Health sector profit cap could lead to more joint venture deals, says expert

Late last week the UK Labour party outlined plans to impose a profit cap on private companies providing NHS services if they win the UK general election in May.

The cap would apply to profits made on NHS contracts worth more than £500,000, Labour leader Ed Miliband said, according to a BBC report. He said businesses providing NHS services would generally be able to keep up to 5% of profits made on those contracts, but that the precise level of the cap could vary depending on the type of contract being performed, the report said.

Health and infrastructure law expert Barry Francis of Pinsent Masons, the law firm behind Out-Law.com, said a bi-product of those proposals could be that more joint venture agreements are struck.

"The proposals could prompt NHS bodies to agree joint venture deals with private sector contractors to get round the profit cap," Francis said. "This would, however, have the effect of ensuring that some of the profits made in performing NHS services are retained within the NHS."

Francis said that Labour would have to clarify which NHS contracts it intends to apply the profit cap to, and explain what would constitute as 'profit' for the purposes of the new rules if it gets into government. Further clarity on whether the profit cap would apply across an NHS service supply chain or to each individual business within the supply chain would also be necessary, he said.

It is "unlikely" that there would be retrospective profit caps placed on existing NHS service contracts, Francis said.