Updates
Dec01

Update 1 December 2020

The number of COVID infections here in the Netherlands are still bouncing up and down and it does not look like we will have a fast and structured decline in time to enable less restrictions for Christmas. Bad news for those of us looking forward to the celebrations but even more reason to look forward to the vaccines.

For this update we cover:

  • Specialty clinics stay open in the second COVID wave. Good news for Bergman Clinics?
  • Strong growth in 2019 revenues in the disabled sector but profits are flat. What will happen in 2020?
  • Changes to be made to the financing of youth care. Bad news for Mentaal Beter?
  • Traditional operator loses court case for “fair tariffs”

Specialty clinics stay open during second COVID wave 

During the first COVID wave in the period March to the summer specialty clinics in the Netherlands (including Bergman Clinics) closed all but the most important follow-up of existing patients. To help hospitals struggling with the large number of COVID patients they also seconded many staff members to the hospitals.

In the ongoing second wave things are different. Clinics, including Bergman, are open for business (naturally following all corona-related rules and limitations). In a recent statement from the trade association for the specialty clinics (ZKN) it was announced that the clinics were now not seconding staff to hospitals. Two reasons are given for this decision. The first is that the clinics need the staff themselves as they are required  to provide alternative help to patients who cannot be treated in hospitals due to corona-restrictions. The second reason is that the experience was not satisfactory in the first wave. The actual productivity of the staff provided was under 50%. This was due to a combination of staff not being used, issues related to the smooth transfer of staff and a mismatch between capabilities and needs.

The clinics are now helping 110.000 patients per month. This is a growth of 10-20% from previous months. The increase is due to a combination of more patients choosing to use clinics, more GPs suggesting specialty clinics to their patients, and even hospitals giving clinics as an option when the hospital need to postpone planned procedures.

The financial effects of the corona-wave were fairly limited for the Dutch healthcare sector due to support mechanisms put in place by the government and health insurance companies. As it looks now, the second wave might even have a positive effect on the financial results of specialty clinics.

Strong growth in revenues but stable profits in disabled care sector

Every year Verstegen Accountants carry out an analysis of the published annual reports of Dutch healthcare companies. Due to corona the Minster extended the deadline for depositing 2019 annual reports to 1 October 2020 making an overall analysis only feasible recently.

Revenues in the disabled sector have grown by 7% from 2018 to 2019. The number of intramural patients has grown by 4.9%, but days of care provided only grew by 0.1%. This indicates a shorter average stay per patient and a continuing move to extramural care where the client lives independently and receives care either at home and/or in clinics.

Unfortunately, the growth in revenues has not translated into a growth in profits. These remained stable, resulting in a lower return on sales (from 1.4% in 2018 to 1.3% in 2019). The growth in revenues from 2018 to 2019 was almost entirely balanced by increased staffing costs. The growth in staffing costs in a result of more staff (growth in FTEs in the sector by 3.7%), higher staff costs due to collective labor agreements, further increase in sick-leave (6.5% in 2019) and  a sharp increase in costs for temporary staff.

There is an ongoing consolidation in the sector, with the revenues of the ten largest organizations (all non-profit foundations) growing from 37% of total revenues in 2018 to 42% of total revenue in 2019. In 2019 the sector was fairly positive about the future as investments (especially in real estate) increased by 25% from the previous year. The ongoing corona crisis will certainly put a dent in investments in 2020 and it will be interesting to see how the overall sector has developed during this turbulent year.

 

Ministry to make changes to financing of youth care

Dutch municipalities have had overall responsibility for youth care since 2015. The municipalities get financing from the central government but have had increasing difficulties in balancing the amounts received and the costs related to growing demand. Therefore, there has been pressure on tariffs and operators providing complex youth care have been making losses. At the same time, there has been reporting highlighting how commercial operators providing lighter forms of youth care have been very profitable and able to pay out large dividends to owners.

To improve the situation in the youth care sector the Minister of Health is working on several new initiatives:

  • More financing for youth care from the central government to the municipalities (€420 million in 2019 and €300 million per year in the coming three years)
  • Rules forcing municipalities to pay cost-based tariffs, and a centralized costing model to determine what these should be for different types of clients and services
  • New rules governing when and how private companies can pay dividends.

Overall consequences of the suggested changes will most probably be rebalanced tariffs with higher tariffs for specialized complex care provided by the large traditional providers and lower tariffs for the lighter youth care typically provided by commercial organizations. While rules for dividend payments will only impact small “fly-by-night” operators, lower tariffs might impact the valuation of companies such as Mentaal Beter.

Traditional operator loses court case concerning “fair” tariffs

MeanderGroep Zuid Limburg is a traditional operator with revenues of €220 million providing a wide range of services focusing on the needs of the elderly in the southern parts of the Netherlands. Approximately 10% of their revenues are from the provision of domiciliary care paid for by the municipalities. MeanderGroep claims to have made losses on these services for the last few years and recently took four municipalities to court to force them to increase their tariffs for 2021. The court did not agree with MeanderGroep and the four municipalities have announced that they will keep the published tariffs.

There has been a movement of traditional operators away from the provision of domiciliary care as it is often difficult to make a profit in competition with cleaning companies and other focused operators (often with different collective labor agreements). However, there are also operators making a profit on this service so maybe MeanderGroep should either change how it provides this set of activities or inform the four municipalities that it is stopping the provision of these services.