Since the publication of Law 13,0971, some large foreign investments have been made in the Brazilian healthcare market. The Law’s section 142 opened up Brazil’s healthcare market to greater involvement from foreign companies and foreign capital.

As reported by the press, in April 2015, the investment fund Carlyle Group LP obtained an 8.3 per cent interest in the corporate capital of Rede D’or, which is one of the largest private hospital groups in Brazil. The following month, the GIC – a sovereign fund established by the Government of Singapore – purchased a 15.3 percent interest in the corporate capital of the same Brazilian group. Also, the private equity fund Broad Street acquired 33 per cent of the common shares of the capital stock of Oncoclínicas, a clinic specialising in oncology. Another example is the acquisition by Advent of a stake corresponding to 13 percent of the corporate capital of clincal analysis laboratory Fluery.

These are only a few examples of a process that is just beginning. The current scenario allows many opportunities for foreign investment in health services in Brazil.

What has changed?

Section 142 of Law 13,097/2015 opened up the Brazilian healthcare sector to direct or indirect
investments from companies or foreign capital, by changing Law 8,080/90 – the Health Statute (Lei Orgânica da Saúde or “LOS”) – which is now in effect and includes an amended section 23 and a new section 53-A:

“Section 23. Foreign companies or capital are allowed to take a direct or indirect stake, or take a controlling interest, in the healthcare industry in the following situations:

• via donations from international bodies linked to the United Nations, from technical cooperation bodies and organisations providing finance and loans;
• via legal entities created to establish, implement or operate:
  • a) general or philanthropic hospitals, specialised hospitals, polyclinics, general clinics and specialised clinics; and
  • b) family planning research or activities;
• non-profit health services supported by companies to serve their employees and dependants, at no cost to social security; and
• in other cases provided by specific legislation.” (NR)

“Section 53-A. Within the category of healthcare operations and services, healthcare support activities are those activities provided by laboratories involved in human genetics, the production and
supply of medications and health products, clinical analysis, anatomical pathology and diagnostic imaging laboratories, and they are free to accept direct or indirect participation of foreign capital or companies.”

Item II, line a) of section 23 is the provision that opened up the market to foreign investment. With this provision, the LOS now allows foreign investors or companies to invest in, hold stakes in or take a controlling interest in general specialist hospitals, polyclinics, general clinics or specialist clinics, which was previously prohibited because there was no specific law authorising such investments. There are no limitations on the type of investment nor on the healthcare professions that can receive such investment.
The remaining provisions in the new section 23 simply reinforce existing permissions. Item II line b), which allows foreign companies or investors to hold stakes in family planning research or other activities, repeats the provision of section 7 in Law 9,263/96 – the Family Planning Act.

Items I and III reproduce permissions already included in the previous version of section 23. Item IV embraces other situations mentioned in specific legislation, such as the permission provided by Law 9,656/98 – the Healthcare Plan Act – allowing foreign investment in private healthcare plans.

The new section 53-A confirms a long-standing constitutional interpretation: healthcare support activities are exempt from foreign investment restrictions because they only play a supporting role. This section simply acknowledges that these support activities were already and remain open to foreign investment.

Investment possibilities

The changes brought about by article 142 of Law 13,097/2015 opened new investment opportunities in the healthcare market. On the one hand, foreign companies and investors are now investing in the Brazilian market; on the other, Brazilian companies are having fresh alternatives for raising capital and building strategic partnerships abroad.

Amongst the main investment mechanisms available are:

• Sale and purchase of participating interests in Brazilian healthcare companies by other companies or private equity funds, including taking a controlling interest in such companies.
• Stock investment, via initial or subsequent public offerings on Brazil’s primary or secondary market, or by issuing securities abroad – with foreign investors also allowed to take a controlling interest.
• Joint venture agreements, between Brazilian and foreign companies or just foreign companies with a view to operating in the Brazilian market.
• Indirect participation via foreign or Brazilian investment funds (including private equity funds).
• Setting up a subsidiary of a foreign company in Brazil.

Brazilian companies that wished to enter the healthcare market to consolidate or pursue cost synergies, but faced restrictions because their shareholders included foreign investors, may now amend their bylaws to move into the healthcare business.

Current legal questions

After Law 13,097/2015 was published, the National Confederation of Liberal University Students questioned the constitutionality of the Law at the Federal Supreme Court (STF)2, based on an adverse opinion from the Federal Attorney General. As yet, there has not been any decision by the Court. Nevertheless, the Senate and the General Counsellor of the Union have stated that they believe the Law to be constitutional. If the Court finds that the law is invalid, there maybe serious consequences for foreign investments made before the decision. Added to that, the Law 1,721/2015, which is currently in the House of Representatives, seeks to repeal the provisions of article 142.

Conclusion

Law 13,097/2015 is influencing Brazil’s healthcare market significantly. New opportunities have arisen both for companies already in the market and for others now wishing to enter or invest in the healthcare industry. We recommend that those interested in doing so should carefully assess the economic and legal alternatives available to them under the new legislation.