The state of Britain’s grimy hospitals has hit a new low. In an unnerving Panorama report last month, it was revealed that deadly new superbugs are claiming the lives of ten times as many elderly patients here as anywhere else in Europe.
Hospital bugs are responsible for the deaths of more than 10,000 patients each year in Britain alone – 20 times the number who die of Aids. At least 42% of MRSA bacteria (which cause blood infections, pneumonia and other illnesses) in British hospitals fall into the virulent “superstrain” category, compared with rates of 20% or lower elsewhere.
The cost of all this in lives is awful, and the financial cost is hard to stomach too: patients who survive MRSA often spend months in hospital and endure several operations to cut out infected tissue. The Government estimates the annual cost of treatment for superbugs to be more than £1bn.
All this news will come as no surprise to anyone who has had the misfortune to have been put up by the NHS recently. Staring up at the dirt on the ward ceiling, or down to the filth on the floor, you may have figured you had little chance of getting out alive.
So what can be done? The obvious answer would be to introduce a few basic hygiene standards into UK hospitals. Hospitals in Denmark, Finland and the Netherlands, once faced with similar rates of superbug infection, have managed to bring them down to almost zero. How? Rigorous enforcement of rules on hand washing, the meticulous cleaning of equipment and hospital rooms and the use of gowns and disposable aprons to prevent doctors and nurses from spreading germs on clothing.
The NHS might also have to do one other thing to cut down on superbugs: create lower occupancy rates. The 85% bed occupancy that many NHS hospitals maintain makes it difficult to control infection, Professor Richard James of Nottingham University told Panorama, presumably because it leaves little time for proper cleaning. Still, it isn’t as if the NHS hasn’t had plenty of time, and money, to implement the obvious defences, so the fact that it hasn’t suggests it probably won’t.
It’s also fair to say that this isn’t just a UK problem. In the US, superbugs claim the lives of 90,000 people a year. So with recent strains of the bugs mutating – evolving from one generation to the next in the space of half an hour – and hospital dirt apparently uncontrollable, there is a pressing need to pour money into dealing with the disease. Many American hospitals are spending up to $1m per year just testing patients as they enter the hospital. This makes sense for the simple reason that 25% of the population carry colonies of the MRSA bacteria on their skin.
In Britain too, the answer appears to be to turn to infection control groups for help – the kind of companies that specialise in decontamination, tracking patients and assessing risk of infection. So even if Gordon Brown or his successors scale back spending in the coming years – although the NHS recently reported a budget surplus of £1.8bn last year – the markets for sterilisation and infection control are growing handsomely in America, Europe and Asia. With British firms already expanding into these markets, some infection control groups have been building up sizeable order backlogs. We have a look at one such company in the box below.
The best bet in the sector
One company building its presence on international markets is Synergy Healthcare (SYR). Synergy is the UK’s foremost provider of sterilisation services, and is leading the clean-up of the nation’s hospitals. The company has built a £338m business by encouraging the NHS to outsource the sterilising and decontaminating of surgical equipment, building a dominant position in its sector as it delivered an error rate lower than 0.25%.
But now the NHS only accounts for about a third of its business. Synergy has recently broken into China and is signing contracts with hospitals in Belgium and Holland. With each country setting out plans for further surgical decontamination facilities, Synergy can build on its long-term contracts and an £875m order book.
Morgan Stanley analysts foresee a 20%+ growth in earnings in the year ahead as the company continues to pick up new contracts.
The potential for limited-take up of new patient care activities (infection control, linen management and wound care) by the NHS is one risk on the downside, but Synergy remains undervalued by the market on a forward p/e of 12.1 for 2010 and a prospective dividend yield of 2.7%. Morgan Stanley maintain a price target of 1,100p for the stock – it currently trades at 687p.