The Silver Economy: Japan sets template for private sector care
Elderly patients account for nearly two-thirds of hospital patients and one-fifth of emergency admissions in the UK. Often they are in hospital not because it is the best place for them, but because there is no alternative to ensuring they receive the care and attention they need.
But governments around the world are looking to cut healthcare costs, and increasingly the private sector is stepping in to fill the gap in the UK and elsewhere.
In Japan a national long-term care insurance system was introduced 14 years ago that funds respite assistance, home nursing and centres for the elderly. The move spawned a clutch of private sector domiciliary care providers eager to offer services in exchange for a steady income from government.
Although most of these Japanese companies are domestic, a handful – among them Welfare Service Information and Longlife – have expanded to China and other Asian nations.
Mayumi Hayashi, research fellow at the Institute of Gerontology, King’s College London, says there is an increasing trend for Japanese health and care providers to share knowledge and expertise across Asia as the market grows.
The phenomenon has piqued interest in Britain. Jeremy Hunt, the former Health Secretary, visited Japan last year to study its experience although Dr Hayashi cautions that without more investment few of the lessons can be replicated in the UK.
Nevertheless facilities management companies more used to cleaning offices than taking care of the elderly are spotting opportunities for growth.
Mitie, one FTSE 250 provider, is one. It says the market is still at an early stage of development. But consolidation and new technology such as computerised patient records management provide opportunities for cost savings and growth.
The group made its first foray into delivering social care in 2012, fighting off rivals including the French Sodexo and the British Serco to buy Enara, a small home care provider that had been owned by a private equity group. Subsequent purchases include Complete Care, another small domiciliary provider, earlier this year.
“We think the opportunities coming out will get much bigger in scale in the next few years,” says Ruby McGregor-Smith, Mitie’s chief executive, citing a projected doubling of the population aged over 85 over the next 25 years. Out of an annual UK healthcare spend of more than £100bn, its “target social care market” accounts for £17bn, she says.
Other facilities management companies have followed suit in Britain. Mears, which maintains buildings for social housing tenants, last year bought Independent Living Services, which employs 1,500 staff in Scotland. This was followed by Insitu Care, in Salisbury, two months ago. Interserve, another FTSE 250-listed company, has also moved into the sector with the acquisition of Advantage Healthcare.
Justin Crowther, analyst at Catalyst corporate finance, said the strategic rationale is clear. “Mitie and its larger peers can see an opportunity to provide integrated and bundled services to their existing local authority and NHS customers who are also spending significant sums on community-based domiciliary and specialist care services.”
Although demand for elderly care has increased 9 per cent over the past four years, cuts to central government funds are forcing local councils to reduce spending on adult social care by about 8 per cent this year, according to Britain’s National Audit Office.
While this is putting pressure on some of the thousands of mom and pop-sized businesses that feed and wash the elderly in their homes every year, it also provides opportunities for some of the bigger companies.
Margins can be as high as 13 per cent on social care for these companies although risks are also bigger than in their traditional facilities management business of replacing lightbulbs and watering pot plants.
This is exacerbated by low staff wages in an industry notorious for its use of zero hours contracts in Britain.
Mitie admits that staff retention can be an issue particularly in expensive London boroughs where the local authority funders of social care base their contracts on minimum wage payments. It acknowledges that care is better when people are properly paid.
In Japan the government has since 2009 sought to address this by subsidising salaries. It has also introduced training pathways, career structures and minimum vocational qualifications – moves that were enshrined in law in June. Dr Hayashi says this is the key lesson from Japan. Without adequate wages the “continuity and the quality of care provision will increasingly come under pressure” in Britain and elsewhere, she says.