THE MAN FROM THE PRIORY
By David Butcher. (April 2004).
Reproduced from MT magazine with the permission of the copyright owner, Haymarket Business Publications Ltd.

In January, several tabloids ran news stories claiming that the nation's teenagers were dangerously hooked on text messaging. It was the kind of wafer-thin item that, true or not, enlivens breakfast conversations around the country. Almost inevitably, the Priory clinic was linked to the stories, its staff said to be 'bracing themselves' for an influx of texting addicts. Dr Chai Patel (left), CEO of a major supplier of mental healthcare to the NHS (and to the stars), has been accused of profiteering at the public's expense. David Butcher dispels some myths.

Around the same time, poster adverts for a new credit card appeared, urging shoppers to 'send your wallet to the Priory' by applying for the card - the copywriters using the Priory name as a convenient shorthand for cleaning up one's act (or possibly, as some observers assumed, for curing your addiction to shopping).

Taken together, the two stories highlighted the way mental illness and its language have become common currency in recent years. They also showed how the Priory brand has come to dominate the public image of psychiatric care, thanks in part to its reputation for putting famous clients back on the rails. But what kind of business is the Priory and its competitors in?

It's a harder question to answer than it might be, because no-one comes to the subject without certain preconceptions. For a start, people think of the Priory as a posh clinic in Roehampton where the likes of Kate Moss and Paul Gascoigne go when life gets on top of them. In fact, the Priory Group has a chain of 16 acute hospitals around the country, as well as secure units and special schools. Only half of the hospitals' business comes from private patients, a tiny fraction of whom are stressed-out celebs. The rest comes from the NHS, the Priory's biggest client and the sector's main paymaster.

Next preconception: you can't combine the profit motive with a caring approach to treatment. Try putting that idea to the Priory's suave chief executive Chai Patel and you can see his hackles rising. 'My view is, if there is ever a conflict that involves choosing between care and profit, then we should not be involved in that environment,' he says firmly. 'If we can't be profitable delivering an excellent service, then there's a problem with the business model. We can't cut corners to try and make a return - that's not how this works.'

Patel's stake in the company is valued at about £17 million, and his estimated total worth of £25 million puts him in the top 50 of the UK's Asian Rich List. It's a remarkable journey for someone who grew up in a council flat over his father's newsagent in Putney. Born in Uganda, Patel moved to India at the age of 10 before coming to Britain as a teenager. His background informs his outlook on business.

'When you come from the developing world, you can see that once people have achieved certain things - whether it's shelter, or a job, or a reasonable living - health becomes really quite important,' he says. 'I feel strongly that health should be free at the point of delivery. But we should attract as much resource into health as we attract in other walks of life, rather than it having to be entirely publicly funded. Why not attract the most we can, whether it's intellect, human resource, money, innovation? That way we make the pool bigger, and people have more choice. And effectively, if you believe in market forces - which I do - there's more competitiveness.'

If it sounds like a Third Way approach, that's no accident. Patel has been a Labour Party donor and worked closely with government departments, first as part of the Better Regulation Task Force and then on the Department of Health's Modernisation Action Team. It has left him with strong views on the tribal battle lines that are drawn around the health service.

'We've politicised health so much now that we can't help talking about it in terms of conflict, and that's a pity. It's not "private good, public bad". It's not "private efficient, public inefficient". The other side [ie, the Right] will say the reason the health service doesn't work is that everybody in that space is lazy. It's not true. Anyone who knows people in the public sector knows that a lot them work flat out and beyond the call of duty. But there may be a whole range of structural reasons why they can't deliver.'

And, the argument runs, where the NHS can't deliver, the private sector can step in to take the strain. Mental health is a good example. Once upon a time there were big Victorian asylums where the mentally ill were institutionalised. Then the development of better drugs and therapies made it possible to take patients out of hospitals and care for them in the community. But in 1992 the killing of Jonathan Zito by Christopher Clunis, a paranoid schizophrenic, changed the course of policy. Public fear of violence from psychopathic murderers, drummed up by the media, created pressure to keep patients in hospital until they were entirely 'safe', putting more pressure on beds.

