As governments slash public spending so outsourcing in healthcare services should grow massively. So who will be the leaders?

You can differentiate between several types of outsourcing:

Outsourcing type	Activities	Players
Blue collar services	Facilites management, catering cleaning and porterage.	ISS, Sodexo, Aramark, Compass, Dussmann
White collar services	Administration, payroll	Serco, G4S, Capita
Clinical services	Imaging services, lab services, dialysis, oxygen	Specialist providers (Labco, Unilabs, Synlab, Euromedic, Inhealth, Alliance Medical, Fresenius, Diaverum, oxygen companies)
Nursing and medical services	Recruitrment retention and management of medical staff	Specialist recruitment
Holistic outsourcing	Run an entire hospital, care home or function	Circle (UK), Alzira concessions (Spain), Jose de Mello etc (Portugal), Ambea, Attendo (Nordics), Know How (Poland)

Blue collar is a huge business with several players such as ISS, Sodexo and Aramark already having over EUR1bn of sales here. These companies are now moving up the value chain, with Sodexo partnering with Labco in a lab jv in the UK and Aramark buying a specialist imaging group Masterplan.

White collar services is a sector which is likely to grow fast in the UK as hospitals seek to cut costs. No big projects have been announced yet, but we hear that English hospital trusts are keen to cut costs and so keen to do deals to slash back office costs.

Clinical service outsourcing is growing. But progress here depends on how much pressure governments put on public hospitals who are not keen to lose what they view as core functions, such as imaging and labs. So there is a lot of resistance from the powerful inpatient sector.  However outpatient sectors, such as dialysis and oxygen, are now almost entirely in private hands today and inpatient segments which are perceived as specialist or which lack powerful professional champions such as sterilisation are also moving to outsourcing.

Recruitment is big business in the UK and Nordics and, as contracts become longer and more complex, they start to feel and look like outsourcing contracts. Some specialist recruiters can supply an entire operating theatre team, for instance. The real opportunity here is for a private provider to take over the entire nursing staff at several public hospitals which it would then recruit, retain, fire and manage, whilst insuring that service level agreeements are hit. We think such contracts will become reality in the next 1-3 years, starting in the UK.

Holistic outsourcing, where an entire hospital or the entire primary and secondary care for an entire region are outsourced is also likely to grow, but it is much more politically visible and so more vulnerable. In the UK other hospitals may follow the example of Hinchingbrook which was outsourced to Circle early in 2011. In Sweden small regional hospitals which are surplus to requirements are being outsourced to the private sector who use them to run elective surgery factories.  And, of course, in Spain, the Alzira model looks after 1m citizens in Valencia and Madrid. In Portugal the major hospital groups are all running a PPP where they manage the hospital.

Barriers remain. In both the UK and the Netherlands (and probably elsewhere in Europe) VAT is not reclaimable by public sector organisations. This means that savings have to be over 20% or so before they become interesting. Note that the Dutch government is committed to rescind this.

We think that outsourcing will grow massively and that we will see much more concentration. A big outsourcing company like Sodexo has the legal, sales and account management skills which means it may be much better at winning business than a specialist laboratory group. The oxygen companies and blue collar outsourcers (wow how they hate that useful term) generate billions of euros in cash which they will want to reinvest. Moving up the value chain into higher margin specialist niches has to make sense.