Intouch Autumn/Winter 2007-08

Sharing solutions across the healthcare divide

The global healthcare picture is one of extremes. In the developed world, giant leaps in spending are funding ever-more expensive and finelytargeted therapies. In the emerging world, simple treatments which could save the lives of millions are widely unavailable due to poverty and poor governance.



As 3i’s lead healthcare Partner, Alan MacKay leads a 30-strong team based in 14 countries. The team has a privileged insight into global trends through a rich web of contacts that includes major pharmaceuticals, start-ups, government bodies and the not-for-profit sector. In this article, he highlights the key issues on both sides of the healthcare divide and the shared solutions that will help to narrow the gap.

The developed world: Spending outpacing results
Since the early 1990s, the developed world has increased its healthcare spending at twice the pace of economic growth. Figures released by the Organisation for Economic Co-operation and Development (OECD) in July 2007 show that its members’ real-terms spending on healthcare rose 80% in the 15 years to 2005, while GDP climbed only 37%. This implies a major diversion of resources from other spending priorities – but has the massive increase been justified by the outcomes?



It is widely believed that this has not been the case. For a start, there is the well-known backdrop: healthcare demand is rising inexorably as western populations age and consumers demand the widespread availability of every new technique. But those aren’t the only factors at work. According to MacKay: “Healthcare giants have channelled a lot of their profits into exciting new areas, such as fresh rounds of drug discovery, but haven’t done enough to make existing treatments more effective – by, for example, making dosages easier to administer. In addition, many healthcare providers have tolerated levels of waste and inefficiency that other industries would simply refuse to accept.

“As a result, the developed world has healthcare systems that focus on developing ever-more complex treatments for relatively small numbers of people, whilst delivering through channels that no rational person with a blank sheet of paper would ever design.”

The developing world: Demand outpacing access
While the developed world has healthcare problems, these pale compared to challenges in poorer nations, where scourges such as HIV/AIDS, malaria and tuberculosis  continue to claim millions of lives each year. Symptomatic treatments for these diseases have long been in existence, but issues of poverty, distribution, education and  governance mean that relief generally only reaches a small proportion of those who need it. Even epidemics that have consistently grabbed Western headlines have seen only limited progress: according to World Health Organisation (WHO) figures, 1.3 million sub-Saharan Africans were receiving HIV treatment in 2006 – a big improvement from earlier years but still only 28% of those in need. In MacKay’s view, the developed world’s healthcare interventions in poorer regions have sometimes been too polarised: “At one end of the spectrum, Western nations have tried to help through bodies such as the WHO, which tends to take an overly-strategic approach and can be slowed down by
politics and bureaucracy. At the other end, charities such as the Red Cross and Médecins Sans Frontières do great work in providing immediate responses to specific crises but are not really building countries’ day-to-day medical capabilities.



The key, he adds, is to reduce the developing world’s reliance on external support and increase its ability to provide for itself. This is happening across large parts of Asia, where economic transformation is putting increasingly-effective healthcare systems within the reach of tens of millions of people. However, Africa remains a focus for concern.

One of the most encouraging developments is the rise of the philanthropic donor. The Bill and Melinda Gates Foundation is the most obvious example. It now has an endowment of around $33bn and spends about the same amount each year as the WHO. Of course, this is still a form of external donation but the ethos is different in that it seeks to add enduring value. There is much less bureaucracy, a better balance between tactical and strategic activity, and an intelligent approach that understands the need to
avoid dependency.

Different problems: shared solutions
So what is the way forward – for both the developed and the developing worlds? Fortunately solutions are emerging that will help healthcare across the globe. These rely on innovation – particularly in the way we create and use drugs and medical devices. They also depend on far greater efficiency in the way healthcare services are organised and delivered.



In Asia, innovation is significantly reducing the costs of drug R&D and manufacture. India and China are beacons of excellence, where world-class pharmaceutical contract research organisations (CROs) are driving down the cost of new drug development worldwide.

Innovation in medical devices is also vital. Transmedics, a 3i-backed business, illustrates the powerful impact that technological leaps can have. It is a young company which has pioneered technology for moving transplant organs in a warm rather than a cold state. This allows organs to travel twice as far and achieve a much better survival rate. Donor organs are scarce, so this is a hugely-valuable innovation that will let many more people live.

“In the developed nations, there’s a growing consensus on the need for much greater efficiency,” explains MacKay. “We see that reflected in the movement away from inefficient general hospitals towards specialist treatment centres. I expect private equity and venture capital to play an important part in this drive for efficiency because it’s the essence of what we do – putting funds in the hands of the best managers with the best ideas, and helping them evolve new techniques and deliver a more sustainable ratio between inputs and outputs.



“As far as the developing world is concerned, the philanthropists’ emphasis on operational efficiency and good governance is setting a businesslike standard that’s shifting mindsets and putting in place strong foundations. Ultimately, the route to healthcare sustainability for these nations is good economic performance and here too, private equity models have a role to play. 3i is a partner in Bridges Ventures, a venture capital company with a social mission that includes a strong healthcare focus. This is a model that’s
capable of migration throughout the developing world.”

Ultimately, private equity’s contribution to healthcare across the globe is about matching capital to entrepreneurial vision, frequently adding in expertise from the not-for-profit sector, and always applying sound management principles. MacKay concludes: “It’s similar to what 3i does in all industries – but it’s particularly vital in healthcare because the extra resources freed by greater efficiency can be directly used to save additional lives and improve more people’s health.”

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