It was both a crisis and an opportunity. Privately run psychiatric units moved in to soak up the overspill from the NHS. 'What the independent sector does very, very well is to move in where there are gaps, because it's small and because it can take the risk,' says Patel. 'I could see when I acquired Westminster Healthcare [a chain of nursing homes for the elderly bought in 1999] that there was a parallel in mental health: underinvested, essentially a Cinderella area. Huge need, but not sitting in the mainstream of funding. I could see here was a real opportunity to do something different.'

This is a key part of how the Priory and other private mental health providers operate. Where an NHS trust or group of trusts needs a type of service that they're not geared up to provide, the private sector can step in and catch the ball. It might be a unit to treat teenagers with addiction problems, or a specialist eating disorder unit, or a service to help rehabilitate patients with brain injuries. The trick is to spot the opportunity. 'If I visited a hospital, I could sit down with a doctor and he could say: "Chai, if only we could put this service out tomorrow - we've all these people who need it." But how do we minimise the risk? Is it a supra-regional service? Does any other authority want it? Can we vary something we're already providing to meet that need, rather than create a brand-new service?

'The most challenging thing that I and my team have to do,' he continues, 'is to discern any kind of pattern, to do an analysis to the point where we can say: "If we make this investment, this is the risk." That's the hardest bit, because we're exposed to changes in treatment pattern; we're exposed to people's personal preferences; and when we work in the public domain to the extent that we do, we're fully exposed to changes in public policy.

'So it's incredibly challenging to know that when you put a service together, with all the development costs that go with it - the building, the recruitment, the training of people - that there's going to be a need at the other end of it.'

So market research is an even more imprecise science than usual when the market you're researching is the NHS. One consequence is that the Priory's medium-term strategy is hard to pin down. The aim, says Patel, is to improve the quality and range of services, but the process of deciding what to offer has to be reactive rather than proactive. 'Priory is a small organisation in the context of the NHS mental health space, so we can't sit here and make a strategic decision to say: "That's what we're going for." At the moment, it's very much us providing small areas of provision and seeing how it goes.'

The Priory and its competitors have to charge the NHS a premium to cover their risk in setting up services that may or may not be used from one week to the next. This is a fraught area and arguably a real fault line in the whole market. Private providers are often pilloried in the press for charging the NHS more than they charge private insurers. The difference is that insurers do national, long-term deals with providers that enable them to get better prices in exchange for volume. Mostly, the NHS doesn't and pays the price as a result - though not always happily.

'Sometimes it's very difficult for colleagues [in the NHS] to see why something might feel expensive. They look at it as the last marginal cost to them: they've got one patient and they are full, so they have to pay us the full price. They don't understand that on the other side, we didn't know they were going to send that patient. So we have to price it on a risk basis. The sooner we can turn long-term demand into long-term contracts, the sooner we can trade off our risk premium with better pricing.'

In the meantime, there are other areas where the Priory can expand, notably as a consumer brand. Patel says this isn't a 'core priority', but the company has launched a line of Priory-branded self-help products to include relaxation CDs, books and videos. As the Sunday Times' Style section gushed: 'Never mind de-stigmatising mental illness, the Priory has made grappling with addiction a CV requirement for the cool and successful.'

Not surprisingly, Patel isn't comfortable with the idea that mental illness has become suddenly fashionable. 'I think there's still a generational thing. Younger people are finding it easier to talk about it, but if you talk to middle-aged people, they don't have the same kind of cool view about Priory and mental health. But I would agree that one thing Priory has done is it has made it possible to talk about mental health in a way that was difficult before.'

Undoubtedly, the celebrity stories have helped, making it clear to the public that even the most glamorous and successful people sometimes lose their grip and need help. Patel denies that any press coverage of well-known patients is driven by the group's PR strategy, but he acknowledges that the celebrity associations don't hurt. 'The public generally make the connection that if it's good enough for Kate Moss, there must be some good care. And that works the other way. If Kate Moss came out and said: "Priory didn't give me good service," we'd be damaged by that.'

The nearest they've come to that kind of damage is a 'My life in the Priory' cover story in the Guardian's colour magazine in November, in which a former patient compared the care she had received at the hands of Priory staff unfavourably with her treatment in an NHS unit. It wasn't Patel's first brush with bad publicity: in 2002, an independent report criticised care standards at Lynde House, a nursing home in Twickenham owned by Westminster Healthcare when Patel ran the group.

