19 Mar 2018 / Article

Healthcare: innovation is key to achieve financial and social returns

By Carlijn Nouwen, Partner, Dalberg Advisors

In healthcare in Africa, the budget allocation and delivery capacity of governments and donors are not sufficient to meet demand, leaving a need and space for private sector participation. Only four AU countries met the 2001 Abuja Declaration’s 15% target for healthcare as a share of government expenditure in 2016. Although donor funding to low-middle income countries increased fivefold to $22.8bn between 2002 and 2013, out-of-pocket funding for health still represents 40% of total expenditure on health in approximately half of sub-Sahara African countries. In 2007, IFC estimated 60% of healthcare financing came from private sources and private sector accounted for 50% of healthcare provision.

Low investment flows

Despite this sizeable role, private initiatives and investment flows into healthcare in Africa are relatively low, and mostly focused on healthcare provision, and there is room for growth with attractive returns. Healthcare received only 1% of private equity capital invested in SSA between 2008-2015, compared to the 11%  that Europe’s biotech and healthcare sector received of total private equity investments in 2016. Most of it focuses on provision: approximately 60% of private equity investments into SSA’s healthcare sector targeted providers. Growth opportunities exist across the value chain, in activities such as insurance, medical equipment provision, and support services (e.g. laboratory, pathology and imaging services). For example, Pyramid Pharma Ltd, a distributor of pharmaceutical products, medical equipment and supplies, expanded operations from Tanzania in 2001 to six more SSA countries today and IFHA exited successfully after 5 years of investment. Financial returns can be sizeable: Lereko Metier Growth Capital Fund I, a commercial fund, invested in Surgical Innovations Limited in 2008, and profitably exited in 2014, after the company had achieved a 6 year Compounded Annual Growth Rate of over 25%.

Approximately 60% of private equity investments into SSA’s healthcare sector targeted providers.

A range of innovations are instrumental in optimising private sector intervention in the healthcare sector. Three factors are key to success: customer-centricity in product design and delivery, data driven delivery in resource-scarce settings, and integration of activities across a pathway to optimise outcomes, efficiency and customer experience.

Customer-centric approach

Offerings and pricing need to be tailored to customer needs to gain market traction, which makes a customer-centric approach crucial. Penda Health provides affordable high quality primary healthcare services in Kenya, with an emphasis on women’s health. They initially planned to open a chain of Women’s Health Centres and reach target customers through partnerships with community groups and places of employment. However, upon realising that women prefer to receive their reproductive health services at clinics, where they can also take their children and husbands when they fall sick, Penda expanded its services to include the full range of primary care services.

Data-driven delivery

Data-driven delivery in resource-scarce environments, whether through task-shifting, clinical decision support systems, remote doctor-patient interactions or technology enabled triage is also a key success factor. Combining many of these elements, Aravind Eye Hospital doctors in India profitably perform 6-8 times more operations per hour than is common in the field, at a per-surgery cost of less than 2% of the US costs, with far fewer adverse events/ complications than the UK. Africa Health Holdings deploys very rigorous, fact-based approaches to organising and delivering care. Innovations such as the Standardised point-of-care (m)CDSS (mobile Clinical Decision Support Systems) are on the rise although the deployment of technical system requires further innovation and support The adoption of the South African Triage Scale (SATS) shows the need for standardisation.

SATS, is a triaging system, which uses algorithms to calculate illness levels of patients and ensure appropriate prioritisation of patients. The system decreases waiting times, improves patient flow, and expedites time-critical treatment for patients with life-threatening conditions. It’s used across South Africa and in 14 other developing countries.

Integration of activities

Integration – whether in-house or with other parts of the healthcare delivery system – is another success factor in the private health sector. Hygeia Nigeria Limited, the largest healthcare provider in Nigeria, manages hospitals, and provides health insurance, in addition to capacity building.  This creates incentives to focus on prevention and accurate disease management to keep insured customers healthy. Domesticare (which works with private providers of primary care and imaging services yet connects into the public system for tertiary care) ensures good integration of their pathways to ensure fast access to more sophisticated care, protecting good health outcomes whilst still being able to focus on targeted interventions themselves.

The very innovative Babyl in Rwanda, combines CDSS and automated triage systems with healthcare interventions of various intensity levels driven by patient needs to manage lives efficiently with limited resources. In addition, Babyl Rwanda established an MoU with the Rwanda government which validated diagnoses in the absence of physical appointments, allowing its services to be accessed through healthcare schemes which would not have been possible under the previous regulatory regime in which only physical doctor-patient interactions we recognised as legitimate medical interactions.

Despite the challenges in healthcare solutions for low-income populations, lots of opportunities exist for the private sector to offer much needed services to this market profitably – provided that they innovate appropriately.

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