The NHS, TTIP, and the EU referendum

Tamara Hervey, Jean Monnet Professor of EU Law, The University of Sheffield

Who would have thought that the NHS would be such a significant aspect of the debate on the UK’s membership of the EU?

With campaigns for the referendum on 23 June 2016 underway, all sorts of claims are being made about the effects of EU membership on the NHS, and people have been rightly wondering whether they are accurate. Here are some of the questions that I have been asked (others are covered here):

Q1.  What influence does the EU have on the NHS now – does the EU make decisions about our NHS?

Q2.  What – if anything – do EU membership; the Transatlantic Trade and Investment Partnership (TTIP); and the NHS have to do with each other?

Q3.  Assuming the EU agrees to the TTIP, how does EU membership impact, or not, on ‘privatisation’ of the NHS?

Q4.  How – if at all – would it be different if the UK left the EU?

Q5.  Would being in the EU prevent a future government from ‘renationalising’ the NHS?

In answering these questions, I want to make clear that this is not just an argument about facts, or a disagreement about how to interpret the data.[Note 1]

It is also a discussion about interpretation of texts. Those who are not lawyers may find this frustrating, and may be looking to lawyers to ‘just tell me, what is the legal position’. However, I will insist that the craft and professional skill of lawyers (in practice and in the academy) is to provide credible and convincing interpretations of legal texts, a matter on which there can be justifiable and mutually respected disagreement. Lawyers do not simply state ‘what is the law’. So my answers to the questions are – in that sense – not definitive.

However, the answers I give in this blog are based not only on my political convictions: I am convinced that, on balance, to remain in the EU is by far the best outcome from the June 2016 referendum. My interpretations are also based on over 20 years of researching and teaching EU law, and how it applies in health contexts. My collaborator Professor Jean McHale and I were among the first to think about health and EU law. Of course, I will also freely admit that I think my answers are the best interpretations of the legal texts.

In summary, here are my answers. The analysis supporting these conclusions follows below.

A1.  The EU does not tell our government how to run the NHS. Some EU rules affect the way in which the NHS may be run, but those rules are interpreted in ways which respect national decisions about how national health systems are organised and the values they express.

A2.  The EU and its Member States will be bound by TTIP, if it is agreed. To the extent that the TTIP rules apply to public national health systems across the EU, and to our NHS in particular, if we remain in the EU, the TTIP rules will apply. However, TTIP only applies where there is a market element to the provision of services. That means that it does not apply to some aspects of any of the national health systems in the EU, including our NHS. Even where it might apply to NHS services, it is still open to our government, which will likely have a veto over TTIP as an EU Member State, to negotiate a ‘reservation’ (opt out) from TTIP or parts of TTIP. And even where no reservation has been negotiated, TTIP still permits regulation limiting free trade for ‘legitimate policy objectives’.

A3.  Assuming the EU agrees TTIP, EU membership would not require continued existing ‘privatisation’ or further ‘privatisation’ of the NHS except to the extent that TTIP applies to national health services in general, and our NHS in particular, as outlined above.

A4.  If the UK left the EU, it would not be bound by TTIP, but as I’ve already said, TTIP is not the danger to the NHS that some people claim.  Anyway, the UK will seek a free trade deal with the US if it leaves the EU, raising the TTIP issues again, but outside the context of the EU’s respect for the ways European countries organise their national health.

A5.  No. Being in the EU does not prevent a future government from ‘renationalising’ the NHS.

The starting point in considering the EU’s influence on the NHS is that the NHS is a matter of national competence. Article 168 (7) of the Treaty on the Functioning of the EU clearly states that the organisation and delivery of health services is a national responsibility, not even a matter of shared competence between the EU and its Member States. Nothing in EU law requires governments to organise health systems in any particular way. Choices about the way our NHS works are national – they are the decisions of our government(s) [Note 2], enacted in law by our Parliament(s), and interpreted by our courts and administrative bodies. Other EU countries organise their health systems in very different ways, and are entitled to do so, although we share common values about national health systems.

