Update 2 March 2022
Terrible news from Ukraine. I wish the brave fighters against Russian Tyranny all the best and hope that Europe manages to stay united and strong in its actions against Putin.
Even with the horrible things happening internationally there is also news from the Dutch healthcare sector. In this update we cover:
- Long waiting lists for mental care. More opportunities for commercial providers?
- Yet another hospital merger called off. Is the ACM (Dutch Authority for Consumers and Markets) showing its teeth again?
- Dutch healthcare sector does not earn enough to fund required investments. Can the trend be reversed?
Long waiting lists for mental healthcare
In the Netherlands mental healthcare providers with more than ten healthcare professionals are required to report on the number of clients waiting for an intake or waiting for their agreed treatment to start. There is some uncertainty related to the numbers as there is probable extensive double-counting due to clients signing up with more than one provider. However, the numbers are large. The most recent report states that there are more than 84.000 people waiting for assistance with mental healthcare issues. 55.000 are waiting for an intake and almost 30.000 are waiting for capacity to free up for their treatment to start.
The new minister of health believes that a broad transition is required to reduce waiting lists in the face of growing demand for mental healthcare services and the growing challenge of staff shortages in the healthcare sector. This must represent a clear opportunity for companies such as Mentaal Beter who claim to not have waiting lists and new and innovative operators focusing on efficient processes and Ehealth.
Another hospital merger called off
The Netherlands has too many full-scale regional hospitals and there is an ongoing trend to reduce this number. In 2018 two regional hospitals went bankrupt (partly due to low tariffs from the healthcare insurance companies). To avoid a similar fate and improve their negotiation position towards the healthcare insurance companies many hospitals started processes (often with hospitals in neighboring cities) that were supposed to lead to mergers.
I have written earlier about the large number of hospital mergers that have been reversed or stopped. Recently another such situation has been announced. Erasmus Hospital in Rotterdam is the largest hospital in the Netherlands. IJsselland Hospital is a small regional hospital located in a small town neighboring Rotterdam to the west. The two hospitals have been in discussions regarding a merger for five years but have now decided to stop the process. Officially, the reason is the length of the process and changed strategies. However, the Dutch Competition and Market Authority (ACM) have been negative about the merger claiming that the merger would have negative effects on “price, quality and innovation” and that the merged entity would have too strong a negotiation position versus the insurance companies.
As stated in earlier updates, it seems that the ACM is taking a much more forceful role in regulating the Dutch healthcare sector. Will this continue?
Dutch healthcare sector has insufficient funding for required investments
A recent analysis by Deloitte highlights how the EBITDAR margin (EBITDA + rental costs in order not to differentiate between companies that rent assets and those that purchase assets) has steadily decreased by 0.5% per year for the healthcare sector over the last five years. If this trend continues (due to increasing personnel-related costs, etc.) then the healthcare sector will only have €1.5 billion per year available for investments while annual investment requirements are expected to be €6 billion per year. According to Deloitte there will be four major requirements for investments in the next few years:
- Investments related to sustainability
- Investments in new IT-technology
- Replacement investment for old assets
- Investments in new capacity (especially more nursing homes)
To enable the financing of these investments (with own money, loans, of rental-constructions) will require an EBITDAR of at least 10.7%. Deloitte believes that this can be achieved through a mixture of internal activities (lower staff costs through reduced use of external staffing and improved efficiency of own staff, and lower maintenance costs and increased cooperation between key parties such as operators, insurance companies and the government. The cooperation envisaged by Deloitte would require sharing of costs and benefits across these parties as costs and benefits do not always accrue at the same location.
This analysis is worrying. There is certainly enough capital available to fund required investments in the Dutch healthcare system, but external investors (for example real-estate investors) clearly need to believe that the sector as a whole and the individual operators will remain economically viable. This will probably require more direct intervention from the government to ensure that tariffs are sufficiently high.