Update 15 June 2021

After skipping spring, we now have wonderful summer weather here in the Netherlands. I hope that you are also enjoying nice weather.

In this update we cover:

• Hospitals report positive 2020 results. Good news, but are there dark clouds on the horizon?
• Government provides €1.3 billion extra financing for youth care. Will this be enough to make the sector more attractive?
• Government and key organizations agree to develop 160.000 new housing units for the elderly. How will this be carried out?

Hospitals report positive results for 2020

Thirty-seven Dutch hospitals representing 61% of the revenues of the sector have already published their 2020 annual reports. The average 2020 profitability of these hospitals is 1.4% (ROS). This is the same level of profits as in 2019. As reported at the start of the corona pandemic, the Dutch government and the healthcare insurance companies quickly put in place  support mechanisms that provided revenue guarantees and payments to cover extra, corona-related, costs.

As can be seen by the financial results of the larger hospitals the support mechanisms have worked well. However, a recent report from KPMG highlights key issues still facing the Dutch hospital sector:

• While 1.4% return on sales is the same as in  the last pre-corona year, profitability for the hospital sector is still very low and insufficient
• While hospitals were forced to implement eHealth solutions in 2020, it does not appear that they have structurally increased investments in IT infrastructure that is required for the longer-term implementation of such solutions
• Longer-term profitability for (non-profit) general hospitals will be negatively impacted by loss of patients as care for many patients is moved to specialty clinics  (low complex plannable care), university hospitals (highly complex care) and patient homes (chronic care)
• Staffing will be a major problem. Already in 2020 it is estimated that the sector has a shortfall of 55.000 healthcare professionals

It will be interesting times for the Dutch general hospitals in the coming years. What is striking is that many of the challenges for the hospitals translate into opportunities for specialist clinics and start-ups developing new and innovative care solutions (eHealth, etc.)

Extra financing for youth care

In the Netherlands social care and youth care is the responsibility of the local municipalities. Municipalities get financing from the central government (often not ear-marked for specific activities)  and must purchase domiciliary care and youth care services from operators for its inhabitants. As reported earlier the municipalities are chronically underfunded and attempt to save money by putting pressure on tariffs.  This makes youth care an unattractive sector where it is difficult to make sufficient margins. As a result, many operators are reducing their exposure to this sector and waiting lists for children requiring care are growing.

The central government has now agreed to provide extra financing for youth care in 2022. In addition to €0.3 billion provided at the end of last year, the government will provide an additional €1.3 billion. The municipalities are happy with this short-term solution, but the issue also requires a longer-term solution for the following years. According to the Minister of Health, long term solutions will need to be addressed by “structural solutions” such as decisions related to the care to be provided and more regional cooperation.

Currently one in ten children in the Netherlands receive some variation  of youth care so a structural reevaluation of the care to be provided and the financing of this care is certainly needed. Effects on commercial providers will be mixed. On the one hand more  financing is positive but structural change to sector will mean uncertainty.

160.000 new housing units for the elderly to be built in next ten years

As in other countries the number of elderly people requiring alternative living accommodations (assisted living, nursing homes, etc.) in the Netherlands will explode in the coming years. As we have written in earlier updates meeting the need for new capacity and the refurbishment of existing capacity will require multi-billion annual investments.

The relevant ministries and interest groups representing providers of long-term care, housing corporations, and municipalities have developed and announced a plan that is to lead to 160.000 new housing units focusing on the needs of the elderly by 2031. The plan is meant to result in 25.000 new nursing home units and 60.000 other units to be built within five years. The other units are a mixture of wheelchair-access housing (40.000) and 20.000 clustered living units for the elderly. By 2031 the goal is to have built 110.00 wheelchair-access units, 50.000 clustered units, and 50.000 new nursing home units.

Municipalities are often a bottleneck in the process for developing new elderly-care locations. A key provision in the plan is that municipalities have agreed to develop strategies and plans (in cooperation with housing corporations) for how adequate housing for the elderly can be realized for their senior citizens.

Reaching these goals will be challenging both in the planning and building process and the process of finding the required financing. This will be an exciting opportunity for commercial real estate investors.