After spinning out a community mental health business from the NHS and turning it into a standalone organisation, turnaround director and healthcare consultancy owner, Steve Macro, saw a market opportunity to combine his private and public healthcare knowledge and private equity skills. Macro tells Pilot Partners where he sees the most potential for commercialising Primary Care Trusts' (PCT) and healthcare provider services and where private equity investors could benefit once NHS policies become clarified.

Could you give us some background on your consultancy?

I spent about 18 months as a turnaround director for a PCT before I moved into an organisational development role, which was taking a community-based business and turning it into a standalone organisation. As a result of that I saw the opportunity to set up a boutique consultancy to help NHS organisations by offering my private and public healthcare operational knowledge and private equity sector skills.

What have some of the NHS projects entailed?

Projects have ranged from providing project management skills for small programme offices to developing dashboards so that organisations have a clear set of objectives on what they are trying to achieve. We have also been working with emerging commissioning groups to strengthen their organisational frameworks and skills following the change of national policy.

More recently, we have been active in the areas of mental health with the implementation of PBR, or payment by results, a process which is akin to the charging processes utilised by the acute hospitals for many years.

Historically, in the health service, organisations such as those handling mental health were given multi-million pound contracts on behalf of PCTs to carry out defined services.

By contrast, on the acute side, there has been a procedure and point-by-point payment system where every activity has a national price, for which the PCT is then charged.

If the health service is moving toward more of the PBR process, where you are not given money to deliver, but for what you have already done on a case-by-case basis, then PCTs and the healthcare providers will need to develop those capabilities and have an understanding of the types of problems that can arise. This is where we have been acting as the critical friend to both, while retaining a high level of independence.

The key areas in the healthcare sector where I see a lot of potential and where I am likely to be focused is in the area of community mental healthcare services and commissioning groups, the latter of which are likely to be of a size that can make a significant impact to better commercialise and streamline support processes.

NHS budgets are constrained, so how are your consultancy services being valued or perceived by NHS organisations?

The NHS is not an area "you can sell into". You have to be accepted into it and have proven yourself. People are increasingly coming to us now, so it eventually becomes a matter of capacity in terms of how many services or skill sets they require. The main two skill sets are, first, commercial and operational finance, but with the added understanding of applying those skills within the NHS, and second, operational health experience in both the public and private sectors.

There are people already out there to do the multi-million pound projects, so people are coming to us for business support, which is adding supplemental skills to those already in place or putting a focussed programme into an organization. In most cases we are improving what is there rather than overriding or replacing it.

We essentially bring distinct skills for particular scenarios that allow us to achieve results more quickly and more effectively than the people in the organisation can achieve by themselves.

Where could private equity investors benefit within this area of the healthcare sector and what part do you see yourself playing to bring investment opportunities to them?

One area comes from my turnaround experience where, for example, you need to appraise a business rapidly and effectively to assess what the business needs and what the problems are. By gathering that information you can get a very clear sense of what needs to be done in a relatively short period of time.

The areas of the healthcare sector that I am working on have responded very well to this process since they have never experienced such rapid insight before. They have never seen someone come in for short periods, say five to ten days, to pinpoint the issues and areas that they need to focus on.

From a private equity perspective the knowledge of those industries is to an extent already there with private equity players partnering with NHS organisations, ranging from very small to very large businesses. But recently some private equity investors have had their fingers burned with the care home and care sector, sectors that have had bustling investment activity.

Understanding how those health organisations operate and where there are opportunities to deliver efficiencies is reliant on having a private sector viewpoint on a public sector organisation, but without a blinkered or biased approach.

I have worked with both types of businesses so I understand how they operate, where the opportunities are to deliver improvements and how to spot the potential risks. My associates have clinical, governance and patient safety backgrounds and know how to mitigate those risks, which are often organizational and culturally based.

Many public sector businesses do not have the organisational processes to manage their capacity. There are opportunities to apply private sector principles in the public sector environment in ways that are accepted because they have been introduced in a positive rather than negative manner.

What do you think has put private equity players off parts of the healthcare sector?

I think what puts them off now is the uncertainty around the current healthcare reforms. Private sector and private equity investors in general will have a higher degree of comfort when certain discreet services and larger chunks of healthcare services offer a higher level of commercial security, so they are clearer on what they are investing in.

Business appraisal in these specialised areas is not just about the contracts and policies, but the improvement opportunities and how well those improvement targets are established in an organisation. To achieve this you need people who have both private and public sector knowledge and can offer a reality check on what can actually be done, while at the same time retaining a sense of aspiration on what can achieved in terms of efficiency and commercialisation.

In essence given the public-private sector aspect, are most of these opportunities requiring turnaround experience?
These are not necessarily all turnaround environments, but rather environments that need an injection of pace and an identification of what the critical focus should be for the business. The skill required, in addition to those typical of turnaround specialists, is the ability to engage across a clinical organisation on all levels and get individuals to sign up for any required changes. You also need to be able to embed the skills of delivery assurance by setting up the processes and systems that identify what needs to be done, by when and confirmation that it has been completed. This has to continue by ensuring that people understand these processes, where they fit into them and the very specific expectations of them. You have to ensure that people remain in the organisation to continue to deliver through these very focused processes, for example, the use of dashboards, many of which are alien in an NHS environment.

What is holding deals back?

Clarity around policies is holding deals back since investors are not clear about which direction they are heading. There has been a significant amount of reorganisation in the NHS, notably within the commissioning arena of the mental health and the community providers. A lot of this is still being clarified.

Community-based providers, for example, have been left relatively untouched over the years since they have been part of the regional PCTs and are only now becoming organisations or integrated into other Trusts. A lot of those services are starting to be tendered out and the commissioner will start to tender different pathways of services, and in some cases larger chunks of business.

There is much wider interest in these tenders from the private sector but the ongoing need for the NHS to have to deliver more for the same or less will drive the need for further outward facing solutions. There will be greater assurance on income and service benchmarking brought about by the introduction of PBR into new areas. And people like myself who can bring together the resources with the experience and knowledge of both sectors can provide greater assurance on the quantum of deliverables and the confidence around their delivery.