Very low levels of profitability in the UK homecare sector are forcing companies to exit the market, and this is creating a “ticking time bomb” for the NHS, a leading expert has warned.
Costs for homecare providers have soared while their prices have fallen, and some are already finding it impossible to survive. And there is a very real danger that those players remaining in the market will be unable to take over caring for the patients of those that leave.
“And the NHS cannot take those patients back, because it no longer has the staff to look after them,” warns an insider, speaking exclusively to Pharma Times.
Barriers to entry to the market are very high, and profit margins are unacceptably low, averaging 4%-5% or, according to some estimates, as little as 1%, on simple “dispense and deliver” arrangements. Five years ago, companies were charging £50-£60 per delivery to a patient, but one firm today charges just £28 for this service.
A massive problem for companies is that the NHS is very slow at paying, Pharma Times was told. “Most of the drugs we deliver are very expensive, and while the NHS is meant to pay within 30 days, it doesn’t,” one industry figure reports.
“So we have been forced to fund working capital, which has put immense strain on our resources and we cannot get to profitability.”
And obtaining finance elsewhere is almost impossible. Loss-making businesses are not attractive to private equity firms - many of these now regret ever getting into homecare, he said.
To set up as a homecare provider, you need a national service infrastructure business, and to grow, you need to increase this infrastructure, he said. But players in the sector are not doing so; rather, activities such as compounding and logistics are increasingly being outsourced.
The sector will consolidate, and no new players will come in, and simple dispensing operations will survive only if they have a pharmacy network, which cuts out the delivery services, an industry observer forecasts.
“This is a volume-driven business. You must get patients so you need to win NHS business by being the cheapest, and you need a pharmacy network to be able to drop your prices,” he says.
But he also sees real opportunities for high-tech players which employ nurses to administer expensive, specialty medicines to patients in their homes. Double-figure margins are available to such companies, and they have a unique opportunity to improve patients’ adherence to their medication regimes, he says.
“Homecare is a very cheap way of keeping patients out of hospital and the NHS wants to get it for the cheapest price. Pharma is being squeezed, and they’re squeezing us, but we are commercial organisations and we need 10%-15% margins. The NHS and the pharmaceutical industry have to realise this,” says one insider.