The NHS, on its website, describes itself as “one of the most efficient, most egalitarian and most comprehensive publicly funded health services”. Ironic, perhaps, that David Nicholson, chief executive of the NHS, recently announced the need for £20 billion efficiency savings over the next 3 years.
There is no doubt that government coffers are tight. This funding gap, coupled with the demographic time bomb, the drive towards choice and independence and the need to get people out of hospital beds, makes greater private sector outsourcing inevitable. Unbelievably, only 6 per cent of the health budget is currently outsourced.
Given the compelling arguments to outsource, which we have all heard many times over, why the reluctance? Political influence is a big reason and health remains one of the UK’s foremost political footballs. Indeed, swords have been drawn recently over social and the debate is featuring prominently on the front pages of the newspapers.
The Conservative Party has recently announced its elderly care plans for an £8,000 insurance product, which is called the ‘home protection scheme’. Labour has announced free home care for those in most need. Commentators have been very sceptical whether either will work in practice and there is a sense that both parties are shooting from the hip and steering away from real debate over care provision.
Is this unexpected? Health is considered to be one of the top three factors in winning an election (along with managing the economy and education) so neither wants to take a radical view on one of the largest employers in the world. Unfortunately, now is a time for a radical idea. An independent NHS – a well mooted concept – is surely required to properly push a funding model for elderly care and provide more care at home and not pay lip service to both.
So what would an independent NHS mean for private equity (and to some extent the wider private sector)? For some, it would be a win-win. Much could be achieved under private equity ownership if the public sector worked in partnership: developing a clear strategy and improvement agenda, incentivising ‘world-class’ managers and leading transformation supported by funds to make such change.
Contrary to what some may believe when reading news about mega funds, there is no shortage of capital to embrace such required collaboration. The key change is the removal of excessive governance allowing more entrepreneurial resources combined with funds to be spent on delivery of high quality services, which in turn will manifest through greater competition. There is a sense we need to get back to basics and take a fresh look at the commissioning and delivery models in our health service.
Driving transformation and efficiency is not easy and those investors which rely solely on excessive debt structures and valuation arbitrage will not succeed. Working through a combination of estate optimisation, back-office and supply chain efficiencies and increasing productivity in delivery models, while also balancing the need for quality care, is not for the faint hearted.
Greater use of technology and innovation coupled with a shift towards prevention and self care, including more care in the home, will become a feature of growing healthcare businesses. Urgent care, diagnostics, primary care and community immediate care are all under-developed business models which require focus and investment.
Operational improvement is now the name of the game and financial engineering is a thing of the past. This is what our health service needs and this is what the investors in private equity funds expect. I genuinely believe the private equity industry can rise to the challenge, but needs the opportunity.
Failure to outsource will mean a stifling of innovation and eventual increased financial burden, which you and I will pay for through increased taxes. Let’s hope that when we next celebrate the NHS’s achievements, we are describing the NHS as “one of the most effective commissioners of services”.