Update 20 October 2020

Here in the Netherlands we are now in a “lock-down” similar to the one we had before the summer. Not as strict as in many other countries, but restaurants and cafes are closed and there are restrictions on the size of groups for events. Hospitals are starting to fill up again, so, hopefully, the restrictions will help. Even with corona dominating the headlines there is still other news regarding the Dutch healthcare sector. For this update we cover:

• Investors found for Sanquin Plasma Products. How will the governance work?
• Insurance companies suggest steps to build 25.000 nursing home beds by 2025. Good news for the sector?
• Large traditional healthcare organization to be split up. Who will be next?
• Insurance companies will continue to support healthcare sector in 2021. Who else will step up?

Investors found for Sanquin Plasma Products

Sanquin is the Dutch non-profit organization responsible for a safe and efficient blood supply in the Netherlands. Sanquin was established in 1998 through a merger between the Dutch blood banks and the central laboratory of the Netherlands Red Cross Transfusion Service. In addition to being responsible for country-wide blood supply the organization conducts scientific research, develops, and performs a multitude of diagnostic services, and develops and produces pharmaceutical products (based on plasma).

The development and production of pharmaceutical products is carried out in a subsidiary company (Sanquin Plasma Products – SPP). In 2018 SPP had revenues of €283 million and a net profit of €34 million (up from €4 million in the previous year). The company has had a wide range of challenges (reduced sales to a key customer, high costs requiring extensive cost cutting, large capex requirements, etc.) and has been on the market for a new investor since early 2018.

Last week it was announced that a consortium of investors including private equity (Epstein Capital and Fortissimo Capital – both from Israel) and three international companies involved in the production and /or distribution of plasma products will invest in the company. No details have been given regarding the size of the investment or the ownership shares. Sanquin will remain a part-owner and will also have a “golden share” to ensure that key infrastructure remains in the Netherlands.

Hopefully, the investments, knowledge and experience provided by the new owners will help SPP move forward. However, the number of owners all with different backgrounds and interests sounds like a governance nightmare.

Insurance companies suggest steps to build 25.000 new nursing home beds by 2025

In the Netherlands long-term care (including nursing home care) is financed by the central government but is purchased by regional care offices that are subsidiaries of the healthcare insurance companies. The care offices have a responsibility for ensuring that sufficient long-term care is available for the inhabitants of its region but do not have the ability to provide this care. The long-term care itself is provided by independent operators and the care offices purchase services from these operators.

The care offices / healthcare insurance companies see the exploding need for more nursing homes capacity (see the update of 1 September for expected growth and key issues) and strongly believe that 25.000 new nursing home beds must be built by 2025 and between 75.000 to 125.000 new beds by 2040. In a recent letter to the Dutch Parliament the umbrella organization for the Dutch healthcare insurance companies (ZN) make several suggestions regarding how these targets can be reached. Key recommendations include:

• A financing framework from the government that guarantees financing of nursing homes that follows the expected demographic development of clients requiring this type of care
• The development of relevant instruments to help in the financing of new capacity. An example is a new national fund focused on financing new nursing homes
• Increased government pressure on municipalities to free up physical locations for new nursing homes (including the possibility of compensating municipalities for selling locations for less than market prices)

It is a very good sign that the healthcare insurance companies are taking the need for more nursing home capacity seriously as they play a key role in shaping government policy. Commercial parties (operators and real estate investors) are not specifically mentioned in the letter except for a promise to control the quality of new entrants. However, this must be seen as good news for commercial players in the sector.

Large traditional healthcare operator to be split up

Lentis is one of the larger Dutch traditional healthcare operators with 2019 revenues of €300 million. As many of the larger Dutch healthcare organizations it is a conglomerate providing elderly care (Dignis), general mental healthcare (Lentis GGZ) and forensic psychiatric care.

Lentis recently announced that the organization will be split into three separate operators. The goal is to create three organizations that are specialists in their specific area of expertise, with their own focused culture and with the ability to make quick decisions. Two joint ventures will be set up to deal with complicated clients requiring combined care (nursing home clients with severe mental healthcare issues). The banks agree with the split-up but have demanded that each new entity has a strong balance sheet. Insurance companies are not expected to have any issues with the three new entities.

There seems to be a new trend in the Dutch healthcare sector towards simplification and focus. Previous examples include Middin, Careyn disposing of businesses and several hospital mergers that have recently been stopped. This is good news. As other industries have discovered, complexity is a key cost driver and simplicity increases focus and quality. A process of portfolio rationalization can also provide opportunities for international investors as new owners are required for divested business areas. Who will be the next organization to carry out a strategic portfolio review?

Healthcare insurance companies to continue support of sector in 2021

In a recent announcement ZN (the umbrella organization for the Dutch healthcare insurance companies) announced that it will provide a “safety net” in 2021 for operators with financial issues caused by COVID-19. As part of this process the insurance companies want to start the negotiations for next year asap. In these negotiations the insurance companies will insist that operators agree to make considerable progress in using eHealth and other transformative technologies. ZN also warns that the costs of COVID-19 related support cannot only be financed by increased insurance premiums.

Given the upswing in corona cases in the last few weeks, nervousness regarding how this will develop over the winter and uncertainty regarding when a vaccine will be available this is certainly good news for the sector. It will be interesting to see how other parties such as banks and the ministry of health react.