Update 26 September 2023
September is the month when everybody is back at school or back to work, and is the time when meetings that were not possible to plan before the summer can take place, and when there is energy to start up new projects. This also means that there is plenty of news to report, and in this update we cover the following news from the Dutch healthcare sector:
- Bergman Clinics refuses patients from two healthcare insurance companies. Is this the same situation as last year?
- Orpea sells real estate in the Netherlands. What is the story?
- Elderly care providers are being helped financially. Will there be further action?
- Buurtzorg makes a loss in 2022. What are the key reasons?
I was also last week honored to be interviewed by Het Financiele Dagblad (the leading Dutch financial newspaper) about cost management in the healthcare sector. If you are interested and can read Dutch you can find the article here.
Bergman Clinics refuses patients from two insurance companies
In earlier updates we have written about the complex contracting process between the healthcare insurance companies and Dutch healthcare operators. We have also written about how the typical contracts have revenue ceilings and how this leads to operators choosing to refuse patients from certain insurance companies towards the end of the year.
We are now at that time of the year again. Recently Bergman Clinics announced that patients insured with Menzis (one of the largest healthcare insurance companies) and ENO (a small regional healthcare insurance company) will have to wait until January to start new procedures. The cause for refusing the new patients is that Bergman Clinics has reached the revenue ceiling in its contracts with these insurance companies, and they have refused to increase the ceilings. The consequence of providing services to these patients would be that Bergman Clinics most probably would not get paid.
As all contracts typically have a revenue ceiling it is very likely that more operators across different types of healthcare will reach their revenue ceiling. Given pressure on the healthcare insurance companies to control costs it is unlikely that they will be willing to extend the agreed ceilings. We can therefore expect more of these decisions to be made public, and more patients having to wait a few months before they can be treated.
Orpea sells real estate in the Netherlands
A few weeks back Orpea announced that they were “selling” twenty-two residential care facilities in the Netherlands to Amvest Living & Care for a total amount of €85 million. At first reading this sounds like a straight-forward deal that fits well with the overall restructuring process being carried out by Orpea. However, the story is a bit more interesting. All the locations that are part of the deal are for Dagelijks Leven. Dagelijks Leven (Daily Life) was started in 2014 by three entrepreneurs. The initial growth of Dagelijks Leven was financed by NPM and all the real estate of the company was financed by Amvest.
In 2018 Dagelijks Leven was Orpea’s first elderly care acquisition in the Netherlands. At that time the chain had twenty-nine locations. Since then, Dagelijks Leven has been the main growth engine for Orpea’s development in the Dutch market. Dagelijks Leven currently has approximately one hundred operational locations and almost two thousand apartments. This is two thirds of Orpea’s elderly care operations in the Netherlands. Amvest has continued its strong relationship with Dagelijks Leven, and is already the owner of all its real estate.
The recently announced “deal” between Orpea and Amvest is therefore just a continuation of an existing relationship between the two companies. This is also clear when we look at the specifics of the deal. The assets in question are not existing assets but rather new assets in the development pipeline of Dagelijks Leven that will be constructed in 2023, 2024 and 2025. It appears that the “deal” is a bit of window-dressing.
Elderly care providers are being helped financially
In the previous update we wrote about the fundamental financial challenges that Dutch healthcare operators are facing. Recently, two steps have been taken that will help the operators (at least in the short term). As mentioned earlier, the Dutch government has fallen and there will be new elections in November. Due to the interim role of the fallen government it is limited in the decisions it can take. If Parliament claims that a certain decision is “controversial” it needs to be delayed until after the elections. Parliament has decided that the budget reduction that the government had announced for the elderly care sector is controversial. In response to this, the government has decided to postpone €224 million in announced savings for the sector.
In the Dutch financing system for elderly care the overall maximum tariffs for the provision of care to specific types of clients is determined by the NZA (Dutch Healthcare Authority). However, the Dutch healthcare insurance companies never pay a provider the maximum tariff. Instead they decide on a “guideline percentage” which is the starting point for the tariffs paid to the operators. The actual percentage paid of the maximum tariff to an individual operator can be increased or decreased based on specific agreements on quality, etc. As part of the program to reduce elderly care costs the insurance companies had decided to lower the “guideline percentage” to 95.5%. Last week, the healthcare insurance companies announced that after an analysis of the 2022 annual reports of elderly care operators they have decided to increase the “guideline percentage” to 96.4%.
These two steps will certainly help the elderly care operators deal with their short-term financial issues, but longer term the combination of more demand and tighter financing will certainly force the sector to restructure.
Buurtzorg makes a loss in 2022
Buurtzorg is one of the most interesting companies active in the Dutch healthcare sector. It is very successful in providing (medicalized) homecare with high quality and low overhead costs. It is successful in expanding into new business areas, including mental healthcare, nursing home care and primary care. The CEO of Buurtzorg, Jos de Blok, is also a colorful character who is not afraid to speak up when he does not agree with suggested changes. Buurtzorg is organized as a non-profit foundation, but operates very much as an innovative commercial company. Buurtzorg has typically also been profitable (almost €3 million net profits in 2021) but made a large loss of €7 million in 2022.
According to Jos de Blok, the loss is due to high health-related absenteeism and high staff-related costs. Before Covid-19 the typical health-related absenteeism percentage at Buurtzorg was 4-5%, but this has increased to 9.7% in 2022. Buurtzorg is working pro-actively to reduce health-related absenteeism and it is now at a level of 5-6%. The company has a goal of reducing this to 3% and believes that this is attainable.
The other major reason for the loss in 2022 is increased staffing costs. This is mainly due to Buurtzorg unilaterally increasing salaries for its staff before the overall increases agreed in the national collective employment agreements (CAO). Jos de Blok claims that this was done to show appreciation for the work that the staff were doing and to help them deal with the effects of inflation. The move was criticized by other operators as it meant that staff were leaving other organizations to join Buurtzorg. It will be interesting to see how Buurtzorg deals with the challenges that operators are facing, how the new ventures will develop, and which new ideas will be developed by Jos de Blok and his team.