HBI 2020: Regulatory and Political Risks post-COVID
With increasingly strained public health systems firmly in the spotlight during COVID, and a reliance on for-profit providers to step into the breach and help, relations between for-profit groups and governments have been cordial recently – or at least thawing. Regulatory and political risks remain, however, and scrutiny of foreign investment appears to be on the rise. An expert panel led by McDermott Will & Emory convened at HBI 2020 to explore these themes.
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Alberto De Rosa Torner is CEO of Ribera Salud, the pioneer of the Alzira model through which a consortium of a for-profit payor, a provider and a property company was paid on a per capita basis to handle all the primary and secondary health care needs of 100,000-250,000 people. Despite the political difficulties for-profits have faced in Spain latterly, he is optimistic that the post-COVID era will be reconciliatory.
He explained: “COVID 19 has been the greatest tragedy we’ve faced in a generation. But the challenges (we faced) were already on the table, they were exacerbated. PPP is going to prove essential for public systems to provide a response to the enormous challenges in the coming years.” The government, is, however, in the driving seat, he added: “It’s the government that in a democratic society has the last word on matters concerning the wellbeing and public health policies.
“It’s the government that has to be clear about the objectives, and should establish a transparent relationship with clear rules of the game, and a system for incentivising private companies which allows for a long term relationship – aligning the objectives and vision of public administration, responsible for public health with those of the private company whose objective is to make a profit and to stand the test of time.
“We started our model in 1999. Controversies around PPPs were there but it was more a political debate. In the last few years after the financial crisis (we have seen) the influence of parties looking for easy solutions to difficult problems. It’s more difficult than before.
“But the crisis pushed public healthcare systems to the limit and after the pandemic there will be maybe more dialogue and consensus the private sector is needed for long term solutions. In Spain, as in the UK for example, I know public hospitals are receiving private sector support. I hope after the pandemic some of the political debate around these collaborations will be a new era of trust between the two sectors. I am optimistic.”
In the UK, waiting lists are driving partnerships. Could they minimise political risk? Sharon Lamb, Partner, McDermott Will & Emery explained: “In the beginning there was a partnership formed, where (the NHS) effectively purchased capacity and paid a sum to keep private hospitals available for NHS patients, and they were repurposed for cancer, for some emergency procedures and some elective care.
“The position in the UK is there are about 10 million people likely to be waiting for elective care, there’s a doubling of demand for mental health services, and there is a clear question about how those people who are waiting for care and/or who have had their care delayed as a consequence of COVID will see those waiting lists clear. There’s likely to be a stronger and better relationship with private hospitals.” But she is worried that new legislation could mean tariffs for the for-profit sector are reduced below those offered to NHS providers
Germany on the other hand has not seen a similar build-up in waiting lists, according to Stephan Rau, Partner, Head of European Healthcare, McDermott Will & Emery: “Our system is different – the entire outpatient sector is exclusively private providers who can be more flexible, and this flexibility has increased with the advent of private equity players entering the market, which was resisted by some doctor lobbying associations particularly in the field of dental where there was fear of more efficient or competitive providers offering extended services.
“My impression is that the introduction of PE in the market is more welcome by the public and by public payers in Germany than some physician representatives think it is.”
But while the relationships between providers and providers and governments has been strengthened by COVID, where is regulation headed? Spain has been seen by some as an investment opportunity gateway -with less anti-market restrictions, you can use Spain as a Springboard to elsewhere in Europe.
But according to Rau: “European countries are starting to strengthen foreign investment control. The European Commission made recommendations and some countries, like France and Germany, have implemented stricter foreign investment control for health services providers and pharma which might somewhat delay the closing of some transactions. Yet, also in view of the imminent change of government in the US, I do not expect any relevant objections by German foreign investment control authorities against any investment of US investors in German health care or pharma companies.”
And what of the UK, either with or without a deal, post Brexit? Lamb said: “The UK government has always had a very relaxed view on foreign investment but in July this year, the merger control rules were changed so there was a lower limit imposed , and separately in November this year a new foreign investment control regime was issued and it’s subject to consultation and that proposes that critical suppliers to government – health systems and hospitals are not specifically mentioned but large data record processors are – that may be a critical supply. It seems we are moving to a regime with greater scrutiny of the acquisition of UK assets.”
We would welcome your thoughts on this story. Email your views to David Farbrother or call 0207 183 3779.