Brexit: the implications for the health sector

Published 24 June 2016

The UK has voted to leave the European Union. This briefing summarises the likely implications for the health sector in the UK.

The timetable for Brexit

The key point to note is that nothing immediately changes as a result of the referendum result. Indeed, the result does not formally commit the UK to any particular timetable or even to leave the EU at all. This gives the UK some flexibility in its negotiations with the rest of the EU. It also means that how things play out will primarily be a matter of politics rather than law.

That flexibility is lost, however, once the UK gives formal notice, under Article 50 of the Treaty on European Union, of its intention to leave the EU. When that notice is given, the two year process towards an exit, set out in Article 50, begins. Under Article 50, any extension to that two year period requires the unanimous agreement of all other member states. While those two years are intended to give time in which the terms of an exit agreement can be agreed, exit will happen at the end of the two years (assuming member states do not agree an extension) whether an exit agreement is reached or not.

The Leave campaign itself indicated that it had in mind Brexit in 2019; what seems clear is that protracted negotiations will be in no-one's interests.

From a legal perspective, the most significant aspects of an exit agreement are likely to be around the transitional arrangements and the extent to which rights acquired pre-Brexit are preserved.

Life outside the EU: the options

Exactly what life outside the EU will look like for the UK is unclear. The so-called Norwegian option, of continued access to the EU through membership of the EEA, was largely shunned by the Leave campaign. Certainly, it would not achieve any greater control over immigration from the EU than exists currently. This may however be a beneficial position for the health and social care sector, which relies on EU workers for the provision of services.

Any alternative model, be it based on the position currently enjoyed by Switzerland, Turkey or Canada, would be likely to take several years to agree. The default position, in the absence of agreement, would be the framework of international agreements largely operating under the auspices of the World Trade Organisation.

It is important to note that the exit agreement referred to above would be negotiated separately from any agreement with the EU about our future relationship. Indeed, a number of European officials have been quoted as saying that the two agreements should not be linked. The period of uncertainty over the UK's long-term relationship with the EU, not to mention with the rest of the world, could therefore extend significantly beyond the two to three years it may take to agree the terms of the UK's exit.

Implications for UK law

There is currently a huge body of UK law that derives from EU law not least the much debated procurement regulations. Dismantling this, and even identifying and agreeing on which aspects should be dismantled, will be an immense task. It will not simply be a case of repealing the European Communities Act 1972, because the many regulations made under the ECA, both in Westminster and in the devolved administrations, will need to be retained until free-standing UK legislation can be implemented.

As a priority, EU Regulations, which have direct effect in member states without the need for domestic legislation, will have to be replaced by UK law immediately on a Brexit. Examples include the General Data Protection Regulation, the Solvency II Delegated Regulation, and the Market Abuse Regulation. As a stop-gap, it may be necessary simply to provide that such Regulations continue to take effect as if they formed part of UK law.

In the longer term, where it is intended that that domestic legislation should move away from the position previously required under EU law, that will need to be the subject of consultation and political debate. Although the NHS and the more general health and social care market is politically important, health services regulation is likely to be vying for attention along with a great many other issues.

The likely direction of future regulation

A key question is: what will UK health services legislation look like following Brexit? We think the answer overall is that it would look very similar to the way it does now, although we do expect a detailed debate on immigration, procurement and competition. While some changes might occur at the margins, we do not expect wholesale regulatory changes immediately following Brexit. And any settlement with the EU that permitted the continuation of trade on favourable terms would almost certainly bring with it a requirement to maintain at least broadly equivalent legal and regulatory regimes. There must also be a question over whether it is in either the UK or the EU interest to duplicate areas of regulation that do not seem to have generated much controversy to date, for example around the licensing of medical products and devices. If the UK wishes to remain an early access market it will need to consider how companies could be incentivised to go through a regulatory regime that grants access to a market of 65 million people in advance or at the same time as a regulatory regime that grants access to a market of about 440 million. At the least a high degree of commonality if not mutual recognition seems advisable.

Implications for the workforce 

The subject of the implications of Brexit for the NHS and wider health sector workforce will be a key issue for health system and local leadership. It is a common misconception that employment rights derive wholly or mainly from the EU. Significant aspects of EU employment legislation originated in the UK or were influenced by pre-existing UK law. It is unlikely therefore that there will be significant changes to basic UK employment law rights. However as noted above, we do expect a detailed debate on immigration laws at some point and this could have far reaching effects for a sector which so critically relies on foreign nationals to help deliver its services

It is to be hoped that an exit agreement negotiated under Article 50 would address the position of existing rights in detail, as in the absence of such agreement the law is unclear. One can see arguments that existing or vested rights (such as the right of an EU citizen living and working in the UK pre-Brexit) should be retained following a Brexit.

What should you do now?

With the uncertainty over the timing and the form of Brexit, precise legal steps are difficult to identify. However, we would recommend that, as a starting point, all health sector organisations should try to identify the risks and opportunities associated with Brexit that they will face. These might include:

• Short term uncertainty and operational concerns.
• The loss of the four freedoms (people, capital, goods and services), in both directions, in particular the impact of this on the free movement of employees within the EEA – one of the critical issues that came out of the referendum debate was the concerns regarding immigration. Those within the health and social care sector will understand that current staffing levels are underpinned by foreign nationals who might be caught by changes to the immigration laws. It is likely that as with non-EEA national currently, any changes to immigration rules for EU nationals will be based on the economic needs of the country.
• The effect of economic uncertainty on partner willingness to transact or make long-term commitments.
• The breakdown of barriers to integration and the possibilities around the development of new care models.
• The loss of EU funding (for example for research, development and trials).
• Existing long-term contracts that would be adversely impacted by Brexit.
• Medium and long-term economic effects of Brexit, such as recession and sustained impact on government revenue.
• Cross-border collaborations.

Having carried out this analysis, a number of steps may suggest themselves:

• Ensure all future long-term contracts include break clauses where possible, either expressly linked to Brexit or specific potential consequences of a Brexit, if relevant.
• We recognise that the referendum campaign has been fairly divisive and one very immediate impact of the vote will be an unsettled workforce with the situation summed up nicely by Rob Webster, chief executive at South West Yorkshire Partnersip NHS Foundation Trust who tweeted earlier today: “To all my staff – you are as much a part of our team today as you were yesterday, valued and cherished in the NHS.”
• Consider how you can best provide reassurance to patients, staff and partners that you have identified the issues and are on top of them, without hiding from the fact that there may well be significant challenges, and perhaps opportunities, ahead.
• Work through system leadership to ensure issues and concerns around the exit agreement, any new trade agreements, and implications for the health and social care sector are relayed to government.

How DAC Beachcroft can help

Today, there is much uncertainty, which together with media speculation, is affecting financial markets. What is clear is that this is a time for calm leadership and detailed planning as the new picture emerges, and this burden will fall to boards and senior management. We will be monitoring every aspect of the Brexit aftermath and will provide regular updates and advice to our clients, as and when we know more.

We have set up a Brexit Advisory Team to work closely with our many clients in the health and social care sector to identify the strategic, commercial, regulatory and employment issues and solutions to all aspects of the UK's future relationship with the EU, whatever form that may take.