Update 22 September 2020
Here in the Netherlands we are enjoying an Indian Summer. Wonderful sunny days, but with a fresh feel. Quite nice after a long hot summer. For this update we cover:
- Bergman (finally) makes acquisition in Germany. Will the sales process also start up again?
- Specialized home nursing operators does not accept new clients from a major insurance company. Why is this happening?
- Different views regarding how banks see Dutch healthcare providers post-corona. Who is right?
- In our snapshot we give an overview of ExperTcare, a provider of specialized homecare for children and adults
Bergman makes acquisition in Germany
Earlier this year there were speculations that the sale of Bergman Clinics was delayed due to an ongoing acquisition process in Germany that the sellers wanted to have included in the valuation. Shortly afterward corona hit, and everything was put on hold. Recently, it was finally announced that Bergman is acquiring six locations from Capio in Germany. Two of the locations are regional hospitals and the other four are clinics specializing in vascular surgery and eye care.
This is certainly a big step in the transformation of Bergman from a Dutch to a European player. Bergman now has a strong position in northwestern Europe, with a presence in the Netherlands, Scandinavia (Memira) and Germany. There is little doubt that Bergman is very good at managing specialized clinics. However, managing regional hospitals will be a new skill set that they will need to learn quickly. It ill be interesting to see how the regional hospitals are included in a future valuation of the company.
Clients of major healthcare insurance company no longer welcome at specialized homecare operator
In a recent press release ExperTcare (see snapshot) announced that it will no longer accept patients with an insurance from VGZ (one of the four large Dutch insurance companies). ExperTcare claims that due to COVID-19 the number of clients requiring home care has grown. In addition, tariffs for patients receiving immunotherapies has been reduced. ExperTcare claims to have discussed these issues with VGZ, but without any movement from the insurance company. VGZ confirms this, they claim that their contract with ExperTcare stipulated that they should not grow in 2020, and that VGZ does not recognize the issues raised. VGZ will help patients with a VGZ insurance find alternative care.
This is quite early, but in the coming months we can expect more of this type of announcements. Most payments for healthcare in the Netherlands go through specialized healthcare insurance companies. Every year healthcare operators sign contracts with each insurance companies. These contracts typically have an overall limit to the costs that the operator can charge the insurance company. During the last few years insurance companies have become less lenient in paying invoices when the operator has reached its ceilings. In some case insurance companies have also reclaimed payments made in earlier years. As operators, including major hospitals, are becoming less willing (and able) to take the losses associated with providing services without reimbursed they put in place “patient-stops” for patients from insurance companies where there is a threat of an overrun.
This is an issue that needs to be understood when evaluating potential acquisition in the Dutch market. There have been cases of almost-bankruptcies due to insufficient management controls on total amounts invoiced to individual insurance companies and municipalities who claim paid amounts back.
Alternative views on the financial health of the healthcare sector
EY have recently published a broad analysis of 2019 annual reports of 453 healthcare organizations with annual revenues of more than €5 million. The 453 organizations represent approximately 85% of the total turnover of the sector. EY is worried by the financial health of the sector as average returns are down from 1.73% in 2017, 1.55% in 2018, to 1.46% in 2019. Consequently, EY believes that many healthcare organizations started 2020 with insufficient buffers to withstand the financial consequences of the corona-crisis. Based on assumptions related to the revenue and cost effects of corona EY believes that many healthcare organizations will be in transgression of agreements with banks related to EBITDA-ratios and balance sheet structure in 2021.
Banks themselves have a different view. In a response to the EY report from the Dutch Banking Association it is claimed that the banks do not have any major worries about the financial health of the Dutch healthcare sector. They believe that organizations will only have minor negative effects of corona in 2020 due to the “continuation payments” put in place by insurance companies and banks at the beginning of the crisis. The banking association does recognize issues related to the low returns in the sector and believe that this will have consequences for long-term investments. The specific example given by the banking association is investments in digital and eHealth solutions.
As discussed earlier the Dutch healthcare sector faces major investments, especially in the new nursing homes. It is good news that banks are not too worried about the short-term financial effects of COVID-19, but it is clear that the overall profitability of the sector needs to be improved. “Non-profit” cannot mean “no-profit” if the sector is to be able to make the required investments in new technologies and real estate. In addition to structural changes such as multi-year contracts with insurance companies and realistic tariffs for key services individual operators must carefully make strategic portfolio choices (focusing on services / clients / regions where the operator has a strong position and that are profitable) and increase overall efficiency.
Snapshot of a Dutch private healthcare operator: ExperTcare
ExperTcare was started in 2000 by Magalie Mulder who believed that many activities carried out in hospitals could be moved to patients’ homes. Original focus was specialized care for adults but in 2016 the company acquired three locations specializing in intensive nursing for children (including palliative care) from the Red Cross. Currently ExperTcare provides specialized home care (children and adults) and four physical locations providing specialized care for children.
2019 revenues for the group were €14.4 million and the group made a break-even result. The group has a total of 192 FTE employees. Ms. Mulder is also the owner of Nurse & Care a provider of staffing solutions for the healthcare sector). Nurse & Care provided €2 million of services to ExperTcare in 2019.