Update 10 November 2020
Here in the Netherlands it appears that the measures taken a few weeks ago are starting to work. Number of COVID infections are down as are the number of people in the hospitals and in intensive care units with corona. Hopefully, the trend will continue. We should be very happy about the news from Pfizer and hopefully the corona-situation will improve in your country as well.
For this update we cover:
- Mental healthcare operator puts in place “patient stop” for patients from major healthcare insurance company. What are the effects of complicated contracting processes on the valuation of acquisition targets?
- Study suggests that additional controls on dividend payments from healthcare companies will have negative effects. Good news for investors?
- Courts disallow general reductions in tariffs for non-contracted operators What will be effects on innovation and investments?
Mental healthcare provider puts “patient-stop” in place
As explained in the update of 22 September 2020 contracts between operators and healthcare insurance companies typically have ceilings for the maximum costs that the operator can charge to the insurance company, and operators run a high risk of not being reimbursed for client-related activities carried out above the agreed ceiling. In response to this, operators stop carrying out activities for patients with healthcare insurance from companies where the ceiling has been reached.
The latest example of an operator taking such an action is GGZ Friesland, a non-profit mental healthcare provider in the northern part of the country. It recently announced a “patient-stop” for patients with insurance from VGZ (one of the largest Dutch healthcare insurance companies). GGZ Friesland claims that the higher costs for VGZ-clients are due to more VGZ clients than budgeted requiring mental healthcare and that the help that they require is more intensive treatment than foreseen.
There is currently a lot of interest in the Dutch mental healthcare sector from international investors. Preliminary bids have been made for Mentaal Beter, and the parties who have gone to the second round are busy carrying out their commercial due diligence process. The contractual process between acquisition targets and the healthcare insurance companies and the financial risks associated with these contracts should certainly be a key part of any such analysis (See also the almost bankruptcy of Dr. Bosman).
Study suggests that additional controls on dividend payments will have negative effects
In the last few months there have been a lot of reporting regarding “healthcare-cowboys” misusing the healthcare financing systems by providing sub-standard care and making large profits. In October 2019 (see update 15 October 2020) the government announced new laws and amendments to existing laws to ensure that “money meant for healthcare is used for healthcare”. At that time, they announced that no changes would be made to existing rules regarding payments of dividends from healthcare companies, but also that the issue would be analyzed.
BDO (accountant) and SEO (consultancy specializing in applied research on behalf of private and public sector clients) recently announced the main conclusions of a joint study they have carried out for the Ministry of Healthcare. Their main conclusion is that the number of healthcare companies paying out dividends can be reduced by defining structured financial requirements such as being profitable, having a solvency rate of 30%, and a liquidity norm of 1.5.
However, BDO and SEO also state that putting in place such limitations will also have negative effects:
- Less stimulus to manage costs
- Longer waiting lists because operators will have less stimulus to serve more patients
- Less entrepreneurship in the sector leading to lower investments, less innovation and less productivity gains
Based on this the conclusion is that extra controls on dividend payments is probably not a useful tool for curbing misuse of healthcare funds. The current rules restrict dividend payments from certain sub-sectors (including hospitals and specialized clinics) and need to be changed. However, it is good news if no further restrictions are put in place.
Courts disallow general tariff reductions
Most healthcare services in the Netherlands are financed by special healthcare insurance companies, and operators typically have to agree yearly contracts with the individual insurance companies (five major companies with different brands control approximately 80% of the market). However, some operators do not have contracts with one or more of the healthcare insurance companies. The reasons for not having a contract vary:
- The operator wants a contract but is not offered one by one or more healthcare insurance companies. This is often the case with new, small operators providing innovative services
- The operator does not believe that they will get many patients from the specific healthcare insurance company and/or does not want to accept the terms offered by the insurance company (usually issues related to administration and reporting)
- The operator chooses not to be a contracted party in order to avoid revenue ceilings (see earlier text).
Due to rules related to the right of patients to choose their doctor and healthcare provider the insurance companies cannot refuse to compensate policy-holders for activities provided by non-contracted operators. However, they do their best to limit the use of non-contracted operators. On the demand side they offer cheaper healthcare insurance policies that limit the policy-holder to only use providers that the insurance company has a contract with. On the supply-side the insurance companies typically have reimbursed policy-holders using non-contracted operators less than if they used contracted parties.
The standard rule for the compensation of activities carried out by non-contracted parties has been 75% of the average tariff for a given activity. Due to a recent court case this will no longer be allowed. Insurance companies will be allowed to reimburse activities carried out by non-contracted parties less than similar activities from contracted parties, but the reduction from the contracted tariff will need to be decided on a case-by-case basis for individual services. In addition, the reduction will be limited to an amount that will not deter the policy holder from choosing a non-contracted party on financial grounds. One of the consequences of this ruling will be that the reduction in compensation for non-contracted providers will need to be smaller in percentage terms for expensive procedures.
This is clearly good news for Dutch healthcare consumers and non-contracted healthcare operators. It should also make investments in the Dutch healthcare sector more attractive as it will make it easier to bring innovative services to the market and reduce some of the financial risks related to contracting.