Will Randall co-wrote this article with Roz Lawson.
An idea born in post-war Europe and an organisation that has shaped modern Britain for almost 70 years could be brought to its knees by the Brexit referendum result. No, not the EU: the UK’s National Health Service (NHS).
So what does last week’s vote, with its destabilising effects already rippling around the globe, mean for the future of the NHS, and for the UK healthcare market? And what might the impact be for medtech companies operating in, or selling to, the UK and the NHS?
The CEO of the NHS, Simon Stevens, has already warned that the consequences of a Brexit would be “very dangerous.” Consider what changes could potentially be set in motion by the Brexit process:
- The 1.2 million ex-pat Britons, including 100,000 British pensioners enjoying retirement in Spain, return to the UK and place further demands on the NHS.
- The 52,000 non-British Europeans who currently work for the NHS leave Britain and return to Europe.
- The remaining British NHS workforce—in a post-Brexit Britain free of the safeguards of the European working time directive (which limits working hours to an average of 48 hours per week and guarantees rest breaks and leave)—continue to suffer, strike or even leave the country and its stricken health service altogether.
- The NHS’ finances go from bad to worse. Some are estimating a £10.5-billion gap in the NHS budget by 2019-2020, in addition to the £22-billion-plus savings target already in place.
The reality is likely to be somewhat less extreme. Given that the UK government already pays for the treatment of its citizens abroad in Europe, the impact of the 1.2 million British ex-pats returning to the UK wouldn’t primarily be a financial one. Instead, it would be on the capacity of the NHS to care for those who returned, or on the individual out-of-pocket costs to those who stayed (and risked losing the current provision of coverage through the current European Health Insurance Card system). Regarding the non-British Europeans working for the NHS, whilst the attractiveness of employment in Britain to current and prospective European migrants could decline, any departure would be gradual rather than sudden. Whilst the recent UK junior doctors’ strikes showed that any changes would not come without a fight, there are no guarantees that NHS employment contracts in a post-Brexit Britain would continue to follow the current guidelines set out by the directive.
The risks of the NHS’ financial situation are much more real, with the economy already showing signs of turbulence. The money to be saved by leaving the EU is difficult to quantify, and the proportion of that sum that will be allocated to the NHS is far from certain. Indeed, the economic impact of a post-Brexit recession is likely to have a significantly greater negative effect on the overall public finances.
Whatever happens, it won’t happen overnight. Just like the eventual Brexit process itself, which will take two years following the triggering of Article 50 of the Lisbon Treaty, which states how a country might leave the EU, any changes to the NHS will happen gradually, and we shouldn’t expect the whole organisation to simply keel over and die.
A likely outcome is an acceleration of the existing trend towards the privatisation of some or all healthcare services in the UK. This will be driven by the worsening cost constraints on healthcare services, as well as prominent figures across the various “Leave” campaigns who support the idea of the privatisation of the NHS.
So what are the prospects for medtech manufacturers in a post-Brexit environment of the NHS? Given the suggested developments above, two immediate scenarios come to mind: First, an NHS hampered by worsening financial constraints would be a less attractive place for medtech to play. Manufacturers may be less willing to negotiate favourable pricing to access NHS supply chain or individual trusts since potential instability in currency exchange rates could create margin challenges. Large capital projects may be put on hold or become increasingly challenging to justify. Elective procedure volumes such as joint replacements may be impacted as trusts attempt to curb spending on non-essential healthcare services. Lower-cost alternatives to premium devices may become more popular; innovative device adoption may be stifled.
On the other hand, trends towards NHS privatisation could lead to increased competition and open up opportunities for the innovative provision of products and services, such as value-based or outcomes-based agreements. Medtech needs to be ready to bring such offerings to market and change the conversation away from the traditional comfort zone of price-per-box discussions. Companies that invest in marketing capabilities to develop these offerings, and the sales capabilities to deploy them, will likely see success through such differentiation and innovation.
Beyond the NHS, what are the prospects for medtech in the UK market as a whole? The situation is changing by the minute and there is plenty of uncertainty ahead, bringing with it opportunities as well as challenges. Here are some additional broader considerations:
- Britain may become a less attractive market for investment from global medical technology companies. We may also see reduced interest in the acquisition of UK companies to support tax inversion moves by multinationals, especially during the period of uncertainty surrounding Britain’s exit process.
- British-based medtech companies may struggle to stay at the forefront of innovation. An exit from the EU would reduce the funding available for the academic research that seeds much of the R&D and innovation in medtech (such as the biotech clusters at Oxford and Cambridge or the Francis Crick Institute in London).
- A weaker pound could present an opportunity for UK-based manufacturers to export to Europe and elsewhere. However, there’s considerable uncertainty around Britain’s continued access to the European single market and any taxation or tariffs that could be applied to the movement of goods in and out of the UK market.
- The UK may not remain as one of the typical “big five” European markets for medtech manufacturers since a standalone UK market would be many times smaller than the rest of the European bloc, which has a medtech market worth more than $100 billion. The impact of this is likely to be felt most acutely in the commercialization of a new product or device. Access to the single market plays some part in this, but an independent UK may be responsible for its own approval pathways for new medical technology, potentially separate from the current European Medical Device Directives and CE marking process. More progressive UK regulation might make the UK a more attractive launch market ahead of Europe. Divergent regulation might cause medtech to deprioritize the UK in favor of other European markets such as Germany and France.
Given these considerations, what should medtech companies do? First, don’t panic; wait to see what happens. It’s too early to know for sure what will happen and how the situation will develop. Second, keep monitoring and be ready to capitalize on the opportunities as they emerge. And remember, the UK is still a member of the EU for (at least) two more years.
Will is a manager based in ZS’ Evanston office and is part of ZS’ medical products and services team. Will began his ZS career in the London office in 2009, working primarily with medical technology companies in the UK and other European markets, addressing a broad range of sales and marketing issues. Prior to ZS, Will studied at Trinity College, Oxford University.