That said, there are features of EU law that have an impact on aspects of our NHS. The Single Market – which is regularly cited as one of the main reasons to Remain – requires free trade in products and services across EU borders, and fair competition between market actors operating within the EU. EU law is based on market liberalisation: as its ‘better regulation’ shows. This has been heavily criticised from the political left, for instance, by those seeking to protect labour rights. But EU law also includes labour rights: for instance, all employers including hospitals must comply with EU rules on working hours. Note also that recently-commissioned legal advice to the Trades Union Congress is that remaining in the EU is a better way to protect labour rights than leaving.

For a long time, it was thought that EU rules applied only to private health service providers, so not to national health systems. But all EU Member States have elements of market provision within their national health systems – these are part of a broader liberalization agenda being promoted by the World Bank since the 1990s. EU law applies to those market actors in the NHS.

But it does so in ways that respect national decisions. EU law does this through three legal mechanisms:

·     In some instances, EU law leaves national health systems outside the scope of its application. For instance the Services Directive excludes health services altogether.

·    Relevant EU laws that do apply have significant exceptions for ‘services of general interest’ and health is such a service.

·      Restrictions on free movement of products or services that would otherwise breach free trade law, and cartel-like or monopolistic behaviour that would otherwise breach competition law, can be justified under EU law, if they are necessary to protect ‘legitimate public interests’ such as effective organisation of hospital care in a particular region.

In an analysis of scores of decisions of courts and competition authorities, across all the EU’s Member States, our Cambridge University Press book European Union Health Law found that the closer a health institution is to the ‘heart’ of a national health system, the more readily national preferences are respected through the way that EU rules are interpreted. Funding arrangements, hospitals, laboratories, blood and tissue centres all enjoy a protected position in EU law; pharmacies to some extent; dental clinics and opticians less so.

Like EU law, the TTIP (along with all other trade agreements) is based on an ideology of free trade. If such an agreement were to apply the ordinary rules of free trade to all sectors of the EU, then it would indeed represent a significant threat to the European ways of organising health services.

But it doesn’t.

All the EU Member States have national health systems based on dignity in terms of how patients are treated; solidarity in terms of how systems are funded; and equality in terms of access. So it is not surprising that the EU is negotiating a trade deal that will respect those values. Each government normally has a veto in EU trade deals: if we don’t get the deal we want in TTIP, our government could oppose it. [Note 3] What is intended by the parties to the agreement in TTIP (the EU, its Member States and the US) is important, because it is taken into account when interpreting the legal texts. Safeguards for public services are embedded in EU law, so they were probably assumed in the EU’s negotiating position with the US over TTIP from the start. We don’t have those early negotiating texts, so we can’t tell for sure.

But we do have the more recent negotiating texts – thanks to the response of the EU to significant grassroots pressure for transparency.[Note 4] The ways in which the latest (March 2016) texts express support for those European values in health services involve the scope of the agreement; exceptions; and justifications for departing from its general rules. 

·         Exceptions and justifications include:

·         The opening provision in the chapter of TTIP on services and investment liberalisation, which confirms that the EU, its Member States and the US may ‘adopt, maintain and enforce’ national measures that restrict services or investment liberalisation, as ‘necessary to pursue legitimate policy objectives’. In other words, states may adopt justifiable regulation. A non-exhaustive list of such regulatory policy objectives includes protecting public health; securing dignity, solidarity and equality within the NHS constitute such an objective.

·         Similarly, the ‘general exceptions’ clauses include agreement that nothing in the TTIP should be interpreted in such a way as to prevent the EU, its Member States, or the USA and its states, from adopting or enforcing measures ‘necessary to protect human … health’.

·         Neither of these provisions is explicitly about the NHS, but they will be taken into account when interpreting the TTIP should it apply to future US service providers or investors in the NHS. It is hard to think of a service of general interest with a stronger claim to legitimate and justifiable regulation.

·     The TTIP will include Annexes in which existing national laws ‘derogating’ from the liberalisation provisions (permitted exceptions to those rules), and areas in which individual national governments reserve the right to make future derogations, are listed. I say more about these ‘reservations’ below.

·      It’s important also to understand that non-discriminatory rules, such as a requirement to be licensed, quality standards, obligation to provide a universal service, or language proficiencies, are all allowed under TTIP – they are justifiable regulation. So none of these, or similar, aspects of the NHS would be affected.

·   The approach being proposed in TTIP to determining the scope of application of the services and investment provisions is a variant of ‘negative lists’, in which the EU and US will (if they can agree) explicitly exclude certain sectors from the TTIP.

·    TTIP will also probably include ‘standstill’ or ‘ratchet’ clauses, to prevent reintroduction of national rules restricting, eg foreign ownership of firms.

How should we interpret the TTIP provisions in the context of our NHS? A legal opinion prepared for Unite, based on the July 2015 negotiating texts, concluded that ‘TTIP proposes a real and serious risk to future UK government decision-making in the NHS’. (Incidentally, Unite’s position on the referendum is Remain.) The advice proposed ‘a blanket exception’ for the NHS in the main text of TTIP, or a reservation in one of its Annexes, as the solution. The negotiating texts explicitly reserve the right to make changes at any time prior to the conclusion of the negotiations, so such an exception or reservation could still be included.

But so far, the TTIP text does not do so. 

Austria, Germany, Greece and Italy all have explicit reservations in the text from the services and investment provisions of TTIP for existing rules about some health professions. France has a general reservation limiting the nature of legal entities through which foreign investors can provide health services.  But the UK hasn’t entered any reservations in either category in this part of the TTIP text. (Cyprus seems more worried about US hairdressers than the UK is about this. It has a reservation for hairdressing services.) In the context of market access, the UK’s reservation is only to state that ‘establishment for doctors under the National Health Service is subject to medical manpower planning’.  As should now be clear, these reservations clauses of TTIP express preferences of the UK government. They are not a function of the EU’s negotiation of TTIP per se.

The UK has entered reservations for possible future provisions which restrict cross-border provision of health services, pharmaceuticals, or medical and orthopaedical products, where the provider is not legally established or physically present in the UK. These could be used to restrict access of US-based firms to these aspects of the UK market in the future.

The EU itself has entered reservations for future provisions in the publicly funded or state supported health sector:

“with regard to the provision of all health services which receive public funding or State support in any form, and are therefore not considered to be privately funded …. The EU reserves the right to adopt or maintain any measures with regard to all privately funded health services, other than privately funded hospital, ambulance, and residential health services other than hospital services … with respect to requiring the establishment of suppliers and restricting the cross-border provision of privately funded hospital, ambulance, and residential health services other than hospital services …”.

The text here embodies the notion of European national health services, which regardless of exactly how they are funded, or the form in which state support is given, are not considered to be part of the ‘private’ sector. Market access under the TTIP is only for privately funded health services. This is consistent with the values of EU health law.

The EU’s position is also expressed in an important general exclusion from the market access and investment rules of TTIP for ‘activities considered as public utilities at national or local level’, which may lawfully be public monopolies and enjoy exclusive rights to supply public services. The text explicitly says that these include health services. Future sales of nationally-held equity interests in or nationally owned assets of state enterprises providing health, social, or education services may prohibit or limit sale to or ownership by US firms. EU countries may also introduce rules on nationality of management or board members, or limiting suppliers. Furthermore, although TTIP is all about greater regulatory coherence between the EU and the US, the TTIP texts explicitly embody the right to regulate to pursue legitimate public policy objectives. The EU can be expected to exercise that power consistently with its approach to public national health services. The European Commission has assured the House of Commons Health Committee that this is so, in a formal letter in December 2014.

The rationale for the Unite legal advice was that the TTIP texts did not provide sufficient assurances that the UK government would not be required to pay substantial compensation to US investors in the national health sector in the event of a decision of a future UK government to change the way the NHS is organised. The threat of litigation, or worse, the use of the widely-criticised investor-state dispute settlement mechanism involving private and secret arbitration, would provide a ‘chilling effect’ on a future government’s discretion, for example, to take back ‘in house’ certain services now provided by private contractors.

It is the case that, under TTIP, governments would be obliged to protect foreign investments, respect contractual commitments, and not to expropriate property through nationalisation without fair compensation for ‘market value’ of investments made.  But this is true in existing international trade or investment agreements, and would apply in any future trade or investment deals that the UK were to negotiate if it left the EU. There’s a nice summary explaining this here.

The obligation to compensate also applies, of course, to compensation for national firms, were a future UK government to breach contracts with such firms by renationalising the NHS. In this regard, the EU and TTIP are a red herring. 

But if under a future renationalised NHS, which provided health services through publicly owned entities, contracts with private providers were simply not renewed, claims in contract law would not apply.  The idea of a potential ‘chilling effect’ comes from the fear that there might be a claim under TTIP for foreign investors.  The argument has been made that a US investor in a private provider contracting with a Clinical Commissioning Group (CCG) under the Health and Social Care Act 2012 might claim that their investment in England and Wales was on the basis of a secure future market for such contracts. Investment decisions made on the basis that, although each contract was time-bound, there would be many future opportunities to contract with CCGs, and so to remove all possible future contracts would deprive the US investor of its property.

That argument assumes that the new national law would be a breach of TTIP, notwithstanding the UK’s right to adopt justifiable regulation to achieve legitimate policy objectives embodied in the TTIP text.  As I have already argued, a better interpretation of the TTIP text is that such regulation is permitted. The 12 November 2015 negotiating text on Investor Dispute Settlement begins with the ‘right to adopt justifiable regulation’:

“The provisions of this section shall not affect the right of the Parties to regulate within their territories through measures necessary to achieve legitimate policy objectives”

and

“the provisions of this section shall not be interpreted as a commitment from a Party that it will not change the legal and regulatory framework, including in a manner that may negatively affect the operation of covered investments or the investor’s expectations of profits.”

The text confirms that expropriation of private property may take place ‘for a public purpose’, and it is undoubtedly the case that a decision of a government to renationalise the NHS would be for such a purpose.

The ‘right to adopt justifiable regulation’ clause is general, and in itself doesn’t provide explicit protection for a decision of a government to take an action that indirectly results in expropriation of property. What I am suggesting here is that the proper interpretation of the text of TTIP (especially of the exclusions from the scope of TTIP, the reservations clauses, and the ‘right to adopt justifiable regulation’ itself) would take into account all of the above arguments about the place of health services within EU health law: not as an ‘ordinary’ service, subject to the rules of free and fair trade, but as a service of general interest, for which significant exceptions, flexibilities, and exclusions apply. This is what the EU’s Court of Justice has done (see Hervey & McHale). It is what the TTIP investment courts should understand as the intention, and meaning, behind the legal texts.

Moreover, even if the TTIP court concluded that there had been a breach, it would still have to decide what is a ‘fair market value’ for compensation for the relevant investment.

The original idea in the TTIP’s proposed procedure for settling such disputes was to use international arbitration. This has been criticised as lacking in the transparency and respect for the rule of law associated with decisions made by courts. The EU’s November 2015 negotiating text indicates a different approach. Disputes about investment settlements would be resolved by an ‘investment court system’, consisting of a tribunal and an appeal tribunal. The 15 first instance judges (sitting in panels of three) and 6 appeal judges would be independent of any government, qualified to hold judicial office in their own countries, and would have appropriate experience. They would either be paid a retainer fee, or would be salaried judges. A code of conduct would require disclosure of judicial interests, independence and impartiality. Judges would not be permitted to hear claims where they had a conflict of interest, and a specific procedure to assert such conflict of interest would be available. The proceedings and documents would be made transparent, subject to redacting confidential information. All of these rules are designed to secure a system respecting the principles of judicial process. While it is impossible at this stage to assess the possible future working of such a system in practice, the legal texts suggest something more akin to a court than to a private dispute settlement mechanism, with the concomitant expectation that a properly judicial approach would be taken to textual interpretation.

So, to recap, as for whether being in the EU would prevent a future government from ‘renationalising’ the NHS, of course that question is based on the premise that a future UK population elects a government that seriously proposes renationalisation. Others are better judges of the likelihood of that, but I note that even the Blair government continued with the NHS ‘marketisation’ agenda. It should be apparent from what I have already said that I do not think that EU law prevents such renationalisation. Indeed, in general EU law does not prevent nationalisation of business.

I have written about this in the past, taking the opposite view. It is certainly possible to argue that EU law ‘locks in’ arrangements for liberalized service provisions. This is sometimes known as the ‘aquarium to fish soup argument’ (you can make the latter from the former but not the other way around). But I now have a different understanding of the ways EU law includes significant flexibilities and exceptions for ‘services of general interest’. EU law cannot simply be said to promote competition at the expense of other NHS values, such as dignity, solidarity and equality. On the contrary, those values themselves are embedded into the legal texts of EU competition and free market law, and the ways in which they are interpreted.

Furthermore, the UK government could agree a TTIP reservation clause for the NHS. Many other Member States have done so, reflecting the way they organise their national health systems. For instance, Germany, one of the countries which has gone some way towards liberalizing its national health system, has many such clauses already in the negotiating texts. Nothing prevents the UK government from including such reservations while continuing to be part of the EU.

In summary: Is Brexit ‘necessary to protect the NHS from TTIP’?  No.

My view, along with that of many in the health policy community, is that the greatest threat to the NHS remains the policy of successive British governments, based on the idea that a market is the best approach to efficiency, and undermining the historic approach to the NHS as a service based on need and dignity, with no place for austerity narratives. Staying in the EU keeps us within that kind of vision for a public national health service.

Photo credit: NationalHealthExecutive.com

Barnard & Peers: chapter 21, chapter 24

Notes

[Note 1]

Conflicting data has been presented on, for instance:

·         numbers of incoming patients from other EU countries who are treated within the NHS;

·         how much that costs;

·         how much is reimbursed to the NHS by other countries, or by insurance or other private means;

·         how much they spend on other services while they are here;

·         how many UK citizens access free health care when in other EU countries on holiday;

·         how many UK citizens live permanently in another EU Member State, accessing health care there [1] [2] [3] [4] [5];

·         how many non-UK EU doctors, nurses, or other health professionals work in the UK [6] [7] [8];

·         how many new private providers there are within the NHS and;

·         how many of those are incorporated in the USA? (I couldn’t find any report on that, although it would seem that the contractual clauses seeking to block tax-avoiding incorporation have been abandoned recently, and the links with shareholding MPs reported here seem interesting). 

Disagreements about how to interpret that data concern, for instance:

·         what is its consequence for hospital trusts’ budgets;

·         how might we expect clinical commissioning groups to behave;

·         or health professionals from other EU countries who work here [9];

·         are the EU’s working time regulations bad for quality of care when applied in hospital contexts (see the arguments supporting the Private Members Working Time Directive (Limitation) Bill);

·         does the UK get more than it gives through EU-funded research collaborations, including in medical fields [10] [11] [12];

·         on balance, is EU membership a good thing for the NHS or not?

[Note 2]

Responsibility for health services is a devolved matter in Scotland; Wales; and Northern Ireland. This blog refers to the UK government, because this is the body that negotiates international trade deals. But decisions about the organisation of health services, including the extent to which health services are subject to market liberalisation, differ between the UK’s nations.

[Note 3]

The European Commission is negotiating TTIP with the USA.  But it can only negotiate on the mandate given by the Council. The Council is the governments of the Member States, including the UK government. The Council votes unanimously on general trade agreements like TTIP, since they include non-trade issues as well, so our government has a veto.  The negotiation is supervised by a special committee appointed by the Council (ie the Member States), to which the European Commission has to report regularly. The European Commission also has to report to the European Parliament. The European Parliament has a veto.  See Article 207 TFEU.  It is likely that each Member State will also have to individually ratify the TTIP too (because it is what is called a ‘mixed agreement’, not entirely within EU competence), giving national parliaments a de facto veto in most Member States, including ours. This blog is written on the basis that the TTIP is a mixed agreement – see further [1] [2] [3].

[Note 4]

This is highly unusual for trade deals, which are normally negotiated entirely in secret. So one possible implication of Brexit is that we may have less access to negotiating texts of future UK trade deals, unless our government chooses to adopt a similar approach to transparency.

None of this analysis would have been possible without access to the negotiating texts.