Update 3 December 2024
In a few days, the Dutch will be celebrating Sinterklaas. As you can guess from the name there is a link to Santa Claus (explained in this Wikipedia article). The Dutch celebration is before Christmas, but also involves exchange of gifts. In the last few years Sinterklaas has become politically sensitive due to his helpers who were traditionally portrayed in blackface. Even though the country is entering a festive mode, there is still news to report from the Dutch healthcare sector. This update covers the following news items:
- Large real estate investment in senior living concept. What are the details?
- New competitor to ZorgDomein. What are the chances that they will be successful?
- Disabled care providers forced to postpone investments. What are the reasons?
Achmea Real Estate invests €100 million in Buurtwonen
Buurtzorg is one of the leading Dutch providers of medicalized home care services. The company is well known for its low overhead and independent local teams. In the last few years, various sister companies to Buurtzorg have emerged. Examples are mental healthcare with BuurtzorgT, primary care with Buurtdocters, and elderly care with the development of small-scale locations focusing on the needs of the elderly. The company that is provide the elderly care services has now been structured as a joint venture between Buurtzorg and Hestia Living (a real estate developer) and is called Buurtwonen (neighborhood living).
Recently it was announced that Achmea Real Estate will invest €100 million in the real estate of the new company. The first location is expected to open within six months and within five years a total of 20-25 locations should be developed. Each location will have 15-25 rental apartments. Clients will not need an indication for long-term care to be eligible for renting an apartment, as the idea is to create a “community” with a mixture of people requiring more and less care. Care at each location will be provided by a local Buurtzorg team, who will also have the responsibility for selecting candidates for the location.
The Dutch government is not planning to increase the capacity for intramural nursing home care, and wants to control costs by keeping the elderly for as long as possible “at home”: While senior living is common in other countries such as France and England, this category is currently not well developed in the Dutch market and offers opportunities for international operators and real estate investors.
New competitor for ZorgDomein
A few weeks back we wrote about ZorgDomein, the very important role its plays in communication between Dutch healthcare providers and some of the recent technical issues it has been facing. Due to the multi-day outages of the ZorgDomein communication network, discussions have been raised regarding a possible nationalization or the development of an alternative provider.
Vecozo was established in 2002 by a consortium of leading Dutch healthcare insurance companies with the goal of simplifying and digitizing communication between healthcare providers and the healthcare insurance companies. Currently 45.000 healthcare providers, all the insurance companies, and all the municipalities are connected to the system. Last year the system was used for more than three billion messages. Vecozo has slightly less than 300 employees.
While the current focus is messaging between healthcare providers and payers, Vecozo recently announced that they will be providing a national service to provide messaging between healthcare providers themselves. Vecozo says that the tariffs will be “socially responsible” and will be difficult to compete with. It will be interesting to see how successful Vecozo is and what will happen to the market position and profits of ZorgDomein.
Disabled care providers forced to postpone investments
A recent report from Finance Ideas highlights the precarious financial situation for the Dutch disabled care sector. The analysis covers the historical financial data for the period 2014 to 2023 for 127 Dutch disabled care providers. Since 2014 the EBITDAR margin (EBITDA but also including rental costs to reduce the effect of choices related to owning or renting real estate) has fallen from 14.9% to 9.1%. The main reasons for this dramatic reduction are lower tariffs due to cost reductions imposed by the government and increasing costs. The largest cost factor in providing disabled care is staff-related costs (typically 70% of total costs), and these have grown due to a strong increase in sick leave (from 5.1% of staff in 2014 to 8.1% in 2023) and a large increase in the use of temporary staff (from 4.2% of revenues in 2018 to 9.0% in 2023). The explosion in the use of temporary staff can partly be explained by the increase in sick leave, but also reflects difficulties in finding and keeping staff. It is interesting to see that the larger organizations (revenues higher than €150 million) have both higher sick-leave percentages and larger costs related to temporary staff.
A key point made by the report is that it is already possible to see the effects of low profitability on the levels of investments by the disabled care sector. The sector is facing high investments in the next few years in order to renovate real estate, develop new IT systems, etc. If these investments are not conducted, the organizations run the risk of entering into a spiral where delayed investments lead to lower quality of services and even higher costs, further reducing the ability to carry out the required investments.
It is definitely a responsibility of the government to provide the sector with realistic tariffs. However, the report also highlights significant differences between better performing organizations and laggards in financial performance. This points to a responsibility for management to improve their own operational processes and cost structure. It is interesting to see that these findings are similar to those from our own analysis of large operators in the elderly care sector (in Dutch).