Outsourcing mental health services is proving costly for the NHS

NHS mental health trusts are using private companies for inpatient care – and the cost has reached record levels, according to a Financial Times investigation.

The cost of spending on out-of-area beds by NHS mental health trusts in England is 43% higher than it was five years ago, the paper has calculated.

The FT reports that, of 20 mental health trusts that responded to Freedom of Information requests with the data requested, 17 say they have increased spending on private beds considerably over the past five years. This is a result of bed occupancy within the trusts reaching particularly high levels. Increasingly, the responses show, trusts are discharging patients to bed and breakfasts and hotels, because cuts to community psychiatric services and housing shortages in local authorities mean there is nowhere else for them to go.

The pressure on NHS mental health beds is largely the consequence of rising rates of mental ill-health. In England in 2022-23, there were an estimated 4.8m new referrals to mental health services, 50% higher than in 2017-18.

Out-of-area placements are more expensive

The Office for Budget Responsibility has estimated that a rise in health-related economic inactivity is costing the government £16bn more per year since the pandemic, and this is in part down to an increase in the numbers of people with mental health problems.

The government has introduced measures to encourage people who are signed off long-term sick back into work. Dr Lade Smith, president of the Royal College of Psychiatrists, told the paper: “The reason more people are getting really sick, and going off work as a result, is because they’re not getting the care they need early. It’s as simple as that. They’re sick. They’re not pretend sick.”

In 2016, a review of mental health services found that out-of-area placements are more expensive than using local NHS services, and can be harmful to patients. The government made a commitment to end inappropriate out-of-area placements for adults in acute inpatient care by 2021, but this target was not met.

But spending on out-of-area placements in England rose in 2023, and is likely to approach the record levels of late 2019. Strikingly, by September last year, 95% of all “inappropriate placement” days were at private providers rather than NHS trusts, up from 73% in 2017, the FT’s analysis found.

The need for inpatient care continues to rise. In the second quarter of 2023-24, more than 75% of mental health trusts had bed occupancy above the Royal College of Psychiatrists’ recommended limit, compared to 63% six years ago.

Beds often bought at short notice, increasing cost

Northamptonshire, for example, has been over full capacity since 2021. The trust’s spending on private beds increased from £1.8m in 2019 to £3.6mn in the first eight months of last year, according to FOI data. The average cost of a bed rose to £2,000 a day in 2023. Nottinghamshire Healthcare NHS Trust, where bed capacity is over 95% in its mental health wards, increased spending on private beds from £26,000 in 2014-15 to £14mn in 2022-23.

Smith told the FT that the day rate for a private bed can be similar to the cost of an NHS bed provided the bed capacity is bought in a block contract. Because beds are often bought at short notice during periods of overcapacity, however, the price tends to be elevated. She added that there are often additional unforeseen costs for extras such as nurse observation or one-to-one support.

Three private providers — Priory Group, Elysium Healthcare and Cygnet Health — account for approximately 30% of the mental health market in the UK, while the NHS accounts for about 53%, the consultancy LaingBuisson says.  These private providers receive most of their income from public bodies such as the NHS.