Sep17

Update 17September 2024

Update 17September 2024

Welcome back to another update on the Dutch healthcare sector. Everybody is now back from their holidays and reports are being published, political discussions are being held, and decisions are being made. In other words, there is enough news to report. This update covers the following news items:

  • Hot off the press – What are the new government’s plans for the healthcare sector?
  • Insufficient investment in the elderly care sector. What can be done?
  • Discussions related to private equity investments in healthcare continue. What is the risk for investors?
  • Regional hospital reports massive loss for 2023. Are the problems structural?

New government wants to make changes to the Dutch healthcare sector

Last Friday the new government presented its “Government Program” outlining in some detail what its plans are for the coming years. The program covers all sector of the country and is a prelude to Princes Day (always the third Tuesday in September) marking the opening of the new parliamentary year. Plans for the healthcare sector form a significant part of the overall Government Program.

Key points regarding healthcare are:

  • The government acknowledges that the reduction / elimination of own risk for cure related activities (currently at €385/year) will cost €4.3 billion from 2027 and will lead to more demand for healthcare-related services
  • The government will work to advance digitalization through new laws and regulations to improve data availability and data sharing.
  • Bureaucracy will be reduced through increasing the trust in healthcare staff, reducing requests for data, improving standardization, and improving coordination between ministries, insurance companies and care offices
  • Use of healthcare staff will be reduced where possible through the use of technology
  • Healthcare will be made a more attractive career choice through more autonomy and improved training
  • The IZA program will be broaden to also include long term and social care. In addition, the focus on primary care will be increased
  • The position of smaller hospitals will be improved by forcing more cooperation between hospitals. In addition, emergency care, acute maternity care and intensive care are to be financed by fixed budget as this will make it easier for smaller hospitals to keep these departments
  • The financing of elderly care is currently divided among three laws / financing forms. The new government will work on “coordinating” these laws thereby reducing complexity. The existing focus on building more housing specifically for the elderly will be continued

The Government’s plans are a mixture of the continuation of ongoing activities to improve healthcare, a stronger focus on innovation and digitization, and suggestions driven by the populistic program of the largest party in the government (and current Minister of health) such as eliminating own risk and keeping regional hospitals open. Hopefully, the government will be successful in making the sector more attractive for staff, increasing innovation, and reducing bureaucracy.

Insufficient investments in the elderly care sector

In a recent report BDO have analyzed the 2023 annual reports of 304 Dutch healthcare providers active in the elderly care sector. The report gives an overall positive picture of the sector as the profits in the sector almost doubled from €219 million in 2022 to €418 million in 2023 (profit margin from 1.0% to 1.7%). The main reasons for the higher profitability are higher tariffs, corrections for low tariffs in 2022, and much lower interest costs. However, the report also points out that 25% of the providers made a loss in 2023, and that small providers (less than €25 million revenues) and large providers (more than €300 million revenues) were considerably less profitable than the mid-sized providers.

The report also highlights several worrying trends:

  • A large part of the profit improvement is from lower interest costs (reduction of 44% from 2022 to 2023), due to a combination of less long-term loans and lower interest rates
  • There is considerable uncertainty regarding potential revenue reductions due to cost savings announced by the government
  • Sector is highly dependent of flex-workers, and coming regulations can dramatically reduce availability of and access to these workers
  • Due to overall uncertainty providers are not investing in new real estate, IT, new processes to make providers less reliant on staff, etc.

The main recommendations from BDO are that the government needs to clarify which savings it will implement and when this will take place, that the savings should be realistic and give the providers the financial room required to make necessary investments.

Parliament (still) wants to forbid private equity ownership in the healthcare sector.

As reported in the previous update, the Minister of Health recently reported to Parliament that it is impossible to forbid private equity investors to from being active in the healthcare sector. This, however, has not stopped Parliament from supporting a resolution from the Socialist party to develop such a law. An interesting twist to the story is that the members of Parliament from the PVV were part of the majority vote, even though the party is a member of the current coalition governing the country, and the current Healthcare Miniter is from the PVV.

Suggesting and voting for resolutions is often used in the Dutch Parliament to keep political issues alive, show opposition to the governing parties and position political parties towards their supporters. A resolution in itself has no political impact in itself and does not change the legal arguments making it impossible to stop one class of investors from activity in a given sector.

 

Regional hospital reports massive loss for 2023

In late 2022 we reported on the failed merger of three hospitals in the western part of the country and the new HagaZiekenhuis (Haga Hospital) consisting of two of the parties in the original merger plans. A few weeks back Haga presented its (delayed) 2023 accounts with a loss of more than €20 million. The main cause of the loss has been an explosion in the costs for temporary staff. Due to the uncertainty regarding the future of the two hospitals many staff members left and the costs for their replacements increased from the budgeted €4.5 million to more than €25 million. Other factors include higher salaries and general inflation.

The hospital has agreed a restructuring plan with banks and insurance companies with the goals of reaching an EBITDA margin of 2% (improvement of €35 million). Key components of the plan include:

  • Increased local autonomy for the two hospital locations
  • Streamlining of procedures, processes, use of support staff, use of operating rooms, etc.
  • Increased revenues through improved billing to insurance companies

One of the key issues discussed two years ago was the future of the Langeland hospital and the conclusion was to move all complex care to the Haga location. While it is not explicitly mentioned, a continuation of this trend is likely to be a key component of the turnaround plan.