John Hughes cheerfully admits he's a "psychiatric hospital junkie", and that he spent seven years at the renowned Priory hospital. He once wrote to the Guinness Book of Records to try to claim the record for the number of psychiatric units one person has been in ... 1,150 in his case. The organisation politely rebuffed his approach with a "standard crank letter".
Hughes isn't a crank, and he says he has never had a mental health problem in his life. He has worked in private sector psychiatry since the late 1970s, getting interested in the area when he worked at a financial investment firm in his native US. After a move to Britain, he took control of the Priory hospital chain, turning around the ageing clinic which was on the brink of insolvency proceedings and adding eight more hospitals to the brand before he left in 1987.
Shortly afterwards he set up his own private psychiatry hospital chain, Cygnet Healthcare, which treats various types of mental illness and specialises in areas such as eating disorders, self-harm and drug rehabilitation. It was recently valued at £120m in a deal with nursing home operator Barchester Healthcare which gave Hughes a £19m cash windfall, and Cygnet is now about half the size of the Priory Group.
Barchester - which is part-owned by John Magnier and JP McManus, the Irish racing tycoons who own a stake in Manchester United - has bought a quarter of Cygnet's business for £30m, while Hughes and a fellow director took a £7m stake in Barchester. The deal could be the stepping stone for a full-blown merger in a couple of years "if the chemistry is right". The reason for a merger would be to sell shares on the London stock exchange, though he would only do it if the combined group has a value approaching £1bn. The ambition is to create a FTSE 100 healthcare group. As Barchester has just bought Westminster Healthcare, another nursing home operator, making it the third largest private nursing home operator, the combined group could soon be near the required size.
Celebrity status
Although Cygnet is large it has none of the high-profile status of the Priory, which has treated all manner of celebrities and football players and is frequently featured in the tabloids. But when he bought the London hospital for £2m on behalf of US firm Community Psychiatric Centers, in the early 1980s, it was in a poor state. "The building was falling to pieces and it was losing pots of money," he recalls. However the "restful effect" of the buildings and grounds attracted him. "In the US, hospitals were all motel-like linoleum floors, but here, there were lovely old buildings and a greater degree of space."
Although Hughes used to run the chain, he is not impressed with the publicity his rival generates. "At the Priory we got celebrity clients, the family of European royalty and the family of European prime ministers, but we never had any coverage by the Sun or the News of the World or anything else," he says. "I find publicity of that kind abhorrent."
The high profile is helped, he says, by a big PR budget at the Priory, which he does without at Cygnet. "I avoided [the star clientele thing] like the plague," he says. "Most British patients don't want to think of themselves as going into group therapy with a rock star."
Hughes departed from the Priory after its American parent company refused to let him buy the chain. It was later sold for £88m in 1996.
He used his own money to buy two high-class nursing homes and two psychiatric hospitals in Harrogate and Sevenoaks, forming Cygnet Healthcare. Now the firm runs 11 acute psychiatric units as well as two elderly care nursing homes. It has plans for three more psychiatric centres and is looking to expand further.
Admission to one of its standard mental health hospitals costs more than £398 a night, with £110 for an initial examination. Unless your local NHS is sending you there, they want a deposit of £3,500.
Its more unusual facilities include Detox 5, to get heroin and methadone addicts off the drugs. So called because it takes five days of hospitalisation - being heavily sedated throughout the withdrawal period. After the initial treatment patients start counselling and medication. This costs £2,950, although some health authorities will fund or part-fund the treatment. The firm says that just over half its patients are drug free after 12 months.
At Cygnet, Hughes has built on the Priory model of using old buildings that are surrounded by nice gardens and redeveloping them into hospitals. "If you give people privacy and dignity and their own space, they behave better," he says.
In the year to the end of October 2003, the company made a £3.8m pre-tax profit on turnover of £37m. For a business that takes nearly 70% of its turnover from the NHS, that presents a political issue. Hughes argues that his business is more cost effective than NHS services and that patients are out of the clinic faster than when being treated by the NHS.
So, he says, sending patients to his hospitals works out cheaper, when all the NHS running costs are taken into account. "We are certainly expensive, but the NHS is expensive also," he says. "Our patients have shorter stays so the episode costs are lower. NHS managers think they are operating less expensively, but they are not."
He also claims to beat his private competitors on price in a deliberate strategy. The company is strict on sick benefits for staff, cutting the average number of days taken off compared to the NHS, though it says it pays staff slightly more than the NHS. It does offer shares in the firm to employees, and they own about 10% of the company, about half of which is held by "rank and file" nursing staff.
The company has no head office and Hughes also credits the low costs to his policy of giving the individual managers control of the budget. "We have tried to run these hospitals as if they are local family businesses rather than a corporate behemoth," he says.
The NHS is gradually warming to the idea of using the private sector, after being pushed hard from above by 10 Downing Street. He is keen on the government's policy of providing more choice for patients but is not keen on changing the British healthcare system to become more American, through using private medical insurance as the main provider of healthcare.
NHS referrals
"The American system is appalling," he says. "It is one reason why I have spent 25 years not in the US: I could see the writing on the wall. It is wasteful and overmedicated. The NHS is a much better model because it is a gatekeeping system. If you give people a medical insurance card, just because they think they are depressed or want their wart burned off by a professor of dermatology, they will get it. The American public is addicted to spending money."
Most of Cygnet's business comes from NHS referrals on a case-by-case basis, either because state services are overcrowded or the facilities are more suitable for a particular patient. Cygnet and other private firms are starting to talk to some NHS trusts about selling "blocks" of beds for a fixed price.
Although the changes in the NHS offer private sector firms such as Cygnet opportunities, the wider reforms in the state sector might not be so good for firms. A recent review by Laing & Buisson, a research firm in the sector, warns that if the NHS shapes up, the private sector could lose out.
"The threat to the independent sector is that the NHS may use some of the record levels of new money promised in the March 2002 budget to address the bed capacity problem directly, and thus deplete independent psychiatric hospitals' revenue streams," states the report.
Hughes says he wouldn't be investing £21m in new hospitals over the next year if he believed this. "Actions speak louder than words ... if they wouldn't get occupied we wouldn't do it," he said.
"When I came to this country in 1980, 90% of elderly care nursing homes were provided by the NHS and local authority, and they often weren't cost effective. Today 90% of elderly care is in the private sector."
According to Laing & Buisson, the private and not-for-profit independent sector now has just over 4,000 psychiatric beds in the UK, and Hughes estimates that the NHS has 14,000 or 17,000 acute psychiatric beds. If psychiatric care goes the same way as elderly care, Hughes's company has a lucrative future.
The CV
Age 57
Education Stanford University, graduated in History, 1968
Career 1969-1971, Assistant to president of US venture capital company, Sutter Capital; 1971-1979, executive vice president of Community Psychiatric Centers; 1980-1987, chairman of UK subsidiary of Community Psychiatric Centers, which bought the Priory Hospital in London 1988 Founder and chief executive, Cygnet Healthcare
Hobbies reading history, surfing internet, collecting art nouveau antiques