Regardless of the merit of such criticisms, it clearly vexes Patel that failings in private hospitals tend to be pounced on as proof that commercial imperatives and healthcare don't mix. 'You have to recognise that size, scale, the politics and the public glare does bring a whole range of complexity to this environment. In most walks of life, if something went wrong, you wouldn't get a value judgment that said: "You can't give good care and be profitable." You'd have arguments about whether you were an incompetent manager, but you wouldn't have a conflict that was entirely around profit.'

But for all its frictions, Patel still sees plenty of opportunities in mental health in the future. Health expenditure as a whole is increasing, awareness of mental health issues is growing, and he thinks people will come to think of their own psychological wellbeing in the same way that they now see physical fitness. Just as more people go to the gym, people will increasingly focus on keeping mentally fit to cope with change and stress in their lives, he argues.

'I think over the next five or 10 years, Priory can go into a range of different areas. We're about meeting needs. Can we do something about them in a way that enables people to take control of their lives? Because we don't have to go out and find need; the need is there.'

IN BED WITH THE NHS

Private mental health provision in the UK is just the kind of sector that private equity firms like: a high-risk, high-barrier-to-entry business with potential for growth. Much expansion in the sector has come about since the 1980s, when the NHS started closing psychiatric hospitals and shifting its emphasis to care in the community. The result was an undersupply of beds, for which private providers rushed to compensate.

Today, about 10% of NHS mental health spending goes to the private sector, but most of that spend is spot-purchasing or 'overspill': an NHS trust might need to admit, say, a patient with a severe eating disorder for a course of treatment but doesn't have a spare bed on its wards, so it pays for care at a private unit instead.

One-off purchases like that are expensive. 'It's an odd situation,' says Cliff Prior, chief executive of mental health charity Rethink. 'A lot of private-sector provision is sold on an emergency basis. There isn't any strategic planning and, as a result, all sides end up feeling abused by the process. The NHS feels ripped off; the supplier feels it has to charge a lot because it doesn't know when it is next going to be used; and the patient feels pushed from pillar to post.'

Another voluntary sector CEO, Lord Adebowale of Turning Point, puts it more bluntly. 'Spot purchasing is the tool by which poor commissioning makes a profit for private providers,' he says. 'The commissioning can be so poor that it detracts from good practice.'

The obvious answer would be to negotiate long-term deals. Says Lisa Rodrigues, chief executive of West Sussex Health and Social Care NHS Trust: 'A legally binding contract for a year or longer gives the supplier more security and enables you to negotiate a better rate - it's better all round.' She is one of the few NHS commissioners to put the theory into practice. 'What happens is you agree a certain number of bed-days or "episodes of care" for a given year,' she explains. 'An episode of care might last a day or last indefinitely. If you purchase on bed-days, there's an incentive for the provider to keep someone in hospital for longer. If you purchase on episodes of care, the risk sits more with the commissioner.'

Alternatively, the deal can be structured around an area of need. For example, the Priory's Marchwood hospital in Southampton has a long-standing contract with West Hampshire Mental Health Trust to provide a mother-and-baby unit. An NHS consultant is in charge of the clinical care, but the Priory provides the building and the nurses.

So what stops it from happening more often? The Priory's Chai Patel offers the most convincing answer. 'What is inhibiting that process is that within the NHS, if they've got spot-purchasing they can turn it off at any time. If they get into trouble and the budget has run out, that's the one service they can turn off.

Whereas the minute you're locked into a contract, a variety of your revenue streams get tied up at the beginning of each year.' Given that the Wanless report recently recommended that the NHS should explore the scope for more co-operation with private providers, this is an area where the health service needs to sharpen up its act. And there are signs that the culture is starting to change, according to Elizabeth Logie, director of business development at private provider Capio Nightingale. 'Going back a few years, you couldn't get the NHS to contract with you in a million years; now they're more amenable,' she says. 'Now you can be as open with them as they are with you. They're much more commercial and more financially aware, calling the shots, having open dialogue. It's like dealing with a normal business.'