Update 1 November 2022

Here in the Netherlands the weather is still quite pleasant and gas usage is low. Let us hope that this continues and eases any issues we will face due to the limitations placed on gas imports from Russia. In this update we cover:

• Study highlights that specialized clinics have a positive effect on the Dutch healthcare sector. Will this help improve the overall situation of the commercial specialist clinics in the overall Dutch healthcare system?
• Bleak financial future for traditional Dutch elderly care operators. Will the government help?
• Senior living locations can help reduce the pressure on healthcare staffing. What can the government do to increase the roll-out speed of new locations?

Study highlights positive effects of specialist clinics

A recent study by Gupta Strategists analyses the effects of specialist (usually for-profit) clinics on the Dutch healthcare sector. The study was commissioned and paid for by ZKN (trade organization for Dutch specialist clinics), so it is not a great surprise that the overall conclusions are positive. The study has made a comparison between specialist clinics and hospitals in three areas (hip osteoarthritis, cataracts, and skin cancer). The key conclusions of the study are:

• Quality of care in the specialist clinics is similar or better to that of hospitals
• Waiting times for patients are shorter and patient quality scores are higher at specialist clinics
• The tariffs paid to specialist clinics are typically 4-5% lower than what is paid for similar care in a hospital

Gupta Strategists believes that the main reason for the positive position of the specialist clinics is their focus on specific activities that allow them to put in place efficient and tightly managed processes.

Key recommendations from Gupta Strategists are:

• Keep the current market environment with room for commercial (focused) organizations that put pressure on the established hospitals to improve quality and reduce costs
• Put pressure on the healthcare insurance companies to make appropriate contracts with the specialist clinics
• Improve cooperation between traditional hospitals and specialist clinics
• Improve the transparency of specialist clinics in clinical results and quality

Specialist clinics have become a structural part of the overall Dutch healthcare sector. In 2021 1.1 million patients used a specialist clinic, and clinics currently deliver 16% of all specialist medical care in the Netherlands. The Dutch market consists of two big chains (Bergman and Equipe), a limited number of medium-sized chains and many small chains and individual clinics. Further consolidation can be expected, but Bergman has already been refused permission for a recent acquisition due to market power. It will be interesting to see whether this study helps to further improve the position of commercial specialist clinics in the Dutch healthcare market.

Bleak financial outlook for traditional providers of elderly care

A recent study by BDO Accountants highlights the bleak financial future for (traditional) Dutch elderly care providers. BDO has looked at the 2021 annual accounts of 561 organizations providing elderly care. While revenues increased by €0.8 million from 2020 to 2021 the net result of the sector declined from €559 million in 2020 to €525 million in 2021. The main reason for the declining results was personnel-related costs that increased by €446 million.

BDO expects the situation in 2022 and the coming years to worsen. Tariffs, specifically the component that nursing home operators receive to cover real estate costs, will decline in 2024. Ongoing inflation and workforce shortages will continue to increase costs, further increasing the ongoing squeeze on profits.

ACTIZ (the trade organization for the traditional elderly care providers) has asked the government for assistance. Key requests are:

• Increased tariffs to enable higher salaries. Currently 20% of staff in the elderly care sector switch jobs in a given year and, according to ACTIZ, a key reason for this are salaries that are 6-9% lower than those in comparable sectors
• Turn back the planned reduction in the financing of real estate costs to enable operators to continue improving existing facilities and developing new locations despite building costs that have increased by 22%
• Increase the built-in compensation for inflation in the fee levels for 2023 tariffs to help operators compensate for the effects of inflation (average of 7.9% across key purchased items for the sector in 2022)

It will be interesting to see how the government reacts. Initial signs are not positive. The Minister of Health does not believe that salary levels in the elderly care sector are too low, so any structural increase in tariffs to enable higher salaries is not likely. A clear goal of the overall program to improve elderly care (WOZO) is to reduce government financing of real estate. It is therefore quite likely that the government is happy reducing the real-estate component of the ZIN-contracting to induce operators to move to VPT financing (where real estate is paid directly by the clients).

More senior living will ease the ongoing staffing shortage in healthcare

One of the key challenges related to the growing need for healthcare (mainly driven by demographics) is the substantial increase in healthcare staff that will be required. Currently one in six employed people in the Netherlands work in the healthcare sector. Continuing current ways of working with clients this will increase to one in four in the not-too-distant future.

A key component of the ongoing program to change and improve elderly care in the Netherlands (WOZO) is to keep people longer “at home” instead of moving clients to a nursing home. A recent study by a Dutch real estate investor (Syntrus Achmea) and a healthcare insurance company (Zilveren Kruis) highlights the positive effects of senior living on the overall staffing numbers required in the healthcare sector.

Senior living locations have apartments that are built to meet the developing needs of the elderly (one-floor design, no thresholds between rooms, bathrooms, and bedrooms wheelchair ready, home automation for safety and monitoring in place, etc.) Elderly people living in such locations will have less accidents and more social contacts (as also highlighted in the plans by Buurtzorg) and improved access to remote healthcare service provision. Therefore, less input will be required from formal healthcare staff. The report estimates that with a volume of 450.000 senior living homes, the total reduction in healthcare staff will be approximately 105.000 FTEs.

The key challenge facing companies wanting to develop and build senior-living locations in the Netherlands is finding the physical space to build the locations. This is partly due to the Netherlands having a high population density, but is also due to complex laws and regulations regarding building permits, etc. What can and will Dutch government (central and local) do to make this easier?