What does Brexit mean for UK Healthcare investing?
28 June 2016
As the dust from the last few days starts to settle and we get back to work, we all ask “How is Brexit going to impact me and what I do?”
As healthcare investors and advisors, we need to think carefully about how Brexit will impact the healthcare providers that we invest in and work with both over the short and the long term and consequently what this means for the deals that we will see.
The first and most important point is that the healthcare demand is fundamentally not linked to Brussels. The demographic and disease trends continue today as they did last Thursday and they will continue as predicted far into the future. How this demand manifests, and where it presents however, may shift according to the economy and the wealth of individuals and the Government.
Clearly any potential economic downturn will impact Government funding and thus potentially prolong or deepen the austerity measures that Local Authority or NHS funded care providers have been operating under for the last few years. Greater control on eligibility, changing care models and difficult fee settlements could prevail.
Under this scenario, as we have seen in recent years, rationing of government funded health and social care could lead to an acceleration in the private pay markets as individuals put their hands in their pockets to access the care they need and want. Individuals’ wealth will potentially counter this driven by both reduced income and a potential reduction in asset values (house prices as an example).
Interestingly, when the economy suffered in 2008/2009 there was a surge in activity within Private Medical Insurance (PMI) funded private hospitals as people who were potentially concerned about employment “made the most” of their PMI cover.
There is also the prospect of the UK becoming an attractive place to “fly-in” to for private medical care. London is already a world centre for international patients. With the weakening of sterling, this could make it an even more attractive destination for those seeking world class private healthcare.
Undeniably though, the greatest impact that the sector is going to face is on workforce. The impact on nurse numbers is likely to be minimal as any potential decline in EU nurses could be off-set by recruitment from further afield. However, 10% of NHS doctors are EU nationals and the current restrictions on doctors from the rest of the world are minimal. We could therefore be facing a further pressures on doctors within the NHS, compounding current staffing problems.
Longer term, the impact on nurse numbers is likely to be minimal as any potential decline in EU nurses could be off-set by changes to immigration rules allowing more recruitment from elsewhere. During any transition period, increased recruitment issues compounding current staffing problems are a risk.
The outlook for doctors without a deal on free movement of labour is more challenging. 10% of NHS doctors are EU nationals, developing a larger UK workforce would take many years and the new junior doctors contract will not help with broader overseas recruitment.
Arguably the most impacted part of the workforce is likely to be the carer population, individuals working in care homes and in people’s homes, taking care of the most vulnerable members of society. 5% of this workforce is currently from the EEA and recruiting workers to the care sector from outside Europe is challenging under current rules. In the longer term without free movement deals, the care sector is likely to struggle to recruit and retain staff. Will this lead to higher wage bills, higher fees, decreased margins or a combination of all three?
From an M&A perspective, UK investors are likely to retain their positive view on UK healthcare investing having operated in this dynamic and ever changing market for decades through growth and recession. However, with the weakening of Sterling, will we see an increase in foreign investors into the UK as they look to “bag a bargain”?
It is too early to predict a lot of the above but the fundamentals remain – health and social care markets are resilient, operators can succeed in even the toughest environments and investors have become and will need to be more astute than ever.