PRIVATE INVESTMENT IN HEALTH CARE
By Melvin J. Howard
In many developing countries, there is a lack of corporate infrastructure to manage investments. As a result, many private equity funds have either developed alliances or partnerships with companies that have the capacity and skills to manage investments or have set up new companies to oversee the investment. In some cases, venture capital companies have become directly involved in running the investment activity. In this sense, venture capital investors can play an important role in developing the extent of the private sector.
Many governments have investment corporations linked to international development ministries that provide support for the development of the private sector. In Norway, Sweden and Finland, the international investment companies (Norrfund, Swedfund and Finnfund) have no involvement in health care investments. In the UK, the CDC (previously the Commonwealth Development Corporation) has health care as a defined priority for investment although it has not made any investments yet. Canada has experiment with public private partnerships but has yet to develop a roll for pure private investment in health care.
The Netherlands Development Finance Company is one of the investors in the MIGA project in Brazil. The US Overseas Private Investment Corporation (OPIC), is an independent federal agency that mobilises American capital for investment in developing countries. It has provided expertise for the Texas Pacific Group, which is linked to Newbridge LA, an investor in Latin America.
THE FUTURE OF THE PRIVATE SECTORThe pattern of disease is changing in many regions of the world. Infectious diseases are still major causes of mortality and morbidity in many low income countries, such as HIV/ AIDS, tuberculosis, malaria. Non-communicable diseases are major sources of mortality and morbidity in high income countries but are also becoming more widespread in low income countries. This will have major implications for health care demand and treatment in many countries. CHD/CVD and cancers require often expensive diagnostic tests and high technology treatments. The rise in mental health problems is also becoming a global health issue which will increase the demand for mental health services.
Demographic change is also taking place in many countries with a growing ageing population. In many African countries where the incidence of HIV/AIDS in the adult population is between 10-30%, the older population is unlikely to grow as rapidly as in other regions of the world. For expanding older populations, there will be an increase in non-communicable diseases often characterised by long term chronic conditions which require long term health care.
The changing patterns of mortality and morbidity and a growing older population, will influence the demand for health care. There will be a growing demand for high technology diagnosis and treatments for non-communicable disease as well as more labour intensive care for long term chronic conditions often delivered in people’s homes. This will impact on the existing costs of health care as well as the skill mix required from health care workers. In many high income countries these changes are already leading to debates on the future financing of health care and the future role of public and private provision.
The main individual risk factors linked to the three main non-communicable diseases are smoking, diet, physical activity, alcohol. Preventive health strategies for non-communicable diseases tend to stress more individually focused measures such as changes in diet and increased physical exercise. These provide opportunities for private companies to provide products and services, especially in provided in partnership with health insurance companies with the aim of reducing demand for services. However factors that also influence the determinants of health, such as improved housing or increased income, are also important for reducing demand for health care services but are the responsibility of non-health sectors. They are not necessarily a source of future services for private health care companies.
Demographic changes and resulting changes in the financing and demand for the health care have implications for the private health care sector and investments will be influenced by the interpretation of these changes. Investment companies often seek information on which to base their investments through private and non-profit research and consultancy centres that specialise in developing visions of the future. Futures research is used by the business sector to generate views about how economic, social, political and environmental trends will interact to shape future societies. Examples of three global consultancy groups that have contributed to developing “health futures” are outlined below.
The healthcare practice of one of the largest global consultancy groups PriceWaterhouseCoopers (PWC) published a report “HealthCast 2010 Smaller World, Bigger Expectations” in 2000. It was aimed at PWC health care clients. The report was informed by a survey of policy makers, health system managers, health care employers, doctors, insurers and medical suppliers in US, UK, Finland, Spain, Netherlands, Germany, France, New Zealand, Canada and Australia about future health trends and the implications for the health care industry.
The survey results showed that the respondents felt that the amount of money spent on health care was growing in most developed countries because societies were getting wealthier. Technical advances were perceived as being able to contribute to cutting the costs of health care but were more than offset by an ageing society, increased health consumerism, biotechnology and medical advances.
Survey respondents also felt that increasing costs of health care took away money for spending on other consumable goods. Although health expenditure was considered to contribute to economic growth, decreasing health expenditure was also seen as the key to economic growth. The prospect of an increasingly older population with a decreasing working population is viewed with some concern. The impact will be strongest between 2010 and 2040.
The report also felt that the two major systems of health care financing – health care insurance through an employer and other systems where people have a right to health care (whether from taxation or social insurance) will converge in the future.
One of the major conclusions drawn from this survey was that the customer would play a key role in health care demand in the future. Interestingly, this was seen as potentially problematic. Quality, efficiency and customer satisfaction will be key to accessing capital. Resources need to be allocated for health workers to be retrained to deal with more consumers. Insurers must stress prevention because early detection and intervention will decrease costs.
The report shows that there are several underlying assumptions about the private sector view of health care futures. More demanding consumers and increased consumer spending on health care are seen as opportunities but also challenges for the future.
The Institute for the Future, a U.S. futures thinktank, together with A.T.Kearney (the management consultancy arm of EDS) organised the Healthcare Future Forces Leadership Roundtable in Venice, Italy, held in June 2001. It was the first of what will be an annual by-invitation-only gathering of top business leaders representing segments cross the healthcare industry spectrum, as well as top academics in the field. The three themes considered were:
• Assessing the impact of care customisation on the delivery and management of healthcare
• Assessing the impact of consumerism on the management and delivery of healthcare services
• Assessing the impact of information and communication technology on all aspects of the healthcare system.
A third source of futures thinking for the private health care providers and investors is the Institute of the Americas. A meeting in July 2000 organised in collaboration with the International Finance Corporation (IFC) looked at ‘Financing Private Health Care in Latin America’. The supporting paper raises a number of issues and challenges about investing in Latin America. These issues provide a useful insight into the type of concerns voiced by the private sector about investing in health care. These relate to:
What are the appropriate criteria for equity financing?
Are the lending terms of IFC and other financiers consistent with the nature of the business?
What are the best strategies for obtaining reliable data?
How should investors determine what infrastructure (especially IT) needs to be created or imported and what elements of local health systems be allowed to continue?
How significant is the training component (to create good management skills) and how can this training be provided?
Other questions deal with specific barriers to investing in medical equipment/devices, telemedicine and pharmaceuticals and surgical facilities. The focus is on the delivery of high technology, curative care and not on locally based primary health care. The questions raised by the Institute of the Americas suggest that investing in Latin America and Canada is seen as risky because of the lack of information available about existing health care companies or lack thereof and the nature of the health care business. There are also doubts about the efficiency and effectiveness of the current delivery of health care. Health care investors also raised questions about the lending terms of IFC.
CONCLUSIONS
The links between private equity investments and health multinational companies are strongest in Latin America and to a lesser extent in Central ,Eastern Europe and Canada.
Health care investing in developing countries is seen as involving considerable financial risk. Different regions can be characterised by varied financial capacities of the private sector, which limit investment unless holding companies or health management companies are set up to spread the risk. Investments in holding companies are a first step to developing this capacity. Private equity investors and some multi-national companies are involved in this type of investment.
The International Finance Corporation invests in health care projects and is involved in extensive development of the private health care sector in many countries. Some regions are characterised by different types of investments, e.g. holding companies, although direct hospital investments are the most common type of IFC investment.
Centurion will seek links with private equity and venture capital in IFC designate countries ready for private sector involvement
