For much of the past five years, the Blackrock Clinic has been at the centre of a protracted, at times incomprehensible, boardroom battle. The dispute has been very public and very scrappy, spawning more than a dozen judgments, including on appeal and cross appeal.

My colleague Francesca Comyn wrote about the dispute in some detail last week, forensically unpicking the issues (shareholders’ agreements, boardroom control) and the personalities (Larry Goodman, James Flynn, James and Jimmy Sheehan).

I don’t want to retrace old ground. Instead, I want to look at the financial performance of the private hospital, aided in no small part by new company filings just flogged with the authorities.

The filings reveal a company in rude financial health, with solid revenues, robust profits and a generous allocation of dividends. Its shareholders may be engaged in a bitter boardroom scrap, but the business is purring along quite nicely.

Turnover increased slightly from €122.1 million in 2017 to €123.1 million. Pre-tax profits decreased from €7.8 million to €5.6 million, but the company seeks to address this point in its commentary.

The first point – a lengthy war with health insurers over prices – is worth dwelling upon, not just for its impact on the profitability (or lack thereof) of other private hospitals, but also because any potential change to the current matrix would lead to further health insurance hikes for consumers.

The company points to ongoing commitment to investment – €14 million per year on average on medical equipment and facilities, including more than €120 million on expansion and refurbishment.

During 2018, the hospital increased outpatient, inpatient and day care activity. But it says the price increases being received from health insurers are not matching cost increases as a result of general and medical inflation. This, according to the company, is impacting profitability.  

“The failure of reimbursement rates from health insurers to match medical inflation and increases in the hospital’s cost base is a significant challenge for the hospital as it continues to invest in advanced facilities and medical technologies,” it said.

The company points to ongoing commitment to investment – €14 million per year on average on medical equipment and facilities, including more than €120 million on expansion and refurbishment. However, it again stresses the lack of movement from health insurers.

Those reserves, incidentally, breached €100 million last year, up from €88 million from the previous year.

“Medical inflation, driven by the adaptation of new technologies and techniques together with the use of more expensive consumables and drugs, poses a significant challenge for healthcare providers,” the directors state.

Despite this, the company remains extremely profitable. Indeed, a remeasurement of the net defined retirement benefits liability of €7.5 million pushed “income attributed to the owners of the company” from €7.9 million in 2017 to a prosperous €12.3 million for 2018. This figure is important as it is essentially the profit figure being transferred to reserves.

Those reserves, incidentally, breached €100 million last year, up from €88 million from the previous year.

Then there is the small matter of shareholders dividends. It did not pay during the calendar year in 2018 but has declared an intention to pay its shareholders €5.4 million for the period, in line with the previous year.

And what is the future outlook for Ireland’s premier hospital? In addition to the ongoing issues with health insurers, the hospital and the wider sector will struggle to manage wage inflation as a result of the shortage of consultants and highly skilled medical personnel. This is, of course, an acute issue for the public sector, but at least the private hospitals can flex some financial muscle to recruit staff. There will be a premium expected.

On a more positive note, both government policy and demographics should help. Ireland’s ageing population, allied with the wealth profile of a large cohort of that category, will provide a new generation of customers for the clinic.

In addition, the government’s Slaintecare plan includes proposals to phase out private care from public hospitals, a move Blackrock acknowledges will increase demand for private hospitals.

A beacon for growth?

So, how does the Blackrock performance compare with others in the industry? Many of the main operators such as the Mater Private are unlimited, so don’t publish accounts. However, a good barometer is the Beacon Medical Group (Sandyford), the company behind the Beacon Hospital in Sandyford in west Dublin.

Owned by the millionaire businessman Denis O’Brien, its revenue profile is almost identical to that of Blackrock. Accounts for 2018 show Beacon had revenues of €122.7 million compared with Blackrock’s €122.1 million.

Beacon Medical Group (Sandyford), does not believe that the pre-tax profit/loss number is appropriate, arguing instead that Ebitda is a more “appropriate measure of the underlying profitability of the business”.

The revenue number has grown steadily at the firm and was up from €103 million in 2017. Profits are less stellar at present. However – for a number of reasons I will deal with in this piece – in 2017, it recorded a pre-tax loss of €6.1 million. This was reduced to €2.32 million last year. Retained profits at the close of the year reached €114.8 million, although the balance sheet still showed positive equity of €21 million as a result of other reserves and share premium.

Beacon Medical Group (Sandyford) does not believe that the pre-tax profit/loss number is appropriate, arguing instead that Ebitda is a more “appropriate measure of the underlying profitability of the business”.

Clearly, this method paints a much prettier picture – earnings before interest, tax, depreciation and amortisation jumped from €6.7 million in 2017 to €12 million last year.

The hospital said it was in the middle of an €84 million capital investment programme to upgrade equipment and facilities. This programme started in 2017 and will last seven years. “To date, we have spent €48 million in new and expanded facilities,” it said, adding it is also signed a €20 million ten-year diagnostic equipment contract with GE Healthcare. In 2019, it said it will spend a further €16 million in capital expenditure.

As for its main risks, it cited amongst others:

  • Attracting and retaining high-quality consultants and clinical staff
  • Reliance on a small number of health insurers
  • Maintaining the highest standards
  • Changes in government policy on healthcare
  • Competition from other hospitals and healthcare providers.

Clearly, given the number of high net worth individuals investing, there is an expectation that the private healthcare market will continue to expand and develop. The long-running control battle for Blackrock highlights the attitude of a number of serious players in the industry.

But with health insurance premiums grating with many consumers, the sector is not without challenge.