Dr Stephan Rau, head of the Firm's Health Law Practice Group in Europe, and Dr Nadine Hartung, Partner, chaired a discussion on Healthcare Investing at McDermott's Health and Private Equity (HPE) Europe 2022.
At HPE New York in October 2021, the focus was on Private Equity (PE) funds needing to move fast to “ get a slice of the action and not be left empty handed.” In contrast, HPE Europe 2022 also looked at the landscape from the perspective of businesses wanting to attract funding in what has, in some sectors, become a buyer's market, and what those businesses and their investors can do to help them thrive.
Significant Concerns
Across the panel, there was a consensus that the two major challenges were a labour shortage exacerbated by wage inflation; and increased costs and issues in the supply chain, all overshadowed by the Russian invasion into Ukraine. These are not new problems. The healthcare sector has always struggled with wage inflation and a shortage of staff: the workforce is generally the sector's biggest operational stress. The additional challenge comes from the macroeconomic problems resulting in urgent demands from the workforce for more money, and generally all costs rising faster than businesses' ability to respond. The system is developed to handle steady inflation; rapid inflation is not something that can be prepared for.
On the positive side, there has never been a better time to renegotiate prices with customers, who have a higher tolerance than usual for passed-on costs as they know them to be genuine increases. Providers can adjust their prices over the next year, but a year is a long time and the operational stress caused by wages is a major concern.
The panel agreed that, notwithstanding these challenges, for this sector more than for any other, it is vital that patient safety and quality of care don't suffer, and that empathy for the patient is always a priority. And if healthcare providers do their job well, there will always be enough patients and providers will survive the current crisis.
So how can providers be enabled to deliver first class, empathetic care, while solving their staffing emergency?
Technology
COVID-19 prompted a great leap forward in digitalisation and the shift from inpatient/face-to-face to outpatient/remote care, and both are key to developing next-level services in the near future. Healthcare providers urgently need to invest in strong IT.
In addition to enabling patients to have increased access to services and helping with general administration, the real power of technology is how it enables the development of a level of service that cannot be delivered in a traditional model.
Doctors see far more patients than they really need to and, generally, few clinicians are operating at the top of their license—making effective use of their education, expertise, and experience—because practices are overwhelmed with patients, many of whom suffer from preventable diseases and illnesses. These could be tackled by more investment and emphasis on preventive measures implemented by someone with a different set of skills, or digitally. During the pandemic, it became clear that remote service delivery was not just viable, it was highly desirable.
Centric Health recently launched a pilot scheme for the proactive management of patients with end stage heart failure. Patients were provided with iPads and simple instructions, and a clinician would engage with them remotely three times per week. These interactions were mostly social, but they enabled the clinician to spot when a patient was deteriorating and to take remedial steps with diet and medication. This resulted in a 70% lower hospital admission rate, which has obvious advantages for both patients and hospitals, plus it provides greater engagement for clinicians.
Conversely, the starring role that technology has played in the administrative side of healthcare has had a negative impact on medical staff. The panel agreed that electronic medical records made clinicians' lives harder as they are obligated to spend time taking histories and analysing data when what they really want and need to do is simply interpret that data in order to deliver enhanced patient care. Doctors and nurses are being told to work harder, when really there is a void where there should be a technological solution that enables them to work smarter.
In addition, there is a significant mismatch between medical education and technology. The skillsets being developed during a clinician's training are already well behind the technology we now have, and the gap is increasing as technology develops far more rapidly than medical school programmes. This gap is one of the reasons why clinicians can find IT burdensome. In the future, this gap might be bridged by more sophisticated, effective technology.
Innovation in Staffing
Technology again has a significant role to play in ensuring best-in-class, patient-centred care. By proactively managing patient care through technology, patients can be passed down the chain of clinicians, which provides space at the doctor end of the chain for critical care, and enhanced professional development at lower levels as staff are pushed into the top end of their licences. This addresses staffing issues and remediates job satisfaction challenges.
In line with the move from face-to-face to remote care, the cost of surgery and the lack of nursing staff are creating pressure in Europe to move from a surgical inpatient to outpatient model. Although the statistics across European countries vary, in general the rate of in-hospital surgery on the continent is considerably higher than in the United States.
There has been a rise in staffing innovation, with a number of businesses hiring out medical staff and developing flexible working models for clinicians. Anest group, for example, has developed a model of providing perioperative medicine—essentially every aspect of surgery, from anaesthesiology to wound care, except for the surgery itself—that relies heavily on digitalisation of certain services. The business launched a major IT project three years ago, which included writing proprietary software, to support their staff in better serving Anest's surgeon and patient client base.
The Role of Private Equity
Over the last 20 years, PE has tended to focus on investment in bricks and mortar service providers, such as hospitals. That focus has pivoted to investments in innovative service models that are tech-and digitally-enabled and deliver better care and improved outcomes, at a lower cost, as this is where investors are looking for value.
To find the right investments and provide the right support to their portfolio companies, PE funds are keen to understand the sector, so asset managers are actively looking to institutionalise insight. One recent example is EQT's acquisition of Life Sciences Partners.
Although healthcare provision is undeniably local by nature, with very little synergy across jurisdictions, the investors are increasingly taking a cross-border, even global approach. This broader approach can bring efficiencies to procurement, risk management, IT, and capital allocation. The most successful investors enter a new jurisdiction with an ability to apply the best of what they have done before, while also keeping a learning mindset and a philosophy of innovation.
The Next 12 Months
When a market is buoyant, there is plenty of room for mediocre players. When you add stress to the system, the structurally weaker businesses will leave, creating room for the market leaders to thrive.
The panel agreed that the market leaders in healthcare, whether on the provider or investment side, are those that make patient care their number one priority. In this sector, uniquely, the goal is to serve patients and doctors, not maximise profits. Those who follow this philosophy should still be around when the market again favours the sellers.
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