Update 15 October 2019

It is official, it is now autumn. The days are getting shorter and wetter and the winter duvet has been placed on the bed. In this update we cover:

  • Dutch long-term disabled and psychiatric care sector popular with foreign investors. Will more companies follow the lead of Orpea and Reseau Abilis?
  • New laws to be introduced to limit fraud and excessive profits in the Dutch healthcare sector. What will be the effects on foreign investors?
  • ADG sells staffing company focusing on the healthcare sector. Is it leaving the sector?

New acquisition by international company of a Dutch commercial operator providing long-term care in the disabled / psychiatric sector

Commercial Dutch providers of long-term care for disabled and psychiatric clients are popular with international investors. In early 2018 Orpea acquired WoonZorgNet a provider of long-term care to clients with psychiatric issues. Recently, Reseau Abilis, a Belgian operator with 19 locations in Belgium and France, has acquired Zorggroep Kans.

Reseau Abilis focuses on long-term living accommodations for clients with intellectual and physical disabilities. Zorggroep Kans has four locations in Arnhem (a city in the eastern part of the Netherlands) where they provide structured living accommodations to (young) adults with (light) intellectual disabilities often in combination with psychiatric and behavioral issues.

As highlighted in my previous update the disabled and psychiatric sector in the Netherlands shows strong growth. Overall profitability in the sector is fairly low, but higher for smaller and focused organizations such as Zorggroep Kans. Structural changes are underway in the financing of both short-term and long-term psychiatric care which should make the sector even more attractive. Are their other “pearls” to be found in the sector?

New laws to be introduced to limit fraud and excessive profits

Recently there has been a lot of writing in the press about healthcare providers who seem to be making excessive profits. In addition, there is an ongoing debate on whether hospitals and organizations providing intramural long-term care should be allowed to pay dividends to owners. As a response to these ongoing discussions, the Minister of Health recently published a document outlining what he intends to do in relation to these issues.

A main conclusion is that for the moment there will be no changes to current regulations concerning dividend payments. This means that for the time being dividend payments are not allowed for hospitals and organizations providing long-term intramural care but will remain possible for companies in other parts of the healthcare sector. The reasons given for continuing with the status-quo are contradictory. The ministry claims that it does not appear that hospitals and organizations providing long-term intramural care have problems in finding required financing and that they see risks related to quality in allowing dividend payments (in principle because currently there is a limited understanding of what quality is and how this can be measured). The type of companies currently allowed to pay dividends will be continued to do so as there is no proof that dividend payments lead to reduced quality.

Going forward the Ministry will make a number of changes to ensure that “money meant for healthcare is used for healthcare”. Key changes are:

  1. A new law that will require all new suppliers (including sub-contractors) of healthcare related services to register. This will enable controlling instances (NZa – the Dutch Healthcare Authorities and IGJ – The Health and Youth Care Inspectorate) to have an overview of all suppliers
  2. The law regulating maximum salary payments in the (semi-)public sector will be amended to make payments via other structures (sister-companies, subsidiaries, etc.) more difficult
  3. Stronger rules will be introduced related to transparency of company structures and identification of the ultimate beneficial owners. In addition, more power will be given to the NZa and IGJ to react quicker and more powerfully when issues are identified. Finally, boards of healthcare providers must be independent of the owners of healthcare providers and will be given more responsibility and power to enforce that companies give high priority to the social aspects of their business
  4. Constraints will be developed for the payments of dividends for the companies where this is now allowed (i.e. extramural care)

As in all other countries in Europe commercial provision of healthcare services in the Netherlands leads to a fair amount of public debate and political discussions. In the Netherlands, this discussion has recently been fed by hospital bankruptcies and the identification of an approximately 100 companies offering healthcare services making very large profits (in a number of cases certainly based on “fishy” business practices). The suggested amendments and new laws are an attempt to crack down on this type of practices. While the changes will not necessarily make life easier for commercial providers a crackdown on “cowboys” should be applauded by all parties interested in a long-term presence in a serious industry. A lot of work still needs to be done on developing the suggested changes, and as always “the devil is in the detail”. I will keep you posted.

NPM Capital acquires healthcare staffing company

Staffing is growing challenge for most Dutch healthcare operators. As highlighted in resent overviews of different segments of the market (see the overview of the elderly care segment here), there has been a large increase across the sectors in costs associated with external staff.

Zorgwerk is one of the leading companies specializing in staffing solutions for healthcare providers. For the last few years it has been part of AOG (a large group mainly offering facility-related services such as cleaning). It is interesting to see that ADG seems to be distancing itself from the healthcare sector as they have recently sold their home-care company (TSN) to Espria. ADG seems to be following a different strategy than Total Care (a similar company with strong roots in the cleaning industry) that is strongly growing its non-medical homecare business (see my previous update for a snapshot of TZorg – their main healthcare company).

NPM Capital is a very active investor in the Dutch healthcare sector and were recently in the news in September 2017 when it merged its chain of clinics (NL Healthcare) with Bergman Clinics.