Update 28 September 2017

Welcome to the newest update on private healthcare in the Netherlands. In the last few weeks there have been several interesting things happening in the Dutch market. In this newsletter we cover the following news and issues:

• Merger of two chains creates largest provider of elective surgery in the Netherlands. Is this the starting point for more mergers in the sector?
• In announcing the 2018 budgets the caretaker government has promised significant and structural increases in payments to elderly care sector. Will this help improve both quality and profitability in the sector?
• Profitability and investments in hospital sector at new low. How can Dutch hospitals become more profitable?
• In our snapshot we give an overview of Stepping Stones, an organization that operates a chain of elderly care locations throughout the Netherlands.

Merger in the Dutch elective surgery sector

A few days ago, Bergman Clinics (described in a snapshot before the summer) and NL Clinics announced a merger. The merged company will have 43 clinics and 1.500 staff, and will be the largest provider of elective treatments covered by Dutch healthcare insurance. The merged company will have approximately €220 million in sales in 2017.

The main drivers for the merger are achieving economies of scale, advantages in purchasing, and lower overhead costs. The new company also wants to have a leading role in establishing improved registration of quality and outcomes across the sector.

The merged company will have a new name, but the name still needs to be decided. The two current CEOs will step down to make room for a new CEO. The new company will be owned 60% by the Malenstein family (current owners of Bergman) and 40% by NPM Capital (current owner of NL Clinics). Both shareholders claim to be in the business for the long run and have no plans to sell.

Will the merged company grow further by acquiring existing independent clinics or will other groups be formed by mergers or buy-and-build strategies?

More money for the elderly care sector

Last week the caretaker Dutch government presented the 2018 budgets. As part of the presentation, the Dutch elderly care sector has been promised a structural increase of €2.1 billion per year in additional funds. The funding should enable the sector to improve quality by hiring additional staff to provide more time and attention for individual clients. The new staffing rules will entail up 125.000 new staff in the sector. The government will provide €350 million in the period 2017-22 to help the sector find and train new employees.

The new staffing rules will increase costs for all elderly care operators. Hopefully, the increased financing will also enable the sector to become profitable again (see update 27 July 2017). The new funding should also make the sector more attractive for foreign operators used to working with tighter budgets.

Profitability and investments in the hospital sector at a new low

In previous updates we have presented the results of the analysis carried out by Verstegen Accountants on the annual reports of Dutch organizations in the elderly care sector, the psychiatric care sector, and the disabled-care sector. Continuing the rather sad story of the profitability of the Dutch healthcare sector, last week the Dutch Association of Hospitals (NVZ) presented the 2016 results for the hospital sector.

Revenues for the sector grew by €371 million to €17.5 billion. Unfortunately, costs increased faster than revenues, and net profits declined from €253 million to €220 million. This is the lowest level of profits in the last seven years and is a Return on Sales of 1.3%, much lower than the 2.5% that the Association views as necessary for a healthy sector.

As in the other parts of the healthcare sector, investments in the hospital sector have been in steep decline. Investments in the sector have declined by 30% since 2010 and are now at €1.4 billion. The Association sees the need for large investments in IT and innovative home-based solutions, and is worried that these investments cannot be financed with the current levels of profitability.

When will the first foreign hospital operator enter the market, provide the required financing and help hospitals become more profitable through strategic focus and increased efficiency?

Snapshot of a Dutch private sector healthcare operator: Stepping Stones

Stepping Stones was established in 2007 by two private sector entrepreneurs who believed that elderly care could be provided in a pleasant, small-scale location. In 2010 Gilde Healthcare (a Dutch investment company focusing on the healthcare sector) made a €5 million investment in the company. Stepping Stones currently has 11 locations with a total of 239 apartments.

The focus of Stepping Stones is dementia care, but there does not seem to be any requirements for clients to have an indication for long-term care (which can provide another €50.000 per year in revenues per client). The all-in prices for accommodations and services vary between €1.550 - €3.550 per month. All locations have a so-called “budget” apartment to enable a limited number of elderly on a lower budget to also use the services.