Why Africa Is Set to Backstop Britain’s Post-Brexit Health Care?

JOHANNESBURG (Capital Markets in Africa) – The South African companies that dominate the U.K.’s growing private hospital industry are counting on more people like Katie Corrie.

A children’s party entertainer, Corrie opted to use 13,000 pounds ($17,000) of her savings and inheritance to get a hip replacement rather than spend months on a National Health Service waiting list. Britons like her are forking out almost 1 billion pounds a year to cover their own medical expenses, a trend that’s giving at least one industry the scope to look past Brexit turmoil.

“Even if I hadn’t had the money put aside, I would have found a way to pay for it,” said Corrie, 50, who estimates the business she runs with her husband would have lost 10,000 pounds of revenue if she’d waited for free surgery. “I would have gone to the bank and taken out a loan. I’d have gone through my jewellery box and put stuff on eBay.”

As talks to split from the European Union curb economic growth and consumer spending, the U.K. hardly seems ripe for an expansion in private health care. If anything, a key promise in favor of Brexit was that it would free up millions of pounds to reduce NHS waiting lists, a vow splashed on the side of Leave campaign buses.

But that pledge was promptly abandoned and some analysts are now predicting the opposite will unfold. By reducing labor mobility and the national income used to fund public services, Brexit will make it worse for the NHS, Joan Costa Font, an associate professor at the London School of Economics’ Department of Health Policy, argued in a post this month.

This is where companies like Johannesburg-listed Netcare Ltd. and Mediclinic International Plc, which own local providers that together run 34 percent of Britain’s private hospitals, are ready to pick up the slack.

By the time the divorce is scheduled to happen in 2019, the number of patients on waiting lists of more than 18 weeks could soar to 5.5 million people, from 3.7 million now, according to NHS figures cited in a Netcare results presentation in May. To ease the burden on the underfunded, overcrowded public system, the NHS is already sending hundreds of thousands of patients each year to private hospitals. The NHS didn’t respond to a request for comment on its use of the private system.

“When we took over, we hardly saw an NHS patient, now they make up 43.5 percent of our patient days,” said Richard Friedland, chief executive officer of Netcare, which operates in the U.K. through its BMI Healthcare unit. “That the NHS can’t keep the pace tells us that we have a role to play, albeit in a far different way to than we originally envisaged.”

Initially when it bought BMI in 2006, Netcare expected to ride a boom in demand for private medical coverage. The number of people under corporate medical insurance schemes or plans provided by the likes of Bupa Insurance Ltd. and Axa SA grew 16 percent between 1995 and 2005, according to data of London-based health care consultancy Laing Buisson.

The tables turned quickly as the 2008 global financial crisis pushed the economy into a recession. By 2014, more than 400,000 people or employers had dropped health policies – a 9 percent decline – and the industry has barely recovered since. Fewer than one in 10 of the U.K.’s 65 million people have access to private policies and Friedland doesn’t expect a return to peak levels.

Instead, he sees future growth coming from NHS referrals and patients who want to skip the line at the NHS for surgeries like hip and knee replacements, hernia operations and gall bladder removals. Self-pay cases jumped 6.4 percent in the first half of 2017 alone for Netcare.

Industry-wide, patients paying their own way account for 18 percent of revenue, LaingBuisson figures show. Revenue from patients arriving via the NHS surged to 30 percent from 5 percent in the decade to 2015 as laws were changed to allow more private-sector involvement through, for instance, an e-referral system to outsource some NHS operations.

It’s not all good news for the industry. The slowing economy thwarts the chances for a revival in demand for private insurance, which provides non-state hospitals with their most lucrative work. For instance, they can earn less than half as much from a standard hip replacement referred by the NHS than one paid for privately, according to NHS guidelines.

“Private healthcare is a not very fast growing slice of a not very fast growing pie,” said Mark Dayan, a policy and public affairs analyst at London-based think tank Nuffield Trust. He said a big concern for private providers is the financial squeeze on the NHS. In April, the public provider said it would reduce the tariffs it pays for its referrals to private hospitals.

Investments in U.K. health are flowing, nonetheless. For South African companies, this is because things aren’t much better at home as medical insurance demand stagnates. In November, Johannesburg-based Life Healthcare Group Holdings Ltd. bought 95 percent of Alliance Medical Group Ltd., an operator of diagnostic clinics in the U.K. American private health firm Cleveland Clinic and German provider Schoen Clinic are also opening new London hospitals.

Spire Healthcare Group Plc, in which Mediclinic bought 29.9 percent in 2015, has opened new hospitals in Manchester and Nottingham this year too. Even so, Mediclinic passed up opportunities to raise its stake both before and after Brexit, instead focusing on expansion in Switzerland, southern Africa and the United Arab Emirates.

Given the strain on the NHS and the fact that private policies become prohibitively expensive the older you get, Corrie, who went to a BMI clinic in Surrey for her hip replacement, said she had always put money aside in case she needed to get treated quickly and she’s working on a promotional video for BMI to tell her story. One in four people in the U.K. will be over the age of 65 by 2045, according to official estimates.

“I was worried that we wouldn’t get booked again if I had to cut out parts of my act,” said Corrie, who performs magic tricks and plays games with children at the parties she hosts. “If you cancel 10 bookings, you lose 20. The knock on effect of that is a lot.”

Source: Bloomberg Business News