpose of this deal (and similar deals) is to increase accessibility to timely treatment. Given that outsourcing will lead to an increase in bed availability, I think patients will have access to treatment much more efficiently than they have in the past. Also, a (very simplified) model would suggest that increased supply would result in a lower price. The effects of this should be more apparent in the long run than in the short run.

 

Ultimately, it remains to be seen how these kinds of deals will fully impact the UK orthopedic device market going forward, but there is potential for these agreements to significantly alter procurement processes, procedure costs, and brand choices among physicians and patients. Therefore, the orthopedic analyst team at DRG will continue monitoring these developments and evaluate how they will impact orthopedic markets in the future.

For more information on DRG’s insights on European large-joint reconstructive implant markets and other European orthopedic device spaces, please see our Medtech Solutions. Visit PriceTrack’s homepage to learn more about our SKU-level pricing and analytics tool. For any questions, please contact us at questions@teamdrg.com.

Follow @Mohith_DRG and @DRGMedtech on Twitter for more insights on Orthopedic device markets.


Contributors: April Chan: Senior Manager, MedTech Insights | Mohith Unny: Senior Analyst, MedTech Insights | Monica Lin: Analyst, MedTech Insights | Zaid Al-Nassir: Analyst, Product Support
Published on: 21 November, 2018