Nov29

Update 29 November 2022

I hope that you are well and getting used to the darker and colder days of winter. In this update on the Dutch healthcare sector we cover:

New payment model for psychiatric care leads to problems for the large, traditional operators. What about the commercial operators?
Housing associations prepared to play a role in developing senior living but await actions from other organizations. How can impasse be broken?
In our snapshot we give an overview of Viroclinics DDL, a Dutch diagnostics company

New payment methodology for psychiatric care leads to problems for traditional operators

In the update of 20 April 2021 we describe the new methodology for financing psychiatric care that was implemented on 1 January 2022. The new unified methodology had a wide range of advantages in comparison to the old mixture of different financing forms. Key expected improvements included faster payments from the healthcare insurance companies and a rebalancing of tariffs to increase the payments and margins for dealing with high-complexity psychiatric care.

Everything is not going according to plan. In a recent letter to the Minister 24 large non-profit mental healthcare providers complain that the new methodology has been implemented too quickly and has a wide range of issues:

Software providers have not had enough time to update invoicing systems. Consequently the twenty-four organizations have not been able to invoice the healthcare insurance companies for their activities in 2022. Follow-on problems from this are that the insurance companies have not been able to invoice own-risk charges to the patients and that total spend on mental healthcare in the Netherlands for 2022 is a “black box”
The tariffs, especially those for dealing with complex patients, are still too low in the new system
The new payment system does not support moving care to a home setting as tariffs for a clinical setting are higher
The new methodology can give providers large fluctuations in revenues (up to 7.3%). Given typical margins of 1% of revenues this can lead to large losses and problems with the banks providing debt financing
The organizations have received a “transition payment” but the methodology used for calculating these and the level of these payments have been set by the individual healthcare insurance companies. In some cases these have been (more than) adequate and in other cases too low

The NZA (Dutch Healthcare Authorities) have started a project to analyze the issues related to the new methodology and the healthcare insurance companies have promised that they will ensure that no operator goes bankrupt due to implementation issues related to the new methodology.

It is interesting to see that the commercial providers of mental healthcare (Mentaal Beter, Dr. Bosman) do not appear to have any major issues with the implementation of the new financing methodology. These companies tend to focus on the ambulant treatment of low-complexity care for which the payments were reduced in the new system, but do not appear to be suffering. In addition, it appears that they have been able to implement invoicing of the relevant charges from the new methodology. Maybe these companies are more flexible than the larger traditional non-profit companies.

Housing associations prepared to play a role in developing senior living, but……..

The Netherlands has the largest share of social rental homes in Europe. In the Dutch market 37% of all homes are rented under a system of regulated low prices based on a point system where the max rental fee is based on several attributes of the apartment. Most of the social rental properties are owned by housing associations (woningbouw corporaties). These are (as is the case with most of the Dutch healthcare organizations) non-profit foundations.

Traditionally, housing associations have often been the owners of nursing homes, but they have been withdrawing from this activity in recent years. The need for senior living is strong and will grow dramatically in the coming years in the Dutch market due to demographics and government programs such as IZA and WOZO. With such a large share of the overall housing stock the housing associations will need to play a significant role in the development of senior living (with a focus on the lower end of the market). An example of this is Buurtzorg that is developing a new senior living concept in cooperation with local housing associations.

A recent poll by Finance Ideas among housing associations highlight the willingness of these organizations to develop senior living solutions but also highlights challenges:

Eighty percent of the housing associations see senior living as a key part of their portfolio. In line with current trends they prefer senior living rather than nursing homes as nursing homes have less opportunities for alternative uses
Financing is viewed as a challenge as they believe that building appropriate senior living housing is more expensive than developing standard homes/ apartments and that these extra costs are currently not being financed
The housing associations expect a more pro-active role from municipalities and healthcare providers in developing senior living locations and services

It is good news that the housing associations see a role for themselves in developing senior living solutions. However, the poll highlights the challenges for developing senior living solutions in the Netherlands. Successfully developing senior living locations will require pro-active and ongoing cooperation between distinct types of organizations (real estate developers including both housing associations and commercial parties, elderly care providers, municipalities, and other types of service providers) but often the individual parties all expect the other parties to take the initial initiative and solve all the problems and challenges before proceeding.

It is also surprising that the housing associations feel that financing is a problem. Several developers / builders claim that senior living does not have to be substantially more expensive than standard homes. In addition, apartments / homes that are developed in such a manner that they are elderly-proof and ready for providing healthcare services get 30% extra “points” for setting the maximum rental fees for the individual apartment.

Snapshot of a private Dutch healthcare operator: Viroclinics DDL

Viroclinics DDL is a Dutch diagnostics company providing a broad range of services to the biopharmaceutical sector including diagnostics, pre-clinical and clinical drug testing, and expert advice on the development of antivirals and vaccines. The company employs approximately 250 scientists, researchers, and support staff.

The company is an interesting example of how biomedical companies are started and evolve and of the ongoing consolidation of the sector. Viroclinics DDL started out as two separate companies with roots as departments in hospitals. Viroclinics was started in 2001 within the Erasmus Medical Center in Rotterdam. DDL has its roots in the department of molecular biology in the Reinier de Graaf hospital in Delft. In 1999 DDL (Delft Diagnostic Laboratory) became a separate legal entity and in 2003 became an independent company through a MBO and the participation of a Dutch investment company (Plain Vanilla).

Viroclinics grew rapidly (especially after 2011) and was acquired by Summit Partners in 2020 with the stated goal of helping the company grow its business. The first step in this process was the acquisition of DDL, forming the current company Virologic DDL. The investment by Summit Partners has been short, as Virologic DDL was sold to Cerba Healthcare in 2021/22. Cerba Healthcare is a large (15.000 employees and more than 1.100 laboratories) global player within diagnostics and CRO. Cerba is (part) owned by EQT and PSP (a Canadian pension investment manager)