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16 January 2011 BVCA Briefing Private Equity Services Making ESG as simple as ABC Let Waterman’s award-winning advisory team steer you through the changing Responsible Investment landscape There are increasing pressures on both LPs and GPs to demonstrate well-defined and implemented Responsible Investment Strategies. Talk to an expert who can help make sense of these requirements in the context of your current and future investments. We can help: • Keep track of changing environmental, social and governance (ESG) requirements • Develop robust and commercially viable policies and strategies which meet investor and stakeholder expectations while successfully building business • Provide tools to assess ESG risks of new investments • Manage ESG risks and profit-driving opportunities of your existing investment portfolio • Generate robust reporting metrics to demonstrate ESG performance • Develop supporting strategies for stakeholder communications and reputation building in relation to ESG For further information or a free consultation meeting, contact: Anna Bacon, Director - Environmental Management & Due Diligence e a.bacon@waterman-group.co.uk t 020 7928 7888
iHealthcare Just as Apple revolutionised music consumption, the Government’s plans for the NHS want to do something similar by putting the end user in charge. Simon Horner, BVCA, explores what could be the biggest shake-up in healthcare provision since 1945. When Margaret Thatcher famously declared in 1983 that the NHS was “safe in our hands” it was indicative of the limits of radical reform – tinkering yes, privatisation no. A health service publically provided and free at the point of use is perhaps the last post-war shibboleth still standing in modern public policy discourse. It stood in 1983 as Thatcher tacked back towards the political centre and it stands true today, with David Cameron spelling out his priorities in 2006 in three letters, “N-H-S”. Or does it? The election campaign was dominated by public spending cuts and education reform. Since then welfare reform has also risen up the political agenda. But this month sees the publication of a new NHS Bill, the biggest in the history of the health service and bigger indeed than the one that created it in 1945. In effect it shifts the NHS from a system of direct public management to one of competing (potentially private) providers. There will be a failure regime for hospitals and other services, with no power for the Secretary of State to prop them up. Consortia of GPs will be responsible for commissioning services. These are far reaching changes that have attracted very little attention, so much so that questions are being asked as to whether the Coalition even has a mandate for them. But the Prime Minister’s speech urges full steam ahead. So what do these reforms mean for investment in healthcare? A system that doesn’t allow for entry and exit of providers or even recycling of healthcare assets will score low marks for implementing new and innovative practice and technology. So it is with the NHS. At inception, 80% of surgery was in-patient, now it is as low as 20%. Yet the assets used are the same. No amount of efficiency drives can rescue a service run from outdated assets. There is little scope to invest in new and innovative ways of delivering outpatient services because we are still wholly committed to our hospital behemoths of yesteryear. Competing providers will face not the rigours of the market in proving that they can deliver better services for less, but ‘save our local hospital’ campaigns, driven by local politicians and unions. A 2008 report by Westminster think tank Policy Exchange - ‘All Change Please’ - found that the UK was slower in implementing new technologies and practices than our competitor nations, even when backed by clear evidence. NHS managers were not measured by how innovative they were but whether they met central government targets and stayed within their budget. But if this week’s reforms deliver what they are suppose to, this could all change. ‘Any willing provider’ will be the watch words for service delivery with GP consortia incentivised to select on grounds of quality and cost (the only thing that may not be subject to the rigours of choice and competitions is the GPs themselves). As new providers enter the market, service delivery could be designed around new technology rather than the other way around, with clear incentives to invest in healthcare innovation. Different innovations could be applied in different areas of the country rather than imposed uniformly giving rise to a new sense of localism in healthcare provision. Similarly new providers who design a service with the patients’ needs and wants in mind rather than trying to retrofit them as an afterthought will come to the fore. Shoshanna Zuboff, writing in the McKinsey Quarterly, describes an age of ‘distributed capitalism’ where instead of asking ‘what do we have and how can we sell it to you?’ we ask ‘who are you?’ and ‘what do you need? So just as iTunes revolutionised the way we consume music by putting the end user in charge, so we must invest in a similar revolution is healthcare. It need no longer be about adapting our hospitals to convince users we have understood their needs, but rather redesigning the entire delivery mechanism around how people want to consume healthcare. There are already encouraging signs that such thinking already exists at the margins where some private provision already exists. Circle Health is a private provider which has delivered 98% consumer satisfaction by redesigning outpatient services putting the individual in charge. For example, the NHS’s notoriously poor food provision has been replaced with an on-site Michelin starred chef because that is what people wanted. This might be an extreme example but it highlights an emerging trend. As these reforms take root this thinking will move from the margins to the mainstream and the investment community must ready themselves to keep up with a new cohort of healthcare entrepreneurs like those at Circle Health. It should be the role of private equity and venture capital to lower the barriers to entry for these new providers and models of service delivery. With the Labour Opposition apparently against these reforms, political risk may way heavy on the minds of would-be investors but they should first consider the following: with public spending being cut and a demographic time bomb ticking in the background, these reforms are no longer ‘nice to haves’, they are absolutely essential. It is hard to see how even political ideology can row back against this onrushing tide. A concerted effort from the investment community could make such a reversal impossible. January 2011 BVCA Briefing 17
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