Update 4 June 2019

Welcome to the newest update on private healthcare in the Netherlands. In this newsletter we cover the following news and issues:

  • Payment model for psychiatric care definitely to be changed. Will this make the sector more attractive?
  • Minister of Health wants to reorganize the provision of district nursing. Good news or bad news?
  • ING report highlights attractiveness of Dutch elderly care sector. Is it time to enter the market?
  • Financial health of large incumbent providers of psychiatric care is weaker than generally reported. What will happen in the sector going forward?

Payment model for psychiatric care definitely to be changed

In the update of 12 September 2017 we talked about the decision to move the financing of cure-related psychiatric activities away from the system used by hospitals (DBCs – Diagnostic Treatment Combinations which is a one-off payment that covers all activities related to diagnosing and treating a given affliction in a given year) to a system more focused on the specific needs of the patient. Initial thoughts were that the new system would be based on the English Mental Healthcare Clusters Model.

The NZa (the Dutch Healthcare Authority) has now decided to definitely impose a new financing form for cure-related psychiatric activities. However, the new system will not be based on the English model but will be a system where psychiatric care providers are paid for specific activities that they carry out for individual clients. The new system will have several advantages:

  • Better patient care as it will be based on the real needs of the patient instead of being determined by a rigid link between diagnostics based on DSM-V and the current system of DBCs
  • An improved link between activities carried out and payments made
  • Less administration and quicker understanding of costs made in the system

The details of the new system still need to be worked out, but both insurance companies and providers are positive. The changed financing should make the sector more attractive to international entrants as it will make the financial situation of the operators more transparent, and will probably improve cash flow.

Minister of Health wants to reorganize the provision of district nursing

Hugo de Jonge, the Dutch Minister of Health feels that district nursing is currently organized in a very inefficient manner because there are too many suppliers providing care in a given geographical area. He believes that this leads to inefficiencies in driving time between clients, non-optimal use of scarce nurses and less time available for the clients. He believes that this situation is the result of the current liberalized market for home nursing that has resulted in a “wild growth” of small providers.

His suggested solution is to move to a system where each neighborhood has one team providing home nursing and stricter rules for allowing new entrants into the market. Reactions from the field are mixed. Actiz, the trade association of the incumbent healthcare organizations, is mildly positive, but also believe that the freedom of choice for the clients is important. Jos de Blok, the owner/director of Buurtzorg (see update 23 June 2017) is very against the suggested new system. He claims that in most neighborhoods the biggest providers already cooperate, and that the new system will lead higher costs and lower quality services for the clients. He uses examples from the neighborhood teams responsible for social services and youth care and claims that these have led to 15% higher costs and less time for client-related care.

The suggested changes are bad news to clients as it will mean less choice but probably good news for well-established organizations with strong positions in local geographic markets. The change is less positive for innovative new players who want to offer focused services to specific segments in the market.

ING report highlights attractiveness of Dutch elderly care sector

In a recent report the ING Economics Department has compared the demand for elderly care and housing in eleven EU countries. The analysis is based on a combination of demographic data and consumer market research. The eleven countries have been ranked on demographic potential, income potential, wealth potential, care and home support potential, and senior housing potential.

The Netherlands comes out as the most attractive market for elderly care based on the results in the five individual categories. The only category where the Netherlands does not score well is in demographic potential due to the relatively small size of the country. The Netherlands is number one in the categories senior housing potential and wealth.

Senior housing potential is based on the share of the elderly population living in different types of elderly-specific housing, and the willingness to pay for higher quality. Wealth is bases on estimated median net wealth per 75+ person. In this category the Netherlands scores slightly higher than Belgium and France, but much higher than the UK, Spain, and Italy. The elderly population in the Netherlands also scores relatively high on income potential, behind Austria and France but well ahead of Germany and the UK.

This study does not look at the financing of elderly care, which is also very favorable in the Netherlands, but does provide a good explanation for why Korian and Orpea have both decided to enter the Dutch market. Who will the next international company to enter the Dutch market?


Financial health of large incumbent providers of psychiatric care is weaker than generally reported

In a recent report (in Dutch) Gupta Strategists have looked at the financial results of the psychiatric care sector. While the overall picture of the sector is positive with most operators showing positive results and strengthened balance sheets, a closer analysis shows that for many of the large and integrated providers this is due to one-off effects from sales of real estate.

The solvency (equity as a percentage of total assets) for the sector has improved from 21% in 2011 to 29% in 2017. The profitability of different types of organizations in the sector is very varied. Smaller organizations offering ambulatory services had a profit margin of 6.1% in 2017, while organizations offering youth care only had a profit margin of 0.2%. The large integrated organizations had an average profit margin of only 1.1% but have still improved their solvability over the last few years.

The analysis carried out by Gupta Strategists shows that 80% of the improved solvability of the large incumbent operators comes from one-off effects related to the sale of real estate, and only 20% from operational profits. The large sell-off of real estate by the large incumbent operators is the result of the overall policy to reduce long-term psychiatric care beds by one third, which has freed up a large amount of real estate. However, there is a structural problem in the sector that needs to be addressed, because once the real estate is sold off several the large-scale incumbent operators will face financial problems.

It is interesting to see the big difference in profitability between the smaller focused operators and the large incumbent players and it will be interesting to see how overall market shares change and whether the large operators are able to structurally improve their profitability. Many of these organizations are probably “too big to fail”, but they might be forced to restructure certain parts of their operations.