Branson diagnoses the profit in health care

It may lack glamorous marketing appeal, but the prognosis is profit. Lucy Tobin reports

There are no opportunities for Sir Richard Branson to pose with can-can legged-air hostesses in the care industry, as he does when his Virgin Atlantic airline launches a new route. Nor can he stick a wind-swept beaming head out of the door of a urology unit, as he does on his Virgin Trains.

But while there's little sexy to promote about cyst removals or eye checks, Sir Richard has this year stuck his Virgin brand on the "health management company" he bought two years ago – and it's a sign of his appetite for the outsourcing of services once run by the NHS.

Virgin Group paid £4m for a 75 per cent stake in the healthcare division of medical services group Assura in 2010. For that he took over the running of 30 polyclinics representing some 1,500 GPs serving about three millon patients.

At the time, it planned to invest up to £20m in the business over three years, but hadn't decided if it would re-brand Assura Medical under the Virgin banner. Sir Richard's daughter Holly, who had just left her post as a junior doctor at Chelsea and Westminster Hospital, signed up to work at the business and, this summer, the billion-pound group was happy enough with its fledging business to put the Virgin name to it.

Last month, Virgin Care called time on its polyclinic business: the joint venture structure failed after the Government forced GPs to commission health services that, Virgin said, put family doctors in a "position of possible conflict of interest". Instead it now runs "one stop shops" offering dermatology, ophthalmology, gynaecology, urology, and other services in one place direct to the public. Virgin Care claims that it has cut down the number of patient visits and saved the NHS £5m last year.

Councils have leapt on board. Last year's high-profile collapse of Southern Cross, owned at the time by US buy-out giant Blackstone, seems not to have dampened demand for outsourced health services.

"About £1bn out of the £10bn annual revenues from community care provision – that's services such as district nurses, family planning, and community psychiatric nurses – went to non-profit social enterprises in England under the Labour government but the market is now being opened to the private sector," said William Laing, the founder of healthcare consultancy Laing & Buisson,

"But now we're seeing the rate of outsourcing to the private sector accelerating. I'd expect companies like Virgin Care, Mitie – the generalist outsourcer which bought home care business Enara last month – Care UK and Serco to take the value of private sector contracts to £2bn in the next two to three years."

The pace is already growing. Virgin Care was been named the preferred bidder in the £130m, three-year contract to run social care for children, including those with mental and physical disabilities, in Devon this summer; earlier this year NHS Surrey awarded a £450m deal over five years to Virgin Care to provide community and specialist nursing services.

Serco has signed a £140m, three-year contract for home care and other services, in Suffolk. And private equity-owned Care UK signed a deal last month to run all Suffolk County Council's old people's homes, via a £60m, three-and-a-half year contract that saw more than 1,000 council staff transfer to Care UK.

When Mitie spent £110.8m buying Enara, the FTSE 250 firm's chief executive Ruby McGregor-Smith said the acquisition was to help it expand into the growing healthcare market. Enara's 6,000 carers help elderly clients dress, wash and get in and out of bed, as well as providing respite care, but sounded most excited about a "platform to compete in the growing outsourced health and social care sector".

There may not be photo opportunities, but the cash in the offing in Britain's care business is more than enough to excite Sir Richard and his rivals.